Results of Operations
Comparison of the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of revenues, operating expenses and other items to total revenues in our consolidated statements of operations for the fiscal years endedDecember 31, 2021 and 2020: 2021
2020
Income Statement Data Amount % Amount % Revenue$ 258,989,603 100.0$ 130,521,814 100.0 Cost of Revenues 207,275,615 80.0 124,493,268 95.4 Gross Profit 51,713,988 20.0 6,028,546 4.6 Operating Expense 5,430,294 2.1 4,418,074 3.4
Income from Operations 46,283,694 17.9 1,610,472 1.2
Other Income (Expense) 10,802,592 4.1 (554,833) (0.4) Net Income$ 57,086,286 22.0$ 1,055,639 0.8 Revenues Revenue from ethanol sales increased by approximately 105.4% during our 2021 fiscal year compared to the same period of 2020. Revenue from distillers grains sales increased by approximately 61.3% during our 2021 fiscal year compared to the same period of 2020. Revenue from corn oil sales increased by approximately 141.0% during our 2021 fiscal year compared to the same period of 2020.
Ethanol
Our ethanol revenue increased by approximately 105.4% during our 2021 fiscal year compared to our 2020 fiscal year. This increase in ethanol revenue was primarily due to increased average price we received per gallon of ethanol sold and increased gallons of ethanol sold. The average price we received for our ethanol during our 2021 fiscal year was approximately 90.6% higher compared to our 2020 fiscal year. Management attributes this increase in the average price we received per gallon of ethanol with higher corn prices along with increased gasoline demand. Since ethanol is typically blended with gasoline, when gasoline demand is higher, it has a corresponding impact on ethanol demand. As a result, we experienced a significant increase in average ethanol prices during our 2021 fiscal year. Ethanol exports were lower during our 2021 fiscal year compared to our 2020 fiscal year as COVID-19 restrictions are still impacting the global market. Management expects ethanol prices to remain stable during our 2022 fiscal year. Ethanol sales volumes were greater during our 2021 fiscal year compared to the same period of 2020 due to lack of COVID-19 pandemic related shutdowns. The total gallons of ethanol we sold during our 2021 fiscal year was approximately 7.8% greater compared to the same period of 2020. Management anticipates similar ethanol production and sales during our 2022 fiscal year provided ethanol demand remains stable during the year.
Distillers Grains
Our total distillers grains revenue increased by approximately 61.3% for our 2021 fiscal year compared to the same period of 2020. The increase in revenue from distillers grains was primarily due to increased tons sold due to no prolonged plant shutdowns in 2021 and sales price of distillers grains sold during our 2021 fiscal year. For our 2021 fiscal year, we sold approximately 35.1% of our total distillers grains, by volume, in the dried form and approximately 64.9% of our total distillers grains in the modified/wet form. For our 2020 fiscal year, we sold approximately 38.1% of our total distillers grains, by volume, in the dried form and approximately 61.9% of our total distillers grains in the modified/wet form. The average price 21 -------------------------------------------------------------------------------- Table of Contents we received for our modified/wet distillers grains was approximately 52.3% more for our 2021 fiscal year compared to the same period of 2020. Modified/wet distillers grains have a shorter shelf life and are more expensive to transport compared to dried distillers grains. As a result, they are only sold in our local market. The average price we received for our dried distillers grains was approximately 50.1% greater during our 2021 fiscal year compared to the same period of 2020. Management attributes this increase in dried distillers grains prices with an increase in the domestic price of corn. Management expects that distillers grains prices will remain similar during our 2022 fiscal year due to anticipated stable corn prices during our 2022 fiscal year which typically have a direct impact on distillers grains prices. Further, ifChina andthe United States reach an agreement on trade disputes which have occurred in recent years, it may have a positive impact on distillers grains prices and demand. Management anticipates similar distillers grains production during our 2022 fiscal year compared to our 2021 fiscal year due to anticipated similar production at the ethanol plant provided ethanol demand remains steady during our 2022 fiscal year. Corn Oil Our total corn oil revenue increased by approximately 141.0% during our 2021 fiscal year compared to the same period of 2020. Our total pounds of corn oil sold increased by approximately 16.0% during our 2021 fiscal year compared to the same period of 2020, primarily due to a lack of pandemic related plant shutdowns. Management anticipates similar corn oil production during our 2022 fiscal year compared to our 2021 fiscal year due to anticipated similar production provided ethanol demand remains at current levels allowing us to operate the ethanol plant at capacity during our 2022 fiscal year. The average price we received for our corn oil was approximately 107.8% greater during our 2021 fiscal year compared to the same period of 2020. Management believes that corn oil prices were higher due primarily to demand from the renewable diesel and biodiesel industry along with higher soybean oil prices. The biodiesel blenders' tax credit was reinstated through 2022 so we expect that corn oil demand will remain high through 2022.
Cost of Revenues
The primary raw materials we use to produce ethanol, distillers grains and corn oil are corn and natural gas.
Corn
Our cost of revenues relating to corn was approximately 87.5% greater for our 2021 fiscal year compared to the same period of 2020. Our average cost per bushel of corn increased by approximately 71.1% for our 2021 fiscal year compared to our 2020 fiscal year. Management attributes the increase in corn prices to high demand mixed with global supply concerns. Corn demand was higher due to increased export demand forUnited States corn. Management anticipates corn prices will be stable with the possibility of a slight increase during our 2022 fiscal year due to anticipated weather conditions. We used approximately 9.6% more bushels of corn during our 2021 fiscal year compared to the same period of 2020 due to increased overall production at the ethanol plant during our 2021 fiscal year. Management expects our corn consumption will be similar during our 2022 fiscal year compared to our 2021 fiscal year due to similar ethanol production during our 2022 fiscal year provided ethanol demand remains steady during our 2022 fiscal year. We experienced approximately$3,967,000 of combined realized and unrealized loss for our 2021 fiscal year related to our corn derivative instruments which increased our cost of goods sold. By comparison, we experienced approximately$1,627,000 of combined realized and unrealized loss for our 2020 fiscal year related to our corn derivative instruments which increased our cost of goods sold. 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 are impacted, which affects our financial performance.
Natural Gas
Our cost of revenues related to natural gas increased by approximately 64.1% for our 2021 fiscal year compared to our 2020 fiscal year. This increase was due to higher natural gas costs per MMBtu during our 2021 fiscal year compared to the same period of 2020. Natural gas prices were higher during our 2021 fiscal year compared to the same period of 2020 22 -------------------------------------------------------------------------------- Table of Contents primarily because of increased natural gas demand. Our average cost per MMBtu of natural gas during our 2021 fiscal year was approximately 58.0% more compared to the cost for our 2020 fiscal year. Management anticipates similar natural gas costs per MMBtu during 2022. We used approximately 3.8% more MMBtus of natural gas during our 2021 fiscal year compared to the same period of 2020. Management anticipates that our natural gas consumption during our 2022 fiscal year will remain steady due to similar production during our 2022 fiscal year.
Operating Expense
Our operating expenses were higher for our 2021 fiscal year compared to the same period of 2020 due primarily to increased wages and benefits and property insurance premiums.
Other Income and Expense
Our interest and other income was greater during our 2021 fiscal year compared to our 2020 fiscal year due to gains on investments and forgiveness of the Paycheck Protection Program loan during the 2021 period. We had more income from our investments during our 2021 fiscal year compared to our 2020 fiscal year due to increased profitability in the ethanol industry which impacts the income generated by our investments. We had less interest expense during our 2021 fiscal year compared to our 2020 fiscal year due to lower carrying balances on outstanding debt. Results of Operations
Comparison of the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of revenues, operating expenses and other items to total revenues in our consolidated statements of operations for the fiscal years endedDecember 31, 2020 and 2019: 2020 2019 Income Statement Data Amount % Amount % Revenue$ 130,521,814 100.0$ 115,986,821 100.0 Cost of Revenues 124,493,268 95.4 114,687,231 98.9 Gross Profit 6,028,546 4.6 1,299,590 1.1 Operating Expense 4,418,074 3.4 4,060,343 3.5
Income (Loss) from Operations 1,610,472 1.2
(2,760,753) (2.4) Other Income (Expense) (554,833) (0.4) (1,063,431) (0.9) Net Income (Loss)$ 1,055,639 .8$ (3,824,184) (3.3) Revenues Revenue from ethanol sales increased by approximately 9.6% during our 2020 fiscal year compared to the same period of 2019. Revenue from distillers grains sales increased by approximately 20.4% during our 2020 fiscal year compared to the same period of 2019. Revenue from corn oil sales increased by approximately 35.6% during our 2020 fiscal year compared to the same period of 2019.
Ethanol
Our ethanol revenue increased by approximately 9.6% during our 2020 fiscal year compared to our 2019 fiscal year. This increase in ethanol revenue was due to increased gallons of ethanol produced and sold due to our plant expansion project partially offset by a lower average price we received per gallon of ethanol sold. The average price we received for our ethanol during our 2020 fiscal year was approximately 8.2% lower compared to our 2019 fiscal year. Management attributes this 23 -------------------------------------------------------------------------------- Table of Contents decrease in the average price we received per gallon of ethanol with decreased gasoline demand due to travel restrictions from the COVID-19 pandemic. Since ethanol is typically blended with gasoline, when gasoline demand is lower, it has a corresponding impact on ethanol demand. As a result, we experienced a significant decrease in average ethanol prices during our first and second quarters of our 2020 fiscal year. Ethanol prices rebounded during our third and fourth quarters of our 2020 fiscal year. Ethanol exports were also lower during our 2020 fiscal year compared to our 2019 fiscal year as the COVID-19 pandemic had an impact on gasoline and ethanol demand globally. Ethanol sales volumes were greater during our 2020 fiscal year compared to the same period of 2019 due to our plant expansion project, which was operational for our entire 2020 fiscal year, partially offset by lower ethanol sales during our first and second quarters of 2020 due to the COVID-19 pandemic. The total gallons of ethanol we sold during our 2020 fiscal year was approximately 19.4% greater compared to the same period of 2019.
Distillers Grains
Our total distillers grains revenue increased by approximately 20.4% for our 2020 fiscal year compared to the same period of 2019. The increase in revenue from distillers grains was primarily due to increased tons of distillers grains sold during our 2020 fiscal year. For our 2020 fiscal year, we sold approximately 38.1% of our total distillers grains, by volume, in the dried form and approximately 61.9% of our total distillers grains in the modified/wet form. For our 2019 fiscal year, we sold approximately 25.9% of our total distillers grains, by volume, in the dried form and approximately 74.1% of our total distillers grains in the modified/wet form. The average price we received for our modified/wet distillers grains was approximately 1.3% less for our 2020 fiscal year compared to the same period of 2019. Due to our plant expansion project, the supply of modified/wet distillers grains in our market is higher which has had an impact on the price we received for our modified/wet distillers grains. The average price we received for our dried distillers grains was approximately 0.4% greater during our 2020 fiscal year compared to the same period of 2019. Management attributes this increase in dried distillers grains prices with lower distillers grains production inthe United States due to reduced ethanol demand. This reduction in distillers grains production reduced the supply of distillers grains in the market which had a positive impact on prices.
Corn Oil
Our total corn oil revenue increased by approximately 35.6% during our 2020 fiscal year compared to the same period of 2019. Our total pounds of corn oil sold increased by approximately 27.4% during our 2020 fiscal year compared to the same period of 2019, primarily due to increased production due to our plant expansion project. The average price we received for our corn oil was approximately 6.4% greater during our 2020 fiscal year compared to the same period of 2019. In addition, corn oil demand remained favorable due to demand from the biodiesel industry which uses corn oil as a feedstock to produce biodiesel. The biodiesel blenders' tax credit was reinstated through 2022 so we expect that corn oil demand will remain higher through 2022. Cost of Revenues
The primary raw materials we use to produce ethanol, distillers grains and corn oil are corn and natural gas.
Corn
Our cost of revenues relating to corn was approximately 8.1% greater for our 2020 fiscal year compared to the same period of 2019. Our average cost per bushel of corn decreased by approximately 10.0% for our 2020 fiscal year compared to our 2019 fiscal year. Management attributes the decrease in corn prices to decreased corn demand from the ethanol industry. Corn demand was lower due to decreased ethanol demand during the COVID-19 pandemic. We used approximately 19.9% more bushels of corn during our 2020 fiscal year compared to the same period of 2019 due to increased overall production at the ethanol plant during our 2020 fiscal year. We experienced approximately$1,627,000 of combined realized and unrealized loss for our 2020 fiscal year related to our corn derivative instruments which increased our cost of goods sold. By comparison, we experienced approximately$906,000 of combined realized and unrealized loss for our 2019 fiscal year related to our corn derivative instruments which increased our cost of goods sold 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 are impacted, which affects our financial performance. 24
--------------------------------------------------------------------------------
Table of Contents
Natural Gas
Our cost of revenues related to natural gas increased by approximately 10.8% for our 2020 fiscal year compared to our 2019 fiscal year. This increase was due to increased consumption due to our plant expansion project, partially offset by lower natural gas costs per MMBtu during our 2020 fiscal year compared to the same period of 2019. Natural gas prices were lower during our 2020 fiscal year compared to the same period of 2019 primarily because of decreased natural gas demand and lower energy prices generally during 2020 which decreased natural gas prices during that period of time. Our average cost per MMBtu of natural gas during our 2020 fiscal year was approximately 6.7% less compared to the cost for our 2019 fiscal year. We used approximately 18.6% more MMBtus of natural gas during our 2020 fiscal year compared to the same period of 2019 due to increased overall production due to our plant expansion project.
Operating Expense
Our operating expenses were higher for our 2020 fiscal year compared to the same period of 2019 due primarily to increased professional fees and property insurance premiums.
Other Income and Expense
Our interest and other income was greater during our 2020 fiscal year compared to our 2019 fiscal year due to additional dividend income from our lender during the 2020 period. Our equity in net income of our investments was higher during our 2020 fiscal year compared to our 2019 fiscal year due to increased profitability in the ethanol industry which impacts the income generated by our investments. We had significantly more interest expense during our 2020 fiscal year compared to our 2019 fiscal year due to borrowing for our plant expansion project. During the time the expansion was under construction, interest was capitalized. When the expansion became operational, subsequent interest was expensed to our statement of operations.
Changes in Financial Condition for the Fiscal Year Ended
Current Assets
We had more cash and cash equivalents atDecember 31, 2021 compared toDecember 31, 2020 , primarily due to increased deferred payments on corn liability along with increased net income during our 2021 fiscal year. We had less accounts receivable atDecember 31, 2021 , compared toDecember 31, 2020 , due to increased advance payments. We had increased inventory values atDecember 31, 2021 , compared toDecember 31, 2020 , due primarily to the timing of our year end and shipments of our products as well as higher corn and ethanol prices which increase the value of our inventory. The value of our derivative financial instruments was greater atDecember 31, 2021 compared toDecember 31, 2020 , primarily because we had more cash in our margin account as ofDecember 31, 2021 compared toDecember 31, 2020 . We had more prepaid expenses atDecember 31, 2021 compared toDecember 31, 2020 due to insurance premium increases during our 2021 fiscal year.
Property and Equipment
The value of our property and equipment was lower at
Other Assets
The value of our investments was greater atDecember 31, 2021 , compared toDecember 31, 2020 , mainly due to earnings in excess of distributions from our investments during the 2021 fiscal year.
Current Liabilities
AtDecember 31, 2021 , we had more checks which were issued in excess of the amount of cash we had in our bank accounts, compared to atDecember 31, 2020 , due to the timing of transfers between our accounts. Any checks which are presented for payment in excess of the balances in our bank accounts are paid from our revolving lines of credit. Our accounts payable was higher atDecember 31, 2021 , compared toDecember 31, 2020 , due to increased deferred corn payables at the end 25 -------------------------------------------------------------------------------- Table of Contents of our 2021 fiscal year. We had more accrued liabilities atDecember 31, 2021 , compared toDecember 31, 2020 due to more administrative payables at the end of the 2021 fiscal year. The liability on our balance sheet related to our derivative instruments was more atDecember 31, 2021 , compared toDecember 31, 2020 , due to having more unrealized losses on our forward corn purchases atDecember 31, 2021 , compared to atDecember 31, 2020 . The current portion of our long-term debt payments was less atDecember 31, 2021 and atDecember 31, 2020 due to the forgiveness of the Paycheck Protection Program Loan we received in 2020. Long-Term Liabilities
Our long-term liabilities were less at
Liquidity and Capital Resources
Our main sources of liquidity are cash from our continuing operations, distributions we receive from our investments and amounts we have available to draw on our revolving credit facilities. Management does not anticipate that we will need to raise additional debt or equity financing in the next twelve months and management believes that our current sources of liquidity will be sufficient to continue our operations during that time period. We anticipate that any capital expenditures we undertake will be paid out of cash from operations and existing loans, but will not require any additional debt or equity financing. Currently, we have two revolving loans which allow us to borrow funds for working capital. These two revolving loans are described in greater detail below in the section entitled "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness." As ofDecember 31, 2021 , we had$0 outstanding and$48,250,000 available to be drawn on these revolving loans. Management anticipates that this is sufficient to maintain our liquidity and continue our operations. The following table shows cash flows for the fiscal years endedDecember 31, 2021 and 2020: Fiscal Years EndedDecember 31 2021 2020
Net cash provided by operating activities
Net cash used in investing activities (2,385,841)
(359,221)
Net cash used in financing activities (37,977,324)
(3,065,256)
Cash Flow From Operations. Our operating activities generated more cash during our fiscal year endedDecember 31, 2021 , compared to the same period of 2020, primarily due to having more net income during the 2021 period. Cash Flow From Investing Activities. Our investing activities used more cash during our fiscal year endedDecember 31, 2021 , compared to the same period of 2020, primarily because we had more capital expenditures during the 2021 period compared to the 2020 period. Cash Flow From Financing Activities. Our financing activities used more cash during our fiscal year endedDecember 31, 2021 , compared to the same period of 2020, primarily due to net payments on borrowings and distributions paid to members during the 2021 period compared to net proceeds from borrowings during the same period of 2020. The following table shows cash flows for the fiscal years endedDecember 31, 2020 and 2019: Fiscal Years EndedDecember 31 2020 2019
Net cash provided by operating activities $ 9,238,635
$ 7,517,770 Net cash used in investing activities (359,221) (9,700,103) Net cash provided by (used in) financing activities (3,065,256) 13,308,049 26
-------------------------------------------------------------------------------- Table of Contents Cash Flow From Operations. Our operating activities generated less cash during our fiscal year endedDecember 31, 2020 , compared to the same period of 2019, primarily due to having less net income during the 2020 period which was partially offset by an increase in accounts payable which had a positive impact on cash during the 2020 period. Cash Flow From Investing Activities. Our investing activities used less cash during our fiscal year endedDecember 31, 2020 , compared to the same period of 2019, primarily because we had less capital expenses related to our expansion project during the 2020 period compared to the 2019 period. Cash Flow From Financing Activities. Our financing activities provided less cash during our fiscal year endedDecember 31, 2020 , compared to the same period of 2019, primarily due to fewer net proceeds from borrowing we incurred during the 2020 period offset by decreased distributions to our members.
Indebtedness
We maintain a comprehensive credit facility withFarm Credit Services of America , PCA andFarm Credit Services of America , FLCA (collectively "FCSA"). We have a$2 million revolving operating line of credit (the "Operating Line") and a$46 million reducing revolving loan (the "Reducing Revolving Loan"). All of our assets, including the ethanol plant and equipment, its accounts receivable and inventory, serve as collateral for our loans with FCSA. OnAugust 1, 2017 , we executed an amendment to our credit agreement to create an$8 million term loan, which we used to finance a portion of our investment inRing-neck Energy & Feed, LLC . OnFebruary 6, 2018 , we executed an Amended and Restated Credit Agreement (the "Credit Agreement") with FCSA. Pursuant to the Credit Agreement, our total credit availability is$40 million to support our expansion project. The credit availability matures onJanuary 1, 2026 . Interest on the outstanding principal balance will accrue at the one month London Interbank Offered Rate ("LIBOR") plus 325 basis points untilFebruary 1, 2023 and the basis increases to 350 points thereafter until maturity. The interest rate is not subject to a floor. We agreed to pay a fee of 0.50% on the unused portion of the increased credit availability. OnOctober 21, 2019 , we entered into a Second Amendment to Amended and Restated Credit Agreement (the "Loan Amendment") with FCSA. In the Loan Amendment, we extended the maturity date of our$10 million revolving loan toNovember 1, 2021 ; we also extended the date when the available balance of our$40 million revolving loan started to decrease fromJanuary 1, 2020 toJanuary 1, 2021 . OnJune 5, 2020 , we entered into a Third Amendment to the credit agreement (the "Third Amendment"). Under the Third Amendment, the available credit under the revolving operating note was reduced to$2,000,000 and the available credit on the reducing revolving note was increased to$48,000,000 . The working capital covenant was reduced to$11,000,000 , and the net worth covenant was reduced to$18,000,000 . The next measurement date for the debt service coverage ratio was deferred untilDecember 31, 2021 . The annual installment on the term note for 2020 was deferred until maturity in 2025. The interest rates were unchanged. OnOctober 11, 2021 , we entered into a Fourth Amendment to the credit agreement (the "Fourth Amendment"). Under the Fourth Amendment, the operating lines's maturity date was extended toNovember 1, 2023 . Interest on the outstanding principal balance of the operating line will accrue at the Secured Overnight Financing Rate ("SOFR") 30-Day Average Rate plus 305 basis points. The available credit on the reducing revolving note is$46,250,000 . Interest on the outstanding principal balance of the revolving loan and term loan will accrue at the SOFR 30-Day Average Rate plus 330 basis points. The working capital covenant was increased to$13,500,000 , and the net worth covenant was increased to$28,000,000 . Dakota Ethanol may make distributions in an amount up to 75% of prior year's net income, so long as the Company's working capital stays above$18,000,000 post distribution. The combined distributions for 2021 and 2022 shall also be limited to 75% of the combined net income of 2020 and 2021.
Operating Line
OnOctober 21, 2019 , Dakota Ethanol amended the revolving promissory note fromFarm Credit Services of America in the amount up to$10,000,000 or the amount available in accordance with the borrowing base calculation, whichever is less. OnJune 5, 2020 , the available balance of the Operating Line was reduced to$2,000,000 . Interest on the outstanding principal balance will accrue at 305 basis points above the SOFR 30-day average rate and is not subject to a floor. The rate was 3.10% atDecember 31, 2021 . There is a non-use fee of 0.25% on the unused portion of the$2,000,000 availability. The note is collateralized by substantially all assets of the Company. The note expires onNovember 1, 2023 . OnDecember 31 , 27
--------------------------------------------------------------------------------
Table of Contents
2021, Dakota Ethanol had
Reducing Revolving Loan
OnFebruary 6, 2018 , Dakota Ethanol executed a reducing revolving promissory note from FCSA in the amount up to$40,000,000 or the amount available in accordance with the borrowing availability under the credit agreement. The available balance of the Reducing Revolving Loan was increased to$48,000,000 onJune 5, 2020 . The amount Dakota Ethanol can borrow on the note decreases by$1,750,000 semi-annually starting onJuly 1, 2021 until the maximum balance reaches$32,250,000 onJuly 1, 2025 . The note matures onJanuary 1, 2026 . Interest on the outstanding principal balance will accrue at 330 basis points above the SOFR 30-day average rate. The interest rate is not subject to a floor. The rate was 3.35% atDecember 31, 2021 . The note contains a non-use fee of 0.50% on the unused portion of the note. OnDecember 31, 2021 , Dakota Ethanol had$0 outstanding and$46,250,000 available to be drawn on the note.
2017 Term Loan
OnAugust 1, 2017 , Dakota Ethanol executed a term note with FCSA in the amount of$8 million . Dakota Ethanol agreed to make monthly interest payments startingSeptember 1, 2017 and annual principal payments of$1,000,000 starting onAugust 1, 2018 . The notes matures onAugust 1, 2025 . The payment due onAugust 1, 2020 was deferred toAugust 1, 2025 . Interest on the outstanding principal balance will accrue at 330 basis points above the SOFR 30-day average rate. The interest rate is not subject to a floor. The rate was 3.35% atDecember 31, 2021 . OnDecember 31, 2021 , Dakota Ethanol had$5,000,000 outstanding on the note.
2020 Loans
The Company entered into a loan agreement with theSmall Business Association through First State Bank,Gothenburg, NE onApril 4, 2020 for$760,400 as part of the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). InJune 2021 , the Company received notification from theSmall Business Administration that all loan proceeds and accrued interest received and recorded by the Company were forgiven. Due to forgiveness of the loan, the Company recorded a gain on debt extinguishment in other income in the statement of operations for$768,400 for the year endingDecember 31, 2021 . The Company also received an Economic Injury Disaster Loan (EIDL) in the amount of$10,000 inJune 2020 . The Company was notified by theSmall Business Association inJune 2021 that all EIDL proceeds received by the Company had been forgiven. Due to forgiveness of the loan, the Company recorded a gain on debt extinguishment in other income in the statement of operations for$10,000 for the year endingDecember 31, 2021 .
Covenants
Our credit facilities with FCSA are subject to various loan covenants. If we fail to comply with these loan covenants, FCSA can declare us to be in default of our loans. The material loan covenants applicable to our credit facilities are our working capital covenant, local net worth covenant and our debt service coverage ratio. We are required to maintain working capital (current assets minus current liabilities plus availability on our revolving loan) of at least$13.5 million . We are required to maintain local net worth (total assets minus total liabilities minus the value of certain investments) of at least$28 million . We are required to maintain a debt service coverage ratio of at least 1.25:1.00. Dakota Ethanol may make distributions in an amount up to 75% of prior year's net income, so long as the Company's working capital stays above$18,000,000 post distribution. The combined distributions for 2021 and 2022 shall also be limited to 75% of the combined net income of 2020 and 2021. As ofDecember 31, 2021 , we were in compliance with our financial covenants under the FCSA loans. Management's current financial projections indicate that we will be in compliance with our financial covenants for the next 12 months and we expect to remain in compliance thereafter. Management does not believe that it is reasonably likely that we will fall out of compliance with our material loan covenants in the next 12 months. If we fail to comply with the terms of our credit agreements with FCSA, and FCSA refuses to waive the non-compliance, FCSA may require us to immediately repay all amounts outstanding on our loans. 28 -------------------------------------------------------------------------------- Table of Contents Contractual Cash Obligations In addition to our debt obligations, we have certain other contractual cash obligations and commitments. The following table provides information regarding our consolidated contractual obligations and commitments as ofDecember 31, 2021 : Payments Due By Period Contractual Cash Less than One One to Three Three to Five After Five Obligations Total Year Years Years Years Long-Term Debt Obligations$ 6,220,920 $ 1,378,958 $ 2,614,014 $ 2,227,948 $ - Purchase Obligations 57,976,297 56,775,097 369,600 369,600 462,000 Capital Expenditures 3,676,067 3,676,067 - - - Total Contractual Cash Obligations$ 67,873,284 $ 61,830,122 $ 2,983,614 $ 2,597,548 $ 462,000
Application of Critical Accounting Policies
Management uses estimates and assumptions in preparing our consolidated 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. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:
Derivative Instruments
We enter into short-term forward grain, option and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity prices. We enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in commodity prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as nor accounted for as hedging instruments. As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options. Unrealized gains and losses related to derivative contracts for corn purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements. The fair values of derivative contracts are presented on the accompanying balance sheets as derivative financial instruments.
Annually, as well as when an event triggering impairment may have occurred, the Company performs an impairment test on goodwill. The Company performs a quantitative analysis that tests for impairment. The second step, if necessary, measures the impairment. During the first quarter of 2020 a triggering event was determined to have occurred and an impairment test was performed as ofMarch 31, 2020 . The Company determined there was no impairment at that time. The Company performs the annual analysis onDecember 31 of each fiscal year. The Company determined that there was no impairment of goodwill atDecember 31, 2021 and 2020, respectively. Inventory Valuation Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. 29 -------------------------------------------------------------------------------- Table of Contents Revenue Recognition The Company generally recognizes revenue at a point in time when performance obligations are satisfied. Revenue from the production of ethanol and related products is recorded when control transfers to customers. Generally, ethanol and related products are shipped FOB shipping point, based on written contract terms between Dakota Ethanol and its customers. Collectability of revenue is reasonably assured based on historical evidence of collectability between Dakota Ethanol and its customers. Interest income is recognized as earned.
Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.
© Edgar Online, source