LAKE AREA CORN PROCESSORS, LLC 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, 2022 and 2021: 2022
2021
Income Statement Data Amount % Amount %
Revenue $ 282,564,697 100.0 $ 258,989,603 100.0
Cost of Revenues 255,710,981 90.5 207,275,615 80.0
Gross Profit 26,853,716 9.5 51,713,988 20.0
Operating Expense 4,954,621 1.7 5,430,294 2.1
Income from Operations 21,899,095 7.8 46,283,694 17.9
Other Income (Expense) 5,402,862 1.9 10,802,592 4.1
Net Income $ 27,301,957 9.7 $ 57,086,286 22.0
Revenues
Revenue from ethanol sales increased by approximately 2.9% during our 2022
fiscal year compared to the same period of 2021. Revenue from distillers grains
sales increased by approximately 29.1% during our 2022 fiscal year compared to
the same period of 2021. Revenue from corn oil sales increased by approximately
40.1% during our 2022 fiscal year compared to the same period of 2021.
Ethanol
Our ethanol revenue increased by approximately 2.9% during our 2022 fiscal year
compared to our 2021 fiscal year. This increase in ethanol revenue was primarily
due to an increased in the average price we received per gallon of ethanol sold
and a slight increase in gallons of ethanol sold during our 2022 fiscal year.
The average price we received for our ethanol during our 2022 fiscal year was
approximately 2.0% higher compared to our 2021 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 and prices. 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 an
increase in average ethanol prices during our 2022 fiscal year. Ethanol exports
were higher during our 2022 fiscal year compared to our 2021 fiscal year which
increased demand for ethanol and had an impact on market ethanol prices.
Management expects ethanol prices to remain stable during our 2023 fiscal year.
Ethanol sales volumes were similar during our 2022 fiscal year compared to the
same period of 2021 due primarily to consistent operational of the ethanol
plant. The total gallons of ethanol we sold during our 2022 fiscal year was
approximately 0.9% greater compared to the same period of 2021. Management
anticipates increased production and sales during our 2023 fiscal year due to
fermentation expansion added in 2022.
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Table of Contents Distillers Grains Our total distillers grains revenue increased by approximately 29.1% for our 2022 fiscal year compared to the same period of 2021. The increase in revenue from distillers grains was primarily due to increased average prices for our distillers grains along with increased tons of distillers grains sold during our 2022 fiscal year. For our 2022 fiscal year, we sold approximately 31.9% of our total distillers grains, by volume, in the dried form and approximately 68.1% of our total distillers grains in the modified/wet form. 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. The average price we received for our modified/wet distillers grains was approximately 21.1% higher for our 2022 fiscal year compared to the same period of 2021. 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 16.9% higher during our 2022 fiscal year compared to the same period of 2021. 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 higher during our 2023 fiscal year due to anticipated elevated corn prices and strong demand during our 2023 fiscal year which typically have a direct impact on distillers grains prices. Management anticipates increased distillers grains production during our 2023 fiscal year compared to our 2022 fiscal year due to fermentation expansion at the ethanol plant provided ethanol demand remains steady during our 2023 fiscal year. Corn Oil Our total corn oil revenue increased by approximately 40.1% during our 2022 fiscal year compared to the same period of 2021. Our total pounds of corn oil sold increased by approximately 4.5% during our 2022 fiscal year compared to the same period of 2021, primarily due to increased corn oil extraction efficiency. Management anticipates similar corn oil production during our 2023 fiscal year compared to our 2022 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 2023 fiscal year. The average price we received for our corn oil was approximately 34.1% greater during our 2022 fiscal year compared to the same period of 2021. 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. During 2022, the biodiesel blenders' tax credit was reinstated through 2024 so we expect that corn oil demand will remain high through 2024.
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 24.8% higher for our 2022 fiscal year compared to the same period of 2021. Our average cost per bushel of corn increased by approximately 18.8% for our 2022 fiscal year compared to our 2021 fiscal year. Management attributes the increase in corn prices to high demand mixed with global supply concerns and a smaller number of bushels harvested in 2022 compared to 2021. Corn demand was higher due to increased export demand forUnited States corn. Management anticipates corn prices will be higher during our 2023 fiscal year due to steady demand and lower corn supplies during our 2023 fiscal year. We used approximately 3.9% more bushels of corn during our 2022 fiscal year compared to the same period of 2021 due to decreased fermentation efficiency at the ethanol plant during our 2022 fiscal year. Management expects our corn consumption will be similar during our 2023 fiscal year compared to our 2022 fiscal year due to similar ethanol production during our 2023 fiscal year provided ethanol demand remains steady during our 2023 fiscal year. We experienced approximately$5,034,000 of combined realized and unrealized loss for our 2022 fiscal year related to our corn derivative instruments which increased our cost of goods sold. By comparison, 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. We recognize the gains or losses that result from the changes in the value 22 -------------------------------------------------------------------------------- Table of Contents 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 17.6% for our 2022 fiscal year compared to our 2021 fiscal year. This increase was due to higher natural gas costs per MMBtu during our 2022 fiscal year compared to the same period of 2021. Natural gas prices were higher during our 2022 fiscal year compared to the same period of 2021 primarily because of increased natural gas demand. Our average cost per MMBtu of natural gas during our 2022 fiscal year was approximately 19.1% higher compared to the cost for our 2021 fiscal year. Management anticipates similar natural gas costs per MMBtu during 2023. We used approximately 1.2% fewer MMBtus of natural gas during our 2022 fiscal year compared to the same period of 2021 due to less distillers grains which were produced in the dried form which uses natural gas. Management anticipates that our natural gas consumption during our 2023 fiscal year will increase due to anticipated increased production due to fermentation expansion during our 2023 fiscal year. Operating Expense Our operating expenses were lower for our 2022 fiscal year compared to the same period of 2021 due primarily to decreased wages and benefits offset by increased professional fees. Other Income and Expense Our interest and other income was lower during our 2022 fiscal year compared to our 2021 fiscal year due to lower gains on our investments. We had less income from our investments during our 2022 fiscal year compared to our 2021 fiscal year due to decreased profitability in the ethanol industry which impacts the income generated by our investments. We had less interest expense during our 2022 fiscal year compared to our 2021 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, 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 (Loss) 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 (Loss) $ 57,086,286 22.0 $ 1,055,639 0.8
Revenues
23-------------------------------------------------------------------------------- Table of Contents 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. 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.
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 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.
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. 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. 24 -------------------------------------------------------------------------------- Table of Contents 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. 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 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. We used approximately 3.8% more MMBtus of natural gas during our 2021 fiscal year compared to the same period of 2020.
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.
Changes in Financial Condition for the Fiscal Year Ended
Current Assets
We had less cash and cash equivalents atDecember 31, 2022 compared toDecember 31, 2021 , primarily due to less net income and increased member distribution payments during our 2022 fiscal year compared to our 2021 fiscal year. We had more accounts receivable atDecember 31, 2022 , compared toDecember 31, 2021 , due primarily to the timing of our year and the payments received related to the shipments of our products. We had increased inventory values atDecember 31, 2022 , compared toDecember 31, 2021 , due primarily to higher corn values and increased ethanol volume on hand. The value of our derivative financial instruments was comparable atDecember 31, 2022 andDecember 31, 2021 . We had more prepaid expenses atDecember 31, 2022 compared toDecember 31, 2021 due to insurance premium increases during our 2022 fiscal year.
Property and Equipment
The value of our property and equipment was higher atDecember 31, 2022 compared toDecember 31, 2021 primarily as a result of the new construction of an additional grain bin, fermentor, and ethanol storage tank partially offset by regular depreciation of our assets during our 2022 fiscal year.
Other Assets
The value of our investments was less atDecember 31, 2022 , compared toDecember 31, 2021 , mainly due to distributions we received from our investments during our 2022 fiscal year which decreased the value of our investments along with decreased profitability in the ethanol industry during our 2022 fiscal year compared to our 2021 fiscal year. We had significantly more other assets atDecember 31, 2022 , compared toDecember 31, 2021 due primarily to the prepayment for the firm commitment on natural gas transportation withNorthern Natural Gas . 25
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Current Liabilities
AtDecember 31, 2022 , we had more checks which were issued in excess of the amount of cash we had in our bank accounts, compared to atDecember 31, 2021 , due to the timing of our year end and payments issued. 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, 2022 , compared toDecember 31, 2021 , due to increased deferred corn payables at the end of our 2022 fiscal year due in part to higher market corn prices. We had less accrued liabilities atDecember 31, 2022 , compared toDecember 31, 2021 due to less administrative payables at the end of the 2022 fiscal year. The liability on our balance sheet related to our derivative instruments was less atDecember 31, 2022 , compared toDecember 31, 2021 , due to having fewer unrealized losses on our forward corn purchases atDecember 31, 2022 , compared to atDecember 31, 2021 . The current portion of our long-term debt payments was the same atDecember 31, 2022 and atDecember 31, 2021 due to regular payments which are due on our long-term debt within the next 12 months. 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, 2022 , we had$1,000 outstanding and$44,749,000 available to be drawn on these revolving loans. Management anticipates that this is sufficient to maintain our liquidity and continue our operations. The following table shows cash flows for the fiscal years endedDecember 31, 2022 and 2021: Fiscal Years Ended December 31 2022 2021 Net cash provided by operating activities$ 36,623,827 $ 59,720,664 Net cash used in investing activities (15,765,113) (2,385,841) Net cash used in financing activities (31,849,819) (37,977,324) Cash Flow From Operations. Our operating activities generated less cash during our fiscal year endedDecember 31, 2022 , compared to the same period of 2021, primarily due to having less net income during the 2022 period. Cash Flow From Investing Activities. Our investing activities used more cash during our fiscal year endedDecember 31, 2022 , compared to the same period of 2021, due to the construction of an additional grain bin, ethanol storage tank, and fermentor as well as prepayment for our natural gas transportation services agreement. Cash Flow From Financing Activities. Our financing activities used less cash during our fiscal year endedDecember 31, 2022 , compared to the same period of 2021, primarily due to fewer net payments on borrowings partially offset by a larger distributions paid to members during the 2022 period compared to the same period of 2021.
The following table shows cash flows for the fiscal years ended
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Fiscal Years Ended December 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. 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$44.75 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$42,749,000 . 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
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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 6.75% atDecember 31, 2022 . 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, 2022 , Dakota Ethanol had$0 outstanding and$0 available to be drawn on the revolving promissory note under the borrowing base calculation.
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 7.00% atDecember 31, 2022 . The note contains a non-use fee of 0.50% on the unused portion of the note. OnDecember 31, 2022 , Dakota Ethanol had$1,000 outstanding and$42,749,000 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 7.00% atDecember 31, 2022 . OnDecember 31, 2022 , Dakota Ethanol had$4,000,000 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$18,000,000 post distribution. The combined distributions for 2021 and 2022 shall also be limited to 75% of the combined net income of 2020 and 2021. As ofDecember 31, 2022 , we were in compliance with our financial covenants under the FCSA loans. Management's current financial projections indicate that we will be in compliance with our financial covenants for the next 12 months and we expect to remain in compliance thereafter. Management does not believe that it is reasonably likely that we will fall out of 28 -------------------------------------------------------------------------------- Table of Contents compliance with our material loan covenants in the next 12 months. If we fail to comply with the terms of our credit agreements with FCSA, and FCSA refuses to waive the non-compliance, FCSA may require us to immediately repay all amounts outstanding on our loans. Contractual Cash Obligations In addition to our debt obligations, we have certain other contractual cash obligations and commitments. The following table provides information regarding our consolidated contractual obligations and commitments as ofDecember 31, 2022 : Payments Due By Period Contractual Cash Less than One One to Three Three to Five After Five Obligations Total Year Years Years Years Long-Term Debt Obligations$ 4,537,880 $ 1,256,738 $ 3,280,142 $ 1,000 $ - Purchase Obligations 46,266,694 43,925,374 1,694,520 369,600 277,200 Capital Expenditures 604,417 604,417 - - - Total Contractual Cash Obligations$ 51,408,991 $ 45,786,529 $ 4,974,662 $ 370,600 $ 277,200
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. The Company performs the annual analysis onDecember 31 of each fiscal year. The Company determined that there was no impairment of goodwill atDecember 31, 2022 and 2021, 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.
Revenue Recognition
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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.
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.
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