HIGHWATER ETHANOL LLC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

We have prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition and results of operations for the three-month period ended January 31, 2022, compared to the same period of the previous year. This discussion should be read in conjunction with the condensed financial statements and notes and disclosures contained in the company’s annual report on Form 10-K for the year ended October 31, 2021.

Forward-looking statements

This report contains forward-looking statements that involve future events, our future performance, and our expected future operations and actions. In some cases, you can identify forward-looking statements by using words such as “will”, “may”, “should”, “anticipate”, “believe”, “expect”, “plan”, “future” , “intend”, “could”, “estimate”, “predict”, “hope”, “potential”, “continue”, or the negative form of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Many factors could cause actual results to differ materially from those projected in the forward-looking statements. While it is impossible to identify all of these factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

      Changes in the availability and price of corn and natural gas;
      Reduction or elimination of the Renewable Fuel Standard;
      Volatile commodity and financial markets;
      Changes in legislation benefiting renewable fuels;
      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 or policies 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 and distillers grains;
      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;
      Changes in the price of oil and gasoline;
      Competition from clean power systems using fuel cells, plug-in hybrids and electric
      cars;
      International trade disputes and the imposition of tariffs by foreign governments on
      our products;
      Use by the EPA of small refinery exemptions; and
      A slowdown in global and regional economic activity, reduced demand for our products
      and the potential for labor shortages and shipping disruptions resulting from the
      COVID-19 pandemic.

The disclaimers mentioned in this section should also be considered in connection with any subsequent written or oral forward-looking statements that may be made by us or by persons acting on our behalf. We undertake no obligation to update any forward-looking statements contained in this report. Further, we cannot guarantee future results, activity levels, performance or achievements. We caution you not to place undue reliance on forward-looking statements, which

                                       16

————————————————– ——————————

speak only as of the date of this report. You should read this report and the documents we refer to in this report and have filed as exhibits in their entirety and with the understanding that our actual future results may differ materially from what we currently anticipate. We qualify all of our forward-looking statements with these cautionary statements.

Information available

Our website address is www.highwaterethanol.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are available, free of charge, on our website at www.highwaterethanol.com under the link “SEC Compliance”, as soon as reasonably possible after we have electronically filed such documents or provided such materials for, the Security and Exchange Commission. The content of our website is not incorporated by reference into this Quarterly Report on Form 10-Q.

Overview

Highwater Ethanol, LLC (“we”, “our”, “Highwater Ethanol” or the “Company”) has been incorporated as Minnesota limited liability company organized on May 2, 2006for the purpose of constructing, owning and operating an ethanol plant near
Lamberton, MN. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant. In October 2019our application for an air permit at Minnesota Pollution Control Agency to allow 70.2 million gallons of denatured ethanol per 12-month rolling average was approved.

At August 26, 2020we have reached an agreement with Nelson Baker BioTech, Inc. to install a system that will allow us to produce high purity USP grade alcohol for use in the disinfectant market. We started construction in November 2020. The project was completed in October 2021 and a limited production of high-purity alcohol began. However, we only had limited production of high purity alcohol in our fiscal year 2021 due to the current positive margins in ethanol. We expect to begin sales in our fiscal year 2022. We have entered into an agreement with RPMG, Inc. (“RPMG”) to be the exclusive distributor of our high purity alcohol. RPMG is currently our exclusive distributor and distributor of ethanol and corn oil. We also own Renewable Products Marketing Group, LLCthe parent entity of RPMG.

At November 17, 2021our Board of Governors declared a cash distribution of
$1,500 per subscription unit to unitholders of record at the close of business on
November 17, 2021for a total distribution of $7,158,750. The distribution was paid on December 17, 2021.

At January 19, 2022our Board of Governors declared a cash distribution of
$2,300 per subscription unit to unitholders of record at the close of business on
December 31, 2021for a total distribution of $10,972,150. The distribution was paid on February 11, 2022.

At February 8, 2022we have executed a First Amendment to the Third Amended and Restated Credit Agreement (the “First Amendment”), which amends the Third Amended and Restated Credit Agreement dated March 15, 2021 with Compeer Financial, PCA f/k/a AgStar Financial Services, PCA, as administrative agent (“Compeer”). The first amendment was primarily intended to change the interest rate of the revolving term loan and revolving line of credit, effective March 1, 2022. The First Amendment deleted references to the LIBOR rate and provided that the Term Revolving Loan and the Revolving Line of Credit will each bear interest at a variable interest rate based on the wall street journal Prime rate plus ten basis points with a minimum interest rate of 2.10%. The revolving line of credit loan, which was due to mature on March 15, 2022has also been extended to January 22, 2023. We expect to finance our operations over the next 12 months using cash flow from our continuing operations and our existing credit facilities. However, if we encounter adverse operating conditions in the ethanol industry that prevent us from operating the ethanol plant profitably, we may need to seek additional funds.

                                       17

————————————————– ——————————

© Edgar Online, source Previews