Highwater Ethanol (HEOL) outlines 70M-gallon plant, tax credit upside
Filing Impact
Filing Sentiment
Form Type
10-K
Rhea-AI Filing Summary
Highwater Ethanol, LLC operates a dry-mill ethanol plant near Lamberton, Minnesota, designed for 50 million gallons per year and running at an annual rate of approximately 70.2 million gallons as of October 31, 2025. The company produces fuel-grade ethanol, distillers grains and corn oil, with ethanol providing 77% of fiscal 2025 revenue, distillers grains 14% and corn oil 9%.
Highwater relies heavily on corn and natural gas, making profitability sensitive to commodity price spreads between inputs and ethanol and co-product prices. Corn prices were higher in the fiscal year ended October 31, 2025, though the USDA estimated a record 2025 U.S. corn crop of approximately 16.8 billion bushels. The company secures natural gas through contracts with Northern Natural Gas, CenterPoint and an energy management agreement with Kinect, and electricity through a long-term agreement with a cooperative.
Marketing of ethanol, dried distillers grains and corn oil is concentrated with RPMG under exclusive agreements, creating significant customer dependence. Highwater recognized $10,400,000 of Section 45Z clean fuel production tax credits as of October 31, 2025, but warns that failure to meet carbon intensity, wage or other requirements, or regulatory changes, could reduce or eliminate these expected benefits. The business faces extensive regulatory, environmental, RFS and LCFS exposure, increasing competition from large ethanol producers and alternative fuels, and broader macro risks such as pandemics, geopolitical shocks and ESG-driven capital constraints. As of October 31, 2025, the company had 43 full-time employees and approximately $20,000,000 available to draw on its Term Revolving Loan for working capital.
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Insights
Highwater is a focused single-plant ethanol producer whose results hinge on corn spreads, RFS policy and monetizing new tax credits.
Highwater Ethanol operates a single dry-mill plant near Lamberton, Minnesota with an annualized rate of approximately 70.2 million gallons as of October 31, 2025. Revenue is concentrated in fuel-grade ethanol, which represented 77% of fiscal 2025 revenue, with distillers grains at 14% and corn oil at 9%. This product mix leaves earnings closely tied to transportation fuel demand and the value of feed co-products.
Input-side exposure is significant. The plant requires roughly 23.5 million bushels of corn per year to support 70.2 million gallons, and management notes that corn prices were higher in the fiscal year ended October 31, 2025. Despite a USDA estimate of a record 2025 U.S. corn crop of about 16.8 billion bushels, the filing emphasizes that weather, global trade and policy can quickly change price dynamics. Natural gas and electricity are sourced under long-dated contracts, which reduce supply risk but maintain volume and minimum-purchase obligations.
A notable development is recognition of $10,400,000 of Section 45Z clean fuel production tax credits as of October 31, 2025. Management explicitly cautions that actual benefit depends on producing low-carbon fuel at required carbon intensities, satisfying prevailing wage rules and navigating evolving guidance under the Inflation Reduction Act and OBBBA. Because Section 45Z cannot be combined with Section 45Q at the same facility, strategic choices around carbon capture and fuel credits will matter over the 2025–2029 eligibility window.
Operationally, Highwater is highly dependent on RPMG for marketing ethanol, dried distillers grains and corn oil, and on RFS and LCFS policy for demand support and pricing. The company also highlights extensive risk factors around small refinery exemptions, trade disputes, LCFS implementation, competition from large producers such as POET, ADM and Valero, and structural threats from electric vehicles and alternative fuels. With approximately $20,000,000 available under a Term Revolving Loan as of October 31, 2025, liquidity support exists, but ongoing performance will be heavily influenced by policy decisions on RVOs, E15 implementation, Section 45Z rules and export-market conditions.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |||||
For the fiscal year ended October 31 , 2025
| OR | |||||
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. | |||||
| For the transition period from to . | |||||
| COMMISSION FILE NUMBER | |||||
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(507 ) 752-6160
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: Membership Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| Large Accelerated Filer | o | Accelerated Filer | ☐ | ||||||||
| x | Smaller Reporting Company | ||||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of April 30, 2025, the aggregate market value of the membership units held by non-affiliates (computed by reference to the most recent offering price of such membership units of $10,000) was $39,950,000 . The Company is a limited liability company whose outstanding common equity is subject to significant restrictions on transfer under its Operating Agreement. No public market for common equity of Highwater Ethanol, LLC is established and it is unlikely in the foreseeable future that a public market for its common equity will develop.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of January 22, 2026, there were 4,752 membership units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report.
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INDEX
| Page Number | |||||
PART I | 4 | ||||
Item 1. Business | 4 | ||||
Item 1A. Risk Factors | 13 | ||||
Item 1C. Cybersecurity | 19 | ||||
Item 2. Properties | 20 | ||||
Item 3. Legal Proceedings | 20 | ||||
Item 4. Mine Safety Disclosures | 20 | ||||
PART II | 20 | ||||
Item 5. Market for Registrant's Common Equity, Related Member Matters and Issuer Purchases of Equity Securities | 20 | ||||
Item 6. Reserved | 22 | ||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 31 | ||||
Item 8. Financial Statements and Supplementary Data | 33 | ||||
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 50 | ||||
Item 9A. Controls and Procedures | 50 | ||||
Item 9B. Other Information | 51 | ||||
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 51 | ||||
PART III | 51 | ||||
Item 10. Directors, Executive Officers and Corporate Governance | 51 | ||||
Item 11. Executive Compensation | 51 | ||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Member Matters | 51 | ||||
Item 13. Certain Relationships and Related Transactions, and Director Independence | 51 | ||||
Item 14. Principal Accounting Fees and Services | 51 | ||||
PARV IV | 52 | ||||
Item 15. Exhibits, Financial Statement Schedules | 52 | ||||
Item 16. Form 10-K Summary | 55 | ||||
SIGNATURES | 56 | ||||
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve future events, our future financial performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings.
| Changes in the availability and price of corn and natural gas; | |||||
| Reduction, delay or elimination of the Renewable Fuel Standard; | |||||
| Our ability to comply with the financial covenants contained in our credit agreements with our lenders; | |||||
| 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; | |||||
| Results of our hedging activities and other risk management strategies; | |||||
| Ethanol and distillers grains supply exceeding demand and corresponding price reductions; | |||||
| Our ability to generate cash flow to invest in our business and service our debt; | |||||
| Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations; | |||||
| Changes in our business strategy, capital improvements or development plans; | |||||
| Changes in plant production capacity or technical difficulties in operating the plant; | |||||
| Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries; | |||||
| Lack of transportation, storage and blending infrastructure preventing ethanol from reaching high demand markets; | |||||
| Changes in federal and/or state laws, policies or programs impacting the ethanol industry; | |||||
| Changes and advances in ethanol production technology and the development of alternative fuels and energy sources and advanced biofuels; | |||||
| Competition from alternative fuel additives; | |||||
| Changes in interest rates and lending conditions; | |||||
| Decreases in the price we receive for our ethanol, distillers grains and corn oil; | |||||
| Volatile financial or commodity markets; | |||||
| Our inability to secure credit or obtain additional equity financing we may require in the future; | |||||
| Our ability to retain key employees and maintain labor relations; | |||||
| Decreases in export demand due to the imposition of tariffs by foreign governments on ethanol and distillers grains produced by the the United States; | |||||
| A slowdown in global and regional economic activity, demand for our products and the potential for labor shortages and shipping disruptions resulting from pandemics including COVID-19; | |||||
| Competition from the increased use of electric vehicles; | |||||
| Use by the EPA of small refinery exemptions; | |||||
| Global economic uncertainty, inflation, market disruptions, and increased volatility in commodity prices caused by the Russian invasion of Ukraine and resulting sanctions by the United States and other countries; and | |||||
| Changes in trade policy, trade actions, international trade disputes, and the institution of tariffs by the United States or foreign governments. | |||||
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 any persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only 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.
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AVAILABLE INFORMATION
Information is also available at our website at www.highwaterethanol.com, under “SEC Compliance”, which includes links to reports we have filed with the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS
Business Development
Highwater Ethanol, LLC (“we,” “our,” “Highwater Ethanol” or the “Company”) was formed as a Minnesota limited liability company on May 2, 2006 for the purpose of constructing, owning, and operating a 50 million gallon per year nameplate ethanol plant near Lamberton, Minnesota. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant. In October 2019, our air permit application to the Minnesota Pollution Control Agency to allow for 70.2 million gallons of denatured ethanol per 12-month rolling average was approved. Our ethanol production levels for the fiscal year ended October 31, 2025 were at an annual rate of approximately 70.2 million gallons.
Financial Information
Please refer to “ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations” for information about our revenue, profit and loss measurements and total assets and liabilities and “ITEM 8 - Financial Statements and Supplementary Data” for our financial statements and supplementary data.
Principal Products
The principal products we currently produce at the ethanol plant are fuel-grade ethanol, distillers grains, and corn oil. The table below shows the approximate percentage of our total revenue which is attributed to each of our products for each of our last three fiscal years.
| Product | Fiscal Year 2025 | Fiscal Year 2024 | Fiscal Year 2023 | |||||||||||||||||
| Ethanol | 77 | % | 74 | % | 74 | % | ||||||||||||||
| Distillers Grains | 14 | % | 18 | % | 18 | % | ||||||||||||||
| Corn Oil | 9 | % | 8 | % | 8 | % | ||||||||||||||
Ethanol
Our primary product is ethanol. Ethanol is ethyl alcohol, a fuel component made primarily from corn and various other grains. The ethanol we produce is manufactured from corn. Although the ethanol industry continues to explore production technologies employing various feedstocks, such as biomass, corn-based production technologies remain the most practical and provide the lowest operating risks. Corn produces large quantities of carbohydrates, which convert into glucose more easily than most other kinds of biomass.
An ethanol plant is essentially a fermentation plant. Ground corn and water are mixed with enzymes and yeast to produce a substance called “beer,” which contains about 10% alcohol and 90% water. The “beer” is boiled to separate the water, resulting in ethyl alcohol, which is then dehydrated to increase the alcohol content. This product is then mixed with a certified denaturant to make the product unfit for human consumption and commercially saleable.
Ethanol can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose of reducing ozone and carbon monoxide emissions; and (iii) a non-petroleum-based gasoline substitute. Approximately 95% of all ethanol is used in its primary form for blending with unleaded gasoline and other fuel products. Used as a fuel oxygenate, ethanol provides a means to control carbon monoxide emissions in large metropolitan areas. The principal purchasers of ethanol are generally the wholesale gasoline marketer or blender.
Distillers Grains
The principal co-product of the ethanol production process is distillers grains, a high protein, high-energy animal feed supplement primarily marketed to the dairy, poultry, swine and beef industries. Dry mill ethanol processing creates three forms
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of distiller grains: Distillers Wet Grains with Solubles (“DWS”), Distillers Modified Wet Grains with Solubles (“DMWS”) and Distillers Dried Grains with Solubles (“DDGS”). DWS is processed corn mash that contains approximately 70% moisture. DWS has a shelf life of approximately three days and can be sold only to farms within the immediate vicinity of an ethanol plant. DMWS is DWS that has been dried to approximately 50% moisture. DMWS has a slightly longer shelf life of approximately ten days and is often sold to nearby markets. DDGS is DWS that has been dried to between 10% and 12% moisture. DDGS has an almost indefinite shelf life and may be sold and shipped to any market regardless of its vicinity to an ethanol plant.
Corn Oil
We separate some of the corn oil contained in our distillers grains for sale. The corn oil that we produce is not food grade corn oil and therefore cannot be used for human consumption. However, corn oil can be used as the feedstock to produce biodiesel, as a feed ingredient and has other industrial uses.
Ethanol, Distillers Grains and Corn Oil Markets
As described below in “Distribution Methods” we market and distribute a majority of our ethanol, distillers grains and corn oil through professional third party marketers. Our ethanol, distillers grains and corn oil marketers make decisions with regard to where our products are marketed.
Our ethanol and distillers grains are primarily sold in the domestic market due to high transportation costs, and the fact that we are not located near a major international shipping port.
Over the past fiscal year, Canada, the Netherlands, the United Kingdom, Columbia and India imported a significant amount of ethanol from the United States. Exports of ethanol for this period have been higher when compared to the same period in 2024. Ethanol export demand is more unpredictable than domestic demand and tends to fluctuate over time as it is subject to monetary and political forces in other nations. Tariffs imposed by Brazil and China on ethanol imported from the United States over the past several years have had a negative effect on export demand from those markets. Trade barriers with key markets may continue to negatively affect export demand and could worsen if the United States were to impose additional tariffs on foreign imports.
Over the past fiscal year, the United States exported a significant amount of distillers grains to Mexico, South Korea, Vietnam and Columbia Exports of distillers grains have decreased compared to the same period in 2024. Historically, the United States ethanol industry exported a significant amount of distillers grains to China. The imposition of anti-dumping and anti-subsidy duties by China over the past several years has resulted in a significant decline in demand from China requiring United States producers to seek out alternative markets.
All of the corn oil we produce is marketed and distributed in the domestic market.
Distribution Methods
Ethanol
We have an exclusive marketing agreement with RPMG, Inc. (“RPMG”) for the purposes of marketing and distributing our ethanol. Because we are an owner of Renewable Products Marketing Group, LLC (“RPMG LLC”), the parent entity of RPMG, our ethanol marketing fees are based on RPMG's cost to market our ethanol. Further, as an owner, we share in the profits and losses generated by RPMG when it markets products for other producers who are not owners of RPMG LLC. Our marketing agreement provides that we can sell our ethanol either through an index arrangement or at an agreed upon fixed price. The term of our marketing agreement is perpetual until terminated according to its terms. The primary reasons for termination would be if we cease to be an owner of RPMG LLC, if there is a breach which is not cured, or if we give advance notice to RPMG that we wish to terminate. Notwithstanding our right to terminate, we may be obligated to continue to market our ethanol through RPMG for a period of time after termination. Further, following termination, we agree to accept an assignment of certain railcar leases which RPMG has secured to service us. If the marketing agreement is terminated, it would trigger a redemption of our ownership interest in RPMG LLC.
Distillers Grains
On August 26, 2022, we entered into a marketing agreement with RPMG pursuant to which RPMG began purchasing and marketing all of the dried distillers grains produced at the plant beginning January 1, 2023. We pay RPMG a fee to market
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distillers grains to third party end purchasers and reimburse RPMG for certain charges paid to third parties. RPMG agrees to market our distillers grains using commercially reasonable efforts and endeavor to maximize price and minimize freight and other costs but does not guarantee the price that will be obtained from the sale. Following an initial term, the agreement was automatically extended and will be extended for additional terms unless either party gives proper notice of non-extension. We may immediately terminate the agreement upon written notice if: (1) RPMG fails on three separate occasions within a 12-month period to purchase distillers grains or market distillers grains, as not otherwise excused under the RPMG Agreement; or (2) upon RPMG's insolvency. RPMG may immediately terminate the agreement upon written notice if the variance of our actual distillers grains inventory when compared to monthly production and inventory estimates exceeds certain threshold amounts.
We market and sell our own distillers modified wet grains with solubles without the assistance of a third-party marketer.
Corn Oil
We have an exclusive marketing agreement with RPMG for the purposes of marketing and distributing our corn oil. We pay RPMG a marketing fee. We may immediately terminate our agreement with RPMG upon written notice if: (1) RPMG fails on three separate occasions within a 12-month period to purchase corn oil or market corn oil, as not otherwise excused under the Agreement; or (2) upon RPMG's insolvency. RPMG may immediately terminate the agreement upon written notice if the variance of our actual corn oil inventory when compared to monthly production and inventory estimates exceeds certain threshold amounts.
USP Grade High Purity Alcohol
We began limited production of USP grade high purity alcohol for use in the hand sanitizer, sanitizer and other markets during our 2021 fiscal year. We expect to commence the production of high purity alcohol if current positive ethanol margins worsen and we determine that high purity alcohol sales would result in greater profitability for our business than ethanol sales. We have executed an agreement with RPMG to be the exclusive marketer of our high purity alcohol.
Sources and Availability of Raw Materials
Corn Feedstock Supply
The major raw material required for our ethanol plant to produce ethanol and distillers grains is corn. To produce 70.2 million gallons of ethanol per year, our ethanol plant needs approximately 23.5 million bushels of corn, or approximately 65,000 bushels of corn per day, as the feedstock for its dry milling process.
The price at which we purchase corn depends on prevailing market prices. Increases in the price of corn significantly increase our cost of goods sold. If these increases in cost of goods sold are not offset by corresponding increases in the prices we receive from the sale of our products, these increases in cost of goods sold can have a significant negative impact on our financial performance.
Corn prices were higher during the fiscal year ended October 31, 2025 compared to the same period in 2024. On November 14, 2025, the United States Department of Agriculture ("USDA") released a report estimating the 2025 national corn crop at approximately 16.8 billion bushels, up 12% from last year's production, with yields averaging 186 bushels per acre. If realized, this would be a record high production for the United States. The USDA also reported area harvested for grain at 90 million acres, up 8% from 2024. Weather conditions, world supply and demand, current and anticipated corn stocks, agricultural policy and other factors can all contribute to volatility in corn prices.
Utilities
Natural Gas
Natural gas is an important input to our manufacturing process. We use natural gas to dry our distillers grains products to moisture contents at which they can be stored for longer periods. This allows the distillers grains we produce to be transported greater distances to serve broader livestock markets.
We have access to an existing Northern Natural Gas Company ("NNG") interstate natural gas pipeline located approximately one half mile from our ethanol plant. On February 16, 2024, we entered into an amendment to our agreement with NNG which had an effective date of November 1, 2024 and extended the term through October 31, 2029. Under the
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amendment, we will pay NNG the tariff rate in effect from time to time for natural gas. NNG has allocated 5,000 dekatherms of natural gas per day to Highwater.
We entered into a natural gas service agreement with CenterPoint Energy Resources Corp., d.b.a. CenterPoint Energy Minnesota Gas (“CenterPoint”). CenterPoint constructed a pipeline for us from the Northern Natural Gas Company Town Border Station. We purchase all of our natural gas requirements from CenterPoint's pipeline. Under the agreement, CenterPoint will continue to operate and maintain the pipeline to deliver natural gas to us under applicable tariffs. In addition, for all natural gas volumes delivered, we will pay certain delivery charges per dekatherm ("dth") delivered during each contract year subject to annual adjustments as permitted by the Minnesota Public Utilities Commission to match actual costs with the value recovered in the rates. In the event we do not purchase the minimum volume of 1,400,000 dth during each contract year, we will pay the difference between the actual delivery volume for the period and the minimum volume multiplied by the applicable rate. The initial term of the agreement will continue until October 31, 2029 and will automatically renew for additional five year terms unless terminated by either party upon written notice given at least 12 months prior to the end of the term upon an occurrence of certain events of default as set forth therein.
We also have an energy management agreement with World Kinect Energy Group f/k/a U.S. Energy Services, Inc. (“Kinect”) pursuant to which Kinect is providing us with natural gas management services. Some of their services may include an economic comparison of distribution service options, negotiation and minimization of interconnect costs, submission of the necessary pipeline “tap” request, supplying the plant with and/or negotiating the procurement of natural gas, development and implementation of a price risk management plan targeted at mitigating natural gas price volatility and maintaining profitability, providing consolidated monthly invoices that reflect all natural gas costs. In addition, Kinect is responsible for reviewing and reconciling all invoices. In exchange for these services, we pay Kinect a monthly retainer fee.
We do not anticipate any problems securing the natural gas we need to operate our ethanol plant during our 2026 fiscal year.
Electricity
On June 28, 2007, we entered into an agreement for electric service with Redwood Electric Cooperative, Inc., (the "Cooperative") for the purchase and delivery of electric power and energy necessary to operate our ethanol plant. Upon execution of the agreement, we became a member of the Cooperative and are bound by its articles of incorporation and bylaws. This agreement remained in effect until September 19, 2017, when our new agreement with the Cooperative to purchase all of the electric power that we require for our ethanol plant became effective. The new agreement remained in effect until January 1, 2023 upon which time it automatically renewed for a five year period. The agreement will continue to automatically renew for additional five year periods unless we give at least one year's written notice of termination prior to the expiration of the then current term or if the agreement is otherwise terminated in accordance with its terms. For the electric power provided, in addition to certain penalties and adjustments, we will pay the following rates: (i) a facility charge based on the then current net plant value; (ii) a per KWh energy charge at the then current wholesale rate including distribution losses and margin requirements; (iii) an additional demand charge for the entire monthly demand (kW) that is coincident to the peak demand; and (iv) an additional delivery charge for the entire monthly demand (kW) that is coincident to the peak demand. The rates are updated annually. The rates set forth in the agreement terminate in the event that our firm non-coincident peak demand is less that 2,000 kW for twelve consecutive months or our rolling twelve month non-coincident load factor is less than 60% for twelve consecutive months. Upon termination of the agreement by either party for any reason, we remain responsible for payment of the facility charge for what would have been the remaining portion of the term.
We do not anticipate any problems securing the electricity we need to operate our ethanol plant during our 2026 fiscal year.
Water
We require a significant supply of water. We currently obtain water from a high capacity well and through a pipeline that pipes water from a nearby rock quarry. We acquired all of the necessary permits required for our water usage. Much of the water used in an ethanol plant is recycled back into the process. There are, however, certain areas of production where fresh water is needed. Those areas include the boiler makeup water and cooling tower water. Boiler makeup water is treated on-site to minimize all elements that will harm the boiler and recycled water cannot be used for this process. Cooling tower water is deemed non-contact water because it does not come in contact with the mash, and, therefore, can be regenerated back into the cooling tower process. The makeup water requirements for the cooling tower are primarily a result of evaporation. This has the effect of lowering wastewater treatment costs. We have assessed our water needs and determined we have an adequate supply.
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Patents, Trademarks, Licenses, Franchises and Concessions
We do not currently hold any patents, trademarks, franchises or concessions. We were granted a license by ICM, Inc. to use certain ethanol production technology necessary to operate our ethanol plant. The cost of the license granted by ICM, Inc. was included in the amount we paid to Fagen, Inc. to design and build our ethanol plant. We were granted a license by Butamax Advanced Biofuels, LLC ("Butamax") to use certain corn oil separation technology in exchange for payment of certain license fees. We amended our license arrangement with Butamax to provide for a one-time fee which was paid in December of 2020.
Seasonality Sales
We experience some seasonality of demand for our ethanol, distillers grains and corn oil. Since ethanol is predominantly blended with gasoline for use in automobiles, ethanol demand tends to shift in relation to gasoline demand. As a result, we experience some seasonality of demand for ethanol in the summer months related to increased driving and, as a result, increased gasoline demand. In addition, we experience some increased ethanol demand during holiday seasons related to increased gasoline demand. We also experience decreased distillers grains demand during the summer months due to natural depletion in the size of herds at cattle feed lots and when the animals are turned out to pasture or are slaughtered. Further, we expect some seasonality of demand for our corn oil since a major corn oil user is biodiesel plants which typically reduce production during the winter months.
Working Capital
We primarily use our working capital for purchases of raw materials necessary to operate the ethanol plant. Our primary sources of working capital are cash generated by our operations and our Term Revolving Loan and our Revolving Line of Credit Loan with Compeer Financial, PCA ("Compeer"). At October 31, 2025, we had approximately $20,000,000 available to draw on our Term Revolving Loan and approximately $0 available to draw on our Revolving Line of Credit Loan, respectively.
Dependence on One or a Few Major Customers
As discussed above, we have marketing agreements with RPMG for the marketing, sale and distribution of our ethanol, distillers dried grains with solubles and corn oil. We rely on RPMG for the sale and distribution of our ethanol, corn oil and distillers dried grains with solubles. Therefore, although there are other marketers in the industry, we are highly dependent and will continue to be highly dependent on RPMG for the successful marketing of our products. Any loss of RPMG as our marketing agent could have a significant negative impact on our revenues. We market and sell our own distillers modified wet grains.
Federal Ethanol Supports and Governmental Regulation
Federal Ethanol Supports
The ethanol industry is dependent on economic incentives to produce ethanol. One significant federal ethanol support is the Federal Renewable Fuels Standard (the “RFS”). The RFS requires that in each year, a certain amount of renewable fuels must be used in the United States. The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. Starting in 2009, the RFS required that a portion of the RFS must be met by certain “advanced” renewable fuels. These advanced renewable fuels include ethanol that is not made from corn, such as cellulosic ethanol and biomass based biodiesel. The use of these advanced renewable fuels increased each year as a percentage of the total renewable fuels required to be used in the United States.
The United States Environmental Protection Agency ("EPA") previously had the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Annually, the EPA was required by statute to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligation ("RVO"). For the last nine years of the program's statutory annual requirements, the EPA exercised its waiver authority and set the RVO below the statutory amount. The RFS began a new phase in 2023 as the EPA is now required to determine the annual RVO.
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The statutory volumes and the EPA's volumes for 2021 and 2022 and the EPA's volumes for 2023, 2024, and 2025 and the EPA's proposed volumes for 2026 and 2027 (in billion gallons) are as follows:
| Total Renewable Fuel | Portion of Volume Requirement That Can Be Met By Corn-based Ethanol | ||||||||||
| 2021 | Statutory | 33.00 | 15.00 | ||||||||
| EPA Rule 7/2022 | 18.84 | 13.79 | |||||||||
| 2022 | Statutory | 36.00 | 15.00 | ||||||||
| EPA Rule 7/2022 | 20.63 (+0.25) | 15.00 | |||||||||
| 2023 | EPA Rule 6/2023 | 20.94 (+0.25) | 15.00 | ||||||||
| 2024 | EPA Rule 6/2023 | 21.54 | 15.00 | ||||||||
| 2025 | EPA Rule 6/2023 | 22.33 | 15.00 | ||||||||
| 2026 | EPA Proposed Rule 6/2025 | 24.02 | 15.00 | ||||||||
| 2027 | EPA Proposed Rule 6/2025 | 24.46 | 15.00 | ||||||||
On September 17, 2025, the EPA released a proposal to reallocate RFS gallons lost through small refinery exemptions from years 2023 and 2024 and for the estimated amount expected for 2025 to larger refining companies. The proposal is to adjust 2026 and 2027 requirements. The EPA sought comments on how the reallocations would be accomplished including the percentage that would be reallocated.
Small refineries can petition the EPA annually for an exemption from their ethanol use from requirements for the prior compliance year. The EPA granted significantly more small refinery waivers in 2018 and 2019 than in past years and did not reallocate the waived gallons to other refiners. These actions resulted in decreased ethanol demand which led to reduced market ethanol prices and negative operating margins in the ethanol industry. In January 2020, the Tenth Circuit Court of Appeals ruled that small refinery exemptions may only be granted to refineries that had secured them continuously each year since 2010. Consistent with this ruling, in September 2020, the EPA denied certain small refinery exemption petitions filed by oil refineries in 2020 seeking retroactive relief from their ethanol use requirements for prior years. However, in June 2021, the U.S. Supreme Court partially reversed the decision finding that a small refinery may obtain a hardship exemption even if its earlier exemption had lapsed in one or more previous years. In June 2022, the EPA announced the denial of 69 small refinery exemption petitions for one or more compliance years between 2016 and 2021 on the grounds that the petitioners had failed to show that the EPA had a basis to approve them. Subsequently, on July 2023, the EPA announced the denial of 26 small refinery exemption petitions for one or more compliance years between 2016 and 2023. Several small refineries challenged the denials. In July 2024, the U.S. Court of Appeals for the District of Columbia found that the EPA's rationale in making the 2022 denials was contrary to law and vacated the denials. The EPA subsequently filed a voluntary motion rescinding its denial of the exemptions in 2023. The EPA began fast-tracking decisions in 2025 granting approximately 65 full exemption and 89 partial exemptions. If the EPA were to significantly reduce the volume requirements under the RFS by continued exercise of the EPA waiver authority, the market price and demand for ethanol could decrease unless those RFS gallons are reallocated to other refiners.
In February 2010, the EPA issued additional regulations governing the RFS. These additional regulations have been called RFS2. The most controversial part of RFS2 involves what is commonly referred to as the lifecycle analysis of greenhouse gas emissions. Specifically, the EPA adopted rules to determine which renewable fuels provided sufficient reductions in greenhouse gases, compared to conventional gasoline, to qualify under the RFS program. RFS2 establishes a tiered approach, where regular renewable fuels are required to accomplish a 20% greenhouse gas reduction compared to gasoline, advanced biofuels and biomass-based biodiesel must accomplish a 50% reduction in greenhouse gases, and cellulosic biofuels must accomplish a 60% reduction in greenhouse gases. Any fuels that fail to meet this standard cannot be used by fuel blenders to satisfy their obligations under the RFS program. However, RFS2 as adopted by the EPA provides that corn-based ethanol from modern ethanol production processes does meet the definition of a renewable fuel under the RFS program. Our ethanol plant was grandfathered into the RFS due to the fact that it was constructed prior to the effective date of the lifecycle greenhouse gas requirement and is not required to prove compliance with the lifecycle greenhouse gas reductions. Certain provisions of RFS2 as adopted may disproportionately benefit ethanol produced from sugarcane. This could make sugarcane based ethanol, which is primarily produced in Brazil, more competitive in the United States ethanol market.
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Most ethanol that is used in the United States is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. Gasoline demand in the United States is estimated to be approximately 136 billion gallons. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol domestically would then be approximately 13.6 billion gallons per year. This is commonly referred to as the “blending wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is not possible to blend ethanol into every gallon of gasoline that is being used in the United States and it discounts the possibility of additional ethanol used in higher percentage blends such as E15 used in model year 2001 and later vehicles and E85 used in flex fuel vehicles.
In June 2012, the EPA gave final approval for the sale of E15, gasoline which is blended at a rate of 15% ethanol and 85% gasoline, for use in vehicles manufactured in the model year 2001 and later. Although there have been significant steps towards introduction of E15 in the marketplace, there are still obstacles to meaningful market penetration by E15. Many states still have regulatory issues that hamper or prevent the sale of E15. In addition, sales of E15 may be limited because E15 is not approved for use in all vehicles, the EPA requires a label that may discourage consumers from using E15, and retailers may choose not to sell E15 due to concerns regarding liability. Previously, different gasoline blendstocks were required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions which may prevent E15 from being used during certain times of the year in various states. In May of 2019, the EPA issued a final rule allowing the year-round sale of E15. However, in June of 2021, the U.S. Court of Appeals for the District of Columbia struck down this rule finding that the EPA had exceeded its authority. In May 2022, the EPA issued an emergency waiver to allow sales of E-15 during the summer months. In May 2023, the EPA again issued an emergency waiver to temporarily allow summer sales of E15 from May 1, 2023 through September 15, 2023. On February 22, 2024, the EPA granted a petition approving the use of E15 year-round in eight Midwestern states. However, implementation of the rule was delayed until April 28, 2025. The EPA then issued several temporary emergency waivers that approved the use of E15 from May 1, 2024 through September 15, 2024 and from May 1, 2025 through September 15, 2025.
A blender pump is a gasoline pump that can dispense a variety of different ethanol/gasoline blends. Blender pumps typically can dispense E10, E20, E30, E40, E50, and E85. These blender pumps accomplish these different blends by internally mixing ethanol and gasoline which are held in separate tanks at retail stations. The increased use of blender pumps may increase demand for ethanol by allowing gasoline retailers to provide various mid-level ethanol blends in a cost-effective manner and allowing consumers with flex-fuel vehicles to purchase more ethanol through these mid-level blends. However, the expense of blender pumps has delayed their availability in the market.
In May 2020, the United States Department of Agriculture ("USDA") announced the Higher Blends Infrastructure Incentive Program which consists of up to $100 million in funding for grants to be used to increase the availability of higher blends of ethanol and biodiesel fuels. Funds may be awarded to retailers such as fueling stations and convenience stores to assist in the cost of installation or upgrading of fuel pumps and other infrastructure. In June 2023, the USDA announced that the department would accept new applications for $450 million in grants through the HBIIP, accessible in quarterly windows starting July 2023 and ending September 30, 2024. On March 31, 2025, the USDA announced that it would release $537 million of funds under the HBIIP for 543 projects in 29 states.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”), which contained several statutory provisions benefitting the ethanol industry, was signed into law. Since then, considerable regulatory guidance has been issued on certain topics; however, many of the law’s finer points are still evolving and remain uncertain, with additional regulatory guidance forthcoming, especially given the recent enactment of the One Big Beautiful Bill Act (“OBBBA”). The IRA maintained the 12-year credit period for the existing Section 45Q tax credit for carbon capture and storage. It also extended eligibility for the credit to facilities that commence construction by January 1, 2033, and substantially lowered the minimum annual capture requirements to 12,500 metric tons for most industrial facilities (18,750 metric tons for electricity-generating facilities and 1,000 metric tons for direct air capture facilities). In addition, the credit rate was increased five times for industrial facilities and power plants that capture their carbon emissions to $85 per metric ton of carbon oxide stored in secure geologic formations, $60 per metric ton for the beneficial utilization of captured carbon emissions, and $60 per metric ton for carbon oxide stored in oil and gas fields, with these amounts adjusted for inflation. The facility must meet prevailing wage and apprenticeship requirements to claim the full amount of the increased credit.
The OBBBA enacted on July 4, 2025, further modified Section 45Q by standardizing the base credit rate for facilities and equipment placed in service after July 4, 2025. The same credit rate applies for all carbon capture processes, regardless of whether the carbon oxide is stored, utilized, or used in enhanced oil or natural gas recovery. For taxable years beginning after 2026, this base credit is adjusted for inflation. If the prevailing wage and apprenticeship requirements are met, the credit rate is increased five times to $85 per metric ton. Prevailing wage and apprenticeship requirements continue to be governed by Treasury Regulations and guidance, including the final regulations issued on June 18, 2024, which clarified how to satisfy these
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requirements. The final regulations generally apply to qualified facilities that begin construction and are placed in service after June 25, 2024, although facilities placed in service before then may choose to apply the final regulations. In connection with these final regulations, the Treasury has released guidance on certain topics through publications and FAQs to address compliance, reporting, and other obligations.
With respect to monetizing the Section 45Q credit (and other energy credits), taxpayers for qualified projects may elect to be paid directly by the Treasury, making them refundable. To be paid directly, the taxpayer must go through a registration process and make an election on the taxpayer’s tax return. Plus, certain limitations and conditions apply to fully benefit from this direct pay feature. Alternatively, taxpayers can monetize the Section 45Q credit by selling it to an unrelated third party for cash without significant adverse income tax consequences. This alternative also includes certain registration and election requirements.
The IRA also created a new Clean Fuel Production Tax Credit under Section 45Z for producing low-emissions transportation and aviation fuel produced in the United States and sold to an unrelated person in 2025, 2026, and 2027. The OBBBA extended this eligibility window through the end of 2029. The availability and amount of this credit is subject to certain registration requirements as well as prevailing wage and apprenticeship conditions – generally, the credit could be up to $1.00 per gallon of ethanol produced based on the fuel’s emissions factor. The emissions rate, which is used to compute the emissions factor, is determined based on the most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy Use in Transportation model developed by Argonne National Laboratory, or a successor model. Further, in 2026, emissions from indirect land use changes are excluded from the emissions rate. Note that for transportation fuel produced after December 31, 2025, the fuel must be exclusively derived from feedstocks produced or grown in the United States, Mexico, or Canada. Like the credit under Section 45Q, this Section 45Z tax credit is eligible for direct pay and may be sold or transferred to unrelated third parties in most circumstances. The Section 45Z tax credit is not available, however, for a facility for which a credit under Section 45Q is allowed—known as the “anti-stacking rule.” Since enactment of the IRA, the Treasury has also issued certain guidance on this credit. We expect to benefit from these 45Z tax credits. However, the recognition of these tax credits is contingent on meeting the requirements of Section 45Z.
Effect of Governmental Regulation
The government's regulation of the environment changes constantly. We are subject to extensive air, water and other environmental regulations and we have been required to obtain a number of environmental permits to construct and operate the plant. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could require us to obtain additional or new permits or spend considerable resources in complying with such regulations and increase our operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. For example, changes in the environmental regulations regarding the required oxygen content of automobile emissions could have an adverse effect on the ethanol industry. Additionally, any changes that are made to the ethanol plant or its operations must be reviewed to determine if amended permits need to be obtained in order to implement these changes. During the fiscal year ended October 31, 2025, we incurred costs and expenses of approximately $629,000 complying with environmental laws.
Plant operations are governed by the Occupational Safety and Health Administration. We are also subject to regulation by several other federal and state agencies including the Alcohol and Tobacco Tax and Trade Bureau, the Federal Railroad Administration, the Minnesota Department of Agriculture and the U.S. Department of Agriculture. Federal and state regulations may change such that the costs of operating the plant may increase.
In late 2009, California passed a Low Carbon Fuels Standard ("LCFS"). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which is measured using a lifecycle analysis, similar to the RFS. On December 29, 2011, a federal district court in California ruled that the California LCFS was unconstitutional which halted implementation of the California LCFS. However, the California Air Resources Board ("CARB") appealed this court ruling and on September 18, 2013, the federal appellate court reversed the federal district court finding the LCFS constitutional and remanding the case back to federal district court to determine whether the LCFS imposes a burden on interstate commerce that is excessive in light of the local benefits. On June 30, 2014, the United States Supreme Court declined to hear the appeal of the federal appellate court ruling and CARB recently re-adopted the LCFS with some slight modifications. The LCFS could have a negative impact on demand for corn-based ethanol and result in decreased ethanol prices affecting our ability to operate profitably. However, during our 2021 fiscal year we received approval from CARB for our cellulosic pathway which has allowed us to receive a premium on certain ethanol shipped to California. This pathway does not guarantee a premium for ethanol shipped into California.
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Competition
Ethanol
We are in direct competition with numerous ethanol producers, many of whom have greater resources than we do. Following the significant growth during 2005 and 2006, the ethanol industry has grown at a much slower pace. As of December 3, 2025, the Renewable Fuels Association estimates that the ethanol production facilities in the U.S. have the capacity to produce approximately 18.3 billion gallons of ethanol.
Since ethanol is a commodity product, competition in the industry is predominantly based on price. We have also experienced competition from oil companies who have purchased ethanol production facilities and are required to blend a certain amount of ethanol each year. In addition, larger ethanol producers may be able to realize economies of scale that we are unable to realize. This could put us at a competitive disadvantage to other ethanol producers. The ethanol industry is continuing to consolidate where a few larger ethanol producers are increasing their production capacities and are controlling a larger portion of the United States ethanol production. Further, some ethanol producers own multiple ethanol plants which may allow them to compete more effectively by providing them flexibility to run certain production facilities while they have other facilities shut down. This added flexibility may allow these ethanol producers to compete more effectively, especially during periods when operation margins are unfavorable in the ethanol industry.
Following the acquisition of several plants by POET Biorefining from Flint Hill Resources in 2021, the largest ethanol producers currently include Archer Daniels Midland, POET Biorefining and Valero Renewable Fuels, each of which are capable of producing significantly more ethanol than we produce. The following table identifies the majority of the largest ethanol producers in the United States along with their approximate production capacities.
U.S. FUEL ETHANOL PRODUCTION CAPACITY
BY TOP PRODUCERS
Producers of Approximately 1,000
million gallons per year (mmgy) or more
| Company | Approximate Capacity (mmgy) | ||||
| POET Biorefining | 3,135 | ||||
| Valero Renewable Fuels | 1,585 | ||||
| Archer Daniels Midland | 1,675 | ||||
We face competition from ethanol produced outside of the United States. Ethanol imports have been lower in recent years due to the increase by Brazil in 2013 of its domestic ethanol use requirement from 20% to 25% and the institution in 2017 of a quota and tariff on ethanol produced in the United States and exported to Brazil which have likely decreased the amount of ethanol Brazil has available for export. If competition from ethanol imports were to increase again that could negatively impact demand for ethanol produced in the United States which could result in lower operating margins.
Our ethanol plant also competes with producers of other gasoline additives having similar octane and oxygenate values as ethanol. Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies have significantly greater resources than we have to market other additives, to develop alternative products, and to influence legislation and public perception of ethanol. These companies also have sufficient resources to begin production of ethanol should they choose to do so.
A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Electric car technology has grown in popularity, especially in urban areas. While in the past there were a limited number of vehicle recharging stations, making electric cars not feasible for all consumers, there has been increased focus on developing these recharging stations which have made electric car technology more widely available. This additional competition from alternate sources could reduce the demand for ethanol, which would negatively impact our profitability.
Distillers Grains
Our ethanol plant competes with other ethanol producers in the production and sales of distillers grains. Distillers grains are primarily used as animal feed which replaces corn and soybean meal. As a result, distillers grains prices are impacted by corn and soybean prices. In addition, increased exports of distillers grains have positively affected demand and distillers
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grains prices. If distillers grains exports decline, it could result in an oversupply in the market causing distillers grains prices in the United States to decrease.
Corn Oil Competition
We compete with many ethanol producers for the sale of corn oil. Many ethanol producers have installed the equipment necessary to separate corn oil from the distillers grains they produce which has increased competition for corn oil sales and has resulted in lower market corn oil prices. We also face competition from soybean oil which is being used with increasing frequency as a feedstock in biodiesel production.
Employees
We depend on our employees to operate our plant. While we face competition to attract and retain personnel with the necessary skills, we believe that we compete favorably on the basis of wages and benefits and our commitment to training and development. In addition, the safety of our employees is our highest priority. We have developed and enforce workplace safety policies and programs in order to maintain a high standard for performance in our operations and ensure the safety of our workers. As of October 31, 2025, we had 43 full-time employees. We do not expect the number of employees to materially change in the next twelve months.
ITEM 1A. RISK FACTORS
You should carefully read and consider the risks and uncertainties below and the other information contained in this report. The risks and uncertainties described below are not the only ones we face. The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operations.
Risks Relating to Our Business
A decrease in the spread between the price we receive for our products and the price we pay for raw materials will have an adverse effect on our profitability. Our ability to profitably operate the ethanol plant is primarily dependent on the spread between the price we pay for corn and natural gas and the price we receive for our ethanol. While the price of ethanol typically changes in relation to corn prices, this correlation has not always been reliable historically and may not always exist. In the event that the spread between the price for our products and the costs associated with our raw materials becomes negative, we may be unable to maintain our liquidity which may adversely impact our ability to profitably operate which could negatively impact the value of our units.
Declines in the price of ethanol or distillers grains would reduce our revenues. The sale prices of ethanol and distillers grains can be volatile as a result of a number of factors such as overall supply and demand, the price of gasoline and corn, levels of government support, and the availability and price of competing products. Any lowering of ethanol or distillers grains prices, especially if it is associated with increases in corn and natural gas prices, may affect our ability to operate profitably. We anticipate the price of ethanol and distillers grains to continue to be volatile in our 2026 fiscal year. Declines in the prices we receive for our ethanol and distillers grains will lead to decreased revenues and may result in our inability to operate the ethanol plant profitably for an extended period of time which could decrease the value of our units.
Increases in the price of corn or natural gas would reduce our profitability. Our primary source of revenue is from the sale of ethanol and distillers grains. Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control including weather and general economic factors. Generally, higher corn prices will produce lower profit margins and, therefore, negatively affect our financial performance. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to operate profitably because of the higher cost of operating our plant. We may not be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be negatively affected.
The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions or natural disasters, overall economic conditions and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol and more significantly, distillers grains for our customers. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition.
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We engage in hedging transactions which involve risks that could harm our business. We are exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process, along with sales of ethanol and distillers grains. We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of derivative instruments. The effectiveness of our hedging strategies is dependent on the price of corn and natural gas and our ability to sell sufficient products to use all of the products for which we have futures contracts. Our hedging activities may not successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high prices. Alternatively, we may choose not to engage in hedging transactions in the future and our operations and financial conditions may be adversely affected during periods in which prices increase. Utilizing cash for margin calls has an impact on the cash we have available for operations which could result in liquidity problems. Price movements in corn contracts are highly volatile and are influenced by many factors that are beyond our control. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn. We may incur such costs and they may be significant which could impact our ability to profitably operate the plant and may reduce the value of our units.
Our business is not diversified. Our success depends almost entirely on our ability to profitably operate our ethanol plant. We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol plant and manufacture ethanol and distillers grains. If economic or political factors adversely affect the market for ethanol or distillers grains, we have no other line of business to fall back on. Our business would also be significantly harmed if the ethanol plant could not operate at full capacity for any extended period of time.
If RPMG, which markets our ethanol, corn oil and distillers grains, fails it may negatively impact our ability to profitably operate the ethanol plant. Our ethanol, corn oil and distillers grains are marketed by RPMG. Therefore, nearly all of our revenue is derived from sales that are secured by RPMG. If RPMG is unable to market our ethanol, corn oil and distillers grains, it may negatively impact our ability to profitably operate the ethanol plant. While management believes that we could secure an alternative marketer if RPMG were to fail, switching marketers may negatively impact our cash flow and our ability to continue to operate profitably, which may decrease the value of our units.
We depend on our management and key employees, and the loss of these relationships could negatively impact our ability to operate profitably. We are highly dependent on our management team to operate our ethanol plant. We may not be able to replace these individuals should they decide to cease their employment with us, or if they become unavailable for any other reason. While we seek to compensate our management and key employees in a manner that will encourage them to continue their employment with us, they may choose to seek other employment. Any loss of these executive officers and key employees may prevent us from operating the ethanol plant profitably and could decrease the value of our units.
Our existing debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that limit distributions and impose restrictions on the operation of our business. The use of debt financing makes it more difficult for us to operate because we must make principal and interest payments on the indebtedness and abide by covenants contained in our debt financing agreements. If we were to borrow against our existing debt facilities, the restrictive covenants contained in our financing agreements may have important implications on our operations, including, among other things: (a) limiting our ability to obtain additional debt or equity financing; (b) placing us at a competitive disadvantage because we may be more leveraged than some of our competitors; (c) subjecting all or substantially all of our assets to liens, which means that there may be no assets left for unit holders in the event of a liquidation; and (d) limiting our ability to make business and operational decisions regarding our business, including, among other things, limiting our ability to pay dividends to our unit holders, make capital improvements, sell or purchase assets or engage in transactions we deem to be appropriate and in our best interest.
We may violate the terms of our credit agreements, including the financial covenants, which could result in our lenders demanding immediate repayment. Our credit agreements include various financial loan covenants. Based on management projections, we believe that we will be in compliance with our financial loan covenants for at least the next 12 months. However, if we were to borrow against our existing debt facilities and then violate the terms of our credit agreements, including our financial loan covenants, our lenders could deem us to be in default of our loans and require us to immediately repay the entire outstanding balance of our loans. If we do not have the funds available to repay the loans or we cannot find another source of financing, we may fail which could decrease or eliminate the value of our units.
Our inability to secure credit facilities we may require in the future could negatively impact our liquidity. While we do not currently require more financing than we have, in the future we may need additional financing. If we require financing in the future and are unable to secure such financing, or we are unable to secure the financing we require on reasonable terms, it may have a negative impact on our liquidity which could negatively impact the value of our units.
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Our operations may be negatively impacted by natural disasters, severe weather conditions, and other unforeseen plant shutdowns which can negatively impact our operations. Our operations may be negatively impacted by events outside of our control such as natural disasters, severe weather including flooding and droughts, strikes, train derailments and other unforeseen events which may negatively impact our operations. If we experience any of these unforeseen circumstances which could negatively impact our operations, it may affect our cash flow and negatively impact the value of our business.
We may incur casualty losses that are not covered by insurance which could negatively impact the value of our units. We have purchased insurance which we believe adequately covers our potential losses from foreseeable risks. However, there are risks that we may encounter for which there is no insurance or for which insurance is not available on terms that are acceptable to us. If we experience a loss which materially impairs our ability to operate the ethanol plant which is not covered by insurance, the value of our units could be reduced or eliminated.
Failures of our information technology infrastructure could have a material adverse effect on operations. We utilize various software applications and other information technology that are critically important to our business operations. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, including production, manufacturing, financial, logistics, sales, marketing and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected.
A cyber attack or other information security breach could have a material adverse effect on our operations and result in financial losses. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. If we are unable to prevent cyber attacks and other information security breaches, we may encounter significant disruptions in our operations which could adversely impact our business, financial condition and results of operations or result in the unauthorized disclosure of confidential information. Such breaches may also harm our reputation, result in financial losses or subject us to litigation or other costs or penalties.
We are subject to global and regional economic downturns, inflation, rising interest rates and related risks. Our business is affected by global and regional demographic and macroeconomic conditions. A significant downturn in global economic growth, or recessionary conditions in major geographic regions for prolonged periods, may lead to a variety of adverse consequences for our business including reduced demand for our products, increases in our corn and natural gas costs and rising interest rates on our variable rate loans. These and other adverse consequences could result in our inability to operate profitably and reduce our earnings.
The effects of COVID-19 materially and adversely affected demand and the market price for our products in the past and COVID-19 or another pandemic could do so again in the future. The level of demand for our products is affected by global and regional demographic and macroeconomic conditions. In December 2019, a novel coronavirus surfaced in Wuhan, China (“COVID-19”). The spread of COVID-19 worldwide resulted in businesses suspending or substantially curtailing global operations and travel, quarantines, and an overall substantial slowdown of economic activity impacting consumer and business confidence. Transportation fuels in particular, including ethanol, experienced significant price declines and reduced demand. The effects of COVID-19 materially and adversely affected the market price for our products, our business, results of operations and liquidity in the past and COVID-19 or another pandemic could do so again in the future.
COVID-19 or another pandemic could negatively impact our ability to operate our business which could decrease or eliminate the value of our units. COVID-19 disrupted the operations of many businesses in the U.S. and globally. The effects of COVID-19 or another pandemic could result in our experiencing labor shortages, delays in delivery of supplies or shipping disruptions of our products which could force us to suspend operations or reduce production. Any shut down of operations or reduction in production, especially for an extended period of time, could reduce or eliminate the value of our units.
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The invasion of Ukraine by Russia and resulting sanctions by the United States, European Union and other countries have resulted in a slowdown in global economic growth, rising inflation, market disruptions and increased volatility in commodity prices in the United States. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. In response to the attacks on Ukraine, sanctions and other penalties have been levied by the United States, European Union and other countries and additional sanctions and penalties have been proposed. The invasion by Russia and resulting sanctions created global economic uncertainty and resulted in significant market disruptions and increased volatility in commodity prices such as corn, oil and natural gas. Although the duration and extent of the ongoing military conflict is highly unpredictable and the magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions have had and may in the future have a negative effect on our financial condition and operating results.
Investor sentiment towards climate change, fossil fuels, and other ESG matters could adversely affect our business, cost of capital, and the price of our stock and other securities. There have been efforts in recent years, which intensified during the COVID-19 pandemic, aimed at the investment community, to promote the divestment of securities of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. As a result, some financial intermediaries, investors, and other capital markets participants reduced or ceased lending to, or investing in, companies that operate in industries with higher perceived environmental exposure, such as the energy industry. If this or similar divestment efforts are continued, the value of our units may be negatively impacted.
Members of the investment community are also increasing their focus on ESG practices and disclosures, including practices and disclosures related to GHGs and climate change in the energy industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. As a result, we may face increasing pressure regarding our ESG practices and disclosures. Additionally, members of the investment community may screen companies such as ours for ESG performance. If we are unable to meet the ESG standards or investment or lending criteria set by these investors and funds, we may lose investors, investors may allocate a portion of their capital away from us, our cost of capital may increase, the price of our units may be negatively impacted, and our reputation may also be negatively affected.
Risks Related to Ethanol Industry
An increase in foreign ethanol imports to the United Stated could have a negative impact on ethanol prices. We face competition from ethanol produced outside of the United States. If ethanol imports were to increase that could impact demand for ethanol produced in the United States which could negatively impact the market price of ethanol and our ability to profitably operate the ethanol plant.
Increases in exports of corn produced in the United States could result in higher corn prices which could reduce our profitability. Our results of operations and financial condition are significantly affected by the cost and supply of corn. If exports of corn produced in the United States to other countries were to increase, this could result in decreased domestic supply and higher corn prices in the United States. Higher corn prices could lead to lower profit margins, negatively affecting our financial performance.
Lack of rail transportation infrastructure and delayed rail shipments have resulted in rail logistical problems which could negatively impact our financial performance. The ethanol industry has experienced difficulty transporting the ethanol which is produced. Ethanol is typically shipped by rail. Increased shipments of coal and oil by rail, decreased shipment capacity by the railroads due to fewer railroad crews, and poor weather conditions can result in slowed rail travel and loading times and delays in returning rail cars resulting in ethanol storage capacity constraints. If rail logistical problems were to occur, this could negatively impact our ability to operate the ethanol plant profitably which could reduce the value of our units.
Decreasing gasoline prices could negatively impact our ability to operate profitably. Discretionary blending is an important secondary market which is often determined by the price of ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for ethanol may be reduced. Lower oil prices reduce the spread between the price of gasoline and the price of ethanol which can discourage discretionary blending, dampen the export market and result in a downwards market adjustment in the price of ethanol. If oil and gasoline prices were to remain low for a significant period of time, it could hurt our ability to profitably operate the ethanol plant which could decrease the value of our units.
Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in higher percentage blends for all conventional automobiles. Currently, ethanol is primarily blended with gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% gasoline. In order to expand ethanol demand, higher percentage blends of ethanol must be utilized in standard vehicles. The EPA has approved the use of E15 for standard vehicles produced in the model year 2001 and later. However, the fact that E15 has not been approved for use in all vehicles and the labeling
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requirements associated with E15 may result in many gasoline retailers refusing to carry E15. As a result, the approval of E15 may not significantly increase demand for ethanol.
Changes and advances in ethanol production technology could require us to incur costs to update our plant or could otherwise hinder our ability to compete in the ethanol industry or operate profitably. Advances and changes in the technology of ethanol production are expected to occur. Such advances and changes may make the ethanol production technology installed in our plant less desirable or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than we are able. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than our competitors, which could cause our plant to become uncompetitive or completely obsolete. If our competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our ethanol production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. These third-party licenses may not be available or, once obtained, they may not continue to be available on commercially reasonable terms. These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income.
Technology advances in the commercialization of cellulosic ethanol may decrease demand for corn based ethanol which may negatively affect our profitability. If an efficient method of producing ethanol from cellulose-based biomass on a commercial scale is successful, we may not be able to compete effectively. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted.
We operate in an intensely competitive industry and compete with larger, better financed companies which could impact our ability to operate profitably. There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants planned and operating through the United States. In addition, in the past we have seen increased competition from oil companies that purchased ethanol production facilities. We also face competition from ethanol producers located outside the United States. The largest ethanol producers include Archer Daniels Midland, POET and Valero Renewable Fuels, each of which is capable of producing significantly more ethanol than we produce. Further, many believe that there will be further consolidation occurring in the ethanol industry in the future which will likely lead to a few companies that control a significant portion of the ethanol production market. We may not be able to compete with these larger producers and our inability to compete could negatively impact our financial performance.
Competition from the advancement of alternative fuels may lessen the demand for ethanol. Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. Like ethanol, these emerging technologies offer an option to address worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. If these alternative technologies continue to expand and gain broad acceptance and become readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.
Increased use of fuel cells, plug-in hybrids and electric cars may lessen the demand for ethanol. Automotive, industrial and power generation manufacturers have developed alternative clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Electric car technology has recently grown in popularity, especially in urban areas, which has led to an increase in recharging stations which has made electric car technology more widely available. This additional competition from alternate energy sources could reduce the demand for ethanol, resulting in lower ethanol prices which could negatively impact our results of operations and financial condition.
Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, uses too much corn, adds to air pollution, harms engines, and/or takes more energy to produce than it contributes may affect the demand for ethanol. Certain individuals believe that the use of ethanol will have a negative impact on gasoline prices and that ethanol production uses too much of the available corn supply. Many also believe that ethanol adds to air pollution and harms vehicle engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of energy that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol based on these beliefs, it would affect the demand for the ethanol we produce which could negatively affect our profitability.
Risks Related to Regulation and Governmental Action
Government incentives for ethanol production may be eliminated in the future, which could hinder our ability to operate at a profit. The ethanol industry is assisted by various federal ethanol incentives, including the RFS set forth in the
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Energy Policy Act of 2005. The RFS helps support a market for ethanol that might disappear without this incentive. The United States Environmental Protection Agency ("EPA") has the authority to set the volume requirement. Any future reduction of the volume requirements under the RFS by the EPA could decrease the market price and demand for ethanol which will negatively impact our financial performance.
We may be unable to qualify for and receive anticipated Section 45Z tax credit benefits or those benefits could be less than currently projected. Section 45Z of the Inflation Reduction Act of 2022 allows low carbon fuel producers to apply for and receive substantial tax credits based on the carbon intensity of the fuel they produce and sell. We anticipate that we will be eligible to receive Section 45Z tax credits and have recognized, in accordance with certain accounting principles, $10,400,000 of Section 45Z tax credits for the fiscal year ended October 31, 2025. However, our ability to qualify for and receive these tax credits and tax credits for future periods will depend on our ability to produce low carbon fuel at current and expected carbon intensities and meet prevailing wage and other requirements of Section 45Z. In addition, these incentives are subject to regulatory oversight and could be administratively or legislatively changed in a manner that reduces or eliminates the tax credit benefits we currently anticipate. If we fail to achieve the required, or our expected, carbon intensities or meet prevailing wage or other requirements, or if these requirements are different than currently expected due to further legislation, regulation or clarification, we may be unable to qualify for and receive Section 45Z tax credits in projected amounts, or at all. This may materially and adversely harm our results of operations and financial condition.
The EPA's small refinery exemptions significantly reduced ethanol demand. In the past, the EPA expanded its use of its waiver authority granting waivers to small refineries allowing those refineries to avoid their ethanol use requirements under the RFS resulting in decreased ethanol demand and severely impacted ethanol prices. The EPA has resumed granting waivers to small refineries. As a result, the market price and demand for ethanol could decrease which will negatively impact our financial performance.
Changes in environmental regulations or violations of these regulations could be expensive and reduce our profitability. We are subject to extensive air, water and other environmental laws and regulations. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potentials impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns. In the future, we may be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits. Additionally, any changes in environmental laws and regulations could require us to spend considerable resources to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.
The California Low Carbon Fuel Standard may decrease demand for corn based ethanol which could negatively impact our profitability. California passed a Low Carbon Fuel Standard (LCFS) requiring that renewable fuels used in California must accomplish certain reductions in greenhouse gases which are measured using a lifecycle analysis. Any decrease in ethanol demand as a result of the California LCFS could negatively impact ethanol prices which could reduce our revenues and negatively impact our ability to profitably operate the ethanol plant.
Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our operations and profitability. Agricultural commodity production and trade flows are significantly affected by government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, import and export restrictions on agricultural commodities and commodity products can influence industry profitability, the planting of certain crops versus other uses of agricultural resources, the location and size of crop production, whether unprocessed or processed commodity products are traded and the volume and types of imports and exports. In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Future governmental policies, regulations or actions affecting our industry may adversely affect the supply of, demand for and prices of our products, restrict our ability to do business and cause our financial results to suffer.
Trade disputes could have a material adverse impact on our business, financial condition, liquidity and results of operations.Trade disputes can lead to the implementing of tariffs on our products or on commodities that we use in our operations which could cause significant fluctuations in prices and have a material adverse effect on our operations and financial results. In early 2025, the Trump administration announced additional tariffs on various imports from China, Mexico, and Canada, and signaled a willingness to renegotiate or withdraw from existing trade agreements. A series of executive orders issued in March and April of 2025 proposed significant changes to U.S. trade policy, including a baseline 10% tariff on a broad range of imported goods, unless replaced by higher country-specific rates. These actions have prompted actual or threatened retaliatory measures against U.S. exports, including ethanol and agricultural products in some cases. However, there is currently
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significant uncertainty about potential trade actions or how they may affect our business. We cannot predict the impact that future trade policy or the terms of any negotiated trade agreements may have on our business or on our industry.
A reduction in distillers grains exports to China has in the past and could continue in the future to have a negative effect on the price of distillers grains in the U.S. and negatively affect our profitability. Historically, China was the world's largest buyer of distillers grains produced in the United States. However, China has implemented anti-dumping and anti-subsidy duties which have significantly decreased demand from China and negatively impacted the price of distillers grains produced in the United States. If this reduction in export demand were to continue it could negatively impact our ability to profitably operate the ethanol plant.
A reduction in ethanol exports to China due to the imposition of a tariff on U.S. ethanol could have a negative impact on ethanol prices. China imposed a tariff on ethanol which is produced in the United States and exported to China which has negatively impacted exports of ethanol to China. The decrease has and could continue to negatively impact the market price of ethanol in the United States and our ability to profitably operate the ethanol plant.
A reduction in ethanol exports to Brazil due to the imposition by the Brazilian government of a tariff on U.S. ethanol could have a negative effect on ethanol prices. Brazil was historically a top destination for ethanol produced in the United States. However, Brazil imposed a tariff on ethanol which is produced in the United States and exported to Brazil. The tariff has resulted in a decline in demand for ethanol from Brazil and could negatively impact the market price of ethanol in the United States and our ability to profitably operate the ethanol plant.
New, stricter environmental laws and other industry-related regulations or environmental litigation could significantly impact our operations and/or increase our costs, which could adversely affect our results of operations and financial condition. Our operations are subject to federal, state, and municipal laws and regulations regulating environmental matters. Climate change continues to attract considerable public and scientific attention and the trend in environmental regulation has been towards more restrictions and limitations on activities that may affect the environment over time. There can be no assurances as to the timing and type of such changes in existing laws or the promulgation of new laws or the amount of any required expenditures associated therewith. If we were unable in the future to renew the environmental permits necessary for our operations, or were forced to accept terms in future permits that limit our operations or result in additional compliance costs, it could restrict our ability to do business and cause our financial results to suffer. In addition, in recent years, environmental interest groups have filed suit against companies in the energy industry related to climate change. Should such suits be successful, we could face additional compliance costs or other related litigation risk that could negatively affect our financial performance.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
Cybersecurity Governance
Our cybersecurity program addresses potential risks and implements processes to support our cybersecurity program and respond to potential cyber incidents. Our cybersecurity program is managed by our senior management with support from third-party providers that provide relevant expertise, certifications and skills in cybersecurity. Quarterly risk assessments are performed and incorporated as part of our overall risk management process, which is overseen by our Board of Directors. Our
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ITEM 2. PROPERTIES
Our plant site is made up of two adjacent parcels which together total approximately 125 acres in southwest Minnesota near Lamberton. The plant's address is 24500 U.S. Highway 14, Lamberton, Minnesota 56152. We produce all of our ethanol, distillers grains and corn oil at this site. Our plant is in excellent condition and is capable of functioning at over 100% of its 50 million gallons per year nameplate production capacity.
All of our tangible and intangible property, real and personal, serves as the collateral for our credit facility with Compeer. Our credit facility is discussed in more detail under “ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of January 22, 2026, we have 4,752 membership units outstanding and 1,351 unit holders of record. There is no public trading market for our membership units. We have, however, established a Unit Trading Bulletin Board, a private online matching service, through Farmers National Company Agstock, LLC in order to facilitate trading among our members. The Unit Trading Bulletin Board has been designed to comply with federal tax laws and Internal Revenue Service ("IRS") regulations establishing a “qualified matching service,” as well as state and federal securities laws. Our Unit Trading Bulletin Board consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The Unit Trading Bulletin Board does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. We do not become involved in any purchase or sale negotiations arising from our Unit Trading Bulletin Board and have no role in effecting the transactions beyond approval, as required under our member control agreement, and the issuance of new certificates. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the Unit Trading Bulletin Board. We do not receive any compensation for creating or maintaining the Unit Trading Bulletin Board. In advertising our Unit Trading Bulletin Board, we do not characterize the Company as a broker or dealer or an exchange. We do not use the Unit Trading Bulletin Board to offer to buy or sell securities other than in compliance with the securities laws, including any applicable registration requirements.
There are detailed timelines that must be followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules, our member control agreement, and are subject to approval by our board of governors.
As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status. Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof). All transfers are subject to a determination that the transfer will not cause the Company to be deemed a publicly traded partnership.
The following table contains historical information by fiscal quarter for the fiscal years ended October 31, 2025 and 2024 regarding the actual unit transactions that were completed by our unit-holders during the periods specified. We believe this most accurately represents the current trading value of the Company's units. The information was compiled by reviewing the completed unit transfers that occurred on our Unit Trading Bulletin Board during the quarters indicated.
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| Quarter | Low Price | High Price | Average Price | # of Units Traded | ||||||||||
2025 4th | $ | 12,000 | $ | 13,100 | $ | 12,177 | 13 | |||||||
2025 3rd | $ | 11,000 | $ | 11,001 | $ | 11,000 | 3 | |||||||
2025 2nd | $ | — | $ | — | $ | — | — | |||||||
2025 1st | $ | — | $ | — | $ | — | — | |||||||
2024 4th | $ | 15,750 | $ | 15,750 | $ | 15,750 | 2 | |||||||
2024 3rd | $ | — | $ | — | $ | — | — | |||||||
2024 2nd | $ | 17,000 | $ | 17,250 | $ | 17,083 | 12 | |||||||
2024 1st | $ | 17,000 | $ | 17,255 | $ | 17,139 | 11 | |||||||
Distributions
Our expectations with respect to our ability to make future distributions are discussed in greater detail in “ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.” In addition, distributions are restricted by certain loan covenants in our construction term loan and revolving credit financing agreements. These loan covenants and restrictions are described in greater detail under “ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Performance Graph
The following graph shows a comparison of cumulative total member return since October 31, 2020, calculated on a dividend reinvested basis, for the Company, the NASDAQ Composite Index (the "NASDAQ") and an index of other companies that have the same SIC codes as the Company (the "Industry Index"). The graph assumes $100 was invested in each of our units, the NASDAQ, and the Industry Index on October 31, 2020. Note that historic stock price performance is not necessarily indicative of future unit price performance.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the performance graph and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Fiscal Years Ended October 31, 2025 and 2024
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, gross profit, operating expenses, operating profit and other items to total revenues in our statements of operations for the fiscal years ended October 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||||||||||||||
| Statements of Operations Data | Amount | % | Amount | % | |||||||||||||||||||
| Revenues | $ | 141,168,945 | 100.00 | % | $ | 141,819,117 | 100.00 | % | |||||||||||||||
| Cost of Goods Sold | 131,560,437 | 93.19 | % | 132,797,460 | 93.64 | % | |||||||||||||||||
| Gross Profit | 9,608,508 | 6.81 | % | 9,021,657 | 6.36 | % | |||||||||||||||||
| Operating Expenses | 4,610,514 | 3.27 | % | 4,321,431 | 3.05 | % | |||||||||||||||||
| Operating Profit | 4,997,994 | 3.54 | % | 4,700,226 | 3.31 | % | |||||||||||||||||
| Other Income (Expense), Net | 11,328,674 | 8.02 | % | 1,414,680 | 1.00 | % | |||||||||||||||||
| Net Income | $ | 16,326,668 | 11.56 | % | $ | 6,114,906 | 4.31 | % | |||||||||||||||
The following table shows the sources of our revenues for the fiscal years ended October 31, 2025 and 2024.
| 2025 | 2024 | |||||||||||||||||||||||||
| Revenue Sources | Amount | Percentage of Total Revenues | Amount | Percentage of Total Revenues | ||||||||||||||||||||||
| Ethanol Sales | $ | 108,444,766 | 76.82 | % | $ | 105,138,153 | 74.13 | % | ||||||||||||||||||
| Modified Wet Distillers Grains Sales | 6,101,302 | 4.32 | % | 6,803,161 | 4.80 | % | ||||||||||||||||||||
| Dried Distillers Grains Sales | 14,232,321 | 10.08 | % | 18,592,703 | 13.11 | % | ||||||||||||||||||||
| Corn Oil Sales | 12,390,556 | 8.78 | % | 11,285,100 | 7.96 | % | ||||||||||||||||||||
| Total Revenues | $ | 141,168,945 | 100.00 | % | $ | 141,819,117 | 100.00 | % | ||||||||||||||||||
Revenues
Ethanol
Our total revenues were approximately the same for the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024. Revenue from ethanol sales increased by approximately 3.1% during the fiscal year ended October 31, 2025 compared to the fiscal year ended October 31, 2024, due primarily to an increase in the average price per gallon of ethanol sold and an increase in gallons sold during the fiscal year ended October 31, 2025, compared to the fiscal year end October 31, 2024.
The average ethanol sales price per gallon we received for the fiscal year ended October 31, 2025 was approximately 1.9% higher than the average price received for the fiscal year ended October 31, 2024. Ethanol prices were higher due primarily to higher export gallons and increased domestic demand for the period.
Year round ethanol sales of E15 and approval of E15 in California could have a positive effect on domestic ethanol demand and the market price of ethanol. Other factors likely to affect ethanol prices in the future include domestic corn prices and corn supply, energy prices and inventory levels. In addition, trade actions and the possible institution of tariffs by the United States and retaliatory actions by foreign governments could have a negative effect on foreign ethanol demand, increase the volatility in commodity prices and impact the market price of ethanol.
The number of gallons of ethanol increased during the fiscal year ended October 31, 2025 by approximately 1.0% compared to the fiscal year ended October 31, 2024, due to improved ethanol yield. Our ethanol production levels for the fiscal year ended October 31, 2025 are at an annual rate of approximately 70.2 million gallons which is the maximum allowed under our air permit with the Minnesota Pollution Control Agency. Management anticipates that the amount of ethanol produced
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could decrease in the future if operating conditions worsen and we reduce ethanol production levels. Ethanol production could also decrease if delayed rail car shipments affect our ability to get sufficient rail cars to transport our ethanol.
For the fiscal year ended October 31, 2025, we recorded losses due to changes in the fair value of our outstanding ethanol derivative positions of approximately $57,000, which reduced our ethanol revenue during the period. For the fiscal year ended October 31, 2024, we recorded gains of approximately $37,000, which increased our ethanol revenue during the period.
Distillers Grains
Revenue from distillers grains sales decreased by approximately 20.0% during the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024, due primarily to lower distillers grains prices and an overall decrease in tons of distillers grains sold during the period.
For the fiscal year ended October 31, 2025, the average price per ton that we received for our dried distillers grains was approximately 15.2% lower than the average price we received during the fiscal year ended October 31, 2024, due primarily to a decrease in the domestic prices of soybean meal. For the fiscal year ended October 31, 2025, the average price per ton that we received for our modified distillers grains was approximately 17.3% lower than during the fiscal year ended October 31, 2024, due primarily to decreases in the domestic prices of soybeans and additional soybean production resulting in lower protein prices.
Distillers grains prices typically change in proportion to domestic corn and other feed products including soybeans and soybean meal. Distillers grains prices are also influenced by seasonal demand and the number of livestock on feed. Other factors likely to affect distillers grains prices include prices and availability of other commodities, the continued imposition by China of anti-dumping and anti-subsidy duties on distillers grains produced in the United States and trade actions by the United States including the possible imposition of tariffs and retaliatory actions by foreign governments.
The tons of dried distillers grains sold during the fiscal year ended October 31, 2025, decreased by approximately 9.7%, compared to the fiscal year ended October 31, 2024. The tons of modified distillers grains sold during the fiscal year ended October 31, 2025, increased by approximately 8.4%, compared to the fiscal year ended October 31, 2024. Management anticipates that the overall amount of distillers grains produced could decrease in the future if operating conditions worsen and there is a reduction in ethanol production levels which would then have a corresponding effect on distillers grains. In addition, an increase in ethanol or corn oil yields could have a negative effect of distillers grains production levels.
Corn Oil
Revenue from corn oil sales increased by approximately 9.8% for the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024, due primarily to an increase in the price of corn oil sold during the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024.
The average price per pound of corn oil sold during the fiscal year ended October 31, 2025 increased 10.9% due primarily to an increase in biodiesel demand. Factors likely to affect corn oil prices include corn oil and soy oil supply, biodiesel demand, prices of corn and soybeans, the status of the biodiesel blenders' tax credit and new crop corn oil content.
The pounds of corn oil we sold during the fiscal year ended October 31, 2025 were approximately the same compared to the pounds of corn oil we sold for the fiscal year ended October 31, 2024. Management anticipates that the amount of corn oil produced may decrease in the future if there is a reduction in ethanol production levels which would then have a corresponding effect on corn oil. However, an increase in corn oil yields due to improved efficiencies or a corn crop with higher oil content could contribute to higher corn oil production levels.
Cost of Goods Sold
Our two largest costs of production are corn (75.4% of cost of goods sold for the fiscal year ended October 31, 2025) and natural gas (5.7% of cost of goods sold for the fiscal year ended October 31, 2025). Our total cost of goods sold was approximately 0.9% less during the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024.
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Corn
Our average price per bushel of corn for the fiscal year ended October 31, 2025 increased by approximately 0.9% compared to the fiscal year ended October 31, 2024, due primarily to higher market value for corn as a result of local corn demand. Weather and projected yields have also had an effect on corn prices during the period. We used approximately the same number of bushels of corn in the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024.
Management expects there to be an adequate corn supply available in our area to operate the ethanol plant. However, corn prices are dependent on weather conditions, supply and demand, stocks and other factors which could contribute to price volatility and significantly impact our costs of production. In addition, corn prices could continue to be impacted in the future by global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices.
At October 31, 2025, we had approximately 3,376,000 bushels of forward fixed basis corn purchase contracts and 987,000 bushels of forward fixed price corn purchase contracts valued at approximately $4,135,000 for various delivery periods through December 2026.
For the fiscal years ended October 31, 2025 and October 31, 2024, we recorded gains due to changes in the fair value of our outstanding corn derivative positions of approximately $1,100,000 and $391,000, respectively, which reduced our cost of goods sold during these periods.
Natural Gas
For the fiscal year ended October 31, 2025, we purchased approximately the same number of MMBTUs of natural gas compared to the same period of 2024.
The average price per MMBTU of natural gas increased by approximately 3.4% compared to the fiscal year ended October 31, 2024, due primarily to increased prices for transportation in winter months. Factors such as industry production problems or large increases in natural gas demand in the future could have a negative effect on natural gas prices.
At October 31, 2025, we had approximately 529,000 MMBTUs of forward fixed basis natural gas contracts and 2,560,000 MMBTUs of fixed price natural gas contracts valued at approximately $9,362,000 for delivery periods through October 2029.
For the fiscal years ended October 31, 2025 and October 31, 2024, we recorded losses due to the change in fair value of our outstanding natural gas derivative positions of approximately $94,000 and $5,000, respectively, which reduced our cost of goods sold during these periods.
Operating Expenses
We had operating expenses for the fiscal year ended October 31, 2025 of $4,610,514 compared to operating expenses of $4,321,431 for the fiscal year ended October 31, 2024. Management attributes this increase in operating expenses to an increase in IT and consulting fees. We continue to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.
Other Income, Net
We had total other income, net for the fiscal year ended October 31, 2025 of $11,328,674 compared to total other income of $1,414,680 for the fiscal year ended October 31, 2024. Our other income, net for the fiscal year ended October 31, 2025, was higher due primarily to our recognition of $10,400,000 in federal tax credits for the fiscal year ended October 31, 2025 associated with incentives under Section 45Z.
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Results of Operations for the Fiscal Years Ended October 31, 2024 and 2023
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 ended October 31, 2024 and 2023:
| 2024 | 2023 | ||||||||||||||||||||||
| Statements of Operations Data | Amount | % | Amount | % | |||||||||||||||||||
| Revenues | $ | 141,819,117 | 100.00 | % | $ | 199,052,359 | 100.00 | % | |||||||||||||||
| Cost of Goods Sold | 132,797,460 | 93.64 | % | 179,483,134 | 90.17 | % | |||||||||||||||||
| Gross Profit | 9,021,657 | 6.36 | % | 19,569,225 | 9.83 | % | |||||||||||||||||
| Operating Expenses | 4,321,431 | 3.05 | % | 4,210,764 | 2.11 | % | |||||||||||||||||
| Operating Profit | 4,700,226 | 3.31 | % | 15,358,461 | 7.72 | % | |||||||||||||||||
| Other Income, Net | 1,414,680 | 1.00 | % | 1,380,843 | 0.69 | % | |||||||||||||||||
| Net Income | $ | 6,114,906 | 4.31 | % | $ | 16,739,304 | 8.41 | % | |||||||||||||||
The following table shows the sources of our revenues for the fiscal years ended October 31, 2024 and 2023.
| 2024 | 2023 | |||||||||||||||||||||||||
| Revenue Sources | Amount | Percentage of Total Revenues | Amount | Percentage of Total Revenues | ||||||||||||||||||||||
| Ethanol Sales | $ | 105,138,153 | 74.13 | % | $ | 148,417,723 | 74.56 | % | ||||||||||||||||||
| Modified Wet Distillers Grains Sales | 6,803,161 | 4.80 | % | 10,396,222 | 5.22 | % | ||||||||||||||||||||
| Dried Distillers Grains Sales | 18,592,703 | 13.11 | % | 24,775,374 | 12.45 | % | ||||||||||||||||||||
| Corn Oil Sales | 11,285,100 | 7.96 | % | 15,463,040 | 7.77 | % | ||||||||||||||||||||
| Total Revenues | $ | 141,819,117 | 100.00 | % | $ | 199,052,359 | 100.00 | % | ||||||||||||||||||
Revenues
Ethanol
Our total revenues were lower for the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023. Revenue from ethanol sales decreased by approximately 29.2% during the fiscal year ended October 31, 2024 compared to the fiscal year ended October 31, 2023, due primarily to a decrease in the average price per gallon of ethanol sold during the fiscal year ended October 31, 2024, compared to the fiscal year end October 31, 2023.
The average ethanol sales price per gallon we received for the fiscal year ended October 31, 2024 was approximately 28.0% lower than the average price received for the fiscal year ended October 31, 2023. Ethanol prices were lower due primarily to lower corn and energy prices and an increase in ethanol stocks resulting from a period of higher industry-wide production.
The number of gallons of ethanol decreased during the fiscal year ended October 31, 2024 by approximately 1.6% compared to the fiscal year ended October 31, 2023, due primarily to timing of shipments. Our ethanol production levels for the fiscal year ended October 31, 2024 were at an annual rate of approximately 69 million gallons.
For the fiscal year ended October 31, 2024 and October 31, 2023, we recorded gains due to changes in the fair value of our outstanding ethanol derivative positions of approximately $37,000 and $79,000, respectively. These gains increased our ethanol revenue during these periods.
Distillers Grains
Revenue from distillers grains sales decreased by approximately 27.8% during the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023, due primarily to lower distillers grains prices and a decrease in tons of distillers grains sold during the period.
For the fiscal year ended October 31, 2024, the average price per ton that we received for our dried distillers grains was approximately 29.1% lower than the average price we received during the fiscal year ended October 31, 2023, due
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primarily to decreases in the domestic prices of corn and soybeans and lower demand for the period. For the fiscal year ended October 31, 2024, the average price per ton that we received for our modified distillers grains was approximately 26.0% lower than during the fiscal year ended October 31, 2023, due primarily to decreases in the domestic prices of corn and soybeans and decreased demand in our area.
Overall, the number of tons of distillers grains sold decreased during our fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023, due primarily to the decrease in modified distillers grains sold.
Corn Oil
Revenue from corn oil sales decreased by approximately 27.0% for the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023, due primarily to decreases in the price of corn oil sold during the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023.
The average price per pound of corn oil sold during the fiscal year ended October 31, 2024 decreased 27.0% due to lower corn and soybean prices and an increase in corn oil and soy oil production which outpaced demand.
The pounds of corn oil we sold during the fiscal year ended October 31, 2024 were approximately the same compared to the pounds of corn oil we sold for the fiscal year ended October 31, 2023.
Cost of Goods Sold
Our two largest costs of production are corn (74.4% of cost of goods sold for the fiscal year ended October 31, 2024) and natural gas (5.5% of cost of goods sold for the fiscal year ended October 31, 2024). Our total cost of goods sold was approximately 26.0% less during the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023.
Corn
Our average price per bushel of corn for the fiscal year ended October 31, 2024 decreased by approximately 31.2% compared to the fiscal year ended October 31, 2023, due primarily to lower market value for corn as a result of increases in projected stocks and volatility in commodity prices. Weather and projected yields also had an effect on corn prices during the period. We used approximately the same number of bushels of corn in the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023.
At October 31, 2024, we had approximately 878,000 bushels of forward fixed basis corn purchase contracts and 819,000 bushels of forward fixed price corn purchase contracts valued at approximately $3,574,000 for various delivery periods through December 2025.
For the fiscal years ended October 31, 2024 and October 31, 2023, we recorded gains due to changes in the fair value of our outstanding corn derivative positions of approximately $391,000 and $1,435,000, respectively. These gains reduced our cost of goods sold during these periods.
Natural Gas
For the fiscal year ended October 31, 2024, we purchased approximately 1.0% more MMBTUs of natural gas compared to the same period of 2023. This increase is primarily due to an increase in dried distillers grains sales for the period.
The average price per MMBTU of natural gas increased by approximately 15.9% compared to the fiscal year ended October 31, 2023, due primarily to higher transportation rates paid to Northern Natural Gas Company.
At October 31, 2024, we had approximately 604,000 MMBTUs of forward fixed basis natural gas contracts and 2,043,000 MMBTUs of fixed price natural gas contracts valued at approximately $7,871,000 for delivery periods through March 2027.
For the fiscal year ended October 31, 2024, we recorded losses due to the change in fair value of our outstanding natural gas derivative positions of approximately $5,000, which increased our cost of goods sold during the period. For the fiscal year ended October 31, 2023, we recorded gains due to the change in fair value of our outstanding natural gas derivative positions of approximately $71,000, which reduced our cost of goods sold during the period.
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Operating Expenses
We had operating expenses for the fiscal year ended October 31, 2024 of $4,321,431 compared to operating expenses of $4,210,764 for the fiscal year ended October 31, 2023. Management attributes this increase in operating expenses to an increase in insurance and consulting fees. We continue to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.
Other Income, Net
We had total other income, net for the fiscal year ended October 31, 2024 of $1,414,680 compared to total other income, net of $1,380,843 for the fiscal year ended October 31, 2023. Our other income, net for the fiscal year ended October 31, 2024, was higher due primarily to an increase in interest income.
Changes in Financial Condition for the Fiscal Years Ended October 31, 2025 and 2024
The following table highlights the changes in our financial condition for the fiscal year ended October 31, 2025 from our previous fiscal year ended October 31, 2024:
| October 31, 2025 | October 31, 2024 | ||||||||||
| Current Assets | $ | 43,423,174 | $ | 52,901,076 | |||||||
| Current Liabilities | 11,571,070 | 18,414,896 | |||||||||
| Long-Term Liabilities | 493,444 | 640,682 | |||||||||
Current Assets. The decrease in current assets was primarily the result of decreases in cash and cash equivalents at October 31, 2025, compared to October 31, 2024 due primarily to cash distributions of $8,079,250 paid to our members on December 11, 2024 and corn payments to producers that were deferred until after the first of the year. These decreases were partially offset by an increase in inventories at October 31, 2025, compared to October 31, 2024, due primarily to higher values of ethanol, corn and parts inventory.
Current Liabilities. The decrease in current liabilities was primarily the result of decreases in accounts payable at October 31, 2025, compared to October 31, 2024 due primarily to timing of deferred corn payments..
Long-Term Liabilities. Long-term liabilities decreased at October 31, 2025, compared to October 31, 2024, due primarily to decreasing liabilities owed under a contract for use of a natural gas pipeline to transport natural gas to our facility.
Liquidity and Capital Resources
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 to fund operations. However, if market conditions worsen, we could have difficulty maintaining our liquidity and may need to rely on our revolving lines of credit or seek increases.
The following table shows cash flows for the fiscal years ended October 31, 2025 and 2024:
| October 31, 2025 | October 31, 2024 | ||||||||||
| Net cash provided by operating activities | $ | 3,470,621 | $ | 14,129,228 | |||||||
| Net cash used in investing activities | (5,612,052) | (5,524,511) | |||||||||
| Net cash used in financing activities | (8,238,626) | (16,293,833) | |||||||||
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Cash Flow From Operations
We had less cash from operations for the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024 due primarily to changes in accounts payable and inventories during the fiscal year ended October 31, 2025.
Cash Flow From Investing Activities
We used more cash for investing activities during the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024. This change was due primarily to an increase in capital expenditures during the fiscal year ended October 31, 2025.
Cash Flow From Financing Activities
We used less cash in financing activities during the fiscal year ended October 31, 2025, compared to the fiscal year ended October 31, 2024. Our cash used in financing activities decreased due primarily to decreased distributions to our members during the fiscal year ended October 31, 2025 as compared to October 31, 2024.
The following table shows cash flows for the fiscal years ended October 31, 2024 and 2023:
| October 31, 2024 | October 31, 2023 | ||||||||||
| Net cash provided by operating activities | $ | 14,129,228 | $ | 29,052,134 | |||||||
| Net cash used in investing activities | (5,524,511) | (1,858,703) | |||||||||
| Net cash used in financing activities | (16,293,833) | (15,463,889) | |||||||||
Cash Flow From Operations
We had less cash from operations for the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023 due primarily to a decrease in net income and changes in accounts payable during the fiscal year ended October 31, 2024.
Cash Flow From Investing Activities
We used more cash for investing activities during the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023. This change was due primarily to an increase in capital expenditures during the fiscal year ended October 31, 2024.
Cash Flow From Financing Activities
We used more cash in financing activities during the fiscal year ended October 31, 2024, compared to the fiscal year ended October 31, 2023. Our cash used in financing activities increased due primarily to increased distributions to our members during the fiscal year ended October 31, 2024 as compared to October 31, 2023.
Short-Term and Long-Term Debt Sources
Our loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit 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.
Term Revolving Loan
The Term Revolving Loan is for up to $20,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at October 31, 2025 was 7.60%. 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 on November 1, 2027. The outstanding balance on this note was $0 at October 31, 2025. We pay interest at a rate of 1.50% on amounts outstanding for letters of credit which
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also reduce the amount available under the Term Revolving Loan. We had no letters of credit outstanding at October 31, 2025. We are also required to pay unused commitment fees for the Term Revolving Loan.
Revolving Line of Credit Loan
The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at October 31, 2025 was approximately $0. The applicable interest rate at October 31, 2025 was 7.60%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2026. The maturity date may be extended for up to one additional one year term upon our written request which will be deemed automatically granted by Compeer upon written certification that there is no event of default. We have previously been granted three extensions. The outstanding balance on this note was $0 at October 31, 2025. We are also required to pay unused commitment fees for the Revolving Line of Credit Loan.
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 new debt and require minimum debt service coverage and working capital requirements. We are limited to incurring additional debt over certain amounts and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. We are required to maintain a minimum working capital requirement of $9,000,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. 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 $9,000,000, or an unlimited amount if working capital is greater than or equal to $12,000,000.
Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements. We will continue to work with Compeer to 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.
Grants
The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy through production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. We recorded awards from the Bioincentive Program in other income of approximately $379,000, $315,000 and $268,000 during the fiscal years ended October 31, 2025, 2024 and 2023, respectively.
The Biofuel Producer Program was created as part of the Coronavirus Aid Relief and Economic Security Act. The USDA announced that the funds were made available to provide economic relief to biofuels producers who faced unexpected market losses due to the COVID-19 pandemic and support a significant market for agricultural producers who supply products used in biofuel production. We recorded awards from the Biofuel Producer Program in other income of approximately $0, $0 and $508,000 during the fiscal years ended October 31, 2025, 2024 and 2023 respectively.
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Capital Expenditures
We entered into an agreement with ICM, Inc. to construct a sieve bottle and an EVAP Zero which are expected to increase efficiencies. The construction commenced in the spring of 2025. The sieve bottle was completed in August 2025 and the EVAP Zero was completed in November 2025, at an aggregate cost of approximately $4,200,000. We funded the project from operations and existing debt facilities.
Tax Credit Generation
For the fiscal year ended October 31, 2025, we recognized $10,400,000 of Section 45Z tax credits. This amount includes the gross credit amount of approximately $11,900,000 net of broker fees, energy credits and compliance payments of approximately $1,500,000. We recorded $10,400,000 as an increase to Other Income and an asset recorded within Other Assets. We plan to monetize these tax credits through sale of such credits to third parties. The recognition of these tax credits is contingent on meeting the requirements of Section 45Z.
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 October 31, 2025:
| Payment Due By Period | |||||||||||||||||
| Total | Less than One Year | One to Three Years | Three to Five Years | After Five Years | |||||||||||||
| Long-Term Debt Obligations | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
| Operating Lease Obligations | — | — | — | — | — | ||||||||||||
| Capital Lease Obligations | 715,200 | 178,800 | 357,600 | 178,800 | — | ||||||||||||
| Purchase Obligations | 13,836,446 | 9,651,198 | 4,185,248 | — | — | ||||||||||||
| Total Contractual Obligations | $ | 14,551,646 | $ | 9,829,998 | $ | 4,542,848 | $ | 178,800 | $ | — | |||||||
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:
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
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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 of October 31, 2025, the fair values of our commodity-based derivative instruments are a net liability of approximately $1,144,000. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We may use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Term Revolving Loan and Revolving Line of Credit Loan, each bearing a variable interest rate. As of October 31, 2025, interest accrues on these loans at a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10% and the applicable interest rate was 7.60%. Given the balance owed on these loans as of October 31, 2025, we have determined that our exposure to market risk from changes in interest rates is not material. The specifics of each note are discussed in greater detail in “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Commodity Price Risk
We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol, distillers grains and corn oil. We may seek to minimize the risks from fluctuations in the prices of raw material inputs through the use of corn commodity-based and natural gas derivatives. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.
In the ordinary course of business, we enter into forward contracts for our commodity purchases. At October 31, 2025, we have approximately 3,376,000 bushels of forward fixed basis corn contracts and 987,000 bushels of forward fixed price corn contracts valued at approximately $4,135,000. These purchase contracts are for various delivery periods through December 2026. At October 31, 2025, we have approximately 529,000 MMBTUs of forward fixed basis natural gas contracts and 2,560,000 MMBTUs of fixed price natural gas contracts valued at approximately $9,361,686 for delivery periods through October 2029.
In the ordinary course of business, we enter into forward contracts for our commodity sales. At October 31, 2025, we have approximately 7,000 tons of forward fixed price dried distillers grains sales contracts valued at approximately $876,000 for delivery periods through December 2025. At October 31, 2025, we have approximately 27,000 tons of forward fixed price modified distillers grains sales contracts valued at approximately $1,888,000 for delivery periods through July 2026. In addition, at October 31, 2025, we have approximately 2,740,000 pounds of forward fixed price corn oil sales contracts valued at approximately $1,475,000 for delivery periods through December 2025.
We recorded gains due to changes in the fair value of our outstanding corn derivative positions for the fiscal year ended October 31, 2025 of approximately $1,061,000. We recorded gains due to changes in the fair value of our outstanding corn derivative future positions for the fiscal year ended October 31, 2024 of approximately $391,000. For the fiscal year ended October 31, 2025, we recorded losses due to changes in the fair value of our outstanding ethanol derivative future positions of
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approximately $57,000. For the fiscal year ended October 31, 2024, we recorded gains due to changes in the fair value of our outstanding ethanol derivative future positions of approximately $37,000. For the fiscal years ended October 31, 2025, we recorded losses due to the change in fair value of our outstanding natural gas derivative future positions of approximately $94,000. For the fiscal year ended October 31, 2024, we recorded losses due to the change in fair value of our outstanding natural gas derivative future positions of approximately $5,000.
As commodity prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.
A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol and distillers grains prices as of October 31, 2025 net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from October 31, 2025.
The results of this analysis, which may differ from actual results, are approximately as follows:
| Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | Unit of Measure | Hypothetical Adverse Change in Price as of 10/31/2025 | Approximate Adverse Change to Income | ||||||||||||||
| Natural Gas | 230,000 | MMBTU | 10 | % | $ | 95,000 | |||||||||||
| Ethanol | 69,000,000 | Gallons | 10 | % | $ | 11,454,000 | |||||||||||
| Corn | 18,680,000 | Bushels | 10 | % | $ | 7,323,000 | |||||||||||
| DDGs | 112,000 | Tons | 10 | % | $ | 1,434,000 | |||||||||||
For comparison purposes, the results of our sensitivity analysis for October 31, 2024, were as follows:
| Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | Unit of Measure | Hypothetical Adverse Change in Price as of 10/31/2024 | Approximate Adverse Change to Income | ||||||||||||||
| Natural Gas | — | MMBTU | 10 | % | $ | — | |||||||||||
| Ethanol | 69,000,000 | Gallons | 10 | % | $ | 9,867,000 | |||||||||||
| Corn | 21,530,000 | Bushels | 10 | % | $ | 8,677,000 | |||||||||||
| DDGs | 110,000 | Tons | 10 | % | $ | 1,518,000 | |||||||||||
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report Of Independent Registered Public Accounting Firm
Members and the Board of Governors
Highwater Ethanol, LLC
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Highwater Ethanol, LLC (the Company) as of October 31, 2025 and 2024, the related statements of operations, changes in members’ equity, and cash flows for each of the three years in the period ended October 31, 2025, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2025 and 2024, and the results of its operations and its cash flows for the each of the three years in the period ended October 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Ethanol Revenue
As described in Notes 1 and 12 to the financial statements, the Company has an exclusive marketing agreement with RPMG, Inc. (RPMG) for the purposes of marketing and distributing the Company's ethanol production. The ethanol marketing agreement provides that the Company can sell its ethanol production through an index arrangement established by RPMG. For the fiscal year ended October 31, 2025, management of the Company elected to sell its ethanol production through this index arrangement. For ethanol index pricing, RPMG has discretion to determine the price and the terms and conditions of the sale of the Company's ethanol production that is sold and marketed as indexed gallons.
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Table of Contents
We identified ethanol revenue associated with index arrangement contracts as a critical audit matter because of the subjective auditor judgment required to audit ethanol revenue due to RPMG having discretion to determine the price and terms and conditions of the sale.
Our audit procedures related to the revenue recognition for ethanol sales included the following, among others:
•We obtained and reviewed the terms of the ethanol marketing agreement to identify the relevant terms and conditions which would impact the Company’s accounting conclusions.
•We obtained an understanding of the RPMG index pricing used for determining the price of indexed gallons.
•We confirmed with RPMG the total ethanol gallons sold, total price paid by, and indexed ethanol pricing for the fiscal years ended October 31, 2025 ethanol sales.
•We inspected a selection of invoices for ethanol sales to RPMG and tested selected shipping records and customer payments.
/s/ RSM US LLP
We have served as the Company’s auditor since 2013.
January 22, 2026
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HIGHWATER ETHANOL, LLC
Balance Sheets
| ASSETS | October 31, 2025 | October 31, 2024 | ||||||||||||
| Current Assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Derivative instruments | ||||||||||||||
| Accounts receivable | ||||||||||||||
| Inventories | ||||||||||||||
| Prepaids and other | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and Equipment | ||||||||||||||
| Land and land improvements | ||||||||||||||
| Buildings | ||||||||||||||
| Office equipment | ||||||||||||||
| Plant and process equipment | ||||||||||||||
| Vehicles | ||||||||||||||
| Construction in progress | ||||||||||||||
| Less accumulated depreciation | ( | ( | ||||||||||||
| Net property and equipment | ||||||||||||||
| Other Assets | ||||||||||||||
| Investments | ||||||||||||||
| Right of use asset - finance lease | ||||||||||||||
| Deposits | ||||||||||||||
| Tax credits | ||||||||||||||
| Total other assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
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Table of Contents
| LIABILITIES AND MEMBERS' EQUITY | October 31, 2025 | October 31, 2024 | ||||||||||||
| Current Liabilities | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses | ||||||||||||||
| Current portion of finance lease liability | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-Term Liabilities | ||||||||||||||
| Finance lease liability | ||||||||||||||
| Total Long-Term Liabilities | ||||||||||||||
| Commitments and Contingencies (Note 12) | ||||||||||||||
| Members' Equity | ||||||||||||||
Members' equity, | ||||||||||||||
| Total Liabilities and Members’ Equity | $ | $ | ||||||||||||
Notes to Financial Statements are an integral part of this Statement.
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Table of Contents
HIGHWATER ETHANOL, LLC
Statements of Operations
| Fiscal Year Ended | Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
| October 31, 2025 | October 31, 2024 | October 31, 2023 | |||||||||||||||
| Revenues | $ | $ | $ | ||||||||||||||
| Cost of Goods Sold | |||||||||||||||||
| Gross Profit | |||||||||||||||||
| Operating Expenses | |||||||||||||||||
| Operating Profit | |||||||||||||||||
| Other Income (Expense) | |||||||||||||||||
| Interest income | |||||||||||||||||
| Other income | |||||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
| Income from equity method investments | |||||||||||||||||
| Tax credits | |||||||||||||||||
| Total other income (expense), net | |||||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
| Weighted Average Units Outstanding | |||||||||||||||||
| Net Income Per Unit, basic and diluted | $ | $ | $ | ||||||||||||||
| Distributions Per Unit | $ | $ | $ | ||||||||||||||
Notes to Financial Statements are an integral part of this Statement.
37
HIGHWATER ETHANOL, LLC
Statements of Changes in Members' Equity
| Members' Equity | |||||
| Balance - October 31, 2022 | $ | ||||
| Net income | $ | ||||
Member unit repurchase, | $ | ( | |||
| Member Distribution | $ | ( | |||
| Balance - October 31, 2023 | $ | ||||
| Net income | $ | ||||
| Member Distribution | $ | ( | |||
| Balance- October 31, 2024 | $ | ||||
| Net income | $ | ||||
Member unit repurchase, | $ | ( | |||
| Member Distribution | $ | ( | |||
| Balance - October 31, 2025 | $ | ||||
Notes to Financial Statements are an integral part of this Statement.
38
HIGHWATER ETHANOL, LLC
Statements of Cash Flows
| Fiscal Year Ended | Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
| October 31, 2025 | October 31, 2024 | October 31, 2023 | |||||||||||||||
| Cash Flows from Operating Activities | |||||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operations | |||||||||||||||||
| Tax credit generation | ( | ||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Distributions in excess of earnings from equity method investments | ( | ||||||||||||||||
| Non-cash patronage income | ( | ( | ( | ||||||||||||||
| Change in working capital components | |||||||||||||||||
| Accounts receivable | ( | ||||||||||||||||
| Inventories | ( | ||||||||||||||||
| Derivative instruments | ( | ||||||||||||||||
| Prepaids and other | ( | ||||||||||||||||
| Accounts payable | ( | ( | ( | ||||||||||||||
| Accrued expenses | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash Flows from Investing Activities | |||||||||||||||||
| Capital expenditures | ( | ( | ( | ||||||||||||||
| Distributions from (purchase of) investments | ( | ||||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ||||||||||||||
| Cash Flows from Financing Activities | |||||||||||||||||
| Payments on finance lease liability | ( | ( | ( | ||||||||||||||
| Member unit repurchases | ( | ( | |||||||||||||||
| Member distributions | ( | ( | ( | ||||||||||||||
| Net cash used in financing activities | ( | ( | ( | ||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ( | |||||||||||||||
| Cash and cash equivalents – Beginning of Period | |||||||||||||||||
| Cash and cash equivalents – End of Period | $ | $ | $ | ||||||||||||||
| Supplemental Cash Flow Information | |||||||||||||||||
| Cash paid for interest expense | $ | $ | $ | ||||||||||||||
| Supplemental Disclosure of Noncash Financing and Investing Activities | |||||||||||||||||
| Capital expenditures included in accounts payable | $ | $ | $ | ||||||||||||||
Notes to Financial Statements are an integral part of this Statement.
39
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates an ethanol plant near Lamberton, Minnesota. The ethanol plant was constructed as a 50 million gallon per year nameplate ethanol plant. The plant currently operates in excess of its nameplate capacity due to the approval of air permit by the Minnesota Pollution Control Agency which allows for 70.2 million gallons of denatured ethanol per 12-month rolling average. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, inventory valuation and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps are required as part of the guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied.
The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. The Company recognizes revenue when control of goods is transferred. For ethanol sales by single manifest railcars and trucks, and distillers grains sales, control transfers when loaded into the rail car. For ethanol sales by unit trains, control transfers once the last railcar of the unit train has loaded and the shipping documentation transferred to the marketer.
In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.
The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
•ethanol sales
•modified distillers grains sales
•dried distillers grains sales
•corn oil sales
Disaggregation of revenue:
All revenue recognized in the income statement is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line for the fiscal years ended October 31, 2025, 2024 and 2023:
40
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
| Fiscal Year Ended October 31, 2025 | Fiscal Year Ended October 31, 2024 | Fiscal Year Ended October 31, 2023 | |||||||||||||||
| Revenue Sources | Amount | Amount | Amount | ||||||||||||||
| Ethanol Sales | $ | $ | $ | ||||||||||||||
| Modified Distillers Grains Sales | |||||||||||||||||
| Dried Distillers Grains Sales | |||||||||||||||||
| Corn Oil Sales | |||||||||||||||||
| Total Revenues | $ | $ | $ | ||||||||||||||
Contract assets and contract liabilities:
The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.
The Company had short term contract liabilities from contracts with customers of $35,112 , $138,528 and $34,599 at October 31, 2025, October 31, 2024 and October 31, 2023, respectively.
Shipping Costs
Cash and Cash Equivalents
The Company maintains its accounts primarily at one financial institution. The cash balances regularly exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any historical losses related to their concentration. The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid investments purchases with an original maturity of three months or less to be cash equivalents.
Derivative Instruments
Derivatives are recognized in the balance sheets and the measurement of these instruments are 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.
Contracts are evaluated 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 as derivatives, therefore, are not marked to market in our financial statements.
The Company entered into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded
41
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
through earnings in the period of change. Ethanol derivative changes in fair market value are included in revenue. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.
Accounts Receivable
Credit terms are extended to customers in the normal course of business. The Company routinely monitors accounts receivable and customer balances are generally kept current at 30 days or less. The Company generally requires no collateral.
Inventories
Inventories consist of raw materials, spare parts and supplies, work in process and finished goods. Raw materials and spare parts and supplies are stated at the lower of cost (first-in, first-out method) or net realizable value. Work in process and finished goods are stated at the lower of average cost or net realizable value.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided over an estimated useful life by use of the straight line method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Minimum Years | Maximum Years | |||||||
| Land improvements | ||||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Plant and process equipment | ||||||||
| Vehicles | ||||||||
Carrying Value of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset group to the carrying value of the asset group. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
42
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, and other working capital items approximate fair value at October 31, 2025 and 2024 due to the short maturity nature of these instruments (Level 2).
Investments
The Company has a 5.0 % investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), which markets the Company’s ethanol. The Company also has a 7 % ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investments are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income (loss) from equity method investments based on the most recent reliable data. Therefore, the net income (loss) which is reported in the Company’s statements of operations for the years ended October 31, 2025, 2024 and 2023 is based on the investee's results of operations for the twelve month periods ended September 30, 2025, 2024 and 2023, respectively.
The Company has cost method of investments in cooperatives. The corresponding patronage income is recorded in cost of goods sold.
Tax Credit Recognition
The Company accounts for tax credits associated with the U.S. federal clean fuel production incentives under Section 45Z of the Internal Revenue Code in accordance with IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance. These credits, as they are generated are recorded based on the eligible production tax credit rate per gallon, the emission factor based on the carbon intensity score and are adjusted to their estimated fair value. The credits are recognized as an other asset and other income.
Net Income (Loss) per Unit
Basic net loss per unit is computed by dividing net loss by the weighted average number of members’ units outstanding during the period. Diluted net loss per unit is computed by dividing net loss by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, for all periods presented, the Company’s basic and diluted net loss per unit are the same.
Income Taxes
The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, their income or losses are included in the income tax returns of the members. Accordingly, no provision or liability for federal or state income taxes has been included in these financial statements.
The Company recognizes and measures tax benefits when realization of the benefits is uncertain under a two-step approach. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. The Company has not recognized any liability for unrecognized tax benefits and has not identified any uncertain tax positions.
The Company files income tax returns in the U.S. federal and Minnesota state jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities beyond three years for jurisdictions in which it files.
Environmental Liabilities
The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or
43
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
disposal of materials at its location. Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage, and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief executive officer, the chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Company has determined that it has one reportable business segment, the manufacturing and marketing of fuel-grade ethanol and the co-products of the ethanol production process. The Company's chief operating decision maker reviews the reported profit and loss information of the Company for purposes of assessing financial performance and making operating decisions. Accordingly, the Company considers itself to be operating in a single industry segment.
The following tables depicts the Company's cost of corn, natural gas and other cost of goods sold for the fiscal years ended October 31, 2025, 2024 and 2023:
| October 31, 2025 | October 31, 2024 | October 31, 2023 | ||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||
| Ethanol and co-products | ||||||||||||||||||||
| Cost of corn | $ | $ | $ | |||||||||||||||||
| Cost of natural gas | ||||||||||||||||||||
| Other cost of goods sold | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
Grants
The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy through production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. The Company recorded awards from the Bioincentive Program in of approximately $379,000 , $315,000 , and $268,000 during the fiscal years ended October 31, 2025, 2024 and 2023, respectively.
Recently Issued or Adopted Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires new financial statement disclosures disaggregating certain revenue and expense information. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. The Company is currently in the process of evaluating the impact that this guidance will have on our Financial Statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This ASU requires improved disclosures about reportable segments and additional information about reportable expenses. ASU 2023-07 is effective for fiscal years and interim periods beginning after December 15, 2024. The Company adopted this guidance, effective February 1, 2025.
2. UNCERTAINTIES
The Company derives substantially all of its revenues from the sale of ethanol, distillers grains and corn oil. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can
44
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.
3. RECEIVABLES
Receivables consisted of the following at:
| October 31, 2025 | October 31, 2024 | October 31, 2023 | ||||||||||||||||||
| Trade receivables | $ | $ | $ | |||||||||||||||||
| Other receivables | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
4. INVENTORIES
Inventories consisted of the following at:
| October 31, 2025 | October 31, 2024 | |||||||||||||
| Raw materials | $ | $ | ||||||||||||
| Spare parts and supplies | ||||||||||||||
| Work in process | ||||||||||||||
| Finished goods | ||||||||||||||
| Total | $ | $ | ||||||||||||
The Company did no
5. DERIVATIVE INSTRUMENTS
The Company enters into corn, ethanol and natural gas derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The derivative instruments outstanding are not designated as effective hedges for accounting purposes.
Commodity Contracts
Management expects all open positions outstanding as of October 31, 2025 to be realized within the next twelve months.
The following tables provide details regarding the Company's derivative instruments at October 31:
| Instrument | Balance Sheet location | |||||||||||||
| 2025 | 2024 | |||||||||||||
| Corn, natural gas and ethanol contracts | ||||||||||||||
| In gain position | $ | $ | ||||||||||||
| In loss position | ( | ( | ||||||||||||
| Deposits with broker | ||||||||||||||
| Derivative instruments | $ | $ | ||||||||||||
45
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
These contracts and related deposits are subject to a master netting arrangements and, therefore, are presented on a net basis on the balance sheet.
The Company has 1,036,000 bushels of corn inventory delivered under delayed-pricing contracts as of October 31, 2025. The contracts have various pricing deadlines through August 27, 2026.
The following tables provide details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments:
| Statement of | Year Ended October 31 | |||||||||||||||||||
| Operations location | 2025 | 2024 | 2023 | |||||||||||||||||
| Ethanol contracts | Revenues | $ | ( | $ | $ | |||||||||||||||
| Corn contracts | Cost of goods sold | |||||||||||||||||||
| Natural gas contracts | Cost of goods sold | ( | ( | |||||||||||||||||
6. FAIR VALUE MEASUREMENTS
Various inputs are considered when determining the value of financial instruments. The inputs or methodologies used for valuing financial instruments are not necessarily an indication of the risk associated with investing in these instruments. These inputs are summarized in the three broad levels listed below:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 inputs include the following:
◦Quoted prices in active markets for similar assets or liabilities.
◦Quoted prices in markets that are not active for identical or similar assets or liabilities.
◦Inputs other than quoted prices that are observable for the asset or liability.
◦Inputs that are derived primarily from or corroborated by observable market data by correlation or other means.
•Level 3 inputs are unobservable inputs for the asset or liability.
The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.
| Fair Value as of | Fair Value Measurement Using | |||||||||||||||||||||||||
| October 31, 2025 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Derivative instrument - commodities | ||||||||||||||||||||||||||
| In gain position | $ | $ | $ | $ | ||||||||||||||||||||||
| In loss position | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
| Other assets - tax credits | $ | $ | $ | $ | ||||||||||||||||||||||
| Fair Value as of | Fair Value Measurement Using | |||||||||||||||||||||||||
| October 31, 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Derivative instrument - commodities | ||||||||||||||||||||||||||
| In gain position | $ | $ | $ | $ | ||||||||||||||||||||||
| In loss position | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||
The Company determines the fair value of the commodities contracts by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.
46
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
The Company determines the fair value of tax credits by including the observable inputs such as the gross credit amount net of broker fees, energy credits and compliance payments. The unobservable inputs include the discount rate from the tax credit sale.
7. INVESTMENT IN RPMG
The financial statements of RPMG are summarized as of and for the years ended September 30 as follows:
| September 30, 2025 | September 30, 2024 | |||||||
| Current assets | $ | $ | ||||||
| Other assets | ||||||||
| Current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Members' equity | ||||||||
| Revenue | ||||||||
| Net income | ||||||||
8. TAX CREDIT RECOGNITION
The U.S. federal government has introduced tax incentives to promote the production of low-carbon fuels and reduce Greenhouse Gas emissions, enhance energy security, and support the rural agricultural economy. Effective January 1, 2025, the Inflation Reduction Act of 2022 (IRA) replaces Section 6426 of the Internal Revenue Code with Section 45Z, providing a clean fuel production credit for the years 2025 through 2027. This was further updated and extended on July 4, 2025, under the OBBBA extending the credit through 2029. Producers of liquid transportation fuels are eligible to qualify for up to $1 per gallon.
The Company recognizes tax credits associated with the U.S. federal clean fuel production incentives under Section 45Z of the Internal Revenue Code in accordance with IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, the tax incentive is recognized when there is reasonable assurance the Company will comply with the provisions of the incentive and that the incentive will be received. These credits are recognized in Other Assets on the Company’s Balance Sheets and in Other Income on the Statements of Operations.
9. DEBT FINANCING
The Company had no
Bank Financing
The Company has a loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") that includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. The loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.
Term Revolving Loan
The Term Revolving Loan was for up to $20,000,000 and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10 %. The applicable interest rate at October 31, 2025 was 7.60 %. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding is due on November 1, 2027. The outstanding balance was $0
47
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
at October 31, 2025. The Company pays 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. The Company had no letters of credit outstanding at October 31, 2025. The Company is also required to pay unused commitment fees for the Term Revolving Loan.
Revolving Line of Credit Loan
The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000 , with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10 %. The amount available to borrow per the borrowing base calculations at October 31, 2025 was approximately $0 . The applicable interest rate at October 31, 2025 was 7.60 %. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2026. The maturity date may be extended for up to one additional one year term upon written request of the Company which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The Company has previously been granted three extensions. The outstanding balance on this note was $0 at October 31, 2025. The Company is also required to pay unused commitment fees for the Revolving Line of Credit Loan.
Debt Issuance Costs
Costs associated with the issuance of debt are recorded as debt issuance costs and are amortized over the term of the related debt by use of the effective interest method.
Covenants and other Miscellaneous Terms
The loan facility is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.
10. LEASES
The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liability are recognized based on the present value of lease payments over the lease term.
The discount rate used in determining the lease liability for the lease is the Company's estimated incremental borrowing rate. An incremental borrowing rate of 5.5 % was utilized for the Company's lease.
The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s finance lease has a remaining lease term of approximately 4 years. This lease includes an option to extend the lease. When it is reasonably certain the Company will exercise this option, the Company will update the remaining term of the lease. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.
48
HIGHWATER ETHANOL, LLC
Notes to Financial Statements
October 31, 2025 and 2024
The following tables summarizes the remaining maturities of the Company's financing lease liability as of October 31, 2025:
| For the Period Ending October 31, | Finance Lease | ||||||||||
| 2026 | $ | ||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| 2030 | |||||||||||
| Thereafter | |||||||||||
| Totals | |||||||||||
| Amount representing interest | ( | ||||||||||
| Lease liability | $ | ||||||||||
| Lease Cost | October 31, 2025 | October 31, 2024 | October 31, 2023 | |||||||||||||||||
| Operating lease cost | $ | $ | $ | |||||||||||||||||
| Short term lease cost | ||||||||||||||||||||
| Finance lease cost | ||||||||||||||||||||
| Amortization of leased assets | ||||||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||||||
| Net lease cost | $ | $ | $ | |||||||||||||||||
11. MEMBERS' EQUITY
The Company has one class of membership units, and is authorized to issue up to 10,000 units, which include certain transfer restrictions as specified in the operating agreement and pursuant to applicable tax and securities law, with each unit representing a pro rata ownership in the Company’s capital, profits, losses and distributions. Income and losses are allocated to all members based upon their respective percentage of units held.
Unit Repurchases
During the first quarter of its fiscal year ended October 31, 2025, the Company repurchased 1 of its membership units at a price of $10,000 per unit for a total purchase price of $10,000 . During the second quarter of its fiscal year ended October 31, 2025, the Company repurchased 1 of its membership units at a price of $10,000 per unit for a total purchase price of $10,000 .
12. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Marketing Agreements
The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute the ethanol produced by the Company. Based on the terms of the marketing agreement, RPMG will use commercially reasonable efforts to obtain the best price for all ethanol sold subject to the terms of the marketing agreement. RPMG shall have discretion to fix the price, terms and conditions of the sale of ethanol that is sold and marketed as Indexed Gallons. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol
either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement. The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement. Revenue recognized under this agreement for the years ended October 31, 2025, 2024 and 2023 was $108,698,999 , $105,224,299 and $148,687,325 , respectively. Accounts receivable under the agreement as of October 31, 2025 and 2024 were $173,872 and 641,974 respectively.
The Company has a distillers grains marketing agreement with a marketer (RPMG) to purchase and market all of the distillers grains produced at the plant beginning January 1, 2023. The Company pays a fee to the marketer to market distillers grains to third party end purchasers and the Company reimburses the marketer for certain charges paid to third parties. The marketer must market the distillers grains using commercially reasonable efforts and endeavor to maximize price and minimize freight and other costs but does not guarantee the price that will be obtained from the sale. Following an initial term, the agreement will be automatically extended for additional terms unless either party gives proper notice of non-extension. Revenue recognized under this agreement for the years ended October 31, 2025, 2024 and 2023 was $14,320,694 , $18,708,359 , and $20,395,291 , respectively. Accounts receivable under the agreement as of October 31, 2025 and 2024 were $410,537 and $641,832 , respectively.
The Company has a crude corn oil marketing agreement with a marketer (RPMG) to market and distribute all corn oil to be produced at the plant for an initial term. Under the agreement, the Company must provide estimates of production and inventory of corn oil. The marketer may execute sales contracts with buyers for future delivery of corn oil. The Company receives a percentage of the F.O.B. sale price less a marketing fee, actual freight and transportation costs and certain taxes and other charges related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive terms unless terminated in accordance with the agreement. Revenue recognized under this agreement for the years ended October 31, 2025, 2024 and 2023 was $12,447,207 , $11,338,879 and $15,510,877 respectively. Accounts receivable under the agreement as of October 31, 2025 and 2024 were $298,923 and $401,174 respectively.
Construction Project
The Company entered into an agreement with ICM, Inc. to construct a sieve bottle and an EVAP Zero which are expected to increase efficiencies. The construction commenced in the spring of 2025. The sieve bottle was completed in August 2025 and the EVAP Zero was completed in November 2025, at an aggregate cost of approximately $4,200,000 . The Company funded the project from operations and existing debt facilities.
Regulatory Agencies
The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.
Forward Contracts
In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. Forward contracts are as follows at October 31, 2025:
| Quantity | Average Price | Delivery Date | |||||||||
| Purchase of corn (in bushels): | |||||||||||
| Basis Contracts | 7/31/26 | ||||||||||
| Priced Contracts | $ | 12/31/26 | |||||||||
| Total | |||||||||||
| Purchase of natural gas (in dekatherms): | |||||||||||
| Basis Contracts | 3/31/27 | ||||||||||
| Priced Contracts | $ | 10/31/29 | |||||||||
| Total | |||||||||||
| Sales of dry distillers grains (in tons): | |||||||||||
| Priced contracts | $ | 12/31/25 | |||||||||
| Total | |||||||||||
| Sales of modified distillers grains (in tons) | |||||||||||
| Priced contracts | $ | 7/31/26 | |||||||||
| Total | |||||||||||
| Sales of corn oil (in pounds) | |||||||||||
| Priced contracts | $ | 12/31/25 | |||||||||
| Total | |||||||||||
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||
| Fiscal Year Ended October 31, 2025 | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Operating Profit (Loss) | ( | ( | |||||||||||||||||||||
| Net Income (Loss) | ( | ||||||||||||||||||||||
| Basic and diluted earnings (Loss) per unit | ( | ||||||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||
| Fiscal Year Ended October 31, 2024 | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Gross Profit (Loss) | ( | ||||||||||||||||||||||
| Operating Profit (Loss) | ( | ||||||||||||||||||||||
| Net Income (Loss) | ( | ||||||||||||||||||||||
| Basic and diluted earnings (Loss) per unit | ( | ||||||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||
| Fiscal Year Ended October 31, 2023 | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Operating Profit | |||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Basic and diluted earnings per unit | |||||||||||||||||||||||
The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.
14. SUBSEQUENT EVENTS.
On November 20, 2025, the board of governors declared a cash distribution of $1,400 per membership unit to unit holders of record at the close of business on November 20, 2025, for a total distribution of $6,652,100 . The distribution was paid on December 16, 2025.
49
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
Our management, including our Chief Executive Officer (the principal executive officer), Brian Kletscher, along with our Chief Financial Officer (the principal financial officer), Lucas Schneider, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of October 31, 2025. Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Inherent Limitations Over Internal Controls
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control-Integrated
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Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of October 31, 2025.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. As we are a non-accelerated filer, management's report is not subject to attestation by our registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 that permits us to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our 2025 fiscal year, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Insider Trading Arrangements
No governor or officer adopted terminated
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference from the definitive proxy statement for our 2026 annual meeting of members to be filed with the Securities Exchange Commission within 120 days after the end of our 2025 fiscal year. This proxy statement is referred to in this report as the 2026 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the 2026 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS
The information required by this Item is incorporated by reference from the 2026 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from the 2026 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item, including aggregate fees billed to us by the Company's principal accountant, RSM US LLP (PCAOB ID: 49 ), is incorporated by reference from the 2026 Proxy Statement.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits Filed as Part of this Report and Exhibits Incorporated by Reference.
The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:
(1)Financial Statements
The financial statements appear beginning at page 36 of this report.
(2)Financial Statement Schedules
All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
(3)Exhibits
| Exhibit No. | Exhibit | Filed Herewith | Incorporated by Reference | ||||||||||||||
| 3.1 | Articles of Organization of the registrant. | Exhibit 3.1 to the registrant's registration statement on Form SB-2 (Commission File 333-137482). | |||||||||||||||
| 3.2 | Second Amended and Restated Member Control Agreement of the registrant. | Exhibit 3.2 to the registrant's registration Form 10-Q filed with the Commission on March 22, 2011. | |||||||||||||||
| 3.3 | Third Amended and Restated Operating Agreement | Exhibit 3.1 to the registrant's Form 10-Q filed with the Commission on June 7, 2018 | |||||||||||||||
| 4.1 | Form of Membership Unit Certificate. | Exhibit 4.2 to the registrant's registration statement on Form SB-2 (Commission File 333-137482). | |||||||||||||||
| 4.2 | Description of Membership Units contained within Registrant's Registration Statement on Form SB-2 (Commission File 333-137482) filed on March 26, 2007 | Registrant's registration statement on Form SB-2/A (Commission File 333-137482) filed on March 26, 2007 | |||||||||||||||
| 10.1 | Energy Management Agreement dated June 8, 2006 between Highwater Ethanol, LLC and U.S. Energy Services, Inc. | Exhibit 10.9 to the registrant's registration statement on Form SB-2 (Commission File 33-137482). | |||||||||||||||
| 10.2 | Redwood Electric Service Agreement dated June 28, 2007. | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on July 3, 2007. | |||||||||||||||
| 10.3 | Distillers Grains Marketing Agreement with CHS, Inc. dated October 11, 2007. | Exhibit 10.4 to the registrant's Form 10-KSB filed with the Commission on January 29, 2008. | |||||||||||||||
| 10.4 | Centerpoint Natural Gas Agreement dated June 26, 2008. | Exhibit 10.26 to the registrant's Form 10-QSB filed with the Commission on September 15, 2008. | |||||||||||||||
| 10.5 | Trinity Industries Leasing Company Railroad Car Lease Agreement dated July 1, 2009. | Exhibit 10.2 to the registrant's Form 10-Q filed with the Commission on June 15, 2009. | |||||||||||||||
| 10.6 | Amended and Restated Ethanol Marketing Agreement between RPMG, Inc. and Highwater Ethanol, LLC dated August 27, 2012. + | Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on September 14, 2012. | |||||||||||||||
| 10.7 | Employment Agreement between Highwater Ethanol, LLC and Brian Kletscher dated February 26, 2014. | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on February 28, 2014 | |||||||||||||||
| 10.8 | Employment Agreement between Highwater Ethanol, LLC and Lucas Schneider dated February 26, 2014. | Exhibit 99.2 to the registrant's Form 8-K filed with the Commission on February 28, 2014 | |||||||||||||||
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| 10.9 | Amendment No. 1 to Distiller's Grain Marketing Agreement between Highwater Ethanol, LLC and CHS, Inc. dated February 13, 2014. | Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on March 5, 2014 | |||||||||||||||
| 10.10 | Irrevocable Standby Letter of Credit No. 101 between Highwater Ethanol, LLC and AgStar Financial Services, PCA dated February 27, 2014. | Exhibit 10.14 to the registrant's Form 10-Q filed with the Commission on March 5, 2014 | |||||||||||||||
| 10.11 | Easement for Construction and Process Demonstration Agreement between Butamax Advanced Biofuels LLC and Highwater Ethanol, LLC dated September 26, 2013.+ | Exhibit 10.79 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.12 | Equipment Lease Agreement between Butamax Advanced Biofuels LLC and Highwater Ethanol, LLC dated September 26, 2013.+ | Exhibit 10.80 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.13 | Technology Demonstration Risk Reduction Agreement between Butamax Advanced Biofuels LLC and Highwater Ethanol, LLC dated September 26, 2013.+ | Exhibit 10.81 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.14 | Security Agreement between Butamax Advanced Biofuels LLC and Highwater Ethanol, LLC dated September 26, 2013.+ | Exhibit 10.82 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.15 | Technology License Agreement between Butamax Advanced Biofuels LLC and Highwater Ethanol, LLC dated September 26, 2013.+ | Exhibit 10.83 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.16 | Distillers Crude Corn Oil Marketing Agreement between CHS Inc. and Highwater Ethanol, LLC dated November 4, 2013.+ | Exhibit 10.84 to the registrant's Form 10-K/A filed with the Commission on May 22, 2014 | |||||||||||||||
| 10.17 | Grain Origination Agreement with CHS, Inc. dated October 15, 2015. + | Exhibit 10.45 to the registrant's Form 10-K filed with the Commission on January 28, 2016 | |||||||||||||||
| 10.18 | Amended and Restated Security Agreement with AgStar dated January 22, 2016 | Exhibit 10.49 to the registrant's Form 10-K filed with the Commission on January 28, 2016 | |||||||||||||||
| 10.19 | Second Amended and Restated Term Revolving Note with Agstar dated January 22, 2016 | Exhibit 10.50 to the registrant's Form 10-K filed with the Commission on January 28, 2016 | |||||||||||||||
| 10.20 | Second Amended and Restated Term Revolving Note with United FCS dated January 22, 2016 | Exhibit 10.51 to the registrant's Form 10-K filed with the Commission on January 28, 2016 | |||||||||||||||
| 10.21 | Agreement for Electric Service with Redwood Electric Cooperative, Inc. | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on October 2, 2017 | |||||||||||||||
| 10.22 | Third Amended and Restated Term Revolving Note | Exhibit 99.2 to the registrant's Form 8-K filed with the Commission on April 27, 2018 | |||||||||||||||
| 10.23 | Third Amended and Restated Operating Agreement | Exhibit 3.1 to the registrant's Form 10-Q filed with the Commission on June 7, 2018 | |||||||||||||||
| 10.24 | Northern Natural Gas Company Amendment to TFX Throughput Service Agreement | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on August 1, 2018 | |||||||||||||||
| 10.25 | Member Corn Oil Marketing Agreement with RPMG, Inc. dated July 17, 2018+ | Exhibit 10.1 to the registrant's Form 10-Q filed with the Commission on September 11, 2018 | |||||||||||||||
| 10.26 | Natural Gas Service Agreement with CenterPoint Energy Resources Corp., d.b.a. CenterPoint Energy Minnesota Gas dated August 10, 2018+ | Exhibit 10.2 to the registrant's Form 10-Q filed with the Commission on September 11, 2018 | |||||||||||||||
| 10.29 | Construction Agreement with Nelson Baker Biotech dated August 13, 2020+ | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on September 1, 2020 | |||||||||||||||
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| 10.30 | Fourth Amended and Restated Mortgage, Security Agreement, Assignment of Leases and Rents, and Fixture Financing Statement dated September 14, 2020 | Exhibit 99.2 to the registrant's Form 8-K filed with the Commission on September 24, 2020 | |||||||||||||||
| 10.31 | Term Note with Compeer Financial, PCA dated September 14, 2020 | Exhibit 99.3 to the registrant's Form 8-K filed with the Commission on September 24, 2020 | |||||||||||||||
| 10.32 | Term Note with AgCountry Farm Credit Services, PCA dated September 14, 2020 | Exhibit 99.4 to the registrant's Form 8-K filed with the Commission on September 24, 2020 | |||||||||||||||
| 10.33 | High Purity Alcohol Member Marketing Agreement with RPMG, Inc. effective January 1, 2021 + | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on December 29, 2020 | |||||||||||||||
| 10.34 | Termination and Asset Purchase Agreement with Butamax dated December 3, 2020 + | Exhibit 10.74 to the registrant's Form 10-K filed with the Commission on January 21, 2021 | |||||||||||||||
| 10.36 | Third Amended and Restated Credit Agreement dated March 15, 2021 | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on March 22, 2021 | |||||||||||||||
| 10.37 | Revolving Line of Credit Note with Compeer Financial, PCA dated March 15, 2021 | Exhibit 99.2 to the registrant's Form 8-K filed with the Commission on March 22, 2021 | |||||||||||||||
| 10.38 | Revolving Line of Credit Note with AgCountry Farm Credit Services, PCA dated March 15, 2021 | Exhibit 99.3 to the registrant's Form 8-K filed with the Commission on March 22, 2021 | |||||||||||||||
| 10.40 | First Amendment to the Third Amended and Restated Credit Agreement with Compeer Financial PCA, dated February 8, 2022 | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on February 10, 2022 | |||||||||||||||
| 10.41 | Second Amendment to the Third Amended and Restated Credit Agreement with Compeer Financial PCA, dated August 8, 2022 | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on August 11, 2022 | |||||||||||||||
| 10.42 | Distillers Grains Marketing Agreement with RPMG, dated August 26, 2022+ | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on August 30, 2022 | |||||||||||||||
| 10.44 | 2024 Executive Bonus Plan | Exhibit 10.44 to the registrant's Form 10-K filed with the Commission on January 18, 2023 | |||||||||||||||
| 10.45 | Northern Natural Gas Service Agreement with Highwater Ethanol, LLC dated February 16, 2024 | Exhibit 99.1 to the registrant's Form 8-K filed with the Commission on February 20, 2024 | |||||||||||||||
| 10.46 | 2025 Executive Bonus Plan | Exhibit 10.46 to the registrant's Form 10-K filed with the Commission on January 21, 2024 | |||||||||||||||
| 10.47 | 2026 Executive Bonus Plan | X | |||||||||||||||
| 14.1 | Code of Ethics of Highwater Ethanol, LLC adopted on June 26, 2008. | Exhibit 14.1 to the registrant's Form 10-K filed with the Commission on January 29, 2013. | |||||||||||||||
| 19.1 | Exhibit 19.1 to the registrant's Form 10-K filed with the Commission on January 21, 2025. | ||||||||||||||||
| 31.1 | Certificate Pursuant to 17 CFR 240.13a-14(a) | X | |||||||||||||||
| 31.2 | Certificate Pursuant to 17 CFR 240.13a-14(a) | X | |||||||||||||||
| 32.1 | Certificate Pursuant to 18 U.S.C. Section 1350 | X | |||||||||||||||
| 32.2 | Certificate Pursuant to 18 U.S.C. Section 1350 | X | |||||||||||||||
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| 101.INS | Inline XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | |||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | |||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | X | |||||||||||||||
| 101.PRE | Inline XBRL Presentation Linkbase Document | X | |||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101). | X | |||||||||||||||
(+) Confidential information redacted
(X) Filed herewith
* Furnished herewith
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HIGHWATER ETHANOL, LLC | |||||||||||
| Date: | January 22, 2026 | /s/ Brian Kletscher | |||||||||
| Brian Kletscher | |||||||||||
| Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Date: | January 22, 2026 | /s/ Lucas Schneider | |||||||||
| Lucas Schneider | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial and Accounting Officer) | |||||||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
.
| Date: | January 22, 2026 | /s/ David Moldan | |||||||||
| David Moldan, Chairman and Governor | |||||||||||
| Date: | January 22, 2026 | /s/ Ronald Jorgenson | |||||||||
| Ronald Jorgenson, Vice Chairman and Governor | |||||||||||
| Date: | January 22, 2026 | /s/ David Eis | |||||||||
| David Eis, Secretary and Governor | |||||||||||
| Date: | January 22, 2026 | /s/ Michael Landuyt | |||||||||
| Michael Landuyt, Treasurer and Governor | |||||||||||
| Date: | January 22, 2026 | /s/ Russell Derickson | |||||||||
| Russell Derickson, Governor | |||||||||||
| Date: | January 22, 2026 | /s/ George Goblish | |||||||||
| George Goblish, Governor | |||||||||||
| Date: | January 22, 2026 | /s/ Luke Spalj | |||||||||
| Luke Spalj, Governor | |||||||||||
| Date: | January 22, 2026 | /s/ William Garth | |||||||||
| William Garth, Governor | |||||||||||
| Date: | January 22, 2026 | /s/ Daniel Tauer | |||||||||
| Daniel Tauer, Governor | |||||||||||
FAQ
What is Highwater Ethanol, LLC (HEOL) and where does it operate?
Highwater Ethanol, LLC is a Minnesota limited liability company formed to construct, own and operate a dry-mill ethanol plant near Lamberton, Minnesota. The plant was designed for 50 million gallons per year and was operating at an annual rate of approximately 70.2 million gallons of denatured ethanol as of October 31, 2025.
What are the main revenue sources for Highwater Ethanol (HEOL)?
Highwater’s principal products are fuel-grade ethanol, distillers grains and corn oil. For fiscal year 2025, ethanol accounted for 77% of total revenue, distillers grains 14% and corn oil 9%. The company also has the capability to produce USP grade high purity alcohol, which it may use opportunistically when margins favor that product.
How dependent is Highwater Ethanol (HEOL) on commodity prices like corn and natural gas?
Highwater’s profitability is driven by the spread between product prices and input costs, especially corn and natural gas. To support 70.2 million gallons of annual ethanol, the plant requires approximately 23.5 million bushels of corn per year. The company notes that corn prices were higher in the fiscal year ended October 31, 2025 and that sustained high corn or natural gas prices, if not offset by higher ethanol and co-product prices, could significantly reduce or eliminate profitability.
What marketing arrangements does Highwater Ethanol (HEOL) have for its products?
Highwater has exclusive marketing agreements with RPMG, Inc. for ethanol and corn oil, and since January 1, 2023, for dried distillers grains. As an owner of Renewable Products Marketing Group, LLC, Highwater’s ethanol marketing fees are based on RPMG’s cost, and it shares in RPMG LLC’s profits and losses. The company markets modified wet distillers grains directly. Management highlights that it is highly dependent on RPMG, and loss of this relationship could significantly impact revenues.
How does Highwater Ethanol (HEOL) plan to benefit from Section 45Z tax credits?
The company states that Section 45Z of the Inflation Reduction Act and subsequent OBBBA provides a Clean Fuel Production Tax Credit for low-emission transportation fuels produced and sold in specified years. Highwater expects to benefit and has recognized $10,400,000 of Section 45Z tax credits as of October 31, 2025, but warns that eligibility depends on meeting carbon intensity, prevailing wage and other requirements, and that future regulatory or legislative changes could reduce or eliminate the anticipated benefit.
What regulatory and policy risks affect Highwater Ethanol (HEOL)?
Highwater outlines extensive exposure to U.S. renewable fuel policy, including the Renewable Fuel Standard, EPA renewable volume obligations, small refinery exemptions, and the California Low Carbon Fuel Standard. It also cites risks from changing environmental rules, trade disputes, tariffs affecting ethanol and distillers grains exports, and evolving federal tax-credit regimes under Sections 45Q and 45Z. Adverse changes could reduce ethanol demand or increase compliance costs, hurting profitability.
What is Highwater Ethanol’s (HEOL) working capital and debt position?
The company primarily funds working capital through cash from operations and credit facilities with Compeer Financial. As of October 31, 2025, it had approximately $20,000,000 available to draw on a Term Revolving Loan and no availability on its Revolving Line of Credit Loan. Management notes that restrictive covenants in these agreements can limit flexibility, and any covenant breach could trigger demands for immediate repayment.