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.

 

As of August 12, 2021,15, 2022, there are 29,620,000 membership units of the registrant outstanding.

Lake Area Corn Processors, LLC and subsidiary (the "Company") is aand its wholly owned subsidiary, Dakota Ethanol, LLC ("Dakota Ethanol") are both South Dakota limited liability company.companies.

The Company owns and manages Dakota Ethanol, LLC ("Dakota Ethanol"), a 90 million-gallon (annual nameplate capacity) ethanol plant, located near Wentworth, South Dakota. Dakota Ethanol sells ethanol and related products to customers located in North America.

In addition, the Company has investment interests in 5 companies in related industries. See note 5 for further details.

The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America although the Company believes that the disclosures are adequate to make the information not misleading.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. All adjustments are of a normal and recurring nature. The results of operations for the six months ended June 30, 20212022 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2020,2021, contained in the Company's annual report on Form 10-K for 2020.2021 filed with the SEC on March 3, 2022.

The consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Dakota Ethanol. All significant inter-company transactions and balances have been eliminated in consolidation.

The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognizedrevenue:

We recognize revenue when control of the promised goods or services under our contracts are transferred to our customers in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Generally, ethanol and related products are shipped free on board ("FOB") shipping point, and the control of the goods transfersis transferred to our customers when the

goods are loaded into trucks or rail cars are released to the railroad. Consideration is based on predetermined contractual prices or on current market prices.

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:

The Company receives payments from customers based uponon 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.

Shipping costs incurred by the Company in the sale of ethanol, dried distiller'sdistillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

When the Company performs shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance. The Company has determined that it has six operating segments that give rise to two reportable segments. See "Note 3 - Segments" in our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our segment reporting.Statements.

Electricity, raw materials expense (chemicals and denaturant), and direct labor costs.

Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within fifteen days from the invoice date. Unpaid accounts receivable with invoice dates over thirty days old bear interest at 1.5% per month. Accounts receivable are stated at the amount billed to the customer. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

The carrying amount of trade receivables is reduced by a valuationan allowance for doubtful accounts that reflects management’s best estimate of the amounts that will not be collected. Management regularly reviews trade receivable balances and, based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The valuation allowance was 0$0 as of June 30, 20212022 and December 31, 2020.2021.

The Company is exposed to certain risks related to its ongoing business operations.  The primary risks that the Company manages by using forward or derivative instruments areoperations including price risks on anticipated purchases of corn, and natural gas, and the sale of ethanol, distillers grains and distillers corn oil.  The Company manages these risks by using forward or derivative instruments.

The Company is subject to market risk with respect to the price and availability of corn, the principal raw material the Company uses to produce ethanol and ethanol by-products.  In general, rising corn prices result in lower profit margins and, therefore, representcan present unfavorable market conditions.  This is especially true when market conditions do not allow us to pass along increased corn costs to our customers.  The availability and price of corn are subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply. Additionally, the recent crisis in Ukraine may effect the price of corn, and by extension, our business.

Certain contracts that meet the definition of a derivative may be exempted from derivative accounting 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 the accounting and reporting requirements of derivative accounting.

The Company does not apply the normal purchase and sales exemption for forward corn purchase contracts. As of June 30, 2021,2022, the Company was committed to purchasing approximately 4.97.4 million bushels of corn on a forward contract basis with an average price of $5.69$7.05 per bushel. The total corn purchase contracts represent 16%approximately 25% of the annual projected plant corn usage.

The Company enters into firm-price purchase commitments with natural gas suppliers under which the Company agrees to buy natural gas at a price set in advance of the actual delivery.  Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time the price is fixed and the time the natural gas is delivered.  At June 30, 2021,2022, the Company is committed to purchasing approximately 730,0001,283,000 MMBtus of natural gas with an average price of $2.78$3.60 per MMBtu.  The Company accounts for these transactions as normal purchases, and accordingly, does not mark these transactions to market. The natural gas purchase contracts represent 36%approximately 63% of the annual plant requirements.

The Company enters into firm-price sales commitments with distillers grains customers under which the Company agrees to sell distillers grains at a price set in advance of the actual delivery.  Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers grain between the time the price is fixed and the time the distillers grains are delivered.  At June 30, 2021,2022, the Company was committed to selling approximately 20,000 dry equivalent tons of distillers

grains with an average price of $210$242 per ton.  The Company accounts for these transactions as normal sales, and accordingly, does not mark these transactions to market. The distillers grains sales represent approximately 9% of the projected annual plant production.

The Company enters into firm-price sales commitments with distillers corn oil customers under which the Company agrees to sell distillers corn oil at a price set in advance of the actual delivery.  Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers corn oil between the time the price is fixed and the time the distillers corn oil is delivered.  At June 30, 2021,2022, the Company was committed to selling approximately 2.11.7 million pounds of distillers corn oil

The Company did not have any firm-priced sales commitments for ethanol as of June 30, 2021.2022.

The Company enters into short-term forward, option and futures contracts for ethanol, corn and natural gas as a means of managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of our trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk of loss in the market value of inventories and purchase commitments.

*Derived from audited financial statements

Futures contracts and cash held by broker are all with one party, and the right of offset exists. Therefore, on the balance sheet, these items are netted in one balance regardless of position.

Forward contracts are with multiple parties, and the right of offset does not exist. Therefore, these contracts are reported at the gross amounts on the balance sheet.

Gains and losses related to derivative contracts related to corn and natural gas are included as a component of costs of revenues.

The Company has investment interests in 5 companies in related industries. All of these interests are at ownership shares less than 20%. These investments are all flow-through entities. Per ASC 323-30-S99-1, theyentities and are being accounted for by the equity method of accounting under which the Company’sCompany's share of net income is recognized as income in the Company’sCompany'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 based on the most recent reliable data.

Annually, as well as when an event triggering impairment may have occurred, the Company performs an impairment test on goodwill, which compares the fair value of the reporting unit with its carrying amount. An impairment charge is recognized, if necessary, for the amount by which the carrying value exceeds the fair value up to the amount of the goodwill attributed to the reporting unit. The Company performs the annual analysis as of December 31 of each fiscal year. The Company determined that there was no impairment of goodwill at December 31, 2021 or through June 30, 2022 on the basis that no triggering events were noted.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the fair value of derivative financial instruments, lower of cost or net realizable value accounting for inventory, and forward purchase contracts and goodwill impairment evaluation.

The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distiller grains to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the three months ended June 30, 2021,2022, ethanol sales averaged approximately 78%76% of total revenues, while approximately 17% of revenues were generated from the sale of distillerdistillers grains and 5%7% of revenues were generated from the sale of corn oil. For the six months ended June 30, 2021,2022, ethanol sales averaged approximately 77%76% of total revenues, while approximately 18% of revenues were generated from the sale of distiller grains and 5%6% of revenues were generated from the sale of corn oil.

The Company's operating and financial performance is largely driven by the prices at which it sells ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets.markets, government programs, global political or economic issues, including but not limited to the war in Ukraine including sanctions associated therewith, shortages, export prices, crude oil prices, currency valuations and government policies in the United States and around the world, over which we have no control. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, and government policies and programs.programs, global political or economic issues, including but not limited to the war in Ukraine including sanctions associated therewith, or global damaging growing conditions, such as plant disease or adverse weather, including drought, increased fertilizer costs as well as global conflicts. The Company's risk management program is used to protect against the price volatility of these commodities.

On January 30, 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declared COVID-19 a pandemic. Quarantines, labor shortages, and other disruptions to the Company’s operations, and those of its customers, adversely impacted the Company’s revenues, ability to provide its services and operating results. Any future quarantines, labor shortages, or other disruptions to the Company's operations, or those of its customers may adversely impact the Company's revenues, ability to provide its services and operating results. Like the COVID-19 pandemic, any significant outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including the geographical area in which the Company operates, resulting in an economic downturn that could affect demand for its goods and services. The extent to which COVID-19 will impact the Company’s long-term results will depend on future developments, which are highly uncertain and cannot be predicted, including new developments regarding continued distribution of the COVID-19 vaccine, new information which may emerge concerning the severity of the coronavirus, prevalence of new COVID-19 cases and variants and actions taken to contain the coronavirus or its impact, among others.

The Company reports its financial and operating performance in 2 segments: (1) production, which includes the manufacturing and marketing of fuel-grade ethanol and co-products of the ethanol production process and (2) ethanol producing equity method investments, which consists of the aggregation of the Company's two equity method operating segments of investment in Guardian Hankinson, LLC and investment in Ring-neck Energy & Feed, LLC. The Company discloses its other identified operating segments in an all other category, which consists of the Company's investments in RPMG, LLC, Lawrenceville Tank, LLC, and Guardian Energy Management, LLC.

The following tables set forth certain financial data for the Company's operating segments:

Dakota Ethanol has a 5% investment interest in the Company’s ethanol marketer, Renewable Products Marketing Group, LLC (RPMG)("RPMG").  The net income, which is reported in the Company’s income statement for RPMG, is based on RPMG’s March 31, 20212022 unaudited interim results. The carrying amount of the Company’s investment was approximately $1,299,000 and $1,208,000$1,709,000 as of June 30, 20212022 and December 31, 2020,2021, respectively.

Dakota Ethanol has a 10% investment interest in Lawrenceville Tanks, LLC (LT)("LT"), a partnership to operate an ethanol storage terminal in Georgia.  The net income, which is reported in the Company’s income statement for LT, is based on LT’s June 30, 20212022 unaudited interim results. The carrying amount of the Company’s investment was approximately $275,000$348,000 and $194,000$215,000 as of June 30, 20212022 and December 31, 2020,2021, respectively.

Lake Area Corn Processors has a 10% investment interest in Guardian Hankinson, LLC (GH)("GH"), a partnership to operate an ethanol plant in North Dakota.  The net income, which is reported in the Company’s income statement for GH, is based on GH’s June 30, 20212022 unaudited interim results. The carrying amount of the Company’s investment was approximately $5,301,000$4,962,000 and $5,012,000$5,714,000 as of June 30, 20212022 and December 31, 2020,2021, respectively.

Lake Area Corn Processors has a 17% investment interest in Guardian Energy Management, LLC (GEM)("GEM"), a partnership to provide management services to ethanol plants.  The net income, which is reported in the Company’s income statement for GEM, is based on GEM’s June 30, 20212022 unaudited interim results. The carrying amount of the Company’s investment was approximately $90,000 and $90,000 as of June 30, 20212022 and December 31, 2020,2021, respectively.

Lake Area Corn Processors has an 11% investment interest in Ring-neck Energy and Feeds, LLC (REF)("REF"), a partnership to operate an ethanol plant in South Dakota.  The net income, which is reported in the Company’s income statement for REF, is based on REF’s June 30, 20212022 unaudited interim results. The carrying amount of the Company’s investment was approximately $10,959,000$12,493,000 and $10,134,000$12,778,000 as of June 30, 20212022 and December 31, 2020,2021, respectively. REF commenced operations during the second quarter of 2019. Prior to then, the ethanol plant was under construction. The carrying amount of the investment exceeds the underlying equity in net assets by approximately $1,028,000.$971,000. The excess is comprised of a basis adjustment of approximately $422,000$399,000 and capitalized interest of $606,000.$572,000. The excess is amortized over 20 years from May 2019, the time the plant became operational. The amortization is recorded in equity in net income of investments. Amortization was $28,831 for both the six months ended June 30, 2021 and 2020, respectively. Amortization was $14,416 for both the three months ended June 30, 2021 and 2020, respectively.

Condensed, combined unaudited financial information of the Company’s investments in RPMG, LT, GH, GEM and REF are as follows:

The Company recorded equity in net income (loss) of approximately $1,938,000$2,227,000 and $(1,226,000)$1,938,000 from our investments for the six months ended June 30, 2021,2022, and 2020,2021, respectively. The Company recorded equity in net income (loss) of approximately $1,184,000$2,228,000 and $(66,000)$1,184,000 from our investments for the three months ended June 30, 2021,2022, and 2020,2021, respectively.

On February 6, 2018, Dakota Ethanol executed a revolving promissory note with Farm Credit Services of America (FCSA) in the amount up to $10,000,000 or the amount available in accordance with the borrowing base calculation, whichever is less. Dakota Ethanol amended the note agreement with FCSA in June of 2020. The amendment reduced2020 and October of 2021. Under the amendments, the available credit under the revolving operating note was reduced to $2,000,000. Interest on the outstanding principal balance will accrue at 300 basis points above the one-month LIBOR rate and is not subject to a floor. The rate was 3.10% at June 30, 2021. There is a non-use fee of 0.25% on the unused portion of the $2,000,000 availability. The note is collateralized by substantially all of the assets of the Company. The note expires on November 1, 2021.2023. Interest on the outstanding principal balance will accrue at 305 basis points above the Secured Overnight Financing 30-day Average Rate ("SOFR 30"). The interest rate is not subject to a floor. The rate was 3.75% at June 30, 2022. On June 30, 2021,2022, Dakota Ethanol had 0no balance outstanding and approximately $2,000,000 available to be drawn on the revolving promissory note under the borrowing base.note.

On August 1, 2017, Dakota Ethanol executed a term note from FCSA in the amount of $8,000,000. Dakota Ethanol agreed to make monthly interest payments starting September 1, 2017 and annual principal payments of $1,000,000 starting on August 1, 2018. The annual principal payment on August 1, 2020 was deferred after the note was amended with FCSA and is now due on August 1, 2025. The notesnote matures on August 1, 2025. Interest on the outstanding principal balance will accrue at 325330 basis points above the one-month LIBOR rate until February 1, 2023 and increases to 350 basis points thereafter until maturity.SOFR 30. The interest rate is not subject to a floor. The rate was 3.35%4.00% at June 30, 2021.2022. On June 30, 2021,2022, Dakota Ethanol had $6,000,000$5,000,000 outstanding on the note.

On February 6, 2018, Dakota Ethanol executed a reducing revolving promissory note from FCSA in the amount up to $40,000,000 or the amount available in accordance with the borrowing availability under the credit agreement. Dakota Ethanol amended the note agreement with FCSA in June of 2020. The amendment increased the available credit on the reducing

revolving note to $48,000,000. The amount Dakota Ethanol can borrow on the note decreases by $1,750,000 semi-annually starting on July 1, 2021 until the maximum balance reaches $32,250,000 on July 1, 2025. The note matures on January 1, 2026. Interest on the outstanding principal balance will accrue at 325330 basis points above the one-month LIBOR rate until February 1, 2023, and the basis increases to 350 points thereafter until maturity.SOFR 30. The interest rate is not subject to a floor. The rate was 3.35%4.00% at June 30, 2021.2022. The note contains a non-use fee of 0.50% on the unused portion of the note. The loan was amended with FCSA on October 11, 2021. Under the amendment, the interest accrual will be measured using the SOFR 30. On June 30, 2021,2022, Dakota Ethanol had $19,000,000$1,000 outstanding and $29,000,000$44,499,000 available to be drawn on the note.

As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, minimum debt service coverage ratios, net worth and working capital requirements. The note is collateralized by substantially all assets of the Company. The note payable agreement was amended in June 2020October 2021 with modifications to the requirements. The working capital covenant was reducedincreased to $11,000,000$13,500,000 and the net worth covenant was reducedincreased to $18,000,000. The next measurement date for the debt service coverage ratio was deferred until December 31, 2021.

The balances of the notes payable are as follows. The balances reflect the updated agreement:

The Company complies with the fair value measurements and disclosures standard, which defines fair value, establishes a framework for measuring fair value, and expands disclosure for those assets and liabilities carried on the balance sheet on a fair value basis.

The Company’s balance sheet contains derivative financial instruments that are recorded at fair value on a recurring basis. Fair value measurements and disclosures require that assets and liabilities carried at fair value be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 20212022 and December 31, 20202021 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: