UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒⌧Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended April 30, ~~2020~~2021

☐◻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 000-51277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)


Minnesota		41-1997390
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15045 Highway 23 SE, Granite Falls, MN 56241-0216
(Address of principal executive offices)

(320) 564-3100
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
None	N/A	N/A

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.

☒⌧Yes ~~☐No~~◻No

Indicate by checkmark 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 and post such files).

☒⌧Yes ~~☐No~~◻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	☐	Non-Accelerated Filer	☒
Accelerated Filer	☐	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. ☐◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐◻Yes ~~☒No~~⌧No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of June ~~15, 2020,~~14, 2021, there were 30,606 membership units outstanding.

Table of Contents

INDEX

~~INDEX~~


	Page Number
PART I. FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	19 21

Item 3. Quantitative and Qualitative Disclosures about Market Risk	39 38

Item 4. Controls and Procedures	40 38

PART II. OTHER INFORMATION	41 38

Item 1. Legal Proceedings	41 38

Item 1A. Risk Factors	41 38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41 39

Item 3. Defaults Upon Senior Securities	41 39

Item 4. Mine Safety Disclosures	41 39

Item 5. Other Information	42 39

Item 6. Exhibits	42 40

SIGNATURES	43 40

Table of Contents

PART I FINANCIAL INFORMATION

~~PART IFINANCIAL INFORMATION~~

Item 1. Financial Statements

GRANITE FALLS ENERGY, LLC ~~AND SUBSIDIARIES~~and Subsidiaries

Condensed Consolidated Balance Sheets


	April 30, 2020		October 31, 2019

					April 30, 2021		October 31, 2020
ASSETS	(unaudited)				(unaudited)
Current Assets
Cash	$	5,868,761	$	13,521,774	$	6,133,993	$	11,423,427
Restricted cash		351,068		52,516		3,505,268		2,156,694
Accounts receivable		159,793		7,427,895		6,015,361		3,386,068
Inventory		13,535,362		13,803,025		16,654,492		13,791,805
Commodity derivative instruments		359,269		823,098		325,238		56,050
Prepaid expenses and other current assets		1,093,065		534,948		1,691,387		901,384
Total current assets		21,367,318		36,163,256		34,325,739		31,715,428


Property and Equipment, net		54,080,658		58,269,142		52,848,924		54,965,983

Goodwill		1,372,473		1,372,473


Investments		8,736,095		9,327,584		10,709,390		9,799,384


Operating lease right of use asset		21,173,883		—		17,551,426		19,383,654


Other Assets		697,254		922,254		333,254		333,254


Total Assets	$	107,427,681	$	106,054,709	$	115,768,733	$	116,197,703


LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Checks drawn in excess of bank balances					$	1,040,874	$	692,984
Current maturities of long-term debt	$	1,405,406	$	1,405,406		2,094,468		12,954,538
Checks drawn in excess of bank balances		807,756		—
Accounts payable		1,666,116		11,168,471		6,796,811		12,294,097
Commodity derivative instruments		241,650		—		1,358,388		816,478
Accrued expenses		2,469,394		780,795		1,288,633		865,883
Operating lease, current liabilities		3,622,457		—		3,601,381		3,628,259
Total current liabilities		10,212,779		13,354,672		16,180,555		31,252,239


Long-Term Debt, less current portion		13,534,447		6,639,488		18,133,212		5,876,318

Operating Lease, long-term liabilities		17,551,426		—


Operating lease, long-term liabilities						13,950,045		15,755,395

Other Long-Term Liabilities		1,398,962		1,376,000		1,444,886		1,421,924


Commitments and Contingencies


Members' Equity
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both April 30, 2020 and October 31, 2019		52,005,932		65,468,635
Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued and outstanding at April 30, 2021 and October 31, 2020						56,996,655		52,111,525
Non-controlling interest		12,724,135		19,215,914		9,063,380		9,780,302
Total members' equity		64,730,067		84,684,549		66,060,035		61,891,827


Total Liabilities and Members' Equity	$	107,427,681	$	106,054,709	$	115,768,733	$	116,197,703

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

Table of Contents

GRANITE FALLS ENERGY, LLC ~~AND SUBSIDIARIES~~and Subsidiaries

Condensed Consolidated Statements of Operations


	Three Months Ended April 30,				Six Months Ended April 30,
	2020		2019		2020		2019
	(unaudited)		(unaudited)		(unaudited)		(unaudited)


									Three Months Ended April 30,				Six Months Ended April 30,
									2021		2020		2021		2020
									(unaudited)		(unaudited)		(unaudited)		(unaudited)

Revenues	$	33,106,922	$	49,424,390	$	86,463,248	$	98,799,487	$	74,040,361	$	33,106,922	$	123,438,747	$	86,463,248


Cost of Goods Sold		45,653,163		50,418,243		99,951,982		102,528,865		65,067,234		45,653,163		117,855,530		99,951,982

Gross Loss		(12,546,241)		(993,853)		(13,488,734)		(3,729,378)


Gross Profit (Loss)										8,973,127		(12,546,241)		5,583,217		(13,488,734)

Operating Expenses		1,909,655		1,626,519		3,683,343		3,396,692		2,002,801		1,909,655		3,997,038		3,683,343

Operating Loss		(14,455,896)		(2,620,372)		(17,172,077)		(7,126,070)

Other Income (Expense):

Operating Income (Loss)										6,970,326		(14,455,896)		1,586,179		(17,172,077)

Other Income (Expense)
Other income, net		207,581		226,206		207,527		227,665		1,611,968		207,581		1,755,425		207,527
Interest income		8,191		43,436		43,669		116,711		1,292		8,191		2,603		43,669
Interest expense		(113,114)		(80,526)		(217,112)		(194,189)		(202,452)		(113,114)		(368,907)		(217,112)
Investment loss		(690,174)		—		(591,489)		—
Investment income (loss)										1,078,453		(690,174)		1,192,908		(591,489)
Total other income (expense), net		(587,516)		189,116		(557,405)		150,187		2,489,261		(587,516)		2,582,029		(557,405)

Net Loss	$	(15,043,412)	$	(2,431,256)	$	(17,729,482)	$	(6,975,883)

Less: Net Loss Attributable to Non-controlling Interest		3,160,225		528,607		4,345,596		1,495,732

Net Loss Attributable to Granite Falls Energy, LLC	$	(11,883,187)	$	(1,902,649)	$	(13,383,886)	$	(5,480,151)


Net Income (Loss)									$	9,459,587	$	(15,043,412)	$	4,168,208	$	(17,729,482)

Less: Net (Income) Loss Attributable to Non-controlling Interest										(1,323,603)		3,160,225		716,922		4,345,596

Net Income (Loss) Attributable to Granite Falls Energy, LLC									$	8,135,984	$	(11,883,187)	$	4,885,130	$	(13,383,886)

Weighted Average Units Outstanding - Basic and Diluted		30,606		30,606		30,606		30,606		30,606		30,606		30,606		30,606


Amounts attributable to Granite Falls Energy, LLC:

Net Loss Per Unit - Basic and Diluted	$	(388.26)	$	(62.17)	$	(437.30)	$	(179.05)

Distributions Per Unit	$	—	$	—	$	—	$	40.00

Net Income (Loss) Per Unit - Basic and Diluted									$	265.83	$	(388.26)	$	159.61	$	(437.30)

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

Table of Contents

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in ~~Members’~~Members' Equity


	Members' Equity attributable to
	Granite Falls Energy, LLC	Non-controlling Interest	Total Members' Equity


				Members' Equity
				attributable to		Non-controlling		Total Members'
				Granite Falls Energy, LLC		Interest		Equity
Balance - October 31, 2020				$	52,111,525	$	9,780,302	$	61,891,827

Net loss attributable to non-controlling interest					—		(2,040,525)		(2,040,525)
Net loss attributable to Granite Falls Energy, LLC					(3,250,854)		—		(3,250,854)

Balance - January 31, 2021				$	48,860,671	$	7,739,777	$	56,600,448

Net income attributable to non-controlling interest					—		1,323,603		1,323,603
Net income attributable to Granite Falls Energy, LLC					8,135,984		—		8,135,984

Balance - April 30, 2021				$	56,996,655	$	9,063,380	$	66,060,035


Balance - October 31, 2019	$ 65,468,635	$ 19,215,914	$ 84,684,549	$	65,468,635	$	19,215,914	$	84,684,549


Acquisition of non-controlling interest	(78,817)	(2,146,183)	(2,225,000)		(78,817)		(2,146,183)		(2,225,000)
Net loss attributable to non-controlling interest	-	(1,185,371)	(1,185,371)		—		(1,185,371)		(1,185,371)
Net loss attributable to Granite Falls Energy, LLC	(1,500,699)	-	(1,500,699)		(1,500,699)		—		(1,500,699)


Balance - January 31, 2020	63,889,119	15,884,360	79,773,479	$	63,889,119	$	15,884,360	$	79,773,479


Net loss attributable to non-controlling interest	-	(3,160,225)	(3,160,225)		—		(3,160,225)		(3,160,225)
Net loss attributable to Granite Falls Energy, LLC	(11,883,187)	-	(11,883,187)		(11,883,187)		—		(11,883,187)


Balance - April 30, 2020	$ 52,005,932	$ 12,724,135	$ 64,730,067	$	52,005,932	$	12,724,135	$	64,730,067


Balance - October 31, 2018	$ 75,083,782	$ 21,846,265	$ 96,930,047

Member Distribution	(1,224,226)	-	(1,224,226)
Net loss attributable to non-controlling interest	-	(967,125)	(967,125)
Net loss attributable to Granite Falls Energy, LLC	(3,577,502)	-	(3,577,502)

Balance - January 31, 2019	70,282,054	20,879,140	91,161,194

Net loss attributable to non-controlling interest	-	(528,607)	(528,607)
Net loss attributable to Granite Falls Energy, LLC	(1,902,649)	-	(1,902,649)

Balance - April 30, 2019	$ 68,379,405	$ 20,350,533	$ 88,729,938

Notes to Consolidated Financial Statements are an integral part of this Statement.

Table of Contents

GRANITE FALLS ENERGY, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows


	Six Months Ended April 30,
	2021		2020
	(Unaudited)		(Unaudited)
Cash Flows from Operating Activities
Net income (loss)	$	4,168,208	$	(17,729,482)
Adjustments to reconcile net income (loss) to net cash used in operations:
Depreciation and amortization		3,840,675		4,690,652
Paycheck Protection Program loan forgiveness income		(1,299,593)		—
Change in fair value of derivative instruments		6,794,000		1,140,186
Loss (gain) on equity method investments		(1,192,908)		591,489
Return on investment		282,902		—
Loss on disposal of assets		21,728		—
Changes in operating assets and liabilities:
Commodity derivative instruments		(6,521,278)		(434,707)
Accounts receivable		(2,629,293)		7,268,102
Inventory		(2,862,687)		267,663
Prepaid expenses and other current assets		(790,003)		(558,117)
Accounts payable		(3,356,661)		(9,390,656)
Accrued expenses		422,750		1,688,599
Accrued railcar rehabilitation costs		22,962		22,962
Net Cash Used In Operating Activities		(3,099,198)		(12,443,309)

Cash Flows from Investing Activities
Payments for capital expenditures		(3,885,969)		(613,867)
Net Cash Used in Investing Activities		(3,885,969)		(613,867)

Cash Flows from Financing Activities
Checks drawn in excess of bank balance		347,890		807,756
Proceeds from Paycheck Protection Program loans		1,299,593		1,299,593
Proceeds from long-term debt		8,752,196		17,786,740
Payments on long-term debt		(7,355,372)		(12,191,374)
Acquisition of non-controlling interest		—		(2,000,000)
Net Cash Provided by Financing Activities		3,044,307		5,702,715

Net Decrease in Cash and Restricted Cash		(3,940,860)		(7,354,461)

Cash and Restricted Cash - Beginning of Period		13,580,121		13,574,290

Cash and Restricted Cash - End of Period	$	9,639,261	$	6,219,829

Reconciliation of Cash and Restricted Cash
Cash - Balance Sheet	$	6,133,993	$	5,868,761
Restricted Cash - Balance Sheet		3,505,268		351,068
Cash and Restricted Cash	$	9,639,261	$	6,219,829

Supplemental Cash Flow Information
Cash paid during the period for:
Interest expense	$	377,867	$	217,112

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Capital expenditures and construction in process included in accounts payable	$	—	$	13,487

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

Table of Contents

Granite Falls Energy, LLC and Subsidiaries

~~GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Cash Flows~~

Six Months Ended April 30,

2020

2019



(unaudited)

(unaudited)

Cash Flows from Operating Activities:

Net loss

$
(17,729,482)

$
(6,975,883)

Adjustments to reconcile net loss to net cash used in operations:

Depreciation and amortization

4,690,652

4,720,009

Change in fair value of  derivative instruments

1,140,186

(288,819)

Loss on equity method investments

591,489

—

Changes in operating assets and liabilities:

Commodity derivative instruments

(434,707)

1,225,222

Accounts receivable

7,268,102

(18,682)

Inventory

267,663

2,589,078

Prepaid expenses and other current assets

(558,117)

(561,142)

Accounts payable

(9,390,656)

(5,314,204)

Accrued expenses

1,688,599

12,860

Accrued railcar rehabilitation costs

22,962

—

Net Cash Used In Operating Activities

(12,443,309)

(4,611,561)

Cash Flows from Investing Activities:

Payments for capital expenditures

(613,867)

(392,707)

Net Cash Used in Investing Activities

(613,867)

(392,707)

Cash Flows from Financing Activities:

Checks drawn in excess of bank balances

807,756

—

Proceeds from paycheck protection program loan

1,299,593

—

Proceeds from long-term debt

17,786,740

—

Payments on long-term debt

(12,191,374)

(11,901)

Acquisition of non-controlling interest

(2,000,000)

—

Member distributions paid

—

(1,224,226)

Net Cash Provided by (Used in) Financing Activities

5,702,715

(1,236,127)

Net Decrease in Cash and Restricted Cash

(7,354,461)

(6,240,395)

Cash and Restricted Cash - Beginning of Period

13,574,290

14,901,091

Cash and Restricted Cash - End of Period

$
6,219,829

$
8,660,696

Reconciliation of Cash and Restricted Cash

Cash - Balance Sheet

$
5,868,761

$
8,260,821

Restricted Cash - Balance Sheet

351,068

399,875

Cash and Restricted Cash

$
6,219,829

$
8,660,696

Supplemental Cash Flow Information

Cash paid during the period for:

Interest expense

$
217,112

$
194,189

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Capital expenditures and construction in process included in accounts payable

$
13,487

$
29,464

Notes to Condensed Consolidated Unaudited Financial Statements ~~are an integral part of this Statement.~~

April 30, 2021

~~Table of Contents~~

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States and on the international market. GFE's plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve-month rolling sum basis.

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”). HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve-month rolling sum basis. ~~Beginning December 11, 2019,~~Additionally, HLBE, ~~owns~~through a ~~100% interest in~~wholly owned subsidiary, Agrinatural Gas, LLC (“Agrinatural”), ~~which~~ operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers. ~~At October 31, 2019, HLBE held a 73% interest in Agrinatural.~~

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of April 30, ~~2020~~2021 consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE's 100% ownership of Project Viking, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owned approximately 73% of Agrinatural as of October 31, 2019. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest through December 11, 2019 when the remaining non-controlling interest was acquired. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, ~~2019,~~2020, contained in the Company’s annual report on Form 10-K.

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

Reportable Operating Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. 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 in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results, the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

Additionally, the Company also realizes relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s owned subsidiary. Before and after accounting for intercompany eliminations, these revenues from Agrinatural represent approximately 1-2% of our consolidated revenues and have little to no impact on the overall performance of the Company. Therefore, the Company does not separately review Agrinatural’s revenues, cost of sales or other operating performance information. Rather, the Company reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with the Company’s ethanol production operating segment. The Company believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s consolidated financial statements and would not achieve the basic principles and objectives of ASC 280.

Accounting Estimates

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America. 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 the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, inventory purchase and sale commitments, evaluation of railcar rehabilitation costs, ~~and~~ the assumptions used

~~Table of Contents~~

in the impairment analysis of long-lived assets, ~~which includes goodwill.~~and evaluation of going concern. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated unaudited 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

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Our contracts primarily consist of agreements with marketing companies and other customers as described below. Our performance obligations consist of the delivery of ethanol, distillers' grains, and corn oil to our customers. Our customers primarily consist of two distinct marketing companies as described below. The consideration we receive for these products reflects an amount ~~that~~ the Company expects to be entitled to in exchange for ~~those~~these products based on current observable market prices at the Chicago Mercantile Exchange, generally, and adjusted for local market differentials. Our contracts have specific delivery modes, rail or truck, and dates. Revenue is recognized when the Company delivers the products to the mode of transportation specified in the contract, at the transaction price established in the contract, net of commissions, fees, and freight. We sell each of the products via different marketing channels as described below.

●

Ethanol. The Company sells its ethanol via a marketing agreement with Eco-Energy, Inc. Eco-Energy sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Eco-Energy and the Company. Our performance obligations consist of our obligation to deliver ethanol to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. The marketing agreement calls for control and title to pass to Eco-Energy once a rail car is released to the railroad or a truck is released from the Company's scales. Revenue is recognized then at the price in the agreement with the end user, net of commissions, freight, and fees.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

●

Distillers’ grains. The Company engages another third-party marketing company, RPMG, Inc., to sell one hundred percent of the ~~distillers’~~distillers grains it produces at the plant. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

●

Distillers’ corn oil (corn oil). The Company sells one hundred percent of its corn oil production to RPMG, Inc. The process for selling corn oil is the same as our distillers’ grains. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method. Net realizable value is the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials. Finished goods consist of ethanol, distillers' grains, and corn oil.

Derivative Instruments

From time to time the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives on the balance sheets 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

~~Table of Contents~~

commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

Additionally, the Company is required to evaluate its contracts 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 and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited financial statements.

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company's ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 5.

Investments

The Company has investment interests in two companies in related industries. The investments are accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

~~Recently Adopted Accounting Pronouncements~~

In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance on accounting for leases under Accounting Standards Codification 842 (ASC 842). Under the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted cash flow basis; and (2) a “right of use” asset, which is an asset that represents the lessee’s right to use the specified asset for the lease term. Lease expense under the new guidance is substantially the same as prior to the adoption. See Note 8 for further information.

2. RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distillers' grains, corn oil, and natural gas to customers primarily located in the United States. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales typically average 75% - 90% of total revenues and corn costs typically average 65% - 85% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. 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, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have afurther significant adverse ~~effect~~effects on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital

~~Table of Contents~~

requirements. The Company’s risk management program is used to protect against the price volatility of these commodities.

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of ~~2018~~2020 and ~~2019, and thus far~~ into ~~2020,~~2021 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory ~~levels. These factors,~~levels, which ~~are~~were compounded by the ~~recent~~ impact of the novel coronavirus ~~(“COVID-19”~~("COVID-19"),. These factors resulted ~~and continue to result~~ in prolonged negative operating margins, significantly lower cash flow from operations and substantial net ~~operating losses, which included write downs~~losses. As a result, as of ~~inventory and impairment of corn forward purchase contracts of approximately $179,000 for~~ the ~~six~~three months ended January 30, 2021 and the fiscal year ended October 31, 2020, HLBE was not in compliance with its working capital and net worth covenant requirements, for which a waiver was obtained. HLBE was in compliance with its working capital and net worth covenant requirements as of April 30, 2020. In response to the low margin environment, GFE idled its ethanol production from on or about April 3, 2020 through approximately May 18, 2020. The Company continues to monitor COVID-19 developments in order to determine whether further adjustments to production are warranted. The Company believes its cash on hand, available debt from its lender,2021 and ~~additional debt with its current lender will provide sufficient liquidity to meets its anticipated working capital, debt service and other liquidity needs through~~expects future compliance during the next twelve months. ~~If market~~GFE was in compliance with its working capital covenant requirement as of April 30, 2021.

We expect to have sufficient cash on hand and availability on our credit facilities and other loans to fund our operations and commitments for at least the next twelve months from the issuance date of these unaudited consolidated financial statements. However, should unfavorable operating conditions ~~worsen affecting~~continue in the ethanol industry that prevent us from profitably operating our ~~ability to profitably operate the~~ plant, ~~or if we are unable to transport ethanol,~~ we may ~~be forced~~need to seek additional debt or equity funding or further idle ethanol production altogether.

The Company is working toward a merger with HLBE, the Company’s majority owned subsidiary. Pursuant to a Merger Agreement, the Company would acquire the minority ownership interest of HLBE for $14 million, or approximately $0.36405 per unit, and the Company would become the sole owner of HLBE. Management believes the merger would provide HLBE with additional financial resources to assist HLBE’s continued operations and would thereby protect the Company’s investment in HLBE. The Merger is subject to approval by the minority interest unitholders of HLBE. A special meeting of the members of HLBE is expected to be held in summer 2021 to vote on the proposed merger. If approved by the minority unitholders, the merger is expected to close following the special meeting.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

3. REVENUE

Revenue by Source

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following table disaggregates revenue by major source for the three and six months ended April 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended April 30, 2020
		Ethanol Production		Natural Gas Pipeline		Total

							Three Months Ended April 30, 2021 (unaudited)
								Total
Ethanol	$	23,753,704	$	—	$	23,753,704	$	57,776,747
Distillers’ Grains		7,389,829		—		7,389,829		11,958,890
Corn Oil		1,534,832		—		1,534,832		3,677,204
Other		191,806		—		191,806		303,513
Natural Gas		—		236,751		236,751
Natural Gas Pipeline								324,007
Total Revenues	$	32,870,171	$	236,751	$	33,106,922	$	74,040,361

	Three Months Ended April 30, 2019
		Ethanol Production		Natural Gas Pipeline		Total

							Three Months Ended April 30, 2020 (unaudited)
								Total
Ethanol	$	38,521,636	$	—	$	38,521,636	$	23,753,704
Distillers’ Grains		8,651,733		—		8,651,733		7,389,829
Corn Oil		1,600,398		—		1,600,398		1,534,832
Other		260,264		—		260,264		191,806
Natural Gas		—		390,359		390,359
Natural Gas Pipeline								236,751
Total Revenues	$	49,034,031	$	390,359	$	49,424,390	$	33,106,922

	Six Months Ended April 30, 2020
		Ethanol Production		Natural Gas Pipeline		Total

							Six Months Ended April 30, 2021
							(unaudited)
							Total
Ethanol	$	64,605,693	$	—	$	64,605,693	$	93,915,238
Distillers’ Grains		17,021,121		—		17,021,121		21,735,980
Corn Oil		3,422,683		—		3,422,683		6,527,403
Other		487,723		—		487,723		529,259
Natural Gas		—		926,028		926,028
Natural Gas Pipeline								730,867
Total Revenues	$	85,537,220	$	926,028	$	86,463,248	$	123,438,747

	Six Months Ended April 30, 2019
		Ethanol Production		Natural Gas Pipeline		Total

							Six Months Ended April 30, 2020
							(unaudited)
							Total
Ethanol	$	74,486,921	$	—	$	74,486,921	$	64,605,693
Distillers’ Grains		19,221,992		—		19,221,992		17,021,121
Corn Oil		3,593,734		—		3,593,734		3,422,683
Other		524,567		—		524,567		487,723
Natural Gas		—		972,273		972,273
Natural Gas Pipeline								926,028
Total Revenues	$	97,827,214	$	972,273	$	98,799,487	$	86,463,248

Payment Terms

The Company has contractual payment terms with each respective marketer that sells ethanol, distillers’ grains and corn oil. These terms are 10 calendar days after the transfer of control date. The Company has contractual payment terms with natural gas customers of 20 days.

~~Shipping and Handling Costs~~

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

4. INVENTORY

Inventories consist of the following:


	April 30, 2020		October 31, 2019
	(unaudited)

					April 30, 2021		October 31, 2020
					(unaudited)
Raw materials	$	4,135,879	$	3,253,361	$	4,128,930	$	4,893,502
Supplies		3,203,833		3,330,513		3,450,512		3,070,458
Work in process		1,083,206		1,434,552		1,966,128		1,480,871
Finished goods		5,112,444		5,784,599		7,108,922		4,346,974
Totals	$	13,535,362	$	13,803,025	$	16,654,492	$	13,791,805

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories of approximately ~~$949,000~~$0 and ~~$1,488,000~~$949,000 for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$2,151,000~~$0 and ~~$765,000~~$2,151,000 for the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on corn inventories of approximately ~~$1,087,000~~$0 and ~~$71,000~~$1,087,000 for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$1,213,000~~$0 and ~~$95,000~~$1,213,000 for the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

5. DERIVATIVE INSTRUMENTS

As of April 30, ~~2020,~~2021, the total notional amount of GFE’s outstanding corn derivative instruments was approximately ~~2,640,000~~2,710,000 bushels, comprised of long corn futures positions on ~~150,000~~180,000 bushels that were entered into to hedge forecasted ethanol sales through July ~~2020,~~2021, and short corn futures positions on ~~1,185,000~~2,530,000 bushels that were entered into to hedge forecasted corn purchases through December 2022. Additionally, there are corn options positions of ~~1,305,000~~6,920,000 bushels through ~~December 2020.~~September 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of April 30, ~~2020,~~2021, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately ~~1,246,000~~2,100,000 bushels, comprised of long corn futures positions on ~~50,000~~800,000 bushels that were entered into to hedge forecasted ethanol sales through July ~~2020~~2021, and short corn futures positions on ~~246,000~~1,300,000 bushels that were entered into to hedge forecasted corn purchases through ~~December 2021.~~July 2022. Additionally, there are corn options positions of ~~950,000~~5,120,000 bushels through ~~December 2020.~~September 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of April 30, ~~2020,~~2021, GFE had approximately ~~$40,000 due to derivatives held by a broker recorded as a component of accounts payable and did not have any cash collateral (restricted cash) related to derivatives held by a broker.~~

~~As of April 30, 2020, HLBE had approximately $351,000~~$2,858,000 of cash collateral (restricted cash) related to derivatives held by a broker.

As of April 30, 2021, HLBE had approximately $647,000 of cash collateral (restricted cash) related to derivatives held by a broker.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

The following tables provide details regarding the Company's derivative instruments at April 30, ~~2020,~~2021, none of which were designated as hedging instruments:


	Consolidated Balance Sheet Location	Assets		Liabilities

						Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	359,269	$	—	Commodity derivative instruments		—		1,358,388
Corn contracts - HLBE	Commodity derivative instruments		—		227,550	Commodity derivative instruments		325,238		—
Ethanol contracts - HLBE	Commodity derivative instruments		—		14,100
Totals		$	359,269	$	241,650		$	325,238	$	1,358,388

~~Table of Contents~~

As of October 31, ~~2019,~~2020, the total notional amount of GFE’s outstanding corn derivative instruments was approximately ~~7,495,000~~4,275,000 bushels, comprised of long corn futures positions on ~~3,345,000~~760,000 bushels that were entered into to hedge forecasted ethanol sales through ~~July 2020,~~March 2021, and short corn futures positions on ~~4,150,000~~3,515,000 bushels that were entered into to hedge forecasted corn purchases through December ~~2022.~~2022 and are directly related to corn forward contracts. Additionally, there are corn options positions of ~~4,000,000~~1,920,000 bushels through March ~~2020.~~2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, ~~2019,~~2020, GFE ~~did not have any~~had approximately $1,643,000 of cash collateral (restricted cash) related to derivatives held by a broker.

As of October 31, ~~2019,~~2020, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately ~~5,398,000~~2,095,000 bushels, comprised of long corn futures positions on ~~2,131,000~~325,000 bushels that were entered into to hedge forecasted ethanol sales through ~~July 2020,~~March 2021, and short corn futures positions on ~~3,267,000~~1,770,000 bushels that were entered into to hedge forecasted corn purchases through ~~December 2021.~~July 2022 and are directly related to corn forward contracts. Additionally, there are corn options positions of ~~4,000,000~~1,380,000 bushels through March ~~2020.~~2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of October 31, ~~2019,~~2020, HLBE had approximately ~~$52,000~~$514,000 in cash collateral (restricted cash) related to derivatives held by a broker.

The following tables provide details regarding the ~~Company's~~Company’s derivative instruments at October 31, ~~2019,~~2020, none of which were designated as hedging instruments:


	Consolidated Balance Sheet Location	Assets		Liabilities

						Consolidated Balance Sheet Location	Assets		Liabilities
Corn contracts - GFE	Commodity derivative instruments	$	612,713	$	—	Commodity derivative instruments	$	—	$	642,550
Corn contracts - HLBE	Commodity derivative instruments		20,060		—	Commodity derivative instruments		—		173,928
Ethanol contracts - GFE	Commodity derivative instruments		114,562		—	Commodity derivative instruments		40,900		—
Ethanol contracts - HLBE	Commodity derivative instruments		75,763		—	Commodity derivative instruments		15,150		—
Totals		$	823,098	$	—		$	56,050	$	816,478

The following tables provide details regarding the gains (losses) from Company's derivative instruments in the consolidated statements of operations, none of which are designated as hedging instruments:


	Consolidated Statement	Three Months Ended April 30,				Six Months Ended April 30,
	of Operations Location	2020		2019		2020		2019

										Consolidated Statement	Three Months Ended April 30,				Six Months Ended April 30,
										of Operations Location	2021		2020		2021		2020
Corn contracts	Cost of Goods Sold	$	(563,645)	$	281,424	$	(723,863)	$	325,652	Cost of Goods Sold	$	(1,071,154)	$	(563,645)	$	(6,965,012)	$	(723,863)
Ethanol contracts	Revenues		(205,930)		(36,833)		(416,323)		(36,833)	Revenues		57,074		(205,930)		171,012		(416,323)
Total gain (loss)		$	(769,575)	$	244,591	$	(1,140,186)	$	288,819
Total loss											$	(1,014,080)	$	(769,575)	$	(6,794,000)	$	(1,140,186)

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

6. FAIR VALUE

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis at April 30, ~~2020:~~2021:

Fair Value Measurement Using

Quoted Prices

Significant Other

Significant

Carrying Amount in

in Active Markets

Observable Inputs

Unobservable Inputs

Financial Assets:

Consolidated Balance Sheet

Fair Value

(Level 1)

(Level 2)

(Level 3)

Commodity Derivative Instruments - Corn

$
359,269

$
359,269

$
359,269

$
—

$
—

Financial Liabilities:

Commodity Derivative Instruments - Ethanol

$
14,100

$
14,100

$
14,100

$
—

$
—

Commodity Derivative Instruments - Corn

$
227,550

$
227,550

$
227,550

$
—

$
—


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Assets:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative instruments - Corn	$	325,238	$	325,238	$	325,238	$	—	$	—

Financial Liabilities:
Commodity Derivative instruments - Corn	$	1,358,388	$	1,358,388	$	1,358,388	$	—	$	—
Accounts Payable (1)	$	69,506	$	69,506	$	—	$	69,506	$	—

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, ~~2019:~~2020:


					Fair Value Measurement Using
					Quoted Prices		Significant Other		Significant
	Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs

															Fair Value Measurement Using
															Quoted Prices		Significant Other		Significant
											Carrying Amount in				in Active Markets		Observable Inputs		Unobservable Inputs
Financial Assets:	Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)		Consolidated Balance Sheet		Fair Value		(Level 1)		(Level 2)		(Level 3)
Commodity Derivative Instruments - Ethanol											$	56,050	$	56,050	$	56,050	$	—	$	—

Financial Liabilities:
Commodity Derivative Instruments - Corn	$	632,773	$	632,773	$	632,773	$	—	$	—	$	816,478	$	816,478	$	816,478	$	—	$	—
Commodity Derivative Instruments - Ethanol	$	190,325	$	190,325	$	190,325	$	—	$	—

Accounts Payable (1)											$	792,795	$	792,795	$	—	$	792,795	$	—

(1)

Accounts payable is generally stated at historical amounts with the exception of amounts in this table related to certain delivered inventory for which the payable fluctuates based on the changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.

The Company determines the fair value of commodity derivative instruments by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange. We determine the fair value Level 2 accounts payable based on nearby futures values, plus or minus nearby basis.

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

7. DEBT FACILITIES

Debt financing consists of the following:


	April 30, 2020		October 31, 2019
	(unaudited)

					April 30, 2021		October 31, 2020
					(unaudited)
GRANITE FALLS ENERGY:
Seasonal revolving loan, see terms below.		—		—
Revolving term loan, see terms below.					$	112,445	$	—
Term note payable to Project Hawkeye, see terms below.		6,875,000		7,410,714		5,803,571		6,339,286
SBA Paycheck Protection Loan		703,900		—

SBA Paycheck Protection Program loan						703,900		703,900

HERON LAKE BIOENERGY:
Amended revolving term note payable to lending institution, see terms below.		6,131,080		—		10,005,520		7,891,426
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.		634,180		634,180
SBA Paycheck Protection Loan		595,693		—
Single advance term note payable to lending institution, see terms below.						2,700,000		3,000,000
Short term revolving note, see notes below						6,000		—
Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in October 2021. HLBE made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other current assets that are held on deposit to be applied with the final payments of the assessment.						300,551		300,551
SBA Paycheck Protection Program Loan						595,693		595,693
Totals		14,939,853		8,044,894		20,227,680		18,830,856
Less: amounts due within one year		1,405,406		1,405,406		2,094,468		12,954,538
Net long-term debt	$	13,534,447	$	6,639,488	$	18,133,212	$	5,876,318

~~Table of Contents~~

Granite Falls Energy

~~Seasonal~~ Revolving Term Loan

GFE has a credit facility with a ~~lender. This credit facility was originally~~lender in the form of a revolving term loan facility with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018. On September 8, 2017, the revolving term loan was converted to a seasonal revolving loan in the amount of ~~$6,000,000. GFE had no outstanding balance~~$11,000,000 that will expire on the revolving term loan at the time of conversion. There was no outstanding balance on the seasonal revolving loan at April 30, 2020. Therefore, the aggregate principal amount available for borrowing by GFE under this seasonal revolving loan at April 30, 2020 was $6,000,000.

The interest rate on the seasonal revolving loan is based on the bank’s One Month London Interbank Offered Rate (“LIBOR”) Index Rate, plus 2.75%, which was 3.08% and 4.52% at April 30, 2020 and October ~~31, 2019, respectively.~~

20, 2024. The credit facility also requires GFE to comply with certain financial covenants at various times calculated monthly, quarterly or annually, including a restriction of the payment of dividends and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. During the second fiscal quarter of 2020, the credit facility was amended to reduce the working capital covenant to $9 million, from the original $10 million working capital covenant, during the period from March 31, 2020 through September 30, 2020, and increasing to $10 million beginning October 1, 2020. Additionally, the current portion of leases will be excluded from the calculation of current liabilities. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties. For the fiscal year ended October 31, 2019, GFE had an event of non-compliance with the debt service coverage ratio as defined in the credit facility. In December 2019, GFE received a waiver from its lender waiving this event of non-compliance. In March 2020 and April 2020, GFE had events of non-compliance related to the minimum working capital requirement as defined in the credit facility. Additionally, the Company anticipates an event of non-compliance for the period ended May 31, 2020. The Company has obtained a waiver from its lender for the event of non-compliance for the month ended March 31, 2020. The Company is working with its lender to obtain a waiver related to the event of non-compliance for the month ended April 30, 2020 and the expected event of non-compliance for the month ended May 31, 2020 and expects to receive such waivers.

penalties The credit facility is secured by substantially all assets of GFE. There are no savings account balance collateral requirements as part of this credit facility. Interest on the revolving term accrues at a variable weekly rate equal to 3.25% above the higher of 0.00% or One Month London Interbank Offered Rate (“LIBOR”) Index Rate, which totaled 3.37% at April 30, 2021.

GFE also agreed to pay an unused commitment fee on the unused available portion of the revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.

Project Hawkeye Loan

On August 2, 2017, GFE entered into a replacement credit facility with Project ~~Hawkeye to finance its investment in Ringneck. Pursuant to this~~Hawkeye. The terms of the replacement credit facility allow GFE ~~borrowed~~to borrow up to $7.5 million of variable-rate, amortizing non-recourse debt from Project Hawkeye using the GFE’s $7.5 million investment in Ringneck ~~investment~~Energy & Feed, LLC (“Ringneck”), as collateral. The Project Hawkeye loan bears interest from ~~the~~ date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with an interest rate floor of 3.55%, which equated to 3.55% ~~and 4.82%~~ at April 30, ~~2020~~2021 and October 31, ~~2019 respectively.~~2020.

The Project Hawkeye loan requires annual interest payments only for the first two years of the loan and monthly principal and interest payments for years three through nine based on a ~~seven-year~~seven- year amortization period. The monthly

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

amortized payments will be re-amortized following any change in interest rate. The entire outstanding principal balance of the loan, plus any accrued and unpaid interest thereon, is due and payable in full on August 2, 2026. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.

Pursuant to a pledge agreement entered into in connection with the Project Hawkeye loan, GFE’s obligations are secured by all of its right, title, and interest in its investment in Ringneck, including the 1,500 units subscribed for by GFE. The loan is non-recourse to all of GFE’s other assets, meaning that in the event of default, the only remedy available to Project Hawkeye will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck.

SBA Paycheck Protection Program Loan

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In March 2020, Congress passed the Paycheck Protection Program, authorizing loans to small businesses for use in paying employees that they continue to employ throughout the COVID-19 pandemic and for rent, utilities and interest on mortgages. Loans obtained through the Paycheck Protection Program are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 17, 2020, ~~the Company~~GFE received a loan in the amount of $703,900 through the Paycheck Protection Program. This note was forgiven in full during February 2021. Forgiveness income is recorded as a component of other income on the statement of operations.

In February 2021, GFE received a second Paycheck Protection Program loan in the amount of $703,900. Management expects ~~that~~ the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, ~~the Company~~GFE would be required to repay that portion at an interest rate of 1% ~~over a period of two years,~~with principal repayment installments beginning ~~November 2020~~in June 2022 with a final installment in ~~April 2022.~~February 2026.

Heron Lake BioEnergy

~~Amended Credit Facility~~Revolving Term Note

The 2020 Credit Facility includes an amended and restated revolving term loan with ~~an $8,000,000~~a $13 million principal commitment. ~~This loan replaces the amended revolving term note and seasonal revolving loan made under the 2018 Credit Facility.~~ The loan is secured by substantially all of ~~HLBE’s~~the Company’s assets, including a subsidiary guarantee. The 2020 Credit Facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. ~~During~~As of the ~~second~~three months ended January 30, 2021 and the fiscal ~~quarter of~~year ended October 31, 2020, ~~the 2020 Credit Facility~~HLBE was ~~amended to reduce the~~not in compliance with its working capital and net worth covenant to $8 million, from the original $10 million working capital covenant, through the period ending December 31, 2020, and increasing to $10 million beginning January 1, 2021. Additionally, the current portion of leases will be excluded from the calculation of current liabilities. requirements, for which a waiver was obtained. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan ~~and seasonal line of credit~~ and/or the imposition of fees, charges, or penalties. ~~In March 2020 and~~The Company was in compliance with its debt covenants on April ~~2020, HLBE had events of non-compliance related to the minimum working capital requirement as defined in~~30, 2021.

During February 2021, the 2020 Credit ~~Facility. Additionally, HLBE anticipates an event of non-compliance for~~Facility was amended to reduce the ~~period ended~~working capital covenant to $8 million through May 31, ~~2020. HLBE has obtained waivers~~2021 and increasing to $10 million beginning June 30, 2021. The 2020 Credit Facility was also amended to decrease the net worth requirement from ~~its lender for these events of noncompliance.~~ $32 million to $28 million.

As part of the 2020 Credit Facility closing, ~~HLBE~~the Company entered into an amended administrative agency agreement with CoBank, ACP (“CoBank”). As a result, CoBank will continue act as the agent for the lender with respect to the ~~amended credit facility. HLBE~~2020 Credit Facility. The Company agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Under the terms of the amended revolving term loan, ~~HLBE~~the Company may borrow, repay, and reborrow up to the aggregate principal commitment amount of ~~$8,000,000.~~$13,000,000. Final payment of amounts borrowed under the amended revolving term loan is due December 1, 2022. Interest on the amended revolving term loan accrues at a variable weekly

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

rate equal to ~~3.10%~~3.35% above the higher of 0.00% or the One-Month London Interbank Offered Rate (“LIBOR”) Index rate, which totaled ~~3.43%~~3.47% at April 30, ~~2020.~~2021.

~~HLBE~~The Company also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.

Single Advance Term Note

In June 2020, HLBE entered into a single advance term note with a $3,000,000 principal commitment, with the purpose to finance the construction of a new grain bin and provide principal reduction on the Revolving Term Note. The interest rate is fixed at 3.80%. Principal with interest is to be paid in 10 consecutive, semi-annual installments, with the first installment due on December 20, 2020 and the last installment due on June 20, 2025. The note is secured as provided in the 2020 Credit Facility.

Short Term Revolving Promissory Note

In February 2021, HLBE entered into a revolving promissory note with its lender in order to finance the operating needs of HLBE. The revolving promissory note is subject to the 2020 Credit Facility. Under the terms, HLBE may borrow, repay and reborrow up to the aggregate principal commitment amount of $5,000,000. Final payment of amounts borrowed under the revolving promissory note is June 1, 2021. Interest of the loan accrues at a variable weekly rate equal to 3.35% above the higher of 0.00% or the One-Month London Interbank Offered Rate (“LIBOR”) Index rate and is payable monthly in arrears. The rate totaled 3.47% at April 30,2021. In addition, HLBE agreed to pay an unused commitment fee on the unused available portion of the loan at the rate of 0.50% per annum payable monthly in arrears.

SBA Paycheck Protection Program Loan

In March 2020, Congress passed the Paycheck Protection Program, authorizing loans to small businesses for use in paying employees that they continue to employ throughout the COVID-19 pandemic and for rent, utilities and interest on mortgages. Loans obtained through the Paycheck Protection Program are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 18, 2020, ~~HLBE~~the Company received a loan in the amount of $595,693 through the Paycheck Protection Program. The loan was forgiven in full during March 2021. Forgiveness income is recorded as a component of other income on the statement of operations.

In February 2021, the Company received a second Paycheck Protection Program loan in the amount of $595,693. Management expects ~~that~~ the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, ~~HLBE~~the Company would be required to repay that portion at an interest rate of 1% ~~over a period of two years,~~ with principal repayment installments beginning in ~~May 2021~~March 2022 with a final installment in ~~May 2022.~~February 2026.

Negotiable Promissory Note with GFE

In December 2020, we entered into a negotiable promissory note with GFE with a $5,000,000 principal commitment. Interest on the loan accrues at a variable weekly rate equal to the higher of 1.00% or the One-Month LIBOR Index rate, plus 3.35%, which totaled 3.47% at April 30, 2021. The note was due on demand, and accrued interest must be paid in full the first business day of each month. The note is unsecured and may be prepaid at any time without penalty. In January 2021, we borrowed the $5,000,000 on the promissory note, which was classified as a current liability. In February 2021, GFE agreed to modify the promissory note to remove the due on demand feature, instead agreeing that GFE will not require any principal repayment on the loan until March 2023. However, should there be future violations

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

of the Credit Facility loan covenants, those violations would also be considered a default on this promissory note. This related party promissory note with GFE is eliminated upon consolidation on the condensed consolidated balance sheet.

Estimated annual maturities of debt at April 30, ~~2020,~~2021, are as follows based on the most recent debt agreements:


2022	$	2,094,468
2023		11,957,789
2024		1,979,723
2025		2,095,265
2026		1,654,007
Thereafter		446,428
Total debt	$	20,227,680

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2021

$
1,405,406

2022

8,802,305

2023

1,071,428

2024

1,071,428

2025

1,071,429

Thereafter

1,517,857

Total debt

$
14,939,853

8. LEASES

~~Adoption of ASC 842~~

As discussed in Note 1, on November 1, 2019, the Company adopted the provisions of ASC 842 using the modified retrospective approach, which applies the provisions of ASC 842 upon adoption, with no change to prior periods. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of approximately $23.6 million at November 1, 2019. The adoption did not have a significant impact on the Company’s statement of operations.

Upon the initial adoption of ASC 842, the Company elected the following practical expedients allowable under the guidance: not to reassess whether any expired or existing contracts are or contain leases; not to reassess the lease classification for any expired or existing leases; not to reassess initial direct costs for any existing leases. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to only long-term (greater than one year) leases.

The Company leases rail cars for its facility to transport ethanol and dried distillers’ grains to its end customers. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the ~~three~~six months ended April 30, ~~2020,~~2021, the Company’s weighted average discount rate was 4.87%. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining terms of approximately one to seven years. For the six months ended April 30, ~~2020,~~2021, the weighted average remaining lease term was four years.

The Company elected to use a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the Company elected to combine the railcars within each rider and account for each rider as an individual lease.

The following table summarizes the remaining annual maturities of the Company’s operating lease liabilities as of April 30, ~~2020:~~2021:



2021	$	4,537,800


2022		4,348,300	$	4,348,300
2023		4,251,000		4,251,000
2024		3,759,000		3,759,000
2025		3,163,800		3,163,800
2026				2,623,950
Thereafter		4,194,550		1,645,600
Totals		24,254,450		19,791,650
Less: Amount representing interest		3,080,567		2,240,224
Lease liabilities	$	21,173,883	$	17,551,426

For the three and six months ended April 30, 2021, GFE recorded operating lease costs for these leases of approximately $817,000 and $1,651,000, respectively, in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the periods. For the three and six months ended April 30, 2020, GFE recorded operating lease costs for these leases of approximately $638,000 and $1,279,000, respectively, in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the ~~period.~~periods.

~~Table~~For the three and six months ended April 30, 2021, HLBE recorded operating lease costs for these leases of ~~Contents~~

approximately $644,000 and $1,255,000, respectively, in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the periods. For the three and six months ended April 30, 2020, HLBE recorded

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

operating lease costs for these leases of approximately $490,000 and $1,021,000, respectively, in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the ~~period.~~periods.

9. MEMBERS' EQUITY

Granite Falls Energy

GFE has one class of membership units. The units have no par value and have identical rights, obligations and privileges. Income and losses are allocated to all members based upon their respective percentage of units held. As of April 30, ~~2020~~2021 and October 31, ~~2019,~~2020, GFE had 30,606 membership units authorized, issued, and outstanding.

In December 2018, GFE’s Board of Governors declared a cash distribution of $40 per unit or approximately $1,224,000 for GFE unit holders of record as of December 20, 2018 and was paid by GFE in January 2019.10. RELATED PARTY TRANSACTIONS

~~Heron Lake BioEnergy~~

On December 11, 2019, HLBE Pipeline Company acquired the remaining non-controlling interest of Agrinatural for a total price of $2.225 million. A deposit of $225,000 was paid in October 2019 and recorded within other assets at October 31, 2019, and the remaining amount was paid on December 11, 2019. The change of interest is recorded as an equity transaction in accordance with ASC 805.

~~10. COMMITMENTS AND CONTINGENCIES~~

Corn Purchases - Members

GFE purchased corn from board members of approximately ~~$526,000~~$1,646,000 and ~~$605,000~~$526,000 for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$840,000~~$2,623,000 and ~~$1,954,000~~$840,000 for the six months ended April 30, 2021 and 2020, ~~and 2019,~~ respectively.

HLBE purchased corn from board members of approximately ~~$750,000~~$4,934,000 and ~~$2,636,000~~$750,000 for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and approximately ~~$5,815,000~~$8,676,000 and ~~$4,585,000~~$5,815,000 for the six months ended April 30, 2021 and 2020, ~~and 2019,~~ respectively.

11. COMMITMENTS AND CONTINGENCIES

Corn Forward Contracts

At April 30, ~~2020,~~2021, GFE had cash and basis contracts for forward corn purchase commitments for approximately ~~3,338,000~~5,186,000 bushels for deliveries through December 2022.

At April 30, 2021, HLBE had cash and basis contracts for forward corn purchase commitments for approximately 4,689,000 bushels for deliveries through March 2022.

Given the uncertainty of future ethanol and corn prices, ~~GFE~~the Company could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that ~~with respect to GFE,~~ an impairment of loss of ~~$179,000~~approximately $47,000 existed at ~~April 30,~~October 31, 2020, ~~and no~~for the HLBE forward corn purchase commitments. No impairment loss existed ~~at or October 31, 2019.~~

~~At April 30, 2020, HLBE had cash and basis contracts~~ for GFE forward corn purchase commitments ~~for approximately 5,613,000 bushels for deliveries through December 2021.~~

~~Given the uncertainty~~as of future ethanol and corn prices, HLBE could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that, with respect to HLBE, an impairment loss of $83,000 existed at April 30, ~~2020,~~2021.

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Granite Falls Energy, LLC and ~~no impairment loss existed at or October 31, 2019.~~Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2021

Ethanol Forward Contracts

At April 30, ~~2020,~~2021, GFE had fixed and basis contracts to sell approximately ~~$4,626,000~~$16,935,000 of ethanol for various delivery periods through June ~~2020,~~2021, which approximates ~~48%~~76% of its anticipated ethanol sales for this that period.

At April 30, 2021, HLBE had fixed and basis contracts to sell approximately $21,460,000 of ethanol for various delivery periods through June 2021, which approximates 90% of its anticipated ethanol sales for that period.

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~~At April 30, 2020, HLBE had no fixed or basis contracts to sell ethanol.~~

Distillers' Grain Forward Contracts

At April 30, ~~2020,~~2021, GFE had forward contracts to sell approximately ~~$1,467,000~~$,1,163,000 of distillers’ grains for various delivery periods through May 2021, which approximates 35% of its anticipated distillers’ grain sales for ~~deliveries through June 2020.~~this that period.

At April 30, ~~2020,~~2021, HLBE had forward contracts to sell approximately ~~$557,000~~$2,500,000 of distillers’ ~~grains~~grain for various delivery periods through ~~June 2020.~~September 2021, which approximates16% of its anticipated distillers’ grain sales for that period.

Corn Oil Forward Contracts

At April 30, ~~2020,~~2021, GFE had forward contracts to sell approximately ~~$111,000~~$746,000 of corn oil for delivery through May ~~2020.~~2021, which approximates 100% of its anticipated corn oil sales for that period.

At April 30, ~~2020,~~2021, HLBE had forward contracts to sell approximately ~~$131,000~~$597,000 of corn oil for delivery through May ~~2020.~~2021, which approximates 40% of its anticipated corn oil sales for that period.

Rail Car Rehabilitation Costs

GFE leases 75 hopper rail cars under a multi-year agreement which ends in November 2025. Under the agreement, GFE is required to pay to rehabilitate each car for “damage” that is considered to be other than normal wear and tear upon turn in of the car(s) at the termination of the lease. ~~Prior to the year ending October 31, 2019,~~ GFE ~~believed ongoing repairs resulted in an insignificant future rehabilitation expense. During the year ending October 31, 2019, based on new information, we re-evaluated our assumptions and believe~~believes that it is probable that weGFE may be assessed for damages incurred. AtCompany management has estimated total costs to rehabilitate the cars at April 30, ~~2020~~2021 and October 31, ~~2019 GFE has recorded an estimated liability totaling~~2020 to be approximately $825,000. GFE accrues the estimated cost of railcar damages over the term of the lease as the cost of damages are incurred.

HLBE leases 50 hopper rail cars under a multi-year agreement which ends in May 2027. Under the agreement, HLBE is required to pay to rehabilitate each car for “damage” that is considered to be other than normal wear and tear upon turn in of the car(s) at the termination of the lease. Prior to the year ending October 31, 2019, the Company believed ongoing repairs resulted in an insignificant future rehabilitation expense. During the year ending October 31, 2019, based on new information, we re-evaluated our assumptions and believeHLBE believes that it is probable that we may be assessed for damages incurred. Company management has estimated total costs to rehabilitate the cars at April 30, 2021 and October 31, 2020 to be approximately ~~$574,000.~~$620,000 and $597,000, respectively. HLBE accrues the estimated cost of railcar damages over the term of the lease as the cost of damages are incurred. During the three ~~and six months~~month periods ended April 30, 2021 and 2020, the Company has recorded an expense for the recognition of damages and actual repairs in cost of goods of approximately $43,000 and $12,000, respectively. During the six month periods ended April 30, 2021 and 2020, the Company has recorded an expense for the recognition of damages and actual repairs in cost of goods of approximately $55,000 and $23,000, respectively.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

We prepared the following discussion and analysis to help ~~you~~readers better understand our financial condition, changes in our financial condition, and results of operations for the three and six months ended April 30, ~~2020~~2021 and ~~2019.~~2020. This ~~discussion~~section should be read in conjunction with the condensed consolidated unaudited financial statements and related notes in PART I - Item 1 of this report and the information contained in the Company’s quarterly report on Form 10-Q for the three months ended January 31, 2021, and the Company’s annual report on Form 10-K for the fiscal year ended October 31, ~~2019.~~2020.

Disclosure Regarding Forward-Looking Statements

The Securities and Exchange Commission (“~~SEC”~~SEC”) encourages companies to disclose forward-looking information so investors can better understand future prospects and make informed investment decisions. As such, we have historical information, as well as forward-looking statements regarding our business, financial condition, results of operations, performance and prospects in this report. All statements that are not historical or current facts are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions.

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Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and may cause actual results, performance or achievements to differ materially from those projected in, expressed or implied by forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us are described more particularly in the “Risk Factors” ~~section~~sections of our annual report on Form 10-K for the year ended October 31, ~~2019.~~2020, and our quarterly report on Form 10-Q for the three months ended January 31, 2021. These risks and uncertainties include, but are not limited to, the following:

●

Fluctuations in the price of ethanol as a result of a number of factors, including: the price and availability of competing fuels; the overall supply and demand for ethanol and corn; the price of gasoline, crude oil and corn; and government policies;

●

Fluctuations in the price of crude oil and gasoline and the impact of lower oil and gasoline prices on ethanol prices and demand;

●

Fluctuations in the availability and price of corn, resulting from factors such as domestic stocks, demand from corn-consuming industries, such as the ethanol industry, prices for alternative crops, increasing input costs, changes in government policies, shifts in global markets or damaging growing conditions, such as plant disease or adverse weather, including drought;

●

Fluctuations in the availability and price of natural gas, which may be affected by factors such as weather, drilling economics, overall economic conditions, and government regulations;

●

Negative operating margins which may result from lower ethanol and/or high corn prices;

●

Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

●

Overcapacity and oversupply in the ethanol industry;

●

Ethanol trading at a premium to gasoline at times, which may act as a disincentive for discretionary blending of ethanol beyond Renewable Fuel Standard (“RFS”) requirements and consequently negatively impacting ethanol prices and demand;

●

Changes in federal and/or state laws and environmental regulations including elimination, waiver or reduction of corn-based ethanol volume obligations under the RFS and legislative acts taken by state governments such as California related to low-carbon fuels, may have an adverse effect on our business;

●

Any impairment of the transportation, storage and blending infrastructure that prevents ethanol from reaching markets;

●

Any effect on prices and demand for our products resulting from actions in international markets, particularly imposition of tariffs;

●

Changes in our business strategy, capital improvements or development plans;

●

Effect of our risk mitigation strategies and hedging activities on our financial performance and cash flows;

●

Competition from alternative fuels and alternative fuel additives;

●

Changes or advances in plant production capacity or technical difficulties in operating the plant;

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●

Our reliance on key management personnel; ~~and~~

●

A slowdown in global and regional economic activity, demand for our products and the potential for labor shortages and shipping disruptions resulting from ~~COVID-19.~~

COVID-19:

●

The election of President Joe Biden and the transition to a new presidential administration may result in new or different regulations and policies that may adversely affect our business; and

●

Our CEO and General Manager retired effective May 26, 2021, and as a result our Company may face challenges that arise from a transition in leadership, which may adversely affect our business.

We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated and do not intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

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

Industry and Market Data

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Much of the information in this report regarding the ethanol industry, including government regulation relevant to the industry is from information published by the Renewable Fuels Association (“~~RFA”~~RFA”), a national trade association for the United States (“U.S.”) ethanol industry, and information about the market for our products and competition is derived from publicly available information from governmental agencies or publications and other published independent sources. Although we believe our third-party sources are reliable, we have not independently verified the information.

Overview

Granite Falls Energy, LLC (“Granite Falls ~~Energy”~~Energy” or ~~“GFE”~~“GFE”) is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant in Granite Falls, Minnesota. Additionally, through Project Viking, L.L.C., a wholly owned subsidiary (“Project ~~Viking”~~Viking”), GFE owns an approximately 50.7% controlling interest of Heron Lake BioEnergy, LLC (“Heron Lake BioEnergy” or ~~“HLBE”~~“HLBE”). HLBE is a Minnesota limited liability company that owns and operates a dry mill corn-based, natural gas fired ethanol plant near Heron Lake, Minnesota. Additionally, through its wholly owned subsidiary, HLBE Pipeline Company, LLC (“HLBE Pipeline ~~Company”~~Company”), HLBE is the sole owner of Agrinatural Gas, LLC (“~~Agrinatural”~~Agrinatural”), which operates a natural gas pipeline. ~~Beginning~~

Our CEO is Jeffrey Oestmann. We hired Oestmann effective May 26, 2021, pursuant to a letter of employment dated May 20, 2021 (the “Employment Agreement”). Oestmann replaced Steve Christensen, who had served as CEO of ~~December 11, 2019,~~the Company since 2014 and who resigned pursuant to a separation agreement between Christensen and the Company (the “Separation Agreement”). Oestmann also serves as the CEO of HLBE ~~holds~~pursuant to a ~~100% interest in Agrinatural. At October 31, 2019,~~management services agreement between the Company and HLBE ~~held a 73% interest in Agrinatural.~~(the “Management Services Agreement”). The Employment Agreement is available on the Company’s Form 8-K filed with the SEC May 25, 2021 and is hereby incorporated by reference. The Management Services Agreement and Separation Agreement are available on the Company’s Form 8-K filed with the SEC February 22, 2021 and are hereby incorporated by reference.

When we use the terms “Heron Lake BioEnergy,” “Heron Lake,” or “HLBE” or similar words, unless the context otherwise requires, we are referring to Heron Lake BioEnergy and its wholly owned subsidiary, HLBE Pipeline Company, LLC, and its wholly owned subsidiary Agrinatural. When we use the terms “Granite Falls Energy” or “GFE” or similar words, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our operations at our ethanol production facility located in Granite Falls, Minnesota. When we use the terms the “Company,” “we,” “us,” “our” or similar, unless the context otherwise requires, we are referring to Granite Falls Energy, LLC and our consolidated wholly and majority owned subsidiaries.Ethanol Production

Our business consists primarily of the production and sale of ethanol and its co-products (wet, modified wet and dried distillers’ grains, corn oil and corn syrup) locally, and throughout the continental U.S. Our production operations are carried out at GFE’s ethanol plant located in Granite Falls, Minnesota and at HLBE’s ethanol plant near Heron Lake, Minnesota.

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GFE’s ethanol plant has an approximate annual production capacity of 60 million gallons of denatured ethanol, but has obtained EPA pathway approval and permits from the Minnesota Pollution Control Authority (“MPCA”) to increase its production capacity to approximately 70 million gallons of undenatured ethanol on a twelve-month rolling sum basis. HLBE’s plant has an approximate annual production capacity of 60 million gallons of denatured ethanol, but has obtained EPA pathway approval and permits from the MPCA to increase its production capacity to approximately 72 million gallons of undenatured ethanol on a twelve month rolling sum basis. We intend to continue working toward increasing production at plants to take advantage of the additional production allowed pursuant to their respective permits so long as we believe it is profitable to do so.

We market and sell the products produced at our plants primarily using third party marketers. The markets in which our products are sold may be local, regional, national, and international and depend primarily upon the efforts of third party marketers. We have contracted with Eco-Energy, Inc. to market all of the ethanol produced at our ethanol plants. GFE also independently markets a small portion of the ethanol production at its plant as E-85 to local retailers.

We have contracted with RPMG, Inc. (“RPMG”) to market the distillers’ grains produced at the GFE plant and with Gavilon Ingredients, LLC to market distillers’ grains produced at the HLBE plant. We have contracted with RPMG to market all of corn oil produced at our ethanol plants. HLBE also occasionally independently markets and sells excess corn syrup from the distillation process at the Heron Lake plant to local livestock feeders.

We do not have any long-term, fixed price exclusive supply contracts for the purchase of corn for either the GFE or HLBE plants. Both GFE and HLBE purchase the corn necessary for operating directly from grain elevators, farmers, and local dealers within approximately 80 miles of their respective plants. Neither GFE’s nor HLBE’s members are obligated to deliver corn to our plants.

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At the GFE plant, we pay Center Point Energy/Minnegasco a per unit fee to move the natural gas through the pipeline, and we have guaranteed to move a minimum of 1,500,000 MMBTUs annually through December 31, 2025, which is the ending date of the agreement. We also have an agreement with Kinetic Energy Group whereby Kinetic Energy Group, on our behalf, procures contracts with various natural gas vendors to supply the natural gas necessary to operate the Granite Falls plant.

HLBE has a facilities agreement with Northern Border Pipeline Company, which allows HLBE to access an existing interstate natural gas pipeline located approximately 16 miles north of its plant. HLBE has entered into a firm natural gas transportation agreement with its wholly owned subsidiary, Agrinatural. HLBE also has an agreement with Constellation NewEnergy—Gas Division, LLC to supply the natural gas necessary to operate the Heron Lake plant.

We have a management services agreement with HLBE pursuant to which our chief executive officer, chief financial officer, and commodity risk manager also hold those same offices with HLBE. The management services agreement automatically renews for successive one-year terms unless either HLBE or GFE gives the other party written notice of termination prior to expiration of the then current term. The management services agreement may also be terminated by either party for cause under certain circumstances.

As of December 11, 2019, HLBE owns a 100% interest in Agrinatural, a natural gas distribution and sales company located in Heron Lake, Minnesota. Agrinatural owns approximately 190 miles of natural gas pipeline and provides natural gas to HLBE’s ethanol plant and other commercial, agricultural and residential customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company. Agrinatural’s revenues are generated through natural gas distribution fees and sales.

We have a natural gas local distribution company management agreement with Agrinatural pursuant to which our chief executive officer and chief financial officer also hold those same offices with Agrinatural. The agreement automatically renews for successive one-year terms unless either Agrinatural or GFE gives the other party written notice of termination prior to expiration of the then current term. The agreement may also be terminated by either party for cause under certain circumstances.

On August 2, 2017, GFE made a $7.5 million investment in Ringneck Energy & Feed, LLC (“Ringneck”). Ringneck has constructed an ethanol plant outside of Onida, South Dakota. The plant commenced operations in June 2019. On June 10, 2019, GFE made an additional $500,000 investment in Ringneck. On June 29, 2018, GFE made a $2.0 million investment in Harvestone Group, LLC (“Harvestone”). Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee. Details regarding our investment in Ringneck and Harvestone are provided below in the section below titled “~~Investments~~.”

Plan of Operations for the Next Twelve Months

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of ~~2019~~2020 and ~~so far~~ in ~~2020~~early 2021 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels, exacerbated ~~in 2020~~ by the COVID-19 pandemic. These factors resulted ~~and continue to result~~ in prolonged negative operating margins, lower cash flow from operations and substantial net ~~operating~~ losses. WeDemand for ethanol and ethanol prices have largely rebounded from the onset of the COVID-19 pandemic, and we expect to have sufficient cash generated by continuing operations, availability on our credit facility, and additional debt with the Company’s current lenders to fund our operations. However, should unfavorable operating conditions ~~continue or worsen in the ethanol industry~~occur that prevent us from profitably operating our plant, we may need to seek additional funding or further idle ethanol production altogether.

Over the next twelve months, we will continue our focus on operational improvements at our plants. These operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at our plants to take full advantage of our permitted production capacities, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies. Additionally, we expect to continue to conduct routine maintenance and repair activities at our ethanol plants to maintain current plant infrastructure, as well as small capital projects to improve operating efficiency. We anticipate using cash ~~we generate~~ from ~~our operations and~~ our revolving term ~~loan~~loans to finance these plant upgrade projects.

Proposed Merger with Heron Lake BioEnergy, LLC

During the three months ended April 30, 2021, the Company developed plans to engage in a merger with HLBE. Specifically, on March 24, 2021, the Company and HLBE, executed a Merger Agreement (the “Merger Agreement”), pursuant to which the Company will acquire the minority-owned interest of HLBE (the “Merger”). The structure of the proposed transaction is a merger in which Granite Heron Merger Sub, LLC, (“Merger Sub”) a wholly owned subsidiary of the Company, will merge with and into HLBE, with HLBE surviving the transaction as a wholly owned subsidiary of the Company.

The Company currently owns approximately 50.7% of HLBE’s units. Pursuant to the Merger Agreement, the Company will acquire the remainder of HLBE’s issued and outstanding units (the “Minority Ownership Interest”). The purchase price for the entire Minority Ownership Interest is approximately $14,000,000 in cash payable at the closing of the Merger. Each issued and outstanding unit of the Minority Ownership Interest will be canceled and converted into the right to receive $0.36405 per Unit. (the “Merger Consideration”). Upon the completion of the merger, Minority Ownership Interest unitholders will no longer own any units of HLBE and will no longer have any rights as a member or owner of HLBE.

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The units of HLBE held by the Company immediately prior closing of Merger shall be cancelled with no consideration issued to the Company. The Company will emerge from the transaction as the sole owner of HLBE.

At the time the Merger becomes effective, 100 percent of the membership interest in the Merger Sub shall be converted into and become 100 percent of the membership interests in HLBE, as the surviving company in the Merger.

The Merger is subject to approval by the Minority Ownership Interest. A Special Meeting of the members of HLBE is expected to be held in summer 2021 to vote on the proposed Merger. If approved by the Minority Ownership Interest, the Merger is expected to close following the special meeting.

Upon closing of the Merger, HLBE will file a Certification and Notice of Termination of Registration with the SEC, which will allow HLBE to operate without being registered with the SEC. Upon termination of HLBE’s SEC registration, we expect HLBE will no longer be required to file quarterly and annual reports with the SEC. The Company, which will be HLBE’s sole owner upon closing of the Merger, will continue to be registered with the SEC and will continue to file required SEC reports after completion of the Merger.

A complete description of the Merger and the Merger Agreement is available in HLBE’s preliminary proxy statement filed with the SEC on May 21, 2021, and is hereby incorporated by reference. Copies of the Merger Agreement, a Plan of Merger and associated voting agreements were published with our Form 8-K filed with SEC on March 25, 2021 and are herein incorporated by reference.

Effect if the Merger is Not Completed

If the Merger is not completed, HLBE’s unitholders will not receive the Merger Consideration or any other payment for their units of the Company. Instead, HLBE will remain a majority-owned subsidiary of the Company.

Further, HLBE has experienced significant net losses due to several factors, including elevated corn prices, the breakdown of our ethanol plant’s boiler, and reduced demand for ethanol due to several factors, including the COVID-19 pandemic. As a result, HLBE has experienced instances of noncompliance with certain loan covenants related to HLBE’s working capital and net worth ratio, for which HLBE has obtained waivers from its lender. Although HLBE was in compliance with its financial covenants as of April 30, 2021, the impact of the COVID19 pandemic could have an adverse impact on HLBE’s operating results, which could result in HLBE’s inability to comply with certain of these financial covenants and require HLBE’s lenders to waive compliance with, or agree to amend, any such covenant to avoid a default.

While HLBE believes the replacement of the boiler has improved the operating performance of the HLBE plant, and led to lower operating costs, market conditions have resulted in losses. If the Merger is not completed, HLBE intends to source other capital sources, which may include re-negotiating its debt agreements and terms or seek potential equity solutions. At this time, there are no commitments to do so and HLBE may not be successful in doing so.

Trends and Uncertainties Impacting Our Operations

The principal factors affecting our results of operations and financial conditions are the market prices for corn, ethanol, distillers’ grains and natural gas,, as well as governmental programs designed to create incentives for the use of corn-based ethanol. Other factors that may affect our future results of operation include those risks discussed below and in “PART II - Item 1A. Risk Factors” of this report, “PART II - Item 1A. Risk Factors” of our quarterly report on Form 10-Q for the three months ended January 31, ~~2020,~~2021, and “PART I - Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended October 31, ~~2019.~~2020.

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers’ grains and natural gas. As a result, our operating results can fluctuate substantially due to volatility in these commodity markets. The price and availability of corn is subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, yields, domestic and global stocks, weather, federal policy and foreign trade. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons.

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Ethanol prices are sensitive to world crude oil supply and demand, domestic gasoline supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels and octane enhancers, refining capacity and utilization, government regulation and incentives and consumer demand for alternative fuels. Distillers’ grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production.

Because the market price of ethanol is not always directly related to corn, at times ethanol prices may lag price movements in corn prices and corn-ethanol price spread may be tightly compressed or negative. If the corn-ethanol spread is compressed or negative for sustained period, it is possible that our operating margins will decline or become negative and our plants may not generate adequate cash flow for operations. In such cases, we may reduce or cease production at our plants to minimize our variable costs and optimize cash flow.

Management ~~currently~~ believes that ~~our margins will remain negative or low during~~ the ~~remainder of~~ethanol outlook in the fiscal year ~~2020.~~ 2021 will remain relatively consistent with this quarter. The ~~negative market~~widespread distribution of COVID-19 vaccines and the loosening of restrictions related to the pandemic have improved the overall economic outlook and the demand for fuel, including the ethanol we produce. However, lingering effects of the COVID-19 pandemic ~~will likely~~and other factors could continue to negatively ~~impact~~affect our profitability. Due to the market risks and uncertainties related to the pandemic and its ramifications, HLBE idled its ethanol production from on or about March 30, 2020 through approximately May 31, 2020 and GFE temporarily idled its operations from on or about April 3, 2020 through approximately May 18, 2020. Additionally, continued large corn supplies and increases in ethanol production capacity ~~increases~~ could ~~have a negative impact on the market price of ethanol which could adversely impact~~negatively affect our profitability. This negative impact could worsen if domestic ethanol inventories ~~remain high or grow,~~increase, or if U.S. exports of ethanol decline. ~~Recent US~~

Ethanol production largely rebounded and remained steady in late 2020 after briefly and significantly declining during the second fiscal quarter of 2020 at the onset of the COVID-19 pandemic. In the three months ended April 30, 2021, ethanol production briefly and significantly declined again due to severe weather incidents. Unusually cold weather affecting much of the United States in February 2021 disrupted the supply of natural gas and as a result natural gas spot prices approached record-high levels. Many ethanol production facilities, including our plants, rely on natural gas to process corn into ethanol. In February 2021, estimated fuel ethanol margins fell to negative levels due in part to the elevated natural gas prices and as a result many fuel ethanol producers reduced production rates. U.S. weekly fuel ethanol production fell to an average of 658,000 barrels per day (b/d) during the week of February 21, 2021, which was the lowest weekly production level since May 11, 2020, and 38% lower than at the same time last year, according to the U.S. Energy Information Administration (“~~EIA”~~EIA”) ~~reports indicate that~~. Production rates have since returned to average levels, but fuel ethanol ~~stocks~~inventories remain ~~high~~lower than their typical seasonal averages heading into the summer driving season. While the reduction in ethanol inventory may result in higher prices for ethanol and ~~that~~higher operating margins for the Company, management expects ethanol production ~~remains steady~~and inventories to rebound industrywide and margins for our Company to remain tight.

Additionally, decreasing exports could reduce demand for biofuel including the ethanol we produce. Annual U.S. fuel ethanol exports decreased by 9% in 2020, marking the second consecutive annual drop in U.S. fuel ethanol exports and the lowest level for such exports since 2015, according to the ~~conclusion~~EIA. Exports of ~~fiscal year 2019. In addition,~~U.S. fuel ethanol to Brazil, the world’s second largest consumer of fuel ethanol, decreased significantly in 2020. All U.S. fuel ethanol exports to Brazil now face a 20% Brazilian tariff since a tariff-free fuel ethanol quota expired in December 2020. The new tariff will likely lower U.S. fuel ethanol export volumes to Brazil in the near term, according to the EIA. As a result, demand for biofuel, including our ethanol, could decrease.

Further, management believes that ~~increased~~the continued issuance of waivers of small refiner renewable volume obligations (“~~RVOs”~~RVOs”) by the USU.S. Environmental Protection Agency (“~~EPA”~~EPA”), as well as uncertainty regarding the ~~potential Renewable Fuels Standard (“RFS”)~~RFS reset, ~~will~~could contribute to the projected negative or low margins.

Increased waivers of small refiner RVOs by the EPA has contributed to management’s expectation regarding margins. The impact of the increases in small refiner waivers granted by the EPA and the reductions in Chinese imports continues to have a negative impact on prices for renewable identification numbers (“RINs”) for corn-based ethanol. As a result, RINs prices remain lower, removing a blending incentive from the ethanol marketplace.

Changes in the price for crude oil and unleaded gasoline could have a negative impact on the demand for gasoline and impact the market price of ethanol, which could adversely impact our profitability. According to the EIA May ~~2020~~2021 Short Term Energy Outlook, EIA expects U.S. gasoline consumption to fall from 8.6 million barrels per day in the first quarter of 2020 to an average of 7.0 million barrels per day in the second quarter, before gradually increasing to 8.7 million barrels per day in the second half of the year. For all of 2020, EIA forecastsestimates that U.S. gasoline consumption will average ~~8.3~~9.0 million barrels per day ~~a decrease~~this summer (April through September), up from 7.8 million barrels per day during the summer of ~~11% compared with~~2021 but down from 0.6 million barrels per day from summer 2019. ~~The~~In addition, EIA forecasts ~~regular gasoline~~relatively stable prices for crude oil, projecting Brent crude oil prices to average ~~$1.91~~$65 per ~~gallon~~barrel in the second quarter of ~~2020 compared to~~2021, $61 per barrel for the ~~2019 average~~remainder of ~~$2.73~~the year, and $61 per ~~gallon, largely due to restrictions related to COVID-19 and reflective of a drop~~barrel in 2022. Decreases in the price for crude oil ~~prices. The EIA also~~ generally ~~expects U.S. average gasoline prices to remain lower than $2.00 per gallon until March 2021.~~

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In addition, crude oil prices fell sharply in March and April 2020 and remains low into June 2020, as a result of market reaction to the COVID-19 pandemic, which caused global demand to decline, and international price wars. Such marked decreases in crude oil prices have ~~had~~ a negative impact on the demand for ~~ethanol, which are likely to be exacerbated by overall lessened global energy demand as a result of the COVID-19 pandemic.~~ ethanol.

Continued ethanol production capacity increases could also have a negative impact on the market price of ethanol, which could be further exacerbated if domestic ethanol inventories remain high or grow, or if U.S. exports of ethanol decline. Throughout ~~2019 and~~ 2020, some U.S. ethanol plants temporarily suspended production due to negative margins, largely resulting from the COVID-19 pandemic, and stagnant export projections caused by trade ~~barriers.~~barriers and decreased global demand in connection with the COVID-19 pandemic.

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~~During our first fiscal quarter of 2020, distillers’ grains prices rose,~~ ~~due to strong demand and unexpected supply disruptions~~. In addition to being an animal feed substitute for corn, distillers’ grains are increasingly considered a protein feed substitute for soybean meal. Management currently believes that the impact of the current Chinese imposition of antidumping and countervailing duties on distillers’ grains produced in the U.S. has been absorbed into the market. However, recent trade disputes with China, Mexico and Canada could result in the imposition of additional tariffs on distillers’ grains produced in the United States, which could lead to an oversupply of distillers’ grains domestically and negatively impact distillers’ grains prices. Additionally, domestic feeding margins in cattle and hogs in particular could have a negative impact on total domestic distillers’ grains demand.

Corn oil prices have been slightly positively impacted during the three months ended April 30, 2020, opposite the recent historic perspective, which has seen corn oil prices over the past few years be impacted by oversupply of soybeans and the resulting lower price of soybean oil which competes with corn oil for biodiesel production, in addition to increased corn oil production. The impact of lower soybean oil prices and the market’s increase in corn oil production during the last few years will likely continue to impact corn oil prices.

In December 2019, legislation was signed extending the $1.00 per-gallon biodiesel blender tax credit retroactively to January 1, 2018 through December 31, 2022. However, corn oil prices may decrease if biodiesel producers reduce production and/or demand for corn oil is reduced without extension of the biodiesel blenders tax credit.

Given the inherent volatility in ethanol, distillers’ grains, non-food grade corn oil, grain and natural gas prices, we cannot predict the likelihood that the spread between ethanol, distillers’ grains, non-food grade corn oil, and grain prices in future periods will be consistent compared to historical periods.

Impact of COVID-19 on the Company

Operations

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout 2020 and into 2021, as the COVID-19 pandemic significantly reduced travel and demand for fuel, including the ethanol we produce. Reduced demand and high industry inventory levels resulted in record low ethanol prices in the second and third fiscal quarters of 2020. As a result, we experienced negative operating margins, significantly lower cash flow from operations and substantial net losses. In response to these adverse market conditions, HLBE idled its ethanol production from on or about March 30, 2020 through approximately May 31, 2020 and GFE temporarily idled its operations from on or about April 3, 2020 through approximately May 18, 2020. Fuel prices generally, and ethanol prices specifically, have rebounded since the spring of 2020 and remained largely steady during the three months ended April 30, 2021, and management believes there is potential for fuel demand to increase as COVID-19 related restrictions are lifted and travel increases. However, it is possible that unforeseen consequences of the pandemic will cause fuel demand and ethanol prices to remain flat or decrease, thus negatively affecting our business. The Company continues to monitor COVID-19 developments to determine if adjustments to production are warranted.

Employees

The Company has enacted appropriate safety measures to protect the health and safety of our employees, customers, partners and suppliers, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.

Management believes that various factors, including unemployment benefits offered in response to the COVID-19 pandemic, have contributed to a labor shortage. While we currently have sufficient employees to operate our production facility, it is possible that a shortage of qualified, available workers could result in higher labor costs and could negatively affect our ability to efficiently operate our production facility.

Supply and Demand

Although we continue to regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to produce our products, adversely affecting our operations. Various factors, including disruptions caused by the COVID-19 pandemic, have resulted in significant increases in the costs of raw materials, including the corn we rely on to produce ethanol. Additionally, restrictions or disruptions of transportation, such as reduced availability of truck, rail or air transport, port closures and increased border controls or closures, may result in higher costs and delays, both with respect to obtaining raw materials and shipping finished products to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers. Additionally, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The pandemic has caused a global economic slowdown, and it is possible that it could cause a global recession. In the event of a recession, demand for our products would decline further and our business would be further adversely affected.

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PPP Loans

On April 17, 2020, the Company received a loan in the amount of $703,900 through the Paycheck Protection Program, which was forgiven in full during February 2021. Additionally, on April 18, 2020 HLBE received a loan in the amount of $595,693 through the Paycheck Protection Program, which was forgiven in full during March 2021.

The Company received a second Paycheck Protection Program loan in February 2021 the amount of $703,900. Management expects the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% with principal repayment installments beginning in June 2022 with a final installment in February 2026.

HLBE received a second Paycheck Protection Program loan in February 2021 in the amount of $595,693. Management expects the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, HLBE would be required to repay that portion at an interest rate of 1% with principal repayment installments beginning in March 2022 with a final installment in February 2026.

Outlook

The adverse conditions created by the COVID-19 pandemic caused the Company to experience negative operating margins, significantly lower cash flow from operations and substantial net losses. Although there is uncertainty related to the ongoing impact of the COVID-19 pandemic on our future results, we believe our current cash reserves, cash generated from our operations, our Paycheck Protection Program loans and the available cash under our revolving loans leave us well-positioned to manage our business.

While the lifting of restrictions related to the COVID-19 pandemic have improved the overall economic outlook, the pandemic is ongoing, and its dynamic nature makes it difficult to forecast the long-term effects on our industry as a whole and our Company specifically. New variants of the virus that causes COVID-19 may prolong the pandemic, create additional waves of infections, or impose other unforeseen challenges. It is possible that even after the pandemic has subsided, there will be permanent changes to social and economic patterns, such as an increase remote working, that will limit travel and thereby suppress demand for fuel, including the ethanol we produce.

Despite the economic uncertainty resulting from the COVID-19 pandemic, we intend to continue to focus on strategic initiatives designed to improve on our operational efficiencies, which is critical in order to drive positive results in a low-margin environment.

Government Supports and Regulation

The Renewable Fuels Standard

The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the federal ~~Renewable Fuels Standard (“RFS”).~~RFS. The RFS has been, and we expect will continue to be, a significant factor impacting ethanol usage. Opponents of the RFS have sought to restrict or eliminate the standard through various litigation and legislative actions. Any adverse ruling on, or legislation affecting, the RFS could have an adverse impact on ~~short-term~~ ethanol prices and our financial performance in the future.

~~Under~~The Biden administration has indicated support for RFS blending rules and energy policies that could be beneficial to the ~~provisions~~ethanol industry and our business. Specifically, the EPA under the Biden administration has announced it supports the interpretation of the ~~RFS, the EPA must publish an annual rule that establishes the number of gallons of different types of renewable fuels, including corn-based ethanol, that must be blended with gasoline in the U.S.~~RFS’s small-refinery provisions made by refineries, blenders, distributors, and importers, which affects the domestic market for ethanol. In December 2019, the EPA released the final renewable volume obligations (“RVOs”), which included an overall blending requirement of 20.09 billion gallons for 2020, a slight increase from 2019 mandates. Conventional corn-based ethanol levels were left at 15.0 billion gallons, excluding any waivers granted by the EPA to small refiners for “hardship.”

U.S. ethanol production capacity exceeded the EPA’s 2018 and 2019 RVOs that can be satisfied by corn-based ethanol. Under the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. In October 2018, the Office of Management and Budget announced that the 20% thresholds “have been met or are expected to be met in the near future.” In May 2019, the EPA delivered the proposed RFS “reset” rule to the White House Office of Management and Budget for its review. If the

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~~statutory RVOs are reduced as a result of reset, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.~~

There is growing availability of E85 for use in flexible fuel vehicles; however, it is limited due to lacking infrastructure. In addition, the industry has been working to introduce E15 to the retail market since the EPA approved its use in vehicles model year 2001 and newer. However, widespread adoption of E15 has been hampered by regulatory and infrastructure hurdles in many states, as well as consumer acceptance. Additionally, sales of E15 may have been limited because (i) it is not approved for use in all vehicles, (ii) the EPA requires a label that management believes may discourage consumers from using E15, and (iii) retailers may choose not to sell E15 due to concerns regarding liability. On May 30, 2019, the EPA issued a final rule which allows E15 to be sold year-round. In June 2019, the American Fuel and Petrochemical Manufacturers association filed a lawsuit in the U.S. Court of Appeals for the ~~District of Columbia challenging~~Tenth Circuit in a 2020 decision. In the final rule. Additionally, in August 2019, the Small Retailers Coalition filed a lawsuit in the U.S. Court of Appeals for the District of Columbia seeking review of the final rule. There is no guarantee that the final rule will be upheld. Legal challenges could create uncertainty for retailers desiring to implement or expand sales of E15. Additionally, although the year-round E15 rule is now final, there is no guarantee that retailers will implement the sale of year-round E15, nor is there a guarantee that the rule will result in an increase of ethanol sales.

The EPA assigns individual refiners, blenders, and importers the RVOs they are obligated to use based on their percentage of total fuel sales. Obligated parties use RINs to show compliance with RVOs. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties. Under the RFS, small refineries may petition for and be granted temporary exemptions from the RVOs if they can demonstrate that compliance with the RVOs would cause disproportionate economic hardship. The EPA has recently granted a number of these exemptions, whereby such refiners were alleviated of their responsibility to supply RINS for their obligated volumes based upon the grounds of economic hardship. On May 21, 2020, the EPA released data on the number of waivers filed, which indicated that 27 petitions for waivers for the 2019 compliance year have been received, in addition to one petition for a waiver for the 2020 compliance year. For the 2018 compliance year, 42 petitions have been received. To date, with respect to the 2018 compliance year, the EPA has approved 31 petitions and denied 6 petitions, and 5 petitions have been declared ineligible or withdrawn. The 31 approved petitions have exempted approximately 1.43 billion RINs, which is approximately 13.42 billion gallons of gasoline and diesel, from meeting the RFS blending targets. The 37 approved petitions for compliance year 2017 exempted approximately 1.82 billion RINs, which is approximately 17.05 billion gallons of gasoline and diesel, from meeting the RFS blending targets. It is expected that additional petitions for waivers for the 2019 and 2020 compliance years will be received by the EPA. It is also expected that the EPA will approve a significant number of these waiver petitions, thereby exempting a substantial number of gallons of gasoline and diesel from meeting the RFS blending targets. These exemptions decrease demand for our products, which negatively impacts ethanol prices and our profitability.

A proposed rule released by the EPA in October 2019 proposed changes intended to project the exempted volume of gasoline and diesel due to small refinery exemptions, regardless of whether such exemptions were actually granted after the annual rulemaking. However, the final rule released by the EPA in December 2019 provides that EPA will project exempt volumes based on a three-year average of the relief recommended by the Department of Energy (“DOE”) for years 2016-2018, rather than based on actual exemptions granted. For the 2016 compliance year, the EPA said the DOE’s recommended relief was approximately 440 million RINs. The EPA, however, actually granted waivers for approximately 790 million RINs. Similarly, the DOE’s 2017 compliance year recommendation was 1.02 billion RINs, as compared to the approximately 1.82 billion RINs granted waivers by the EPA. For the 2018 compliance year, the DOE recommended the EPA approve waivers for 840 million RINs, as compared to the approximately 1.43 billion RINs granted waivers by the EPA. The EPA’s final rule also announced its general policy approach with respect to small refinery waivers on a go-forward basis as consistent with DOE’s recommendations, where appropriate. The final rule fell short of the relief that was urged by ethanol producers. As a result, management expects that small refinery exemptions will continue to have a negative effect on demand for our products, ethanol prices, and our profitability.

Legal challenges are underway to the RFS, including the EPA’s recent reductions in the RFS volume requirements, the 2018 final rule, and the denial of petitions to change the RFS point of obligation. If the EPA’s decision to reduce the volume requirements under the RFS is allowed to stand, if the volume requirements are further reduced, or

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~~if the RFS point of obligation were changed, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.~~

Beginning in January 2016, various ethanol and agricultural industry groups petitioned a federal appeals court to hear a legal challenge to of the EPA’s decision to reduce the total renewable fuel volume requirements for 2014-2016 through use of its “inadequate domestic supply” waiver authority. On July 28, 2017, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of the petitioners, concluding that the EPA erred in its exercise of “inadequate domestic supply” waiver authority by considering demand-side constraints. As a result, the Court vacated the EPA’s decision to reduce the total renewable fuel volume requirements for 2016, and remanded to the EPA to address the 2016 total renewable fuels volume requirements. In December 2019, the EPA announced that it is deferring action on this issue until an anticipated date in 2020. While management believes the decision should benefit the ethanol industry overall by clarifying the EPA’s waiver analysis is limited to consideration of supply-side factors only, no direct impact on the Company is expected from the decision.

On May 1, 2018, the Advanced Biofuel Association submitted a petition with the U.S. Court of Appeals for the D.C. Circuit challenging EPA’s process for granting exemptions from compliance under the RFS to small refineries. The Advanced Biofuel Association petition asks the court to review the EPA’s decision to modify criteria to lower the threshold by which the agency determines whether to grant small refineries an exemption for the RFS for reasons of disproportionate economic hardship. In May 2019, the U.S. Court of Appeals for the D.C. Circuit denied a motion by the Advanced Biofuels Association seeking a preliminary injunction to prevent the EPA from granting any additional small refinery exemptions under the RFS until its pending lawsuit with the agency is resolved. In August 2019, the U.S. Court of Appeals for the D.C. Circuit denied the petition, upholding the EPA’s decisions.

~~Additionally, on May 29, 2018, the National Corn Growers Association, National Farmers Union, and the~~case, Renewable Fuels Association ~~(“RFA”) filed a petition with the U.S. Court of Appeals for the 10th Circuit challenging~~et al. v. EPA, various agriculture and biofuel groups challenged the EPA’s grant of waivers to three specific refineries. The petitioners are asking the U.S. Court of Appeals for the 10th Circuit to reject the waivers granted to three refineries located in Wynnewood, Oklahoma, Cheyenne, Wyoming, and Woods Cross, Utah as an abuse of EPA authority. These waived gallons ~~are~~were not redistributed to obligated parties, and ~~in effect, reduce~~thus reduced the aggregate RVOs under the RFS. In January 2020, the court struck down the exemptions as improperly issued by the EPA. The court interpreted the RFS statute to require that any exemption granted to a small refinery after 2010 must take the form of an ~~“extension,~~“extension.” In February 2021, the EPA announced it supported the 10th Circuit’s interpretation of the RFS, reversing the position the EPA took under the previous administration. Nonetheless, it is uncertain whether the 10th Circuit’s interpretation will be upheld or whether the Biden administration will continue to

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support energy policies that benefit the ethanol industry and our business. The case was appealed to the U.S. Supreme Court, which ~~would require a~~heard arguments in the case in April 2021. The Supreme Court’s decision in the case is expected in the summer of 2021.

Additional legal actions related to the RFS are underway. These include lawsuits challenging fuel volume waivers based on “inadequate domestic supply,” challenging the EPA’s lower threshold for granting small refinery ~~exemption in prior years to prolong, enlarge or add to. The court approved a 15-day extension of the deadline to file a petition for rehearing, which sets the deadline at March 24, 2020.~~ ~~Three small refiners filed an appeal, but because the Department of Justice did not file an appeal, the agency is set to implement the decision nationwide.~~

Related to the recent lawsuits, the Renewable Fuels Association, American Coalition for Ethanol, Growth Energy, National Biodiesel Board, National Corn Growers Association, Biotechnology Industry Organization, and National Farmers Union petitioned the EPA on June 4, 2018 to change its regulations to account for lost volumes of renewable fuel resulting from the retroactive small refinery exemptions. This petition to EPA seeks aexemptions, seeking broader, forward-looking remedy to account for the collective lost volumes caused by ~~the~~ recent ~~increase in retroactive~~ small refinery RVO exemptions. In June 2018, the court issued a stay pending further administrative proceedings. On July 30, 2019, the groups petitioned the court to lift such stay. It is unclear what regulatory changes, if any, will emerge from the petition to the EPA.

Further, on July 31, 2018, Producers of Renewables United for Integrity Truth and Transparency filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit, petitioning for review of final agency action by the EPA in its decision to allow the generation of RINs by obligated parties under the RFS that do not represent biofuel production in the year the RIN was generated. In May 2019, the court issued an order dismissing a portion of the lawsuit challenging the EPA’s timing, due to untimely filing. The order also transferred the RINs issues to the U.S. Court of Appeals for the 10th Circuit.

~~Also, on August 30, 2018, the RFA and Growth Energy filed a lawsuit in federal district court,~~exemptions, alleging that the EPA and U.S. Department of Energy have improperly denied ~~agency~~access to public records ~~requested~~request by RFA, ~~Growth Energy,~~ and ~~others~~challenging the Final 2019 Rule over the EPA’s failure to address small refinery exemptions in the rulemaking. If these legal actions, which general seek to require the EPA to enforce the renewable fuel blending requirements of the RFS, are unsuccessful, there may negative impacts on the ethanol industry and our financial performance.

The prices of renewable identification number (“RIN”) credits—the compliance mechanisms for the RFS program administered by the EPA—increased during the three months ended April 30, 2021, briefly approaching their highest nominal levels in the history of the program. The corn ethanol (D6) RIN price reached more than $1.00 per gallon in late January and early February 2021, the highest price since 2013, when the D6 RIN price reached an all-time high. The price of RIN credits reflect compliance and trading activity related to the RFS and can either be used to comply with the RFS or traded in the secondary market to buyers seeking to comply with the RFS. Increases in RIN prices can encourage increased biofuel consumption, according to the EIA.

COVID-19 Legislation

In response to the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in March 2020 in an attempt to offset some of the economic damage arising from the COVID-19 pandemic. The CARES Act created and funded multiple programs that have impacted or could impact our industry. The USDA was given additional resources for the Commodity Credit Corporation (CCC), which it is using to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase the corn.

The CARES Act also provided for the Small Business Administration to assist companies that constitute small business and keep them from laying off workers. The Paycheck Protection Program (the “PPP”) was created and quickly paid out all of the funds appropriated, including some to farmers and to ethanol plants. Although we received our first PPP Loan under the ~~Freedom~~CARES Act, as discussed above, the receipt of ~~Information Act. The requested documents relate~~PPP funds by farmers could, like the CCC funds, incentivize them to ~~exemptions from Renewable Fuel Standard compliance obligations granted by EPA. Additionally, on~~delay marketing corn which could increase the price of corn.

On December 27, 2020, the federal government enacted Consolidated Appropriations Act, 2021, a second COVID-19 relief package. Among other things, the legislation authorized additional PPP loans. In February ~~4, 2019, Growth Energy filed~~2021, GFE received a ~~lawsuit~~second Paycheck Protection Program loan in the ~~U.S.~~amount of $703,900 and HLBE received a second Paycheck Protection Program loan in the amount of $595,693. Management expects the entirety of both loans will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven.

On March 11, 2021, the federal government enacted the American Rescue Plan Act of 2021, which provided $1.9 trillion in economic stimulus through various programs intended to accelerate the nation’s recovery from the COVID-19 pandemic. The American Rescue Plan primarily provided additional funding for programs created in previous COVID-19 legislation, such as increased unemployment benefits, direct payments to households, expanded paid sick leave, increased food stamp benefits, rental assistance, and small business grants. Management believes the legislation could contribute to inflation, including increases in the costs of labor and the raw materials we require to produce ethanol, and thus could negatively affect our operating margins.

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~~Court of Appeals for the D.C. Circuit against the EPA, challenging the EPA’s “failure” to address small refinery exemptions in its 2019 RVO rulemaking.~~

Although the maintenance of the 15.0 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the 2020 final rule, in addition to the year-round E15 rule, signals support from the EPA and the Trump administration for domestic ethanol production, the Trump administration could still elect to materially modify, repeal, or otherwise invalidate the RFS. Any such reform could adversely affect the demand and price for ethanol and the Company’s profitability.

~~Potential Legislation~~

A fourth COVID-19 stimulus package known as the HEROES Act was introduced in the U.S. House of Representatives on May 12, 2020. The bill includes dedicated relief for biofuels producers by establishing the Renewable Fuel Reimbursement Program. The program, if passed, would provide a 45 cent per gallon payment for qualified fuel produced by eligible producers from January 1, 2020 through May 1, 2020. Qualified fuel would include any renewable fuel or advanced biofuel that qualifies as biofuel under the Renewable Fuel Standard, including corn ethanol. Eligible entities are defined as any domestic facility that produced renewable fuel or advanced biofuel in calendar year 2019.

Results of Operations for the Three Months Ended April 30, ~~2020~~2021 and ~~2019~~2020

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the three months ended April 30, ~~2020~~2021 and ~~2019~~2020 (amounts in thousands).


	Three Months Ended April 30,
	2020				2019
	(unaudited)				(unaudited)

									Three Months Ended April 30,
									2021				2020
									(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%		Amount		%		Amount		%
Revenues	$	33,107	100.0	%	$	49,424	100.0	%	$	74,040	100.0	%	$	33,107	100.0	%
Cost of Goods Sold		45,653	137.9	%		50,418	102.0	%		65,067	87.9	%		45,653	137.9	%
Gross Loss		(12,546)	(37.9)	%		(994)	(2.0)	%
Gross Profit (Loss)										8,973	12.1	%		(12,546)	(37.9)	%
Operating Expenses		1,910	5.8	%		1,626	3.3	%		2,003	2.7	%		1,910	5.8	%
Operating Loss		(14,456)	(43.7)	%		(2,620)	(5.3)	%
Operating Income (Loss)										6,970	9.4	%		(14,456)	(43.7)	%
Other Income (Expense), net		(587)	(1.7)	%		189	0.4	%		2,489	3.4	%		(587)	(1.7)	%
Net Loss		(15,043)	(45.4)	%		(2,431)	(4.9)	%
Less: Net Loss Attributable to Non-controlling Interest		3,160	9.5	%		529	1.1	%
Net Loss Attributable to Granite Falls Energy, LLC	$	(11,883)	(35.9)	%	$	(1,902)	(3.8)	%
Net Income (Loss)										9,459	12.8	%		(15,043)	(45.4)	%
Less: Net (Income) Loss Attributable to Non-controlling Interest										1,324	1.8	%		3,160	9.5	%
Net Income (Loss) Attributable to Granite Falls Energy, LLC									$	8,135	11.0	%	$	(11,883)	(35.9)	%

Revenues

Our consolidated revenue is derived principally from sales of our three primary products: ethanol, distillers’ grains and corn oil. Revenues from these products represented approximately ~~98.7%~~99.2% and ~~98.6%~~98.7% of our total revenues for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The remaining approximately ~~1.3%~~0.8% and ~~1.4%~~1.3% is attributable to miscellaneous other revenue for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and is made up of incidental sales of corn syrup at HLBE’s plant and revenues from natural gas pipeline operations at Agrinatural, net of intercompany eliminations for distribution fees paid by HLBE to Agrinatural for natural gas transportation services.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our condensed consolidated unaudited statements of operations for the three months ended April 30, 2021:


	Three Months Ended April 30, 2021
	Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)
Ethanol sales	$	57,777	78.0	%
Distillers' grains sales		11,959	16.2	%
Corn oil sales		3,677	5.0	%
Miscellaneous other		627	0.8	%
Total Revenues	$	74,040	100.0	%


	Three Months Ended April 30, 2020
	Sales Revenue		% of Total Revenues

					Three Months Ended April 30, 2020
					Sales Revenue		% of Total Revenues
Revenue Sources	(in thousands)				(in thousands)
Ethanol sales	$	23,754	71.8	%	$	23,754	71.8	%
Distillers' grains sales		7,390	22.3	%		7,390	22.3	%
Corn oil sales						1,535	4.6	%
Miscellaneous other						428	1.3	%
Total Revenues					$	33,107	100.0	%

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Corn oil sales

1,535

4.6
%
Miscellaneous other

428

1.3
%
Total Revenues

$
33,107

100.0
%

~~The following table shows the sources of our~~Our total consolidated ~~revenue and the approximate percentage of~~ revenues ~~from those sources to total revenues in our condensed consolidated unaudited statements of operations~~increased by approximately 123.6% for the three months ended April 30, ~~2019:~~

Three Months Ended  April 30, 2019

Sales Revenue

% of Total Revenues
Revenue Sources

(in thousands)

Ethanol sales

$
38,522

77.9
%
Distillers' grains sales

8,652

17.5
%
Corn oil sales

1,600

3.2
%
Miscellaneous other

650

1.4
%
Total Revenues

$
49,424

100.0
%

~~Our total consolidated revenues decreased by approximately 33.0% for the three months ended April 30, 2020,~~2021, as compared to the three months ended April 30, ~~2019.~~2020. This ~~decrease~~increase in revenue was due to ~~decrease~~increases in both the quantities sold and the average price received for our three primary products. In the three months ended April 30, 2021, the quantities of ethanol, ~~and a decrease in volumes sold of our ethanol, distillers’~~distillers grains, and corn oil ~~which was partially offset by increases in~~we sold increased approximately 46.9%, 33.7%, and 36.6% respectively, and the average net price we received for ~~our distillers’~~ethanol, distillers grains, and corn ~~oil.~~oil increased approximately 65.6%, 21.1%, and 75.4% respectively, compared to the three months ended April 30, 2020. The following table reflects quantities of our three primary products sold and the average net prices received for the three months ended April 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended April 30, 2020			Three Months Ended April 30, 2019
	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price

							Three Months Ended April 30, 2021			Three Months Ended April 30, 2020
							Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Product	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Ethanol (gallons)	23,175	$	1.02	31,606	$	1.22	34,034	$	1.70	23,175	$	1.02
Distillers' grains (tons)	52	$	142.76	65	$	133.77	69	$	172.84	52	$	142.76
Corn oil (pounds)	5,966	$	0.26	6,538	$	0.24	8,147	$	0.45	5,966	$	0.26

Ethanol

Total revenues from sales of ethanol ~~decreased~~increased by approximately ~~38.3%~~143.2% for the three months ended April 30, ~~2020~~2021 compared to the same period ~~of 2019~~a year earlier due to ~~a decrease of approximately 15.9% decrease in the average price per gallon we received for our ethanol, coupled with~~ an approximately ~~26.7% decrease in aggregate volume sold. The aggregate decrease~~46.9% increase in the number of gallons of ethanol sold ~~is due to~~and an approximately ~~37.9% decrease~~65.6% increase in the ~~number of gallons~~price received for ethanol. The increase in volume sold was attributable to increased production at ~~the HLBE plan resulting from decreased ethanol production~~both plants during the three months ended April 30, 2021, compared to the same period in 2020, ~~coupled with an approximately 14.5% decrease~~when both plants were idled for periods due to the COVID-19 pandemic. The increase in the ~~volume~~price of ethanol ~~sold at~~was due primarily to the ~~GFE plant~~rebound in the overall economy and the demand for fuel as COVID-19-related restrictions have eased.

Our ethanol derivative instruments resulted in a gain of approximately $57,000 during the ~~same~~ three ~~month period as production was idled during April 2020. The decrease in ethanol prices was primarily due to higher supply and lower demand for ethanol and liquid fuels generally.~~

~~From time to time, we engage in hedging activities with respect to our ethanol sales. At~~months ended April 30, 2020, GFE had fixed and basis contracts for forward ethanol sales for various delivery periods through June 2020 valued at approximately $4.6 million. At April 30, 2020, HLBE had no fixed and basis contracts to sell ethanol. Separately, ethanol2021. Comparatively, our derivative ~~instruments~~positions resulted in a loss of approximately $206,000 during the three months ended April 30, 2020. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories of approximately $0 and $949,000 for the three months ended April 30, ~~2020; in comparison, they resulted in a loss~~2021 and 2020, respectively.

At April 30, 2021, GFE had fixed and basis contracts to sell approximately $16.9 million of ethanol for various delivery periods through June 2021, which approximates 76% of its anticipated ethanol sales for this that period. At April 30, 2021, HLBE had fixed and basis contracts to sell approximately ~~$37,000~~$21.5 million of ethanol for various delivery periods through June 2021, which approximates 90% of its anticipated ethanol sales for that period.

Distillers' Grains

Total revenues from sales of distillers’ grains increased by approximately 61.8% for the three months ended April 30, ~~2019.~~2021, compared to the same period a year earlier, due to an approximately 33.7% increase in the volume of distillers’ grains sold coupled with an approximately 21.1.% increase in the average price received per ton of distillers’ grain sold. The increase in volume of distillers’ grain sold was attributable to increased production.

~~Distillers' Grains~~At April 30, 2021, GFE had forward contracts to sell approximately $1,163,000 of distillers’ grain for deliveries through May 2021, which approximates 35% of its anticipated distillers’ grain sales during that period. At April 30, 2021, HLBE had forward contracts to sell approximately $2,600,000 of distillers’ grains for delivery through September 2021, which approximates 16% of its anticipated distillers' grains sales during that period.

Corn Oil

Total revenues from sales of ~~distillers’ grains decreased~~corn oil increased by approximately ~~14.6%~~139.6% for the three months ended April 30, ~~2020~~2021 compared to the same period ~~of 2019. This decrease was~~a year earlier due primarily to an approximately 20.0% decrease in the volumes sold from period to period, which was partially offset by an approximately 6.7% increase in the average price per ton we received for our distillers’ grains. We sold fewer tons of distillers’ grains in the three months ended April 30, 2020 as compared to the same period in 2019 due to less production as the plants were idled during April 2020. The increase in the market price of distillers’ grains is due to strong demand and unexpected supply disruptions.

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At April 30, 2020, GFE had forward distillers’ grains sales contracts valued at approximately $1.5 million for delivery through June 2020, and HLBE had forward distillers’ grains sales contracts valued at approximately $557,000 for delivery through June 2020.

~~Corn Oil~~

Total revenues from sales of corn oil decreased by approximately 4.1% for the three months ended April 30, 2020 compared to the same period of 2019 due to an approximately 8.7% decrease in pounds sold from period to period, which was partially offset by an approximately 5.1%75.4% increase in the average price per pound we received for our corn oil from period to period coupled with an approximately 36.6% increase in pounds sold from period to period. ~~We sold fewer~~The increase in pounds of corn oil ~~during~~sold was primarily attributable to an increase in production. The increase in the ~~three months ended April 30, 2020 as compared~~price received for corn oil was primarily attributable to ~~the same period in 2019 due to less production as the plants were idled during April 2020.~~ increased demand for biodiesel.

~~Management expects~~

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Although management believes that corn oil prices will remain relatively steady, ~~in the near term. However, we~~prices may ~~experience lower demand for~~decrease if there is an oversupply of corn oil production resulting from increased production rates at ethanol plants or if biodiesel producers begin to utilize lower-priced alternatives such as soybean oil or if the biodiesel ~~industry as the 2020 RVOs for~~blenders’ tax credit is not renewed and biodiesel ~~were only up slightly from the 2019 levels, which may result in lower biodiesel production. Additionally, lower soybean oil prices could negatively impact corn oil prices.~~production declines.

At April 30, ~~2020,~~2021, GFE had forward contracts to sell approximately $746,000 of corn oil ~~sales contracts valued at approximately $111,000~~ for delivery through May ~~2020.~~2021, which approximates 100% of its anticipated corn oil sales for that period. At April 30, ~~2020,~~2021, HLBE had forward contracts to sell approximately $597,000 of corn oil ~~sales contracts valued at approximately $131,000~~ for delivery through May ~~2020.~~2021, which approximates 40% of its anticipated corn oil sales for that period.

Cost of Goods Sold

Our cost of goods sold ~~decreased~~increased by approximately ~~9.5%~~42.5% for the three months ended April 30, ~~2020,~~2021, as compared to the three months ended April 30, ~~2019. However, as a percentage of revenues, our~~2020 Our cost of goods sold ~~increased to~~totaled approximately ~~137.9%~~87.9% of our revenue for the three months ended April 30, ~~2020, as compared to approximately 102.0%~~2021, which was a decrease from 137.9% for the same period ~~in 2019.~~a year earlier. Approximately 90% of our total costs of goods sold is attributable to our ethanol production. The cost of goods sold per gallon of ethanol sold for the three months ended April 30, ~~2020~~2021, and ~~2019~~2020 was approximately ~~$1.77~~$1.72 and ~~$1.44~~$1.77 per gallon, respectively.

The following table shows the costs of corn and natural gas (our two largest single components of costs of goods sold), as well as all other components of cost of goods sold, which includes processing ingredients, electricity, and wages, salaries and benefits of production personnel, and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended April 30, ~~2020:~~2021:


	Three Months Ended April 30, 2020
	Cost		% of Cost of Goods Sold
	(in thousands)

					Three Months Ended April 30, 2021
					Cost		% of Cost of Goods Sold
					(in thousands)
Corn costs	$	31,382	68.7	%	$	50,452	77.5	%
Natural gas costs		2,535	5.6	%		2,770	4.3	%
All other components of costs of goods sold		11,736	25.7	%		11,845	18.2	%
Total Cost of Goods Sold	$	45,653	100.0	%	$	65,067	100.0	%

The following table shows the costs of corn, natural gas and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the three months ended April 30, ~~2019:~~2020:


	Three Months Ended April 30, 2019
	Cost		% of Cost of Goods Sold
	(in thousands)

					Three Months Ended April 30, 2020
					Cost		% of Cost of Goods Sold
					(in thousands)
Corn costs	$	33,783	67.0	%	$	31,382	68.7	%
Natural gas costs		3,071	6.1	%		2,535	5.6	%
All other components of costs of goods sold		13,564	26.9	%		11,736	25.7	%
Total Cost of Goods Sold	$	50,418	100.0	%	$	45,653	100.0	%

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~~Corn~~

Our aggregate cost of corn was approximately ~~7.1% less~~60.8% more for the three months ended April 30, ~~2020~~2021 compared to the same period of ~~2019,~~a year earlier due to an approximately ~~21.2% decrease in the number of bushels of corn processed from period to period, partially offset by an approximately 17.9%~~17.7% increase in the average price per bushel paid for ~~corn.~~corn, coupled with an approximately 37.4% increase in the number of bushels processed from period to period. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the three months ended April 30, ~~2020~~2021 was approximately $0.41 ~~lower~~higher than the corn-ethanol price spread we experienced for same period ~~of 2019. Management attributes the increase in corn prices primarily to weather conditions. Management anticipates that corn prices will remain higher in fiscal year~~ended April 30, 2020.

From time to time we enter into forward purchase contracts for our commodity purchases and sales. At April 30, ~~2020,~~2021, GFE had ~~approximately 3.3 million bushels of~~ cash and basis contracts for forward corn purchase commitments for ~~various delivery periods~~approximately 5.2 million bushels for deliveries through December 2022. At April 30, ~~2020,~~2021, HLBE had ~~approximately 5.6 million bushels of~~ cash and basis contracts for forward corn purchase commitments for ~~various delivery periods~~approximately 4.7 million bushels for deliveries through ~~December 2021.~~March 2022.

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Our corn derivative positions resulted in a loss of approximately $1.1 million for the three months ended April 30, 2021, and a loss of approximately $564,000 for the three months ended April 30, ~~2020 and a gain of approximately $281,000 for the three months ended April 30, 2019.~~2020. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn in cost of goods sold as the changes occur. As corn prices fluctuate, the value of our derivative instruments is impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Natural Gas

Our cost of goods sold related to natural gas costs ~~decreased~~increased approximately ~~17.5%~~9.3% for the three months ended April 30, ~~2020,~~2021, as compared to the three months ended April 30, ~~2019.~~2020. Management attributes this ~~decrease~~increase to an increase in ~~cost~~production. Natural gas prices increased briefly in early February due to disruptions caused by severe weather events but decreased thereafter and remained relatively flat for the remainder of ~~natural gas from period to period to less ethanol production and higher natural gas inventories.~~the three months ended April 30, 2021.

Other Components of Costs of Goods Sold

Our costs of goods sold related to all other components ~~decreased~~increased approximately ~~13.5%~~0.9% for the three months ended April 30, ~~2020~~2021, compared to the same period ~~of 2019. Management attributes this decrease~~ending April 30, 2020 due primarily to an increase in ~~costs from period to period to decreased~~ production.

Operating Expenses

Operating expenses include wages, salaries, and benefits of administrative employees at the plant, insurance, professional fees, property taxes, and similar costs. Our operating expenses increased by approximately ~~17.5%~~4.9% for the three months ended April 30, ~~2020~~2021, compared to the same period ended ~~2019~~2020 due primarily to ~~increases in insurance costs~~increased wages, salaries, and professional fees.

Operating ~~Loss~~Income (Loss)

~~Our~~We recorded operating ~~loss for~~income of approximately $7.0 million in the three months ended April 30,~~, 2020 increased by~~ 2021, an increase of approximately ~~$11.8~~$21.5 million ~~compared to~~from the same period ended April 30, 2020, when we recorded an operating loss of ~~2019.~~approximately $14.5 million. This increase ~~resulted largely from lower revenues~~in operating income was attributable to an increase in production and an increase in the ~~2020 period compared to the 2019 period.~~price received for our three primary products.

Other Income (Expense), Net

We had ~~net other expense of approximately $587,000 and~~ net other income of approximately ~~$189,000~~$2.5 million other expense and approximately $588,000 for the three months ended April 30, 2021, and 2020, ~~and 2019, respectively~~.respectively. This ~~decrease~~increase in net other income resulted primarily from ~~higher interest expense and investment loss~~an increase in patronage income in the three-month ~~2020 period.~~period ended April 30, 2021 and forgiveness of Paycheck Protection Program loans.

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Results of Operations for the Six Months EndedApril 30, ~~2020~~2021 and ~~2019~~2020

The following table shows summary information from the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited condensed consolidated statements of operations for the six months ended April 30, ~~2020~~2021 and ~~2019~~2020 (amounts in thousands).


	Six Months Ended April 30,
	2020				2019
	(unaudited)				(unaudited)

									Six Months Ended April 30,
									2021				2020
									(unaudited)				(unaudited)
Statement of Operations Data	Amount		%		Amount		%		Amount		%		Amount		%
Revenue	$	86,463	100.0	%	$	98,800	100.0	%	$	123,439	100.0	%	$	86,463	100.0	%
Cost of Goods Sold		99,952	115.6	%		102,529	103.8	%		117,856	95.5	%		99,952	115.6	%
Gross Loss		(13,489)	(15.6)	%		(3,729)	(3.8)	%
Gross Profit (Loss)										5,583	4.5	%		(13,489)	(15.6)	%
Operating Expenses		3,683	4.3	%		3,397	3.4	%		3,997	3.2	%		3,683	4.3	%
Operating Loss		(17,172)	(19.9)	%		(7,126)	(7.2)	%
Operating Income (Loss)										1,586	1.3	%		(17,172)	(19.9)	%
Other Income (Expense), net		(557)	(0.6)	%		150	0.2	%		2,582	2.1	%		(557)	(0.6)	%
Net Loss		(17,729)	(20.5)	%		(6,976)	(7.0)	%
Net Income (Loss)										4,168	3.4	%		(17,729)	(20.5)	%
Less: Net Loss Attributable to Non-controlling Interest		4,346	5.0	%		1,496	1.5	%		717	0.6	%		4,346	5.0	%
Net Loss Attributable to Granite Falls Energy, LLC	$	(13,383)	(15.5)	%	$	(5,480)	(5.5)	%
Net Income (Loss) Attributable to Granite Falls Energy, LLC									$	4,885	4.0	%	$	(13,383)	(15.5)	%

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Revenues

Revenues from our three primary products: ethanol, distillers’ grains and corn oil, represented approximately ~~98.4%~~99.0% and ~~98.5%~~98.4% of our total consolidated revenues for the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Miscellaneous other revenues attributable to incidental sales of corn syrup and Agrinatural revenues (net of eliminations) represented ~~1.6%~~1.0% and ~~1.5%~~1.6% of our consolidated revenues for the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

The following table shows the sources of our consolidated revenue and the approximate percentage of revenues from those sources to total revenues in our unaudited condensed consolidated statements of operations for the six months ended April 30, 2021:


	Six Months Ended April 30, 2021
Revenue Sources	Sales Revenue		% of Total Revenues
Ethanol sales	$	93,915	76.1	%
Distillers' grains sales		21,736	17.6	%
Corn oil sales		6,527	5.3	%
Miscellaneous other		1,261	1.0	%
Total Revenues	$	123,439	100.0	%


	Six Months Ended April 30, 2020

					Six Months Ended April 30, 2020
Revenue Sources	Sales Revenue		% of Total Revenues		Sales Revenue		% of Total Revenues
Ethanol sales	$	64,606	74.7	%	$	64,606	74.7	%
Distillers' grains sales		17,021	19.7	%		17,021	19.7	%
Corn oil sales		3,423	4.0	%		3,423	4.0	%
Miscellaneous other		1,413	1.6	%		1,413	1.6	%
Total Revenues	$	86,463	100.0	%	$	86,463	100.0	%

~~The following table shows the sources of our~~Our total consolidated ~~revenue and the approximate percentage of~~ revenues ~~from those sources to total revenues in our unaudited condensed consolidated statements of operations~~increased by approximately 42.8% for the six months ended April 30, ~~2019:~~

Six Months Ended April 30, 2019
Revenue Sources

Sales Revenue

% of Total Revenues
Ethanol sales

$
74,487

75.4
%
Distillers' grains sales

19,222

19.5
%
Corn oil sales

3,594

3.6
%
Miscellaneous other

1,497

1.5
%
Total Revenues

$
98,800

100.0
%

~~Our total consolidated revenues decreased by approximately 12.5% for the six months ended April 30, 2020,~~2021, as compared to same period of ~~2019,~~2020, due to ~~a decrease~~an increase in ~~the average price~~quantities sold and prices received for our ~~ethanol, as well as decreased production and sales of~~three primary products, ethanol, distillers’ grains, and corn ~~oil, which was partially offset by an increase in the average price received for our distillers’ grains.~~ oil. The following table reflects quantities of our three primary products sold and the average net prices received for the six months ended April 30, ~~2020~~2021 and ~~2019:~~2020:


	~~Six Months Ended April 30, 2020~~		~~Six Months Ended April 30, 2019~~
~~Product~~	~~Quantity Sold~~	~~Avg. Net Price~~	~~Quantity Sold~~	~~Avg. Net Price~~


	Six Months Ended April 30, 2021			Six Months Ended April 30, 2020
Product	Quantity Sold	Avg. Net Price		Quantity Sold	Avg. Net Price
Ethanol (gallons)	61,470	$	1.53	54,180	$	1.19
Distillers' grains (tons)	145	$	150.35	123	$	138.57
Corn oil (pounds)	17,157	$	0.38	14,338	$	0.24

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Ethanol (gallons)

54,180

$
1.19

64,072

$
1.16
Distillers' grains (tons)

123

$
138.57

140

$
137.06
Corn oil (pounds)

14,338

$
0.24

14,577

$
0.25

Ethanol

~~Ethanol~~

Total revenues from sales of ethanol ~~decreased~~increased by approximately ~~13.3%~~45.4% for the six months ended April 30, ~~2020~~2021 compared to the same period of ~~2019~~2020 due to an approximately ~~2.6% decrease~~28.6% increase in the average price per gallon we received, coupled with an approximately ~~15.4% decrease~~13.5% increase in the volume of ethanol sold. The ~~decrease~~increase in ~~gallons~~volume sold was attributable to increased production at both plants during the six months ended April 30, 2021, compared to the same period in 2020, when both plants were idled for periods due to the COVID-19 pandemic. The increase in the price of ethanol ~~sold from period~~was due primarily to ~~period was primarily due to an approximately 22.2% decrease~~the rebound in the ~~volume sold at~~overall economy and the HLBE plant, coupled with an approximately 7.1% decrease in the volume of ethanol sold at the GFE plant, both attributable to lower production during the 2020 period. The decrease in ethanol prices resulted principally from production exceeding demand ~~industry-wide, resulting in higher inventories, coupled with overall decreased demand that pushed ethanol prices downward.~~for fuel as COVID-19-related restrictions have eased.

Our ethanol derivative instruments resulted in a gain of approximately $171,000 during the six months ended April 30, 2021. Comparatively, our derivative positions resulted in a loss of approximately $416,000 during the six months ended April 30, 2020. ~~Comparatively, our derivative positions resulted in a loss of approximately $37,000 during the six months ended April 30, 2019.~~ Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, wethe Company recorded a loss on ethanol inventories of approximately ~~$2,150,000~~$0 and ~~$765,000~~$2,151,000 for the six months ended April 30, 2021 and 2020, ~~and 2019, respectively~~. respectively.

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Distillers' Grains

Total revenues from sales of distillers’ grains ~~decreased~~increased by approximately ~~11.5%~~27.7% for the six months ended April 30, ~~2020~~2021 compared to the same period of ~~2019.~~2020. This ~~decrease~~increase is due to an approximately ~~12.4% decrease~~17.9% increase in aggregate tons sold from period to period, ~~which was partially offset by~~coupled with an approximately ~~1.1%~~8.5% increase in the average price per ton we received. WeThe increase in tons sold ~~fewer total tons of distillers grains~~was attributable to an increase in production during the six months ended April 30, ~~2020~~2021, compared to the ~~six months ended April 30, 2019 due to decreased ethanol production~~same period in ~~the~~ 2020, ~~period.~~during some of which our plants were idled. The increase in the market price of distillers’ grains is due to strong ~~demand and unexpected supply disruptions~~.market demand.

Corn Oil

Total revenues from sales of corn oil ~~decreased~~increased by approximately ~~4.8%~~90.7 % for the six months ended April 30, ~~2020~~2021 compared to the six months ended April 30, ~~2019~~2020 due to an approximately ~~1.6% decrease~~19.7% increase in pounds sold from period to period and an approximately ~~4.0% decrease~~58.3% increase in price per pound sold. The increase in pounds of corn oil sold was primarily attributable to an increase in production. The increase in the price received for corn oil was primarily attributable to increased demand for biodiesel.

Although management believes that corn oil prices will remain relatively steady, prices may decrease ~~in volume~~if there is an oversupply of corn oil production resulting from increased production rates at ethanol plants or if biodiesel producers begin to utilize lower-priced alternatives such as soybean oil or if the biodiesel blenders’ tax credit is not renewed and biodiesel production declines.

Cost of Goods Sold

Our cost of goods sold increased by approximately 17.9% for the six months ended April 30, ~~2020 compared to the same period of 2019 is attributable to decreased ethanol production during the six months ended April 30, 2020.~~

~~Cost of Goods Sold~~

~~Our cost of goods sold decreased by approximately 2.5% for the six months ended April 30, 2020,~~2021, as compared to the six months ended April 30, ~~2019. However, as~~2020. As a percentage of revenues, our cost of goods sold ~~increased~~decreased to approximately ~~115.6%~~95.5% for the six months ended April 30, ~~2020,~~2021, as compared to approximately ~~103.8%~~115.6% for the same period in ~~2019~~2020 due to the ~~negative~~improved margin between the price of ethanol and the price of corn from period to period. The cost of goods sold per gallon of ethanol sold for the six months ended April 30, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$1.66~~$1.73 and ~~$1.44~~$1.66 per gallon, respectively.


	Six Months Ended April 30, 2020
	Cost		% of Cost of Goods Sold
	(in thousands)

					Six Months Ended April 30, 2021
					Cost		% of Cost of Goods Sold
					(in thousands)
Corn costs	$	73,356	73.4	%	$	95,644	81.2	%
Natural gas costs		5,976	6.0	%		5,933	5.0	%
All other components of costs of goods sold						16,279	13.8	%
Total Cost of Goods Sold					$	117,856	100.0	%

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All other components of costs of goods sold

20,620

20.6
%
Total Cost of Goods Sold

$
99,952

100.0
%

The following table shows the costs of corn, natural gas, and all other components of cost of goods sold and the approximate percentage of costs of those components to total costs of goods sold in our unaudited condensed consolidated statements of operations for the six months ended April 30, ~~2019:~~2020:


	Six Months Ended April 30, 2019
	Cost		% of Cost of Goods Sold
	(in thousands)

					Six Months Ended April 30, 2020
					Cost		% of Cost of Goods Sold
					(in thousands)
Corn costs	$	72,314	70.5	%	$	73,172	73.2	%
Natural gas costs		7,034	6.9	%		5,976	6.0	%
All other components of costs of goods sold		23,181	22.6	%		20,804	20.8	%
Total Cost of Goods Sold	$	102,529	100.0	%	$	99,952	100.0	%

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Corn

Our cost of goods sold related to corn was approximately ~~1.4%~~30.4% more for the six months ended April 30, ~~2020~~2021 compared to the same period of ~~2019,~~2020, due primarily to an approximately ~~14.0%~~18.2% increase in the average price per bushel paid for corn from period to period, ~~which was partially offset by~~coupled with an approximately ~~11.1% decrease~~10.6% increase in the number of bushels of corn ~~processed.~~process. For the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we processed approximately ~~18.7~~20.6 million and ~~21.0~~18.7 million bushels of corn, respectively. The corn-ethanol price spread (the difference between the price per gallon of ethanol and the price per bushel of grain divided by 2.8) for the six months ended April 30, ~~2020,~~2021, was approximately ~~$0.14 lower~~$0.08 greater than the corn-ethanol price spread we experienced for same period of ~~2019.~~2020.

We had a loss related to corn derivative instruments of approximately $7.0 million for the six months ended April 30, 2021, which increased our costs of goods sold. Comparatively, we had a loss related to corn derivative instruments of approximately $724,000 for the six months ended April 30, 2020, which ~~increased our costs of goods sold. Comparatively, we had a gain related to corn derivative instruments of approximately $326,000 for the six months ended April 30, 2019, which~~ decreased our cost of goods sold. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on corn inventories of approximately ~~$1,213,000~~$0 and ~~$95,000~~$1,213,000 for the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Management has evaluated the outstanding corn forward purchase contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that GFE had an impairment loss of approximately ~~$179,000~~$47,000 existed at October 31, 2020, for the HLBE forward corn purchase commitments. No impairment loss existed for GFE forward corn purchase commitments as of April 30, ~~2020 and HLBE had an impairment loss of approximately $83,000 at April 30, 2020. The impairment expense is recorded as a component of cost of goods sold.~~2021.

Natural Gas

Natural gas costs decreased approximately ~~15.0%~~0.7% for the six months ended April 30, ~~2020~~2021 as compared to the six months ended April 30, ~~2019. The decrease~~2020. Natural gas prices increased briefly in early February due to disruptions caused by severe weather events but decreased thereafter and as a result the Company experienced relatively flat natural gas costs ~~was primarily due to decreased production levels~~ during the ~~2020 period.~~ six months ended April 30, 2021.

Operating Expenses

Operating expenses for the six months ended April 30, ~~2020~~2021 increased approximately ~~8.4%~~8.5% compared to the six months ended April 30, ~~2019~~2020 due primarily to increases in insurance costs and professional fees. As a percentage of total revenues, operating expenses ~~slightly increased~~decreased to approximately 3.2% for the six months ended April 30, 2021 from 4.3% for the six months ended April 30, ~~2020, as compared to 3.4% for~~2020.

Operating Income (Loss)

We recorded operating income of approximately $1.6 million in the six months ended April 30, ~~2019.~~

~~Operating Loss~~

~~Our~~2021, an increase of approximately $18.8 million from the same period ended April 30, 2020, when we recorded an operating loss of approximately $17.2 million. This increase in operating income was attributable to an increase in production and an increase in the price received for our three primary products.

Other Income (Expense), Net

We had net other income of approximately $2.6 million in the six months ended April 30, ~~2020 was~~2021, an increase of approximately ~~$10.0~~$3.2 million ~~more compared to~~from the same period ended April 30, 2020, when we had other net expense of ~~2019.~~approximately $600,000. This increase in net other income resulted ~~largely~~primarily from ~~increased prices for corn relative to~~an increase in patronage income in the ~~price~~three-month period ended April 30, 2021 and forgiveness of ~~ethanol and negative operating margin.~~Paycheck Protection Program loans.

~~Other Income, Net~~

3335

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We had net other expense of approximately $557,000 and net other income of approximately $150,000 during the six months ended April 30, 2020 and 2019, respectively. We had less other income primarily due to less interest income, investment loss and more interest expense in the 2020 period as compared to the 2019 period.

~~Investments~~

On August 2, 2017, GFE completed a $7.5 million investment in Ringneck, acquiring 1,500 capital units of Ringneck. GFE financed its investment by borrowing $7.5 million under its credit facility with Project Hawkeye. Details of the Project Hawkeye credit facility are provided below in the section below entitled “~~Indebtedness - GFE’s Other Credit Arrangement.~~” GFE’s investment is sufficient to grant it the right to appoint one director to the board of directors of Ringneck and has appointed Steve Christensen, its CEO, to fill this seat. On June 10, 2019, GFE subscribed to purchase an additional 100 capital units of Ringneck at a price of $5,000 per unit for a total of an additional $500,000.

Ringneck is a South Dakota limited liability company which has constructed an 80 million gallon per year ethanol manufacturing plant outside of Onida, South Dakota in Sully County. The plant commenced operations in June 2019. The units GFE acquired in Ringneck are subject to restrictions on transfer, therefore, this should not be considered a liquid investment.

On June 29, 2018, GFE completed a $2.0 million investment in in Harvestone Group, LLC (“Harvestone”), acquiring 20 preferred membership units of Harvestone. GFE’s capital contribution was initially sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone, and GFE had appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. In October 2019, Harvestone and its members amended the Limited Liability Company Agreement of Harvestone, which resulted in the removal of GFE’s right to appoint an advisor to the advisory committee to the managers of Harvestone.

Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee. Harvestone is owned by several other ethanol producers and other private investors. Its primary business is marketing and trading for member and non-member ethanol producers.

Neither Ringneck nor Harvestone conducted federally-registered offerings and neither company is a registered reporting company with SEC. Therefore, we do not expect that information about Ringneck or Harvestone will be available via the SEC’s EDGAR filing system. As a result, it may be difficult for our investors to obtain information about Ringneck and Harvestone.

GFE’s investments in Ringneck and Harvestone are subject to significant restrictions on transfer under the respective operating agreements of Ringneck and Harvestone. As a result, GFE’s investments in these companies are not liquid and it may take a significant amount of time before GFE realizes a return on either investment, if at all.

Changes in Financial Condition at April 30, ~~2020~~2021 and October 31, ~~2019~~2020

The following table highlights our financial condition at April 30, ~~2020~~2021 and October 31, ~~2019~~2020 (amounts in thousands):


	April 30, 2020		October 31, 2019
	(unaudited)

					April 30, 2021		October 31, 2020
					(unaudited)
Current Assets	$	21,367	$	36,163	$	34,326	$	31,715
Total Assets	$	107,428	$	106,055	$	115,769	$	116,198
Current Liabilities	$	10,213	$	13,355	$	16,181	$	31,252
Long-Term Debt, less current portion	$	13,534	$	6,639	$	18,133	$	5,876
Operating lease, long-term liabilities	$	17,551	$	—	$	13,950	$	15,755
Other Long-Term Liabilities	$	1,399	$	1,376	$	1,445	$	1,422
Members' Equity attributable to Granite Falls Energy, LLC	$	52,006	$	65,469	$	56,997	$	52,112
Non-controlling Interest	$	12,724	$	19,216	$	9,063	$	9,780

Our total assets decreased 0.4 percent during the six months ended April 30, 2021. The decrease ~~in current assets is~~was attributable to ~~a decrease~~decreases in cash, ~~on hand~~the value of ~~approximately $7.7 million at April 30, 2020 compared to October 31, 2019. The decrease in cash was due primarily to increased net loss~~property and ~~timing of payments for corn purchases in~~equipment, and the ~~2020 period. Additionally, we had decreases in accounts receivable of approximately~~

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~~$7.3 million. Offsetting these decreases were increases in restricted cash of approximately $299,000 and in prepaid expenses of approximately $558,000 at April 30, 2020 compared to October 31, 2019.~~

~~Contributing to the increase in total assets was the recognition~~value of our operating lease, ~~right of use asset in the 2020 period,~~which were partially offset by ~~depreciation of fixed assets of approximately $4.7 million.~~

increases in inventory and accounts receivable.

Our current liabilities decreased approximately ~~$3.2~~$15.1 million, or 48.2%, at April 30, ~~2020~~2021, compared to October 31, ~~2019,~~2020, due primarily to decreases in current maturities of long-term debt of approximately $10.9 million, which occurred because certain HLBE debt, which had been classified as current as of October 31, 2020 due to loan covenant violations by HLBE, was classified as long-term debt as of April 30, 2021 because HLBE was in compliance with its loan covenants as of that date. Additionally, current liabilities decreased because the company experienced a decrease in accounts payable of approximately ~~$9.5~~$5.5 million due to the timing of payments to vendors, partially offset by increases in checks drawn in excess of bank balances of approximately $808,000, commodity derivative instruments of approximately $242,000, accrued expenses of approximately $1.7 million, and current liabilities related to our operating lease of approximately $3.6 million.

vendors.

Our long-term debt, less current portion, increased approximately ~~$6.9~~$12.3 million at April 30, ~~2020~~2021, compared to October 31, ~~2019,~~2020, due ~~primarily~~ to ~~HLBE’s borrowing under its 2020 Credit Facility with Compeer.~~

a decrease of approximately $10.9 million in the amount of debt due within one year. In addition, the Company had proceeds on long-term debt totaling approximately $8.8 million during the six months ended April 30, 2021.

Members’ equity attributable to Granite Falls Energy, LLC at April 30, ~~2020~~2021, compared to October 31, ~~2019 decreased~~2020 increased by approximately ~~$13.5~~$4.9 million. The ~~decrease~~increase was related primarily to our approximately ~~$15.0~~$4.9 million net ~~loss~~income attributable to GFE during the ~~three~~six months ended April 30, ~~2020.~~

2021.

Non-controlling interest totaled approximately ~~$12.7~~$9.1 million and ~~$19.2~~$9.8 million at April 30, ~~2020~~2021, and October 31, ~~2019,~~2020, respectively. This decrease is a result of ~~the acquisition of Agrinatural’s non-controlling interest in December 2019 and increased~~ net loss attributable to non-controlling interest in the ~~2020~~2021 period.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash provided by operations, cash, and available borrowings under our credit facilities. ~~Based~~Future instances of noncompliance with loan covenants may cause acceleration of the outstanding principal balances on ~~management’s financial forecasts, we expect to have sufficient cash generated by continuing operations and~~the revolving term loan ~~to fund our operations for~~and/or the ~~next twelve months. However, should~~imposition of fees, charges or penalties. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other ~~purposes.~~purposes, or we may be required to idle ethanol production.

HLBE’s principal sources of liquidity consist of cash provided by operations, cash, and available borrowings under HLBE’s 2020 Credit Facility with Compeer, HLBE’s Negotiable Promissory Note with GFE, and HLBE’s revolving promissory note. HLBE has suffered recurring operating and cash flow losses related to difficult market conditions and operating performance. HLBE was in compliance with its debt covenants on April 30, 2021 and management believes it will be in compliance with its debt covenants during the next twelve months.

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While the management believes the replacement of HLBE’s boiler has improved the operating performance of the HLBE plant, and led to lower operating costs, market conditions may result in tight margins. We expect to have sufficient cash on hand and availability on our credit facilities and other loans to fund our operations and commitments for at least the next twelve months from the issuance date of these unaudited consolidated financial statements. However, should unfavorable operating conditions continue in the ethanol industry that prevent us from profitably operating our plant, we may need to seek additional debt or equity funding or further idle ethanol production altogether.

Cash Flows

The following table shows our cash flows for the six months ended April 30, ~~2020~~2021 and ~~2019~~2020 (amounts in thousands):


	2020		2019
	(unaudited)		(unaudited)

					2021		2020
					(unaudited)		(unaudited)
Net cash used in operating activities	$	(12,443)	$	(4,611)	$	(3,099)	$	(12,443)
Net cash used in investing activities	$	(614)	$	(393)	$	(3,886)	$	(614)
Net cash provided by (used in) financing activities	$	5,703	$	(1,236)
Net cash provided by financing activities					$	3,044	$	5,703
Net decrease in cash and restricted cash	$	(7,354)	$	(6,240)	$	(3,941)	$	(7,354)

Operating Cash Flows

During the six months ended April 30, ~~2020,~~2021, we used ~~more~~approximately $9.3 million less cash in operating activities compared to the same period ~~of 2019 primarily~~ending April 30, 2020, due in part to ~~more~~smaller net loss ~~in the 2020 period. Additionally,~~and changes in ~~various~~net working ~~capital components, including the value of commodity derivative instruments, inventory, and accounts payable, contributed to the higher cash used during the 2020 period.~~capital.

Investing Cash Flows

Cash used in investing activities was approximately ~~$221,000~~$3.3 million more for the six months ended April 30, ~~2020,~~2021, compared to the same period ~~of 2019,~~a year earlier, due to ~~increased~~an increase in capital expenditures during the ~~2020 period.~~2021 period related primarily to the replacement of HLBE’s boiler.

Financing Cash Flows

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During the six months ended April 30, ~~2020, we~~2021, our financing activities provided us with approximately $2.7 million in cash less than during the six month period ended April 30, 2020. We borrowed ~~$7.0~~approximately $2.7 million from long-term debt, net of repayments ~~and increased checks in excess~~during the six months ended April 30, 2021, while we borrowed approximately $6.9 million from long-term debt, net of ~~bank balances of approximately $0.8 million. This was partially offset by approximately $2.0 million used to acquire non-controlling interest. Comparatively,~~repayments during the same period ~~of 2019, we made payments of approximately $1.2 million in distributions to our unit holders and principal payments of approximately $12,000 on our long-term debt.~~a year earlier.

Indebtedness

~~GFE’sCredit Arrangements with AgCountry~~

GFE has a credit facility with AgCountry Farm Credit Services, PCA, formerly known as United FCS (“AgCountry”) for which Co-Bank serves as the administrative agent. The credit facility originally consisted of a long-term revolving term loan, with an aggregate principal commitment amount of $18,000,000 that reduced by $2,000,000 semi-annually beginning September 1, 2014, until final payment at maturity on March 1, 2018. However, on September 8, 2017, GFE entered into amendment to the master loan agreement to amend the credit facility to replace our long-term revolving loan with a seasonal revolving loan. In connection therewith, our revolving term loan was terminated, and we executed a revolving credit supplement to establish the seasonal revolving loan. GFE had no outstanding balance on the revolving term loan at its termination on September 8, 2017.

Under the seasonal revolving loan, GFE may borrow, repay, and re-borrow up to the aggregate principal commitment of $6.0 million until its maturity. GFE had no outstanding balance on the seasonal revolving loan at April 30, 2020. The aggregate principal amount available to GFE for additional borrowing was $6.0 million at April 30, 2020.

The seasonal revolving loan bears interest from the date funds are first advanced on the loan through maturity, at a rate per annum equal to the sum of (x) the One Month LIBOR Index Rate plus (y) 2.75% per annum. The interest rate was 3.19% and 4.52% at April 30, 2020 and October 31, 2019, respectively.

~~GFE pays an unused commitment fee on the unused portion~~indebtedness consisting of the seasonal revolving loan commitment at the rate of 0.250% per annum. The credit facility with AgCountry is secured by substantially all of GFE’s assets. There are no savings account balance collateral requirements as part of this credit facility.

~~The credit facility requires GFE to comply with certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends~~following loans and ~~maintenance of certain financial ratios including minimum working capital, minimum net worth and~~agreements: a debt service coverage ratio as defined by the credit facility. GFE is permitted to pay distributions to its members up to 75% of its net income for the year in which the distributions are paid provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and GFE is in compliance with all of its loan covenants including compliance with the financial covenants. Further, GFE agreed not to create or incur any indebtedness except for debt to AgCountry, accounts payable to trade creditors, subordinated debt owed to Project Hawkeye, or debt to other lenders in an aggregate amount not exceed $750,000 or make loans or advances or invest in any entity, other than its investments in HLBE and Ringneck, without the consent of CoBank or AgCountry. CoBank consented to our investment in Harvestone. During the second fiscal quarter of 2020, the credit facility was amended to reduce the working capital covenant to $9 million, from the original $10 million working capital covenant, during the period from March 31, 2020 through September 30, 2020, and increasing to $10 million beginning October 1, 2020. Additionally, the current portion of leases will be excluded from the calculation of current liabilities. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges or penalties. For the fiscal year ended October 31, 2019, GFE had an event of non-compliance with the debt service coverage ratio as defined in the credit facility. In December 2019, GFE received a waiver from its lender waiving this event of non-compliance. If market conditions deteriorate in the future, circumstances may develop which could result in GFE violating the financial covenants or other terms of its credit facility. Should unfavorable market conditions result in our violation of the terms or covenants of the credit facility and we fail to obtain a waiver of any such term or covenant, AgCountry could deem GFE in default, impose fees, charges and penalties, terminate any commitment to loan funds and require GFE to immediately repay a significant portion or possibly the entire outstanding balance of the revolving term loan. In the event of a default, AgCountry could also elect to proceed with a foreclosure action on our plant.

In March 2020 and April 2020, GFE had events of non-compliance related to the minimum working capital requirement as defined in the credit facility. Additionally, the Company anticipates an event of non-compliance for the

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period ended May 31, 2020. The Company has obtained a waiver from its lender for the event of non-compliance for the month ended March 31, 2020. The Company is working with its lender to obtain a waiver related to the event of non-compliance for the month ended April 30, 2020 and the expected event of non-compliance for the month ended May 31, 2020 and expects to receive such waivers.

If market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of GFE’s credit facility. If we fail to comply with the terms of our credit agreement with AgCountry, and AgCountry refuses to waive the non-compliance, AgCountry could terminate the credit facility and any commitment to loan funds to GFE.

~~GFE’s Other Credit Arrangement~~

~~GFE has a credit facility with Project Hawkeye for a $7.5 million loan to finance the balance of its initial subscription in Ringneck. Interest on~~Revolving Term Loan, the Project Hawkeye ~~loan accrues at a variable rate equal to the sum of the One Month LIBOR Index Rate plus 3.05% per annum, with~~Loan, and an ~~interest rate floor of 3.55%, which was 3.55% and 4.82% at April 30, 2020 and October 31, 2019, respectively.~~

The Project Hawkeye loan requires annual interest payments only for the first two years of the loan and monthly principal payments of approximately $89,000 plus interest for years three through nine based on a seven-year amortization period. The monthly amortized payments will be re-amortized following any change in interest rate. The entire outstanding principal balance of the loan, plus any accrued and unpaid interest thereon, is due and payable in full on August 2, 2026. GFE is permitted to voluntarily prepay all or any portion of the outstanding balance of this loan at any time without premium or penalty.

Pursuant to a pledge agreement entered into in connection with the Project Hawkeye loan, GFE’s obligations are secured by all of its right, title, and interest in its investment in Ringneck, including the 1,500 units subscribed for by GFE. The loan is non-recourse to all of GFE’s other assets. As a result, in the event of default, the only remedy available to Project Hawkeye will be to foreclose and seize all of GFE’s right, title and interest in its investment in Ringneck.

~~GFE’s~~ SBA Paycheck Protection Program ~~Loan~~

In March 2020, Congress passed the Paycheck Protection Program, authorizing loans to small businesses for use in paying employees that they continue to employ throughout the COVID-19 pandemic and for rent, utilities and interest on mortgages. Loans obtained through the Paycheck Protection Program are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 17, 2020, the Company received a loan in the amount of $703,900 through the Paycheck Protection Program. Management expects that the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% over a period of two years, beginning November 2020 with a final installment in April 2022.

~~HLBE’s~~ ~~Compeer~~ ~~Credit Facility~~

Loan. HLBE has a 2020 Credit Facility with Compeer Financial, formerly known as AgStar Financial Services, FCLA (“Compeer”), which includes an amended and restated revolving term loan with an $8,000,000 principal commitment. This loan replacesindebtedness consisting of the amended revolving term note and seasonal revolving loan made under the 2018 Credit Facility. The loan is secured by substantially all of HLBE’s assets, including a subsidiary guarantee. The 2020 Credit Facility contains customary covenants, including restrictions on the payment of dividends andfollowing loans and ~~advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and~~agreements a ~~debt service coverage ratio as defined by the credit facility.~~ During the second fiscal quarter of 2020, the 2020 Credit Facility was amended to reduce the working capital covenant to $8 million, from the original $10 million working capital covenant, through the period ending December 31, 2020, and increasing to $10 million beginning January 1, 2021. Additionally, the current portion of leases will be excluded from the calculation of current liabilities. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges, or penalties.

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~~As part of the 2020 Credit Facility closing, HLBE entered into~~Revolving Term Loan, a Single Advance Term Loan, a Short Term Revolving Promissory Note, an amended administrative agency agreement with CoBank, ACP (“CoBank”). As a result, CoBank will continue act as the agent for the lender with respect to the 2020 Credit Facility. HLBE agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Under the terms of the amended revolving term loan, HLBE may borrow, repay, and reborrow up to the aggregate principal commitment amount of $8,000,000. Final payment of amounts borrowed under the amended revolving term loan is due December 1, 2022. Interest on the amended revolving term loan accrues at a variable weekly rate equal to 3.10% above the One-Month LIBOR Index rate, which totaled 3.43% at April 30, 2020.

~~HLBE also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.~~

In October 2019, HLBE had an event of non-compliance related to the debt service coverage ratio as defined in the 2018 Credit Facility. In December 2019, HLBE received a waiver from its lender waiving this event of noncompliance. If market conditions deteriorate in the future, circumstances may develop which could result in HLBE violating the financial covenants or other terms of its 2020 Credit Facility. Should unfavorable market conditions result in HLBE’s violation of the terms or covenants of the 2020 Credit Facility and HLBE fails to obtain a waiver of any such term or covenant, Compeer could deem HLBE in default, impose fees, charges and penalties, terminate any commitment to loan funds and require HLBE to immediately repay a significant portion or possibly the entire outstanding balance of the revolving term loan. In the event of a default, Compeer could also elect to proceed with a foreclosure action on HLBE’s plant.

In March 2020 and April 2020, HLBE had events of non-compliance related to the minimum working capital requirement as defined in the 2020 Credit Facility. Additionally, HLBE anticipates an event of non-compliance for the period ended May 31, 2020. HLBE has obtained waivers from its lender for these events of noncompliance. However, if market conditions deteriorate in the future, circumstances may develop which could result in HLBE violating the financial covenants or other terms of its credit facility. If HLBE fails to comply with the terms of its credit facility with Compeer, and Compeer refuses to waive the non-compliance, Compeer could terminate the credit facility and any commitment to loan funds to HLBE.

~~HLBE’s Other Credit Arrangements~~

~~In addition to HLBE's primary credit arrangement with Compeer, HLBE has other material credit arrangements and debt obligations.~~

In October 2003, HLBE entered into an industrial water supply development and distribution agreement with the City of Heron Lake, Jackson County, and Minnesota Soybean Processors. In consideration of this agreement, HLBE and Minnesota Soybean Processors are allocated equally the debt service on $735,000 in water revenue bonds that were issued by the City to support this project that were to mature in February 2019. On September 30, 2019, HLBE finalized a new industrial water supply development and distribution agreement with the City of Heron Lake, effective as of February 1, 2019. Under this agreement, HLBE pays flow charges and fixed monthly charges to the City of Heron Lake, in addition to certain excess maintenance costs. The term of this agreement expires February 1, 2029.

In May 2006, HLBE entered into an industrial water supply treatment agreement with the City of Heron Lake and Jackson County. Under this agreement, HLBE pays monthly installments over 24 months starting January 1, 2007 equal to one years’ debt service on approximately $3.6 million in water revenue bonds, which will be returned to HLBE if any funds remain after final payment in full on the bonds and assuming HLBE complies with all payment obligations under the agreement. There was a total of approximately $634,000 in outstanding water revenue bonds at April 30, 2020 and October 31, 2019. HLBE classifies its obligations under these bonds as assessments payable. The interest rates on the bonds range from 6.55% to 8.73%.

~~HLBE’s~~ SBA Paycheck Protection Program Loan,

38water treatment agreements. Please refer to PART I - Item 1 - Financial Statements, Note 7 - Debt Facilities for additional details.

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amount of $595,693 through the Paycheck Protection Program. Management expects that the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, HLBE would be required to repay that portion at an interest rate of 1% over a period of two years, beginning May 2021 with a final installment in May 2022.

Critical Accounting Policies and Estimates

Management uses 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. We believe that of our significant accounting policies summarized in Note 1 to our condensed consolidated unaudited financial statements included with this Form 10-Q.

At April 30, ~~2020,~~2021, our critical accounting estimates continue to include those described in our annual report on Form 10-K for the fiscal year ended October 31, ~~2019.~~2020. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America.

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Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Item 3. 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 use cash, futures and option contracts to hedge changes to the commodity prices of corn, ethanol 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 pursuant to the requirements of U.S. Generally Accepted Accounting Principles.Not Applicable.

~~Interest Rate Risk~~

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our credit facilities with AgCountry, HLBE’s credit facilities with Compeer and HLBE’s note payable to the minority owner of Agrinatural. The specifics of these credit facilities are discussed in greater detail in “~~Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness~~”.

At April 30, 2020, there were no amounts outstanding under GFE’s credit facility with AgCountry. Therefore, at April 30, 2020, we had exposure to interest rate risk only from the amounts outstanding under GFE’s credit facility with Project Hawkeye and HLBE’s credit facility with Compeer. Below is a sensitivity analysis we prepared regarding GFE’s and HLBE’s income exposure to changes in interest rates.

~~The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one-year period.~~

Outstanding Variable






Rate Debt at

Interest Rate at

Interest Rate Following 10%

Approximate Adverse

April 30, 2020

April 30, 2020

Adverse Change

Change to Income

$
6,875,000

3.38
%

3.72
%

$
23,000

$
6,161,000

3.43
%

3.77
%

$
21,132

~~Commodity Price Risk~~

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distillers' grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge

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accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from period to period 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 April 30, 2020, GFE had price protection in place for approximately 25% and 25% of its anticipated corn and natural gas needs, respectively, and approximately 13%, 0%, and 1% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. As of April 30, 2020, HLBE had price protection in place for approximately 25% and 23% of its anticipated corn and natural gas needs, respectively, and approximately 0%, 4%, and 1% of its ethanol, distillers’ grains, and corn oil sales, respectively, for the next 12 months. Through these contracts we hope to minimize risk from future market price fluctuations and basis fluctuations. As input 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, 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 fair value of our corn and natural gas prices and average ethanol price as of April 30, 2020, 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 both of the GFE and HLBE plants for a one year period from April 30, 2020. The results of this sensitivity analysis, which may differ from actual results, are as follows:

Estimated Volume Requirements

Hypothetical Adverse

for the next 12 months

Unit of

Change in Price as of

Approximate Adverse

(net of forward and futures contracts)

Measure

April 30, 2020

Change to Income

Ethanol

104,280,000

Gallons

10
%

$
9,385,000

Corn

31,000,000

Bushels

10
%

$
8,457,000

Natural Gas

2,100,000

MMBTU

10
%

$
544,000

~~Participation in Captive Reinsurance Company~~

We participate in a captive reinsurance company (“Captive”). The Captive reinsures losses related to workman's compensation, commercial property and general liability. Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive reinsurer. The Captive reinsures losses in excess of a predetermined amount. The Captive insurer has estimated and collected a premium amount in excess of expected losses but less than the aggregate loss limits reinsured by the Captive. We have contributed limited capital surplus to the Captive that is available to fund losses should the actual losses sustained exceed premium funding. So long as the Captive is fully-funded through premiums and capital contributions to the aggregate loss limits reinsured, and the fronting insurers are financially strong, we cannot be assessed over the amount of our current contributions.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Effectiveness of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and General Manager (the principal executive officer), ~~Steve Christensen,~~Jeffrey Oestmann, along with our Chief Financial Officer (the principal financial officer), Stacie Schuler, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of April 30, ~~2020.~~2021. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that

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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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our most recently completed reporting period that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. Following the most recently completed reporting period, the Company hired a new CEO, Jeffrey Oestmann, to replace Steve Christensen. As our principal executive officer, Oestmann, along with our principal financial officer, Stacie Schuler, will oversee our internal controls and financial reporting moving forward.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, Granite Falls Energy, LLC and Heron Lake BioEnergy, LLC may be named as a defendant in legal proceedings related to various issues, including workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

The risk factors below should be read in conjunction with the risk factors previously discussed in Item 1A of our Form 10-K for the fiscal year ended October 31, ~~2019.~~2020 and in Item 1A of our Form 10-Q for the three months ended January 31, 2021. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.

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If the Merger with Heron Lake BioEnergy, LLC, is not completed, there is risk HLBE could be forced to cease operations or seek bankruptcy protection.

~~Our business,~~On March 24, 2021, the Company and ~~our industry~~HLBE, executed a Merger Agreement, pursuant to which the Company will acquire the minority interest of HLBE. The structure of the proposed transaction is a merger in which Granite Heron Merger Sub, LLC, a wholly owned subsidiary of GFE, will merge with and into HLBE, with HLBE surviving the transaction as a ~~whole, could be adversely affected by an outbreak~~wholly owned subsidiary of ~~disease, epidemic or pandemic, such as~~GFE. If the ~~global coronavirus pandemic, or similar public threat, or fear of such an event.~~

~~The recent global outbreak of~~Merger is completed, HLBE’s Minority Ownership Interest unitholders will receive $0.36405 per unit and will cease to have any ownership interest in HLBE. If the COVID-19 pandemic has had a negative impact on our revenues and operating results, which could worsen and/or continue for a significant period of time. This outbreak has resulted in disruptions and damage to our business, caused by the negative impact to our ability to obtain cost effective raw materials, supplies and component parts necessary to operate our ethanol, distillers’ grains, corn oil, or natural gas business, the negative impact on ourMerger is not completed, there is doubt about HLBE’s ability to operate ~~our facility should COVID-19 spread more broadly within Minnesota or~~as a going concern. Due to substantial losses in 2020, HLBE was in violation of certain loan covenants as of as of the ~~Midwest, thereby creating an increased risk of exposure to our workforce which cannot operate our facility remotely,~~three months ended January 30, 2021 and the ~~negative impact~~fiscal year ended October 31, 2020. Due to ~~our ability to~~improved market and ~~sell our products~~operating conditions, HLBE was in compliance with these loan covenants on April 30, 2021. However, future violations of these loan covenants would allow HLBE’s lender to ~~markets which have slowed~~accelerate certain loans and designate a substantial portion of HLBE’s debt due and payable. If HLBE’s loans became due and payable, there is a substantial risk HLBE would lack the cash on hand, borrowing capacity, and cash flows to repay the debt, and if this were to occur, HLBE could be forced to cease operations or ~~shut down altogether. It~~seek bankruptcy protection. If HLBE was forced to cease operations or seek bankruptcy protection, the Company’s investment in HLBE would be at substantial risk.

The Merger is ~~likely that effect such as these will continue~~subject to ~~negatively impact our revenues, operating results, and business as a whole. Mitigation efforts have not and will not completely prevent our business from being adversely affected,~~approval by the Minority Ownership Interest and the ~~longer~~Company’s lenders and there is no guarantee such approvals will be acquired.

The Merger is subject to approval by the ~~pandemic impacts supply~~Minority Ownership Interest of HLBE. A special meeting of the members of HLBE is expected to be held in summer 2021, when the Minority Ownership Interest unitholders of HLBE will vote on the approval and ~~demand~~adoption of the Merger Agreement. The Merger is also subject to approval by the lender of HLBE and the ~~more broadly~~Company. The transaction is expected to close shortly after such approvals are obtained. There is, however, no guarantee the ~~pandemic spreads, it~~Minority Ownership Interest unitholders will vote in favor of the Merger and there is ~~more likely~~no guarantee the Company’s lender will approve of the Merger. If such approvals are not obtained and the Company and HLBE cannot execute the Merger, HLBE could be forced to cease operations or seek bankruptcy protection. If this were to occur, the Company’s investment in HLBE would be substantially at risk.

The Company has hired a new CEO and the change in leadership could result in unforeseen challenges.

Jeffrey Oestmann became CEO of the Company on May 26, 2021, replacing Steve Christensen. Oestmann also serves as CEO of HLBE pursuant to a management services agreement, which provides that GFE and our Company shall share executive officers. Christensen, who had served as CEO of the ~~impact on our business, revenues~~Company and ~~operating results will become increasingly negative.~~GFE since 2014, provided significant institutional and industry knowledge that was valuable to the Company. Oestmann has considerable experience in the ethanol industry, however the loss of certain intuitional knowledge could create challenges for the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

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Item 5.Other Information

None.

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Item 6. Exhibits.

(a)

The following exhibits are included in this report.


Exhibit No.			Exhibit

2.1			Plan of Merger between Granite Heron Merger Sub, LLC, and Heron Lake BioEnergy, LLC, dated March 24, 2021.

10.1			Separation Agreement dated February 17, 2021

10.2			Merger Agreement between Granite Falls Energy, LLC, and Heron Lake BioEnergy, LLC, dated March 24, 2021

10.3			Voting Agreement between Granite Falls Energy, LLC, and Heron Lake BioEnergy, LLC, dated March 24, 2021

10.4			Voting Agreement between Granite Falls Energy, LLC, and certain governors of Heron Lake BioEnergy, LLC, dated March 24, 2021

31.1			Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)*

31.2			Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)*

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*
101
~~101~~			The following financial information from Granite Falls Ethanol, LLC's Quarterly Report on Form 10-Q for the three and six months ended April 30, ~~2020,~~2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at April 30, ~~2020~~2021 and October 31, ~~2019;~~2020; (ii) the Condensed Consolidated Statements of Operations for the three and six months ended April 30, ~~2020~~2021 and ~~2019;~~2020; (iii) the Condensed Consolidated Statements of Changes in Members’ Equity for the three and six months ended April 30, ~~2020~~2021 and ~~2019;~~2020; (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended April 30, ~~2020~~2021 and ~~2019;~~2021; and (iv) Notes to Condensed Consolidated Unaudited Financial Statements.*

* Filed herewith.

SIGNATURES

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~~SIGNATURES~~

Pursuant to the requirements 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.


		GRANITE FALLS ENERGY, LLC

Date: June ~~15, 2020~~14, 2021		/s/ ~~Steve Christensen~~Jeffrey Oestmann
		~~Steve Christensen~~Jeffrey Oestmann
		Chief Executive Officer

		/s/ Stacie Schuler
Date: June ~~15, 2020~~14, 2021		Stacie Schuler
		Chief Financial Officer

4340


Outstanding Variable
Rate Debt at		Interest Rate at		Interest Rate Following 10%		Approximate Adverse
April 30, 2020		April 30, 2020		Adverse Change		Change to Income
$	6,875,000	3.38	%	3.72	%	$	23,000
$	6,161,000	3.43	%	3.77	%	$	21,132


	Estimated Volume Requirements		Hypothetical Adverse
	for the next 12 months	Unit of	Change in Price as of		Approximate Adverse
	(net of forward and futures contracts)	Measure	April 30, 2020		Change to Income
Ethanol	104,280,000	Gallons	10	%	$	9,385,000
Corn	31,000,000	Bushels	10	%	$	8,457,000
Natural Gas	2,100,000	MMBTU	10	%	$	544,000