UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

quarterly period ending ~~June 30,~~

December 31, 2020

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

~~Commission file number 000-53041~~


Commission file number			000-53041

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
(Exact name of registrant as specified in its charter)

Iowa			20-2735046
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

10868 189th Street, Council Bluffs, Iowa			51503
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number (712) 366-0392

Securities registered under Section 12(b) of the Exchange Act:			None.

Title of each class			Name of each exchange on which registered

Securities registered under Section 12(g) of the Exchange Act:
Series A Membership Units
(Title of class)






Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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 x No o
Yes	☒	No	☐
Indicate by check mark whether the registrant has submitted electronically on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 x No o
Yes	☒	No	☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o☐	Accelerated filer	~~(do not check if a smaller reporting company)~~☐o ~~Non-accelerated filer~~ o ~~Smaller reporting company~~ x
Non-accelerated filer	☒
Emerging growth company	o☐
Smaller reporting 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.			o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes	o☐	No	x☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.			☐

As of ~~August 3,~~ 12/31/2020, the Company had 8,975 Series A Membership Units outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)


ASSETS	December 31, 2020		September 30, 2020
	(Unaudited)
Current Assets
Cash and cash equivalents	$	1,267	$	1,116

Accounts receivable	7,082		8,488

Derivative financial instruments	3,115		705

Inventory	19,767		13,369
Prepaid expenses and other	1,459		424
Total current assets	32,690		24,102

Property, Plant and Equipment
Land	2,064		2,064
Plant, building and equipment	247,436		247,462
Office and other equipment	1,806		1,803
	251,306		251,329
Accumulated depreciation	(145,204)		(142,444)
Net property, plant and equipment	106,102		108,885

Other Assets
Right of use asset operating leases, net	5,936		6,667
Other assets	1,172		1,172
	7,108		7,839
Total Assets	$	145,900	$	140,826

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Balance Sheets
(Dollars in thousands)
ASSETS June 30, 2020 September 30, 2019
(Unaudited)
Current Assets
Cash and cash equivalents $ 822
$ 1,075
Accounts receivable 7,739
1,431
Accounts receivable, related party —
7,885
Derivative financial instruments 18
78
Inventory 17,008
17,167
Prepaid expenses and other 630
331
Total current assets 26,217
27,967

Property, Plant and Equipment
Land 2,064
2,064
Plant, building and equipment 246,625
239,446
Office and other equipment 1,803
1,803
250,492
243,313
Accumulated depreciation (139,786 ) (131,864 )
Net property, plant and equipment 110,706
111,449

Other Assets
Right of use asset operating leases, net 7,612
—
Other assets 1,172
1,447
8,784
1,447
Total Assets $ 145,707
$ 140,863

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)


LIABILITIES AND MEMBERS' EQUITY	December 31, 2020		September 30, 2020
	(Unaudited)
Current Liabilities
Accounts payable	$	10,433	$	3,204



Accrued expenses	6,657		4,176


Current maturities of notes payable	8,198		8,191
Current portion of operating lease liability	2,999		3,052
Total current liabilities	28,287		18,623

Long Term Liabilities
Notes payable, less current maturities	43,509		48,529
Other long-term liabilities	4,252		4,255
Operating lease liability, less current maturities	2,937		3,615
Total long term liabilities	50,698		56,399



Members' Equity
Members' capital, 8,975 units issued and outstanding	64,106		64,106
Retained earnings	2,809		1,698
Total members' equity	66,915		65,804

Total Liabilities and Members' Equity	$	145,900	$	140,826

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Balance Sheets
(Dollars in thousands)
LIABILITIES AND MEMBERS' EQUITY June 30, 2020 September 30, 2019
(Unaudited)
Current Liabilities
Accounts payable $ 2,069
$ 4,151
Accounts payable, related party —
2
Derivative financial instruments 77
597
Accrued expenses 7,060
9,906
Accrued expenses, related parties —
581
Accrued put option liability, related parties —
6,037
Current maturities of notes payable 8,084
580
Current portion of operating lease liability 3,142
—
Total current liabilities 20,432
21,854

Long Term Liabilities
Notes payable, less current maturities 52,575
25,832
Other long-term liabilities 4,298
3,872
Operating lease liability, less current maturities 4,470
—
Total long term liabilities 61,343
29,704

Members' Equity
Members' capital, 8,975 and 13,327 units issued and outstanding as of June 30, 2020 and September 30, 2019, respectively 64,106
87,165
Retained earnings (deficit) (174 ) 2,140
Total members' equity 63,932
89,305

Total Liabilities and Members' Equity $ 145,707
$ 140,863

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Operations

(Dollars in thousands except for net income per unit)

(Unaudited)



	Three Months Ended		Three Months Ended
	December 31, 2020		December 31, 2019

Revenues	$	55,410	$	62,065
Cost of Goods Sold
Cost of goods sold-non hedging	53,649		57,044
Realized & unrealized hedging (gains)	(957)		(417)
	52,692		56,627

Gross Margin	2,718		5,438

General and administrative expenses	1,335		1,244

Operating Income	1,383		4,194




Interest and other expense, net	272		341



Net Income	$	1,111	$	3,853

Weighted average units outstanding - basic	8,975		12,652
Weighted average units outstanding - diluted	8,975		13,104
Net Income per unit - basic	$	123.79	$	304.54
Net Income per unit - diluted	$	123.79	$	294.03



Notes to Financial Statements are an integral part of this statement


SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Statements of Members' Equity
(Dollars in thousands)
	Members' Capital		Retained Earnings		Total












Balance, September 30, 2019	$	87,165	$	2,140	$	89,305
Repurchase of membership units	(23,059)		0		(23,059)
Net Income	0		3,853		3,853

Balance, December 31, 2019	$	64,106	$	5,993	$	70,099





Balance, September 30, 2020	$	64,106	$	1,698	$	65,804
Net Income	0		$	1,111	1,111
Balance, December 31, 2020	$	64,106	2,809		$	66,915





Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Statements of Operations
(Dollars in thousands except for net income per unit)
(Unaudited)
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Revenues $ 34,107
$ 53,505
$ 146,500
$ 160,077
Cost of Goods Sold
Cost of goods sold-non hedging 34,807
54,275
145,426
162,735
Realized & unrealized hedging (gains) (767 ) (1,372 ) (1,569 ) (3,195 )
34,040
52,903
143,857
159,540

Gross Margin 67
602
2,643
537

General and administrative expenses 1,288
1,061
3,811
3,737

Operating (Loss) (1,221 ) (459 ) (1,168 ) (3,200 )

Interest and other expense, net 196
292
1,146
676

Net (Loss) $ (1,417 ) $ (751 ) $ (2,314 ) $ (3,876 )

Weighted average units outstanding - basic 8,975
13,327
10,210
13,327
Weighted average units outstanding - diluted 8,975
13,327
10,210
13,327
(Loss) per unit - basic $ (157.88 ) $ (56.35 ) $ (226.64 ) $ (290.84 )
(Loss) per unit - diluted $ (157.88 ) $ (56.35 ) $ (226.64 ) $ (290.84 )

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Cash Flows

(Dollars in thousands)


(Unaudited)
	Three Months Ended		Three Months Ended
	December 31, 2020		December 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	1,111	$	3,853
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	2,760		2,602
Amortization	11		24







(Increase) decrease in current assets:
Accounts receivable	1,406		2,438
Inventory	(6,398)		2,249
Prepaid expenses and other	(1,035)		(1,111)
Derivative financial instruments	(2,410)		(53)
Increase (decrease) in current liabilities:
Accounts payable	7,229		6,016
Derivative financial instruments	0		(120)
Accrued expenses	2,481		203
Increase (decrease) in other long-term liabilities	(3)		576
Net cash provided by operating activities	5,152		16,677

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(213)		(2,426)


Proceeds from sale of property and equipment	236		0
Net cash provided by (used in) investing activities	23		(2,426)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments for financing costs	0		(205)

Settlement of put option liability	0		(6,037)
Proceeds from debt	40,290		103,731
Payments on debt	(45,314)		(88,733)
Repurchase of membership units	0		(23,059)
Net cash (used in) financing activities	(5,024)		(14,303)

Net increase (decrease) in cash and cash equivalents	151		(52)

CASH AND CASH EQUIVALENTS
Beginning	1,116		1,075
Ending	$	1,267	$	1,023

SUPPLEMENTAL DISCLOSURES OF NONCASH INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	468	$	278


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES





Establishment of lease liability and right-of-use asset	$	0	$	9,684


Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Statements of Members' Equity
(Dollars in thousands)
Members' Capital Retained Earnings (Deficit) Total

Balance, September 30, 2018 $ 87,165
$ 10,637
$ 97,802
Net (Loss) —
(1,309 ) (1,309 )
Balance, December 31, 2018 $ 87,165
$ 9,328
$ 96,493
Net (Loss) —
(1,816 ) (1,816 )
Balance, March 31, 2019 $ 87,165
$ 7,512
$ 94,677
Net (Loss) —
(751 ) (751 )
Balance, June 30, 2019 $ 87,165
$ 6,761
$ 93,926

Balance, September 30, 2019 $ 87,165
$ 2,140
$ 89,305
Repurchase of membership units (23,059 ) —
(23,059 )
Net Income —
3,853
3,853
Balance, December 31, 2019 $ 64,106
$ 5,993
$ 70,099
Net (Loss) —
(4,750 ) (4,750 )
Balance, March 31, 2020 $ 64,106
$ 1,243
$ 65,349
Net (Loss) —
(1,417 ) (1,417 )
Balance, June 30, 2020 $ 64,106
$ (174 ) $ 63,932

Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

Nine Months Ended Nine Months Ended

June 30, 2020 June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) $ (2,314 ) $ (3,876 )
Adjustments to reconcile to net cash provided by (used in) operating activities:

Depreciation 7,946
7,670
Amortization 83
54
Loss on disposal of property and equipment 12
—
Change in other assets, net 275
291
(Increase) decrease in current assets:

Accounts receivable 1,577
5,036
Inventory 159
(6,322 )
Prepaid expenses and other (299 ) (168 )
Derivative financial instruments 60
(2,441 )
Increase (decrease) in current liabilities:
Accounts payable (2,084 ) (206 )
Derivative financial instruments (520 ) (1,567 )
Accrued expenses (3,427 ) 4,843
Increase in other long-term liabilities 426
(5,205 )
Net cash provided by (used in) operating activities 1,894
(1,891 )

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment (7,221 ) (5,759 )
Proceeds from sale of property and equipment 6
—
Net cash (used in) investing activities (7,215 ) (5,759 )

CASH FLOWS FROM FINANCING ACTIVITIES

Payments for financing costs (223 ) —
Settlement of put option liability (6,037 ) —
Proceeds from debt 186,171
137,960
Payments on debt (151,784 ) (130,674 )
Repurchase of membership units (23,059 ) —
Net cash provided by financing activities 5,068
7,286

Net (decrease) in cash and cash equivalents (253 ) (364 )

CASH AND CASH EQUIVALENTS

Beginning 1,075
1,440
Ending $ 822
$ 1,076

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest $ 1,399
$ 633

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Establishment of lease liability and right-of-use asset $ 9,684
$ —
Notes to Financial Statements are an integral part of this statement

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Notes to Financial Statements

Note 1: Nature of Business

Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March, 2005, and began producing ethanol in February, 2009. The Company is permitted to produce up to 140 million gallons of ethanol per year. The Company sells its ethanol, distillers grains, corn syrup and corn oil in the continental United States, Mexico, and the Pacific Rim.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation and Other Information

The accompanying financial statements are for the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2020 and 2019,, and are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended September 30, ~~2019~~2020 ("Fiscal ~~2019~~2020") contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition

The Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) on October 1, 2018. Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the considerations the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from the contracts with customers. The Company applied the five-step method outlined in the ASU to all contracts with customers, and elected the modified retrospective implementation method. ~~The new revenue standard did not have an impact on the Company's financial statements.~~

The Company sells ethanol and related products pursuant to marketing agreements. Revenues are recognized when the risk of loss has been transferred to the marketing company and the marketing company has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.

The Company’s products are generally shipped Free on Board ("FOB") shipping point, and recorded as a sale upon delivery of the applicable bill of lading and transfer of risk of loss. The Company’s ethanol sales are handled through an ethanol purchase agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”) which was restated effective January 1, 2020 in connection with the Company's repurchase of the Series B Units from Bunge under the Bunge Membership Interest Purchase Agreement (the "Bunge Repurchase Agreement"). Syrup and distillers grains (co-products) were previously sold through a distillers grains agreement (the “DG Agreement”) with Bunge, based on market prices. As discussed in Note 6, the initial term of this DG Agreement expired December 31, 2019, and as set forth in the Bunge Repurchase Agreement, Bunge provided transition services for all duties and responsibilities of the original DG Agreement through March 31, 2020. ~~Commencing~~Since April 1, 2020, the Company ishas been responsible for these functions. The Company markets and distributes all of the corn oil it produces directly to end users at market prices. Carbon dioxide is sold through a Carbon Dioxide Purchase and Sale Agreement (the “CO2 Agreement”) with Air Products and Chemicals, Inc. Shipping and handling costs are booked as a direct offset to revenue. Marketing fees, agency fees, and commissions due to the marketer are calculated separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold. ~~Shipping and handling costs incurred by the Company for the sale of ethanol and co-products are included in cost of goods sold.~~

Accounts Receivable

Accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a ~~monthly~~quarterly basis. Management determines the allowance for doubtful accounts by regularly evaluating customer receivables and considering the customer’s financial condition, credit history and current economic

conditions. As of ~~June 30,~~December 31, 2020 and September 30, 2019, management had determined 0an allowance of $0.2

million and $0.1 million, respectively, was necessary. ~~Accounts receivables~~Receivables are written off when deemed ~~uncollectable~~uncollectible and recoveries of receivables written off are recorded when received.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

The Company’s operations and cash flows are subject to fluctuations due to changes in commodity prices. The Company is subject to significant market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol by-products. Exposure to commodity price risk results from its dependence on corn in the ethanol production process. Rising corn prices may result in lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow the Company to pass along increased corn costs to customers. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

To minimize the risk and the volatility of commodity prices, primarily related to corn and ethanol, the Company uses various derivative instruments, including forward corn, ethanol, and distillers grains purchase and sales contracts, over-the-counter and exchange-traded futures and option contracts. When the Company has sufficient working capital available, it enters into derivative contracts to hedge its exposure to price risk related to forecasted corn needs and forward corn purchase contracts.

Management has evaluated the Company’s contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Gains and losses on contracts that are designated as normal purchases or normal sales contracts are not recognized until quantities are delivered or utilized in production.

The Company applies the normal sale exemption to forward contracts relating to ethanol, distillers grains, and corn oil and therefore these forward contracts are not marked to market. As of ~~June 30,~~December 31, 2020, the Company had ~~7.6~~7.0 million gallons of open contracts for ethanol, 0.1 million tons of wet and dried distillers grains and ~~4.4~~5.0 million pounds of corn oil.

Corn purchase contracts are treated as derivative financial instruments. Changes in market value of forward corn contracts, which are marked to market each period, are included in costs of goods sold. As of ~~June 30,~~December 31, 2020, the Company was committed to purchasing ~~2.1~~4.8 million bushels of corn on a forward contract basis resulting in a total commitment of ~~$6.9~~$20.3 million. In addition, the Company was committed to purchase ~~0.2~~0.3 million bushels of corn on basis contracts.

In addition, the Company enters into short-term cash, options and futures contracts as a means of managing exposure to changes in commodity prices. The Company enters into derivative contracts to hedge the exposure to volatile commodity price fluctuations. The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market volatility. The Company’s specific goal is to protect itself from large moves in commodity costs. All derivatives are designated as non-hedge derivatives and the contracts will be accounted for at fair value. Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

Derivatives not designated as hedging instruments along with cash held by brokers at ~~June 30,~~December 31, 2020 and September 30, 2019 at market value are as follows:


	Balance Sheet Classification	December 31, 2020		September 30, 2020
		in 000's		in 000's
Futures and option contracts
In gain position		$	825	$	590
In loss position		(3,399)		(592)
Cash held by broker		2,990		304
Forward contracts, corn		2,699		403
	Current asset	3,115		705





Net futures, options, and forward contracts		$	3,115	$	705

Balance Sheet Classification June 30, 2020 September 30, 2019
in 000's in 000's
Futures and option contracts

In gain position
$ 43
$ 368
In loss position
(112 ) (364 )
Cash held by broker
87
74

Current asset 18
78

Forward contracts, corn Current liability 77
597
Net futures, options, and forward contracts
$ (59 ) $ (519 )

The net realized and unrealized gains and losses on the Company’s derivative contracts for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019 consist of the following:

Three Months Ended Nine Months Ended

Statement of Operations Classification June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
in 000's in 000's in 000's in 000's
Net realized and unrealized (gains) losses related to:

Forward purchase corn contracts Cost of Goods Sold $ 266
$ (3,298 ) $ 1,166
$ (4,072 )
Futures and option corn contracts Cost of Goods Sold (1,033 ) 1,926
(2,735 ) 877

Three Months Ended

Statement of Operations Classification

December 31, 2020

December 31, 2019

in 000's

Net realized and unrealized (gains) losses related to:

Forward purchase corn contracts

Cost of Goods Sold

(4,276)

Futures and option corn contracts

Cost of Goods Sold

3,297

(453)

Leases

In February 2016, FASB issued ASU 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ~~ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and for interim periods within that fiscal year.~~ Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 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 to use" asset, which is an asset that represents the lessee's right to use the specified asset for the lease term. The Company adopted this accounting standard effective October 1, ~~2019, the start of our current fiscal year.~~2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related non-lease components as a single lease component. See Note 8 for more detailed information regarding leases.

Inventory

Inventory is stated at the lower of weighted average cost or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is defined as estimated selling price in the ordinary course of business less reasonable predictable costs of completion, disposal and transportation. For ~~both~~ the three months ended ~~June 30,~~December 31, 2020 and ~~for~~2019, the ~~three months ended June 30, 2019, there was 0~~Company recognized a lower of cost or ~~market adjustment. For both the nine months ended June 30, 2020~~net realizable value adjustment of $1.2 million and ~~the nine months ended June 30, 2019, there was 0 lower of cost or market adjustment.~~$0, respectively.

Put Option liability

The put option liability consisted of an agreement between the Company and ICM, Inc. ("ICM") that contained a conditional obligation to repurchase feature. Under the Unit Agreement between the Company and ICM dated December 17, 2014 (the "Unit Agreement"), the Company granted ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the "ICM Units") commencing anytime during the earliest of several alternative dates and events at a price equal to the greater of $10,987 per unit or the fair market value (as defined in the Unit Agreement) on the date of exercise (the "Put Option"). On August 16, 2019, ICM notified the Company of its intent to exercise the Put Option and waived its right to determine the fair market value for the ICM Units. On November 15, 2019, the Company repurchased the ICM Units for $11.1 million in accordance with the terms of the Put Option set forth in the Unit Agreement. The effective date of the Company's repurchase of the ICM Units was October 31, 2019.

Income Per Unit

Basic income per unit is calculated by dividing net income by the weighted average units outstanding for each period. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):


	Three Months Ended
	December 31, 2020		December 31, 2019
Numerator:
Net Income for basic earnings per unit	$	1,111	$	3,853


Net Income for diluted earnings per unit	$	1,111	$	3,853

Denominator:
Weighted average units outstanding - basic	8,975		12,652
Weighted average units outstanding - diluted	8,975		13,104
Income per unit - basic	$	123.79	$	304.54
Income per unit - diluted	$	123.79	$	294.03

Three Months Ended Nine Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Numerator:
Net (Loss) for basic earnings per unit $ (1,417 ) $ (751 ) $ (2,314 ) $ (3,876 )
Net (Loss) for diluted earnings per unit $ (1,417 ) $ (751 ) $ (2,314 ) $ (3,876 )

Denominator:
Weighted average units outstanding - basic 8,975
13,327
10,210
13,327
Weighted average units outstanding - diluted 8,975
13,327
10,210
13,327
(Loss) per unit - basic $ (157.88 ) $ (56.35 ) $ (226.64 ) $ (290.84 )
(Loss) per unit - diluted $ (157.88 ) $ (56.35 ) $ (226.64 ) $ (290.84 )

Note 3: Inventory

Inventory is comprised of the following:


	December 31, 2020		September 30, 2020
	in 000's		in 000's
Raw Materials - corn	$	3,311	$	1,663
Supplies and Chemicals	4,958		4,906
Work in Process	1,964		1,667
Finished Goods	9,534		5,133
Total	$	19,767	$	13,369

June 30, 2020 September 30, 2019
in 000's in 000's
Raw Materials - corn $ 4,427
$ 4,270
Supplies and Chemicals 4,840
5,063
Work in Process 1,510
1,724
Finished Goods 6,231
6,110
Total $ 17,008
$ 17,167

Note 4: Revolving Loan/Credit Agreements

FCSA/CoBank

On November 8, 2019 the Company amended the credit agreement with Farm Credit Services of America, FLCA (“FCSA”) and CoBank, ACB, as cash management provider and agent (“CoBank”) which provides the Company with a term loan in the amount of $30.0 million (the “Term Loan”) and a revolving term loan in the amount of up to $40.0 million (the “Revolving Term Loan”), together with the Term Loan, the “ FCSA Credit Facility ”). The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

The Term Loan provides for semi-annual payments by the Company to FCSA of $3.75 million beginning September 1, 2020 and a maturity date of November 15, 2024. The Revolving Term Loan also has a maturity date of November 15, 2024. Under the FCSA Credit Facility, the Company has the right to select from several LIBOR based interest rate options with respect to each of the loans, with a LIBOR spread of 3.4% per annum. The interest rate at ~~June 30,~~December 31, 2020 was ~~3.58%~~3.55%.

As of ~~June 30,~~December 31, 2020,, there was ~~$12.3~~$18.0 million available under the Revolving Term Loan.

Paycheck Protection Program Loan

On April 14, 2020, the Company received $1.1 million under the ~~new~~ Paycheck Protection Program Loan ("PPP loan") legislation passed by Congress and signed by President Trump. The PPP loan may be forgiven based upon various factors, including, without limitation, the borrower's payroll cost over an eight to twenty-four week period starting upon the receipt of the funds. Expenses for approved payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February 1, 2020 and certain other specified costs can be paid with these funds and eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs, and no more than 40% for non payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will

generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation ~~requirements .~~requirements. The Company ~~incorporated~~applied for forgiveness of the ~~provisions of its~~initial PPP loan ~~into our third fiscal quarter financial statements.~~on January 26, 2021. The Small Business Administration ("SBA") has 60 days from the application date to approve or disapprove the request.

Notes payable

Notes payable consists of the following:


						December 31, 2020		September 30, 2020
	June 30, 2020		September 30, 2019			(000's)		(000's)
	(000's)		(000's)
Term Loan bearing interest at LIBOR plus 3.40% (3.58% at June 30, 2020)	$	30,000	$	—
Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.58% at June 30, 2020)	27,661		23,902
Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)					Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)	$	26,250	$	26,250
Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)					Revolving Term Loan bearing interest at LIBOR plus 3.40% (3.55% at December 31, 2020)	21,975		26,828
Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022	1,063		—		Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022	1,063		1,063
Other debt with interest rates ranging from 3.50% to 4.15% and maturities through 2022	2,134		2,569
Other with interest rates from 3.50% to 4.15% and maturities through 2027					Other with interest rates from 3.50% to 4.15% and maturities through 2027	2,590		2,761
	60,858		26,471			51,878		56,902
Less Current Maturities	8,084		580		Less Current Maturities	8,198		8,191
Less Financing Costs, net of amortization	199		59		Less Financing Costs, net of amortization	171		182
Total Long Term Debt	52,575		25,832		Total Long Term Debt	43,509		48,529

~~The approximate~~Approximate aggregate maturities of notes payable as of ~~June 30,~~December 31, 2020 for the twelve months of payments for each year are as follows:

2021 $ 8,084

2022 9,171

2023 8,442

2024 7,500

2025 27,661

Total $ 60,858


2021	$	8,198

2022	9,919

2023	7,610

2024	25,838

2025	118

2026 and thereafter	195

Total	$	51,878

Note 5: Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company used various methods including market, income and cost approaches. Based on these approaches, the Company often utilized certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:


~~Level 1 -~~	Level 1 - Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.


~~Level 2 -~~	~~Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.~~


~~Level 3 -~~	~~Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.~~

Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3 - Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classifications of such instruments pursuant to the valuation hierarchy, is set below.

~~Put Option liability~~. The put option liability consisted of a Unit Agreement between the Company and ICM that contains a conditional obligation to repurchase feature. Under the Unit Agreement, the Company granted ICM the right to sell to the Company its 1,000 Series C Units and 18 Series A Membership Units (the "~~ICM Units~~") commencing anytime during the earliest of several alternative dates and events at the price equal to the greater of $10,987 per unit or the fair market value (as defined in the agreement) on the date of exercise (the "~~Put Option~~"). On August 16, 2019, ICM notified the Company of its intent to exercise the Put Option and waived its right to determine the fair market value for the ICM Units. On November 15, 2019, the Company repurchased the ICM Units for $11.1 million in settlement of the Put Option consistent with the terms of the Unit Agreement. The Company's repurchase of the ICM Units was effective October 31, 2019.

Derivative financial instruments. Commodity futures and exchange traded options are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains 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 Mercantile Exchange (“CME”) market. Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based on the CME market.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, categorized by the level of the valuation inputs within the fair value hierarchy (in '000s):


	December 31, 2020
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	825	$	2,699	$	0

Liabilities:
Derivative financial instruments	3,399		0		0



	September 30, 2020
	Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	590	$	403	$	0

Liabilities:
Derivative financial instruments	592		0		0

June 30, 2020

Level 1 Level 2 Level 3
Assets:
Derivative financial instruments $ 43
$ —
$ —

Liabilities:
Derivative financial instruments 112
77
—

September 30, 2019

Level 1 Level 2 Level 3
Assets:
Derivative financial instruments $ 368
$ —
$ —

Liabilities:
Derivative financial instruments 364
597
—
Put option liability —
—
6,037

~~The following table summarizes the assumptions used in computing the fair value of the put option liability subject to fair value accounting at September 30, 2019:~~



	~~September 30, 2019~~
~~Put option assumptions:~~
~~Risk-free interest rate~~	—	%
~~Expected volatility~~	—	%
~~Expected life (years)~~	~~0.25~~
~~Exercise price~~	~~$10,897~~
~~Company unit price~~	~~$4,967~~

~~The following table reflects the activity for liabilities measured at fair value using Level 3 inputs during the nine months ended June 30, 2020 and for Fiscal 2019 that ended September 30, 2019:~~

June 30, 2020
September 30, 2019
Beginning Balance $ 6,037
$ 5,400
Put Option (Redeemed) (6,037 ) —
Change in Value —
637
Ending Balance $ —
$ 6,037

Note 6: Related Party Transactions

On November 15, 2019, the Company repurchased all of the ICM Units, which repurchase had an effective date of October 31, 2019. On December 31, 2019, the effective date, the Company repurchased the 3,334 Series B membership units owned by Bunge. Effective as of the date of the respective repurchase of the ICM Units and the Series B Units from Bunge, ICM and Bunge no longer constituted related parties. However, the activities discussed below reflect related party activity during the quarter ended December 31, 2019 up to and through the date of the respective repurchase, and historical expenses incurred in Fiscal 2019 for comparable periods.

Bunge

Under the original Ethanol Agreement between the Company and Bunge, the Company sold Bunge all of the ethanol produced by the Company and the Company paid Bunge a percentage fee for ethanol sold by Bunge, subject to a minimum and maximum annual fee. The initial term of the original Ethanol Agreement expired on December 31, 2019. As part of the Bunge Membership Interest Purchase Agreement (the "Bunge Repurchase Agreement"), the parties entered into a restated Ethanol Agreement effective January 1, 2020 (the "Restated Ethanol Agreement") which provides that the Company will pay Bunge a flat monthly marketing fee. The term of the Restated Ethanol Agreement expires on December 31, 2026. ~~The Company incurred~~As of January 1, 2020, Bunge is no longer a related ~~party ethanol marketing expenses of $0.0 million and $0.4 million during the three months ended June 30, 2020 and 2019.~~party. The Company incurred related party ethanol marketing expenses of $0.4 million ~~and $1.1 million for~~during the ~~nine~~three months ended ~~June 30, 2020 and~~December 31, 2019.

Under the DG Purchase Agreement, Bunge purchased all distillers grains produced by the Company, and receives a fee based on the net sale price of distillers grains, subject to a minimum and maximum annual fee. The initial term of the DG Purchase Agreement expired on December 31, 2019. As part of the Bunge Repurchase Agreement, Bunge agreed to provide transition services until March 31, 2020 for all duties and responsibilities of the original DG Purchase Agreement. The Company is now responsible for all duties and responsibilities previously performed by ~~Bunge. The Company incurred~~Bunge, and Bunge is no longer a related ~~party distillers grains marketing expenses of $0.0 million and $0.3 million during the three months ended June 30, 2020 and 2019, respectively.~~party. The Company incurred related party distillers grains marketing expenses of $0.3 million ~~and $1.0 million for~~during the ~~nine~~three months ended ~~June 30, 2020 and 2019, respectively.~~December 31, 2019.

The Company and Bunge entered into an Amended and Restated Grain Feedstock Agency Agreement on December 5, 2014 (the “ Agency Agreement ”). The Agency Agreement provided that Bunge procure corn for the Company and that the Company pay Bunge a per bushel fee, subject to a minimum and maximum annual fee. The initial term of the Agency Agreement expired on December 31, 2019. As part of the Bunge Repurchase Agreement, Bunge agreed to provide transition services until March 31, 2020 for all duties and responsibilities of the original Agency Agreement. The Company is now responsible for all duties and responsibilities previously performed by ~~Bunge.~~Bunge, and Bunge is no longer a related party Related party expenses for corn procurement by Bunge were ~~$0.0 million and~~ $0.2 million during the three months ended ~~June 30, 2020 and 2019, respectively. The Company incurred related party corn procurement expenses of $0.2 million and $0.5 million for the nine months ended June 30, 2020 and 2019, respectively.~~December 31, 2019.

~~Starting with~~ Since the 2015 crop year, the Company ~~began using~~has used corn containing Syngenta Seeds, Inc.’s proprietary Enogen® technology (“ Enogen Corn ”) for a portion of its ethanol production needs. The Company contracts directly with growers to produce Enogen Corn for sale to the Company. ~~The Company has contracted for 25,500 acres of Enogen corn for the fiscal year ending September 30, 2020 ("Fiscal2020").~~ Concurrent with the Agency Agreement, the Company and Bunge entered into a Services Agreement regarding Enogen Corn purchases (the “ Services Agreement ”). Under this Services Agreement, the Company ~~originated~~originates all Enogen Corn contracts for its facility and Bunge ~~assisted~~assists the Company with certain administrative matters related to Enogen Corn, including facilitating delivery to the facility. The Company paid Bunge a per bushel service fee. The initial term of the Services Agreement expired on December 31, 2019 and the Company notified Bunge of its election not to extend the Services Agreement, but to allow corn planted ~~this~~for that fiscal year to be planted and harvested under the terms of the Services Agreement. Expenses under the Services Agreement are included as part of the Amended and Restated Grain Feedstock Agency Agreement discussed ~~above.~~

~~On June 26, 2009, the Company executed a Railcar Agreement with Bunge~~above for the ~~lease of~~ ~~325~~ ~~ethanol cars and~~ ~~300~~ ~~hopper cars which are used for the delivery and marketing of ethanol and distillers grains. The Company subleased 40 hopper cars to an unrelated third party, which sublease expired March 25,~~three months ended December 31, 2019. In June 2018, one of the third party customers entered into an assignment agreement for their 52 hopper cars with the Company and Bunge which was phased in over the fourth quarter of Fiscal 2018, and was implemented during the first quarter of Fiscal 2019.

The Company entered into an amendment to the original Railcar Agreement with Bunge effective March 24, 2019 to provide for the lease of 323 ethanol cars and 111 hopper cars which will be used for the delivery and marketing of ethanol and distiller grains (effective November 15, 2019, the parties reduced the number of leased hopper cars to 110 hopper cars). The ethanol cars were assigned to Trinity Leasing on July 17, 2020. Under the terms of the amended Railcar Agreement, the original DOT111 cars will be leased over a four year term running from March 24, 2019 to April 30, 2023, with the ability to start returning cars after January 1, 2023 to conform to the requirement for DOT117 cars with enhanced safety specifications which is scheduled to become effective May 2023. The 110 hopper cars will be leased over a three year term running from March 24, 2019 to March 31, 2022 and continuing on a month-to-month basis thereafter. The Company's lease of the hopper cars will terminate upon the expiration of all such hopper cars. The amendments to the Railcar Agreement lowered the cost for the leases by approximately 15% as compared to the prior lease terms. ~~The~~As of December 31, 2020, the Company ~~has subleased 30~~had 44 tanker cars and 6045 hopper cars subleased to two unrelated third parties, which subleases ~~expire~~expired November 8, 2020 and December 31, 2020, ~~respectively~~respectively. Related party expenses under the Railcar Agreements were ~~$0.0 million and~~ $0.8 million for the three months ended ~~June 30, 2020 and~~December 31, 2019, ~~respectively,~~ net of subleases and accretion. ~~The Company incurred related party railcar lease expenses of $0.8 million and $2.7 million for the nine months ended June 30, 2020 and 2019, respectively.~~ The Bunge Repurchase Agreement did not impact the Railcar Agreement.

ICM

In connection with the payoff of the ICM subordinated debt, the Company entered into the SIRE ICM Unit Agreement dated December 17, 2014 (the “Unit Agreement”). Under the Unit Agreement, the Company granted ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the “ICM Units”) commencing anytime during the earliest of several alternative dates and events at the greater of $10,897 per unit or the fair market value (as defined in the agreement) on the date of exercise (the "Put Option"). On August 16, 2019, ICM notified the Company of its intent to exercise the Put

Option and waived its right to determine the fair market value for the ICM Units. On November 15, 2019, the Company repurchased the ICM Units for $11.1 million in settlement of the Put Option consistent with the terms of the Unit Agreement. The effective date of the Company's repurchase of the ICM Units was October 31, 2019.

Note 7: Major Customer

The Company is party to the Restated Ethanol Agreement with Bunge for the exclusive marketing, selling, and distributing of all the ethanol produced by the Company through December 31, 2026 and was a party to the Distillers Grain Purchase Agreement with Bunge for the exclusive marketing, selling and distributing of all distillers grains and syrup produced by the Company through March 31, 2020. Since April 1, 2020, all distiller grain and syrup revenues are booked directly by the Company. Revenues from Bunge were ~~$20.3~~$39.3 million and ~~$50.8~~$59.4 million for the three months ended ~~June 30, 2020 and 2019, respectively. Revenues from Bunge were $126.4 million and $151.2 million for the nine months ended June 30,~~December 31, 2020 and 2019, respectively.

Note 8. Lease Obligations

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). The Company elected the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. By making this election, the Company has not applied retrospective reporting for the year ended September 30, 2019. The Company elected the short-term lease exception provided for in the standard and therefore only recognized right-of-use assets and lease liabilities for leases with a term greater than one year. The Company elected the package of practical expedients to not re-evaluate existing contracts as containing a lease or the lease classification unless it was not previously assessed against the lease criteria. In addition, the Company did not reassess initial direct costs for any existing leases.

A lease exists when a contract conveys to a party the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company recognized a lease liability at the lease commencement date, as the present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis. A lease asset is recognized based on the lease liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts. The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company will exercise or not exercise those options, respectively.

The Company leases rail cars and rail moving equipment with original terms up to 3 years for hopper cars and 4 years for tanker cars from ~~Bunge.~~Bunge and Trinity Leasing. An additional 60 cars are leased from a third party under two separate leases for 3 years for half and 4 years for the second half. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to the terms of the leases. These costs are in addition to regular lease payments and are not included in lease expense. The Company subleased 7344 tanker cars and 45 hopper cars to two unrelated third parties, which subleases expired ~~March 31,~~November 8, 2020 and ~~June 30,~~December 31, 2020. Upon expiration, the leases convert to a month-to-month basis Approximately ~~40%~~12% of the tanker cars subleased ~~under the March 31, 2020 agreement had~~have been returned by ~~the contract end date.~~December 31, 2020. Expense incurred for the operating leases during the three months ended ~~June 30,~~December 31, 2020 was approximately $0.7 million and ~~$1.5~~$0.8 million for the ~~nine~~three months ended ~~June 30, 2020.~~ December 31, 2019.

The total lease agreements have maturity dates ranging from January 2022 to ~~May~~April 2023. The average remaining life of the lease term for these leases was ~~3.18~~2.67 years as of ~~June 30,~~December 31, 2020.

The discount rate used in determining the lease liability for each individual lease was the Company's estimated incremental borrowing rate of ~~3.5%~~3.55%. The right-of-use asset operating lease, included in other assets, and operating lease liability, included in current and long term liabilities was ~~$7.6~~$5.9 million as of ~~June 30,~~December 31, 2020.

At ~~June 30,~~December 31, 2020, the Company had the following approximate minimum rental commitments under non-cancellable operating leases for the twelve month period ended June 30:


2021	$	3,101
2022	2,333
2023	691

Total	$	6,125

Undiscounted future payments	$	6,125
Discount effect	(189)
	$	5,936

2021 $ 3,204
2022 2,909
2023 1,861
Total $ 7,974

Undiscounted future payments $ 7,974
Discount effect (362 )
$ 7,612

Note 9. Subsequent Events

The Company received $1.1 million on January 28, 2021 under the provisions of the PPP loan program phase II.

CoBank extended to the Company a new $10.0 million credit line that is to mature August 1,2021. The new credit line has been drafted and is anticipated to be finalized in February and contains similar terms and rates as the FCSA Credit Facility described in Note 4.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following management discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion should be read in conjunction with the financial statements included herewith and notes to the financial statements and our Annual Report on Form 10-K for the year ended September 30, ~~2019~~2020 including the financial statements, accompanying notes and the risk factors contained herein.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the "Company," "SIRE," "we," or "us") contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, without limitation:

•Changes in the availability and price of corn, natural gas, and steam;

•Negative impacts resulting from reductions in, or other modifications to, the renewable fuel volume requirements under the Renewable Fuel Standard issued by the Environmental Protection Agency;

•Our inability to comply with our credit agreements required to continue our operations;

•Negative impacts that our hedging activities may have on our operations;

•Decreases in the market prices of ethanol, distillers grains;

•Ethanol supply exceeding demand and corresponding ethanol price reductions;

•Changes in the environmental regulations that apply to our plant operations;

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

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

•Changes in other federal or state laws and regulations relating to the production and use of ethanol;

•Changes and advances in ethanol production technology;

•Competition from larger producers as well as competition from alternative fuel additives;

•Changes in interest rates and lending conditions of our loan covenants;

•Volatile commodity and financial markets;

•Decreases in export demand due to the imposition of duties and tariffs by foreign governments on ethanol and distiller grains produced in the United States;

•Disruptions, failures or security breaches relating to our information technology infrastructure;

•Trade actions by the Trump or Biden Administration, particularly those affecting the biofuels and agricultural sectors and related industries; and

•Disruption caused by health epidemics, such as the novel strain of the coronavirus, and the adverse impact of such epidemics on global economic and business conditions.

These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include various assumptions that underlie such statements. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the management discussion and analysis, in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019~~2020 ("Fiscal ~~2019~~2020") under the section entitled “Risk Factors” and in our other prior Securities and Exchange Commission filings. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations set forth in the forward-looking statements made in this document or elsewhere by Company or on its behalf. We undertake no obligation to revise or update any forward-looking statements. The forward-looking statements contained in this quarterly report on Form 10-Q are included in the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

The Company is an Iowa limited liability company, located in Council Bluffs, Iowa, formed in March, 2005. The Company is permitted to produce 140 million gallons of ethanol annually. We began producing ethanol in February, 2009 and sell our ethanol, distillers grains, corn oil and corn syrup in the continental United States, Mexico, and the Pacific Rim.

Impact of COVID-19 on our Business

A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019 and on March 11, 2020, the World Health Organization characterized the spread of COVID-19 as a pandemic. Since then, several world governments, including the United States and many individual states and municipalities, have imposed lock-downs, self-quarantine requirements, and travel restrictions on their citizens. These actions ~~as well as oil production actions by Russia and Saudi Arabia,~~ have dramatically decreased the demand for and price of blended gasoline across the globe and in the United States. Because the United States requires ethanol to be blended into the nation’s fuel supplies, gasoline consumption and demand plays a key role in the demand for and price of ethanol.

Throughout most of 2018 and 2019 as well as early 2020, the Company, and the ethanol industry as a whole, experienced significant adverse conditions as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors, which have been compounded by the impact of COVID-19 in 2020, resulted and continue to result in negative operating margins, significantly lower cash flow from operations and substantial net losses. In response to these adverse market conditions, commencing in the ~~middle~~latter part of ~~March~~the second quarter in 2020, we elected to reduce ethanol production. We continued this change in production atfor three months, but then slowly increased production closer to normal levels by the end of our plant by approximately fifty percent in the month of April. May and June also saw lower than normal ethanol production levels.This cautionary strategy during the third quarter reduced ethanol production levels to twenty five percent as compared to the first half of 2020 production levels levels. However, we operated at 96% of historical levels in the month of June, which was included in the production levels for the third quarter.fiscal year. Management believes that this reduction iswas warranted due to ~~current~~ negative margins in the ethanol industry resulting in part from a slowdown in global and regional economic activity and decreased ethanol demand due to the COVID-19 pandemic. Limiting ethanol production also results in a corresponding decrease in distillers grains and

corn oil production.

~~Recently, pursuant~~ In the first quarter of Fiscal 2021, ethanol production was only slightly below levels compared to ~~temporary regulatory relief issued by~~ the ~~U.S. Food and Drug Administration (“FDA”) in light~~first quarter of the COVID-19 pandemic, several ethanol plants and industrial chemical companies have found ways to process ethanol into hand sanitizer for medical and consumer applications. During this period of reduced production, the Company has found several customers seeking ethanol in bulk for use in hand sanitizers. The Company has also bottled several sizes of "SIREtizer" hand sanitizer for local distribution. Given current economic conditions and the unprecedented decrease in the price and demand for blended gasoline, the CompanyFiscal 2020. Management was able to ~~command a higher margin supplying ethanol used to~~ produce ~~these hand sanitizer products than for its conventional ethanol product. The Company sold and produced ethanol based hand sanitizer as a new line of business~~more distiller grains in the ~~months of April and May. In June~~current fiscal quarter as compared to the same fiscal quarter in 2020, ~~the FDA and Environmental Protection Agency (the "EPA") prohibited certain ethanol plants from producing and distributing hand sanitizer by limiting chemicals permitted~~but corn oil production was lower in the ~~finished product and forced such ethanol plants, including the C to halt production and cancel supply agreements.~~current fiscal quarter.

The Company will continue to monitor COVID-19 developments and the effect on fuel demand and terminal capacity in order to determine whether further adjustments to production will be necessary.

Employee Health and Safety

From the earliest signs of the outbreak, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers. We enacted appropriate safety measures, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present at the plant, staggering schedules and shifts for those that must be on-site to perform their work, ~~extensively~~ and frequently disinfecting our workspaces and requiring employees who must be physically present at the plant to wear masks. The Company also suspended all plant tours, and instituted a policy for contractor/vendors to answer a health questionnaire and provide information about the work environment where they have been for the past fourteen days. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, 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.

Supply and Demand Impact

Although we continue to regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-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, even when operating at reduced production levels. 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 on 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.

The COVID-19 outbreak has significantly increased economic and demand uncertainty. We anticipate that the current outbreak or continued spread of COVID-19 will cause 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 and our business would be adversely effected.

Paycheck Protection Program Loan

On April 15, 2020, the Company received $1.1 million under the new Paycheck Protection Program ("PPP Loan") legislation passed in response to the economic downturn triggered by COVID-19. Our PPP Loan may be forgiven based upon various factors, including, without limitation, our payroll cost over an eight to twenty-four week period starting upon our receipt of the funds. Expenses for approved payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February 1, 2020 and certain other specified costs can be paid with these funds and eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs, and no more than 40% on non-payroll expenses. ~~Management believes that our use of our~~ PPP ~~Loan~~loan proceeds used by a borrower for the approved expense categories will generally be fully forgiven by the lender if ~~we satisfy~~the borrower satisfies certain employee headcount and compensation ~~conditions.~~requirement. The Company applied for forgiveness of the initial PPP loan on January 26, 2021. The Small Business Administration has 60 days from the application date to approve or disapprove the request.

In January 2021, the Company received a second PPP Loan in the amount of $1.1 million under Phase II of the Paycheck Protection Program which commenced on January 13, 2021 and allowed certain businesses that received an initial PPP Loan to seek a second draw PPP Loan.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our current cash reserves, cash generated from our operations, our PPP Loan and the available cash under our revolving term loan leave us well-positioned to manage our business through this crisis as it continues to unfold. However, the impacts of the COVID-19 pandemic are broad-reaching and the financial impacts associated with the COVID-19 pandemic

include, but are not limited to, reduced production levels, lower net sales and potential incremental costs associated with mitigating the effects of the pandemic, including storage and logistics costs and other expenses. As a result, although we were in compliance with our financial covenants set forth in our loan agreements (the "FCSA Credit Facility") with Farm Credit Services of America, FLCA (“FCSA”) and CoBank, ACB (“CoBank”) as of ~~June 30,~~December 31, 2020, the impact the COVID-19 pandemic could have an adverse impact on our operating results which could result in our inability to comply with certain of these financial covenants and require our lenders to waive compliance with, or agree to amend, any such covenant to avoid a default. However, based on our current forecast of market conditions and our financial performance, we expect that we will be in a position to satisfy all ~~all~~ of the financial covenants in our FCSA Credit Facility for the next twelve months.

The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our Fiscal ~~2020~~2021 results. However, the challenges posed by the COVID-19 pandemic on the global economy increased significantly as the ~~third~~fourth quarter of Fiscal 2020 progressed in response to the global resurgence of COVID-19 and asthe extension of, enhancement of, or imposition of new, government measures aimed at curbing the ~~date of this filing, management~~pandemic including lock-downs, self-quarantine requirements, and travel restrictions. Management does not anticipate material improvement in the macroeconomic environment during the first half of Fiscal 2021 and, as a result our results for Fiscal ~~2020~~2021 may also be ~~significantly~~ affected.

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 and diversify our products which is critical in order to drive positive results in a low margin environment. Our management team is currently in the process of implementing several projects to enhance our plant's operational efficiencies and we also continue to evaluate opportunities to add value to our production process by diversifying into high protein feed along with measures to reduce the carbon index ("CI") of the ethanol we produce.

In addition, we are also continuing with our efforts to de-bottleneck the production process. On September 1, 2019, we placed into service a dehydration membrane technology that is expected to allow for a more efficient increase in dehydration capability and slight reduction in our CI score. In April 2020, the Company implemented Bioleap's Dryer Exhaust Energy Recovers ("DEER"). The DEER system reduces the steam load on the boilers, providing immediate energy savings and freeing up capacity on the current boiler system. The change in the source blend for steam from approximately 50% natural gas and 50% steam in Fiscal 2019 to 95% natural gas and 5% steam in Fiscal 2020 impacted the energy costs for the Company due to the lower cost of natural gas as compared to steam which benefits were partially offset as the natural gas boilers are less efficient than the steam line.

Also, we believe that consolidation within the ethanol industry, coupled with our location, good operating efficiencies and our solid team may provide new opportunities for our plant.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

Ethanol Supply and Demand

The ethanol industry is experiencing the lowest margin environment seen in the past nine to ten years principally due to the fact that the supply of ethanol is outstripping demand and markets are reacting accordingly by disincentivizing production. InCommencing in March 2020, the COVID-19 virus impact upon the economy ~~coupled with the uncertainty within the oil industry between Russia and Saudi Arabia,~~ drove the price of gasoline downwards, and the price of ethanol plummeted at or below production costs. ~~Many~~In response, many plants in the U.S. have shut down production or cut production levels. According to the Renewable Fuels Association ("RFA"), 75since March 1, 2020, 69 ethanol plants with annual production capacity of nearly 6 billion gallons have been fully idled 79and 64 plants have reduced production levels from 10% to 50% representing an additional 1.7 billion gallons of reduced ethanol production. Although there has been a steady recovery of production levels from late April 2020 through June 2020 there are ~~operating at reduced~~still about two dozen plants idled and a majority of facilities running slightly below normal production levels. With most plants running below pre COVID-19 production levels ~~and 50 plants are operating near normal~~since June 2020, the RFA estimates that currently total idled capacity represents about 2.5 billion gallons of annual production or 1% percent of capacity. ~~This means 50% of the industry's production capacity is off line.~~ Adding to the supply/demand imbalance is the stance taken by the EPA under the Trump Administration with regard to the issuance of “hardship waivers” to so-called small ~~refineries which is discussed further in the section below entitled "Renewable Fuel Standard~~".refineries.

Domestic ethanol use is around 14 billion gallons per year. The industry currently ~~has~~had a capacity to produce over 16.6 billion ~~gallons.~~gallons in 2018. The impact of COVID-19 and the slowdown of the world economy has lowered production capacity to approximately 80%-85% of the 2018 production capacity levels. Despite the reduced production levels resulting from the COVID-19 pandemic on the global economy, the ethanol industry continues to face an oversupply of domestic ethanol inventories as supply continues to exceed demand. Exports play a critical role in keeping the United States from being awash in production. Worldwide exports from the U.S. increased almost 24% between calendar years 2017 and 2018. But in calendar year 2019, ethanol exports decreased ~~13.6%~~14.2% as compared to the calendar year 2018 according to ~~the most recent available~~ data from the U.S. Energy Information Administration ("EIA"). In the first ~~quarter~~10 months of 2020, ethanol exports ~~increased 27%~~decreased 8% as compared to the similar period in 2019 ~~but~~which reduction is even more significant in light of the fact that 2019 exports ~~where~~were substantially less than exports during prior years. ~~During~~

In the first 10 months of calendar ~~quarter~~2020, Brazil exports decreased by 35% as compared to the same period in calendar 2019. This moved them from the top ethanol market to second place. Brazil corn ethanol production increased 85% in 2019 as compared to 2018, and 2020 forecasts indicate additional grow of 88% in 2020. Exports to Brazil's comprised 98% of the U.S. export totals in the first 4 months of 2020 ~~exports still remain more than 10% lower than~~and dwindled to 2% of U.S. export totals in the ~~first quarter of 2018.~~next six months as Brazil's local production increased. Despite recent reductions in exports to Brazil, which has historically been one of the largest customers of U.S. ethanol, Brazil remains one of the three largest customers for U.S. ethanol exports together with Canada and India. Exports of U.S. ethanol to these three countries constituted almost ~~50%~~56% of all U.S. ethanol exports during the first calendar year ~~2019~~2020 as compared to ~~59%~~57% during the same period in ~~2018. In the first calendar quarter of 2020, these three countries totaled 63% of total U.S. ethanol exports.~~

2019. Similar to Brazil, ~~tariffs implemented by China on U.S. ethanol has essentially eliminated China as an export market for U.S. ethanol.~~ China was included in the top export markets during the first half of 2018; however, approximately 99% of the exports to China occurred in the first three months of 2018 and since then, U.S. ethanol exports to China have ~~been reduced~~decreased to ~~zero due to increased tariffs.~~essentially zero. On December 13, 2019, the U.S. and China announced an agreement to the first phase of a trade deal (the "Phase One Agreement") where China agreed to purchase billions of dollars in agricultural products in exchange for the U.S. agreeing not to pursue a new round of tariffs starting January 2020. The ~~impact~~COVID-19 pandemic delayed any implementation of the Phase One Agreement with China, and ethanol imports were negligible in 2020. China has not met their obligation in 2020 and are not expected to change their purchase volumes during the COVID-19 pandemic. Recent political tensions between China and the U.S. have stalled further negotiations on the ~~ethanol market cannot be determined at this time.~~Phase One Agreement and completion of the transition to a new presidential administration is likely to further delay discussions between the two countries.

Recent Regulatory Developments

Renewable Fuel Standard

The ethanol industry receives support through the Federal Renewable Fuels Standard (the “RFS”) which has been, and will continue to be, a driving factor in the growth of ethanol usage. The RFS requires that each year a certain amount of renewable fuels must be used in the United States. The RFS is a national program that allows refiners to use renewable fuel blends in those areas of the country where it is most cost-effective. The EPA is responsible for revising and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.

The RFS original volume requirements increased incrementally each year through 2022 when the mandate requires that the United States use 36 billion gallons of renewable fuels. Starting in 2009, the RFS required that a portion of the RFS must be met by certain “advanced” renewable fuels. These advanced renewable fuels include ethanol that is not made from corn, such as cellulosic ethanol and biomass based biodiesel. The use of these advanced renewable fuels increases each year as a percentage of the total renewable fuels required to be used in the United States.

Annually, the EPA is supposed to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligation. On November 30, 2018, the EPA issued the final rule that set the 2019 annual volume requirements for renewable fuel at 19.92 billion gallons of renewable fuels per year (the "Final 2019 Rule"). On ~~July 5, 2019, the EPA issued a proposed rule for 2020 which set the annual volume requirements renewable fuel at 19.92 billion gallons of renewable fuel (the "Proposed 2020 Rule"). Both the Final 2019 Rule and the Proposed 2020 Rule maintained the number of gallons that may be met by conventional renewable fuels such as corn based ethanol at 15.0 billion gallons.~~

However, on October 15, 2019, the EPA released a supplemental notice seeking additional comments on a proposed rule on adjustments to the way that annual renewable fuel percentages are calculated. The supplemental notice was issued in response to an announcement on October 4, 2019, by President Trump of a proposed plan to require refiners not exempt from the rules to

Although the volume requirements set forth in the Final 2019 Rule are slightly higher than the final 2018 volume requirements (the "Final 2018 Rule") and the Final 2020 Rule volume requirements are slightly higher than those set forth in the Final 2019 Rule, the volume requirements under the Final 2018 Rule, the Final 2019 Rule and the Final 2020 Rule are all

still significantly below the statutory mandates of 26 billion gallons, 28 billion gallons and 30 billion gallons, respectively, with significant reductions in the volume requirements for advanced biofuels as well.

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. The Final 2018 Rule represented the first year the total proposed volume requirements were more than 20% below statutory levels. In response, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. The Final 2019 Rule is approximately 29% below the statutory levels representing the second consecutive year of reductions of more than 20% below the statutory mandates therefore triggering the mandatory reset under the RFS. The Final 2020 Rule is approximately 34% below the statutory targets, which represents the third consecutive year of reductions of more than 20% below the statutory mandates. After the issuance of the Final 2019 Rule, the EPA became statutorily required to modify the statutory volumes through 2022 within one year of the trigger event, based on the same factors used to set the volume requirements post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development.

In October 2018, the Trump administration released timelines for certain EPA ~~rulemaking~~rule making initiatives relating to the RFS including the “reset” of the statutory blending targets. The EPA is expected to propose rules modifying the applicable statutory volume targets for cellulosic biofuel, advanced biofuel, and total renewable fuel for the years 2020-2022. The proposed rules are also expected to include proposed diesel renewable volume obligations for 2021 and 2022.

Federal mandates supporting the use of renewable fuels like the RFS are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by environmental concerns, diversifying our fuel supply, and an interest in reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve significant growth in U.S. market share. Another important factor is a waiver in the Clean Air Act, known as the "One-Pound Waiver", which allows E10 to be sold year-round, even though it exceeds the RVP (rapid vapor pressure) limitation of nine pounds per square inch. At the end of May 2019, the EPA finalized a rule which extended the One-Pound Waiver to E15 so its sale can expand beyond flex-fuel vehicles during the June 1 to September 15 summer driving season. Although this rule is being challenged in court, the One-Pound Waiver is in effect and E15 can be sold year round. ~~However, with respect to the 2019~~The EIA estimated summer driving season, because the rule was not finalized until the end of May, the ethanol industry was unable to fully capitalize on increased E15 sales during the 2019 peak summer driving season.The EIA first quarter estimate, which did not take into account the COVID-19 virus impact on the U.S. economy, or the previously mentioned Russia-Saudi Arabia oil production differences, had gasoline consumption ~~for~~in 2020 flat with last year, with gasoline prices being 18% lower than in 2019. The COVID-19 virus will have a significant impact on the U.S. and worldwide economy over the next few months, all unchartered territory that makes forecasting nearly impossible. The EIA forecast for summer driving put consumption downdecreased 23% as compared to the same period in 2019 as a result of travel restrictions and reduced economic activity related to COVID-19. The COVID-19 pandemic has had, and will likely continue to have, a significant impact on the U.S. and worldwide economy throughout Fiscal 2021. The EIA forecast for 2021 is almost 8% higher than 2020, but this still leaves consumption 7% below 2019 pre COVID-19 levels.

~~Despite the recent actions by the Trump administration relating to E15, there~~There continues to be uncertainty regarding the future of the RFS as a result of the significant number of small refinery waivers granted. Under the RFS, the EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. The mechanism that provides accountability in RFS compliance is the Renewable Identification Number (RIN). RIN’s are a ~~tradeable~~tradable commodity given that if refiners (obligated parties) need additional RIN’s to be compliant, they have to purchase them from those that have excess. Thus, there is an economic incentive to use renewable fuels like ethanol, or in the alternative, buy RIN’s. Obligated parties use RINs to show compliance with RFS-mandated volumes. RINs are attached to renewable fuels by ethanol producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market.

On April 15, 2020, five Governors sent a letter to the EPA requesting a general waiver from the RFS due to the drop in demand caused by COVID-19 travel restrictions. They contend that the compliance costs (i.e. cost to purchase RINs) is onerous and could put some refineries out of business. In June 2020, the Attorneys General of seven states joined in the request made to waive the 2020 RFS compliance burdens. The EPA has 90 days to respond, and as of this filing had indicated only that they are “watching the situation closely, and reviewing the governors’ letter.” In January 2021, the EPA announced it is still seeking public comments on the subject. The RFA continues to press the EPA to make a decision on the issue.

Although the Final 2019 Rule and the Final 2020 Rule maintain the number of gallons which may be met by conventional renewable fuels such as corn-based ethanol at 15.0 billion gallons this number does not take into account waivers granted by the EPA to small refiners for "hardship." The EPA can, in consultation with the Department of Energy, waive the obligation for individual smaller refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify, for this “small refinery waiver,” the refineries must be under total throughput of 75,000 barrels per day and state their case for an exemption in an application to the EPA each year.

As of ~~June~~December 2020, the EPA ~~has~~had approved 8586 exemptions for compliance years 2016 to 2018, freeing refineries from using 44.1 billion gallons of renewable fuel. This effectively reduces the annual renewable volume obligation for each year by that amount as the waivers exempt the obligating parties from meeting the RFS blending targets and the waived gallons are not reallocated to other obligated parties at this time. As discussed above, the mechanism that provides accountability in RFS compliance is the Renewable Identification Number ("~~RIN"~~RIN"). RINs are a ~~tradeable~~tradable commodity given that if refiners (obligated parties) need additional RINs to be compliant, they have to purchase them from those that have excess. Thus, there is an economic incentive to use renewable fuels like ethanol, or in the alternative, buy RINs. Granting these small refinery waivers effectively reduces the annual renewable volume obligation for each year by that amount as the waivers exempt the obligating parties from meeting the RFS blending targets and the waived gallons are not reallocated to other obligated parties at this time. The resulting surplus of RINs in the market has brought values down significantly to under $0.20. In late 2017 D6 RIN prices were about $0.75 per gallon, averaged $0.30 in 2018, and less than $0.20 in 2019. In 2020, the D6 RIN value climbed to $0.70, as the appellate court decision reduced the numbers of small refiners eligible for hardship exemptions, increasing demand for RINs. Due to production shortfalls, D6 RIN generation decreased 15% in 2020 versus 2019 through September. Since higher RIN values help to make higher blends of ethanol more cost competitive, lower RIN values could hinder or at least slow retailer and consumer adoption of E15 and higher blends. Recently, RIN credits have increased in response to higher crop cost forecasts combined with expectations that the Biden Administration will advocate for increased renewable fuel initiatives including supporting the RFS. As ~~discussed further below,~~of the end of January 2021, D6 RIN credits for 2021 traded at $1.13 and D4 RIN credits traded at $1.17. However, there is no guarantee that RIN credits will maintain such increased values and reduced RIN values may adversely impact the ethanol market.

On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit announced that the three exemptions were improperly issued by the EPA.The Court ~~of Appeals ruled~~held that ~~multiple~~the EPA cannot "extend" exemptions to any small refineries whose earlier, temporary exemptions had lapsed; rather, that small refinery exemptions ~~were improperly extended~~may only be granted to refineries that had secured them continuously each year since 2010. The Court concluded that the EPA exceeded its statutory authority in granting these petitions because there was nothing for the agency to "extend". Utilizing this criteria, there would have been a maximum of seven small refineries that could have received continuous extensions, yet the EPA has granted thirty five exemptions in a single year. The Court also found the EPA had abused their discretion in failing to explain how the EPA could maintain that such refineries would incur an economic hardship while continuing to claim that the costs of RIN compliance are passed through and recovered by those same refineries.Consistent with this ruling, in September 2020, the EPA denied certain small refinery exemption petitions filed by oil refineries in 2020 seeking retroactive relief from their ethanol use requirements for prior years. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court and in January 2021, the U.S. Supreme Court announced it will review the decision of the Tenth Circuit. A reversal of the 10th Circuit decision could allow additional exemptions in the future, and alter the administration's role regarding the RFS.If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA ~~which caused D6 RIN trading prices~~will propose to ~~increase to approximately $0.24 per gallon in January 2020.~~ remedy the situation.

As of June 30, 2020, the EPA ~~has~~had received 52 requests for small refinery ~~waivers that will be up for consideration during 2020.~~waivers. If the EPA approves all 52 of the pending applications, the ethanol market would suffer another loss of 2 billion gallons of biofuel blending requirements which will adversely impact RIN prices and the ethanol market. These waiver requests represent an effort by refineries to bypass the ruling of the Tenth Circuit and establish a continuous chain of exemptions. If the EPA continues to grant discretionary waivers and RIN prices continue to fall, it could negatively affect ethanol prices.

The failure of the Trump Administration ~~has not announced~~to announce a plan to reallocate ethanol gallons lost to exemptions ~~in the current year and therefore,~~combined with the continued granting of waivers ~~and the failure of the Trump Administration to take any action to reallocate the lost exemptions~~ will continue to negatively impact ethanol demand and RIN and ethanol prices . It is uncertain how the EPA under the new Biden Administration will treat small refinery waivers including the petitions for waivers currently pending or whether the EPA will address the reallocation of ethanol gallons.

Biofuels groups have filed a lawsuit in the U.S. Federal District Court for the D.C. Circuit, challenging the Final 2019 Rule over the EPA’s failure to address small refinery exemptions in the ~~rulemaking.~~rule making. This is the first RFS ~~rulemaking~~rule making since the expanded use of the exemptions came to light, however the EPA has refused to cap the number of waivers it grants or how it accounts for the retroactive waivers in its percentage standard calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The EPA's current approach runs counter to this statutory mandate and undermines Congressional intent. Biofuels groups argue the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the future.

In a supplemental ~~rulemaking~~rule making to the Proposed 2020 Rule, the EPA changed their approach, and for the first time accounted for the gallons that they anticipate they will be waiving from the blending requirements due to small refinery exemptions. To

accomplish this, they are adding in the trailing three year average of gallons the Department of Energy (the ~~"DOE"~~"DOE") recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Although in past years the EPA has disregarded recommendations from the Department of Energy in the rule the DOE stated its intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach. The EPA will be adjudicating the 2020 compliance year small refinery exemption applications in early 2021, but have indicated they will adhere to DOE recommendations for the 2019 compliance year applications as well, which should be adjudicated in 2020.

If the EPA’s decisions to reduce the volume requirements under the RFS statutory mandates are allowed to stand, if the volume requirements are further reduced or if the EPA continues to grant waivers to small refineries, the market price and demand for ethanol would be adversely affected which would negatively impact our financial performance. The EPA's based the projected volume of gasoline and diesel that was exempt in 2020 on utilizing the three year rolling average of relief recommended by the Department of Energy, rather than the three year rolling level of actual exemptions advocated by agricultural interests.

On May 29, 2018, the National Corn Growers Association, National Farmers Union, and the Renewable Fuels Association filed a petition challenging the EPA’s grant of waivers to three specific refineries seeking that the court reject the waivers granted to the three as an abuse of EPA authority. These waived gallons are not redistributed to obligated parties, and in effect, reduce the aggregate Renewable Volume Obligations ("RVOs") under the RFS. If the specific waivers granted by the EPA and/or its lower criteria for granting small refinery waivers under the RFS are allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance. On January 24, 2020, the U.S. Court of Appeals for the Tenth Circuit announced that the three exemptions were improperly issued by the EPA. The Court held that the EPA cannot "extend" exemptions to any small refineries whose earlier, temporary exemptions had lapsed. The Court concluded that the EPA exceeded its statutory authority in granting these petitions because there was nothing for the agency to "extend". Utilizing this criteria, there would have been a maximum of seven small refineries that could have received continuous extensions, yet the EPA has granted thirty five exemptions in a single year. The Court also found the EPA had abused their discretion in failing to explain how the EPA could maintain that such refineries would incur an economic hardship while continuing to claim that the costs of RIN compliance are passed through and recovered by those same refineries.

Related to the recent lawsuits, the ~~Renewable Fuels Association,~~RFA, 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 the EPA seeks a broader, forward-looking remedy to account for the collective lost volumes caused by the recent increase in retroactive small refinery RVO exemptions. The EPA has not reallocated volume exemptions in prior years, and continued to approve 31 new requests in 2019. On October 29, 2019, the U.S. House of Representatives Committee on Energy and Commerce met to examine the effects of the small refinery exemptions on biofuels and agriculture since 2016. Companies were seeking the EPA to make available more information on refinery exemptions.

On February 4, 2019, Growth Energy filed a lawsuit in the Court of Appeals for the District of Columbia against the EPA challenging the EPA’s failure to address small refinery exemptions in the Final 2019 Rule. An administrative stay has been granted to research the contents of the lawsuit.

Although the maintenance of the 15 billion gallon threshold for volume requirements that may be met with corn-based ethanol in the Final 2019 Rule and the Final 2020 Rule together with the application of the One-Pound Waiver to E15 permitting the year round sale of E15 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 and it is unclear what regulatory framework and renewable volume requirements, if any, will emerge as a result of any such reforms; however, any such reform could adversely affect the demand and price for ethanol and the Company's profitability.

~~COVID-19 Legislation~~

~~In response to~~ Moreover, the ongoing COVID-19 pandemic ~~Congress passed~~and the ~~Coronavirus Aid, Relief~~success of vaccination programs will continue to affect energy consumption during Fiscal 2021 and ~~Economic Security Act (the "CARES Act") in late March 2020 in an attempt~~could continue to ~~offset~~adversely impact the ~~subsequent economic damage. The CARES Act created~~ethanol industry and ~~funded multiple programs that have impacted or could impact~~ our ~~industry. The United States Department of Agriculture ("USDA~~") was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds 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 USDA did not include any CCC funds for ethanol plants as of this filing.

~~The CARES Act also provided for the Small Business Administration (the "SBA") 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 PPP Loan under the CARES Act, as discussed above, the receipt of PPP funds by farmers could, like the CCC funds, incentivize them to delay marketing corn which could increase the price of corn.

Ethanol is the primary ingredient in hand sanitizer. The CARES Act provided a tax exclusion on the shipment of undenatured ethanol for use in manufacturing hand sanitizer. The FDA has provided expanded guidance to allow for more

Industry Factors Affecting our Results of Operations

Ethanol prices decreased ~~10.5%~~7.6% during the three months ended ~~June 30,~~December 31, 2020 as compared to the same period in the previous fiscal year, and this was coupled with a decrease of ~~31.8%~~11.2% in ethanol shipments during the three months ended ~~June 30,~~December 31, 2020 as compared to the prior year. The COVID-19 pandemic is the primary reason for the decrease in shipments during the three-month period. ~~Ethanol prices increased 4.5% for~~However, the ~~nine months ended June 30, 2020 as compared to~~reduction in ethanol shipments in the nine months ended June 30, 2019. The ethanol shipment volume decreased 12.9% for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019. The COVID-19 pandemic in 2020 and the historically low prices in 2019current quarter was also impacted by the ~~nine months' comparison.~~decision to defer the sale of an entire unit train of ethanol until early January in order to obtain more favorable pricing. This also resulted in higher finished goods inventory at the end of the quarter.

Management currently believes that the ethanol market for the ~~fourth~~second quarter of our fiscal year ending September 30, ~~2020~~2021 ("Fiscal~~2020~~ 2021") as well as the market for certain of our co-products will worsen due to the following factors:

•The latest estimates of supply and demand provided by the Unites Stated Department of Agriculture (the "USDA") changed the estimate for 2020/21 ending corn stocks to 1.6 billion bushels. For 2020/21, the USDA lowered corn consumption for ethanol and co-products by 2.0% to 5.0 billion bushels but their forecast for the corn supply increased 4% from the 2019/20 actual level. to 14.2 billion bushels which was 0.6 billion bushels higher than the 2019/20 crop. The USDA increased their corn price estimates 18.0% for Fiscal 2021 to $4.20 per bushel, compared to the ending price for 2019/20 of $3.56. Yield per acre for 2020/21 is forecast to be 2.6% higher than 2019/20, and production numbers are expected to be 4.0% more in 2020/21 than was experienced in 2019/20.

•~~USDA~~ changed the estimate for 2019/20 ending corn stocks to 2.1 billion bushels. For 2019/20, the USDA lowered corn consumption for ethanol and co-products by 10.0% to 4.9 billion bushels but left their forecast for the corn supply basically flat at 13.6 billion bushels which was 0.7 billion bushels lower than the 2018/19 crop. The USDA lowered their corn price estimates 6.5% for Fiscal 2020 to $3.60 per bushel, which is in line with ending prices for 2018/19. Yield per acre and production numbers from those set forth in the prior report remained unchanged, but yield per acre is forecast 5.1% below the 2018/19 yield number of 176 bushels per acre. The impact of the COVID-19 pandemic is reflected in the above numbers, but management expects that the pandemic will continue to have a depressing effect on the U.S. and global economy, as management believes the prior estimates have underestimated the impact of the pandemic

We currently believe that our margins will remain tight in light of mixed signals on support for the RFS and waivers of refiner RVOs by the EPA. ~~A decrease~~An increase in the price for crude oil and unleaded gasoline could have a positive impact on the demand for gasoline and impact the market price of ethanol, but the effect of the COVID-19 pandemic on the economy is expected to have a substantial negative impact on demand, which could adversely impact our profitability during the balance of Fiscal ~~2020.~~2021. This negative impact could worsen in the event that domestic ethanol inventories remain high, or if U.S. exports of ethanol remain low or decline further. Unless additional demand can be found in foreign or domestic markets, a continued level of current ethanol stocks or any increase in domestic ethanol supply could further adversely impact the price of ethanol. The risk of an escalating trade war with foreign countries is a great threat to the U.S. agriculture economy in the short term.

Our distiller grain margins have been impacted positively in the short term due to plant shutdowns and plant slowdowns by local competitors which resulted in increased demand for our dried distiller grains ("DDG") and wet distiller grains ("WDG"). We ~~have~~ experienced a price increase of ~~2.2%~~11.8% for the ~~nine~~three months ended ~~June 30,~~December 31, 2020, as compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2019, on a ~~8.8% increase~~0.5% decrease in tons sold for those same periods. ~~In 2018, an estimated 31% of U.S. DDG production was exported, and 2018 was the second highest export year on record for DDG.~~ In 2019, the U.S. implemented tariffs on a cross section of Chinese products, and China did not order products from the U.S., including DDG. In January 2020, the U.S. and China signed a "Phase ~~One" agreement~~One Agreement" where the U.S. lowered tariffs in exchange for China reinstating orders for U.S. products, including agriculture products. We cannot forecast how much demand from China will come back into the marketplace, or if additional demand can be created from other foreign markets or domestically. The COVID-19 pandemic combined with political tensions between China and the U.S. have delayed implementation of, and further negotiations relating to, the Phase One Agreement. Domestic demand for distiller grains could also remain low if corn prices decline and end-users switch to lower priced alternatives.

On December 18, 2019, Congress extended the biodiesel tax credit through 2022 with retroactive application to January 1, 2018. The extension of the tax credit may increase demand for corn oil, which is a feedstock for biodiesel, and could have a positive impact on corn oil prices in the future.

Results of Operations

The following table shows our results of operations, stated as a percentage of revenue for the three months ended ~~June 30,~~December 31, 2020 and 2019.

~~The following table shows our results of operations, stated as a percentage of revenue for the nine months ended June 30, 2020 and 2019.~~

Nine Months Ended June 30, 2020 Nine Months Ended June 30, 2019
Amounts % of Revenues Amounts % of Revenues
in 000's in 000's
Income Statement Data
Revenues $ 146,500
100.0 % $ 160,077
100.0 %
Cost of Goods Sold
Material Costs 105,448
72.0 % 116,347
72.7 %
Variable Production Expense 18,482
12.6 % 23,685
14.8 %
Fixed Production Expense 19,927
13.6 % 19,508
12.2 %
Gross Margin 2,643
1.8 % 537
0.3 %
General and Administrative Expenses 3,811
2.6 % 3,737
2.3 %
Interest and other expense, net 1,146
0.8 % 676
0.4 %
Net (Loss) $ (2,314 ) (1.6 )% $ (3,876 ) (2.4 )%

Our revenue from operations is derived from three primary sources: sales of ethanol, distillers grains, and corn oil. The chart below displays statistical information regarding our revenues. During the three months ended ~~June 30,~~December 31, 2020, the average price per gallon of ethanol decreased by ~~10.5%~~7.6% as compared to the same period in 2019, compounded by a ~~31.8%~~11.2% decrease in gallons of ethanol sold, primarily due to ~~oversupply situation for the industry and~~ the impact of ~~the~~ COVID-19 pandemic on the ~~economy.~~economy, which did not impact our industry until the second quarter of fiscal year 2020. We finished the first fiscal quarter of 2021, with higher finished goods as compared to the same period in fiscal 2020 which also reduced our gallons sold during the fiscal quarter due to the sale of one unit train of ethanol which sale was deferred until January 2021 in order to obtain more favorable market pricing. The net effect was ~~a 39.0%~~an 18.0% decrease in ethanol revenue for the three months ended ~~June 30,~~December 31, 2020. During the nine months ended June 30, 2020, the average price per gallon of ethanol increased 4.5% as compared to the first nine months ended June 30, 2019. Offsetting this was a 12.9% decrease in the volume of ethanol gallons sold during the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019. Overall, ethanol revenue decreased 9.0% for the first nine months ended June 30, 2020 compared to the first nine months ended June 30, 2019.

An increase in the average price per ton of distillers grains of approximately ~~3.9%~~11.8% coupled with a ~~34.7%~~0.5% decrease in volume sold resulted in ~~a decrease~~an increase of ~~32.1%~~11.2% in revenue for this category in the three months ended ~~June 30,~~December 31, 2020 as compared to the same three month period in 2019. Distillers grain revenue ~~decreased~~increased primarily due to ~~decreased~~increased distiller grain ~~production resulting from our reduced~~prices in contrast to relatively flat ethanol production. ~~For the nine months ended June 30, 2020, distillers grain price per ton increased 2.2%, and tons sold decreased 8.8% for an overall decrease of 6.8% as compared to the nine months ended June 30, 2019.~~

Corn oil revenue ~~decreased 19.3%~~increased 28.7% in the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019 with the ~~6.4%~~32.0% increase in price offset by lower volume of 24.2%. Comparing the nine months ended June 30, 2020 to the nine months ended June 30, 2019, corn oil revenue decreased 11.3% as tons sold decreased by 9.1% combined with a lower average price per ton of 2.5%. Our market for corn oil is primarily local middlemen that compete for our available supply. On December 18, 2019, Congress extended the biodiesel tax credit through 2022 with retroactive application to January 1, 2018. The extension of the tax credit may increase demand for corn oil, which is a feedstock for biodiesel, and could have a positive impact on corn oil prices in the future, but this has not been experienced to date because of the impact of COVID-19 on the economy.

Three Months Ended June 30, 2020
Three Months Ended June 30, 2019
Amounts in 000's
% of Revenues
Amounts in 000's
% of Revenues
Product Revenue Information

Denatured and Undenatured Ethanol $ 24,931

73.1 %
$ 40,857

76.4 %
Distillers Grains 6,677

19.6 %
9,840

18.4 %
Corn Oil 2,041

6.0 %
2,529

4.7 %
Other 458

1.3 %
279

0.5 %

Nine Months Ended June 30, 2020
Nine Months Ended June 30, 2019
Amounts in 000's
% of Revenues
Amounts in 000's
% of Revenues
Product Revenue Information

Denatured and Undenatured Ethanol $ 108,871

74.3 %
$ 119,649

74.8 %
Distillers Grains 29,134

19.9 %
31,254

19.5 %
Corn Oil 7,424

5.1 %
8,372

5.2 %
Other 1,071

0.7 %
802

0.5 %

Cost of Goods Sold

Our cost of goods sold as a percentage of our revenues was ~~99.8%~~95.1% and ~~98.9%~~91.2% for the three months ended ~~June 30,~~December 31, 2020 and 2019, respectively. Our two primary costs of producing ethanol and distillers grains are corn and energy, with steam and natural gas as our primary energy sources. Cost of goods sold also includes net (gains) or losses from derivatives and hedging relating to corn. The average price of corn used in ethanol production per bushel ~~decreased 3.2%~~increased 15.6% in the three months ended ~~June~~

~~30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019. Due to the continued impact of COVID-19 ~~virus in~~on the ~~latter half of our second fiscal quarter,~~economy, the volume of ethanol produced was lower by ~~25.2%~~0.7% for the three months ended ~~June 30,~~December 31, 2020 as compared the the same period in fiscal 2019. Our cost of good sold as a percentage of our revenues was 98.2% for the nine months ended June 30, 2020 compared to 99.7% for the nine months ended June 30, 2019. The gallons of ethanol produced fell by 10.8% as compared to Fiscal 2019 and the price for corn used in ethanol sold increased by 1.6% in the nine months ended June 30, 2020 compared to the same period in 2019.

Realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulted in a ~~$0.8~~$1.0 million decrease to our cost of goods sold for the three months ended ~~June 30,~~December 31, 2020, compared to a decrease of ~~$1.4~~$0.4 million for the three months ended June 30, 2019. For the nine months ended June 30, 2020, the Company's realized and unrealized gains (losses) related to our derivatives and hedging for corn resulted in a $1.6 decrease to our cost of goods sold compared to a $3.2 decrease to our cost of goods sold for the nine months ended June 30,December 31, 2019. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to 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. 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.

Variable production expenses decreased ~~40.6%~~16.5% when comparing the three months ended ~~June 30,~~December 31, 2020 to the three months ended ~~June 30,~~December 31, 2019 due to lower chemical costs, ~~a reduction in energy costs due to lower operating volumes and lower prices, and~~ lower marketing fees as we no longer pay fees for distiller grains and corn to ~~Bunge. For the nine months ended June 30, 2020, variable production expenses~~Bunge, which decreased costs were ~~lower~~partially offset by 22.0% as compared to the nine months ended June 30, 2019. The lower expenses were due to a reduction in energy costs as we took advantage of lower natural gas costs and also lower chemical costs, coupled with lower operating volumes. Starting in this quarter, the Company no longer pays fees for distiller grains and corn to Bunge.increased utility expenses.

Fixed production expenses ~~increased 1.1%~~decreased 5.2% for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019. ~~Increased insurance expense and depreciation, somewhat offset by lower~~Lower repairs and maintenance charges, ~~and lower~~ lease costs and supplies were the primary reasons for the increased expense in this category. For the nine months ended June 30, 2020, fixed production costs were 2.1% higher than the fixed production expenses for the nine months ended June 30, 2019. Increased repairs and maintenance costs, insurance expenses and depreciation were somewhatpartially offset by ~~lower lease costs.~~increased insurance expense and depreciation.

General & Administrative Expense

General and administrative expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs. Our general and administrative expenses for the three months ended ~~June 30,~~December 31, 2020 increased ~~21.4%~~7.3% compared to the three months ended ~~June 30,~~December 31, 2019, primarily due to increased ~~professional services, organizational dues and subscriptions~~property taxes and higher salary/benefit ~~expenses. For the nine months ended June 30, 2020, general and administrative~~ expenses ~~increased 2.0% compared to the nine months ended June 30, 2019 due to higher accounting, consulting and legal fees~~ somewhat offset by lower salary and benefit expenses as 2019 expenses included a one time transition charge for replacing the CEO upon his retirement, final contractual obligations to the outgoing CEO, and a one time expense for a national ethanol organization .supply costs.

Interest and Other Expense, Net

Our other expenses were ~~$0.2~~$0.3 million ~~during~~for both the three months ended ~~June 30,~~December 31, 2020 and ~~$0.3 million for~~2019, respectively. In the ~~three months ended June 30, 2019. The~~first quarter of Fiscal 2021, the Company received a settlement on the class action lawsuit against Syngenta corn seeds. This settlement offset higher interest expenses associated with the amended ~~the~~ credit agreement with Cobank ~~to include~~in November 2019 that included two major capital projects, and the purchase of capital units from ICM and Bunge, and this led to higher interest expenses. For the nine months ended June 30, 2020, our other expenses were $1.1 million compared to $0.7 million for the nine months ended June 30, 2019. The amended credit agreement with Cobank for two major capital projects, and the purchase of capital units from ICM and Bunge, has led to a higher interest expense.Bunge.

~~Change in fair value of put option liability~~

~~The put option liability consisted of an agreement between the Company and ICM, Inc. ("ICM") that contained a conditional obligation to repurchase feature (the "Unit Agreement~~"). Under the Unit Agreement , the Company granted ICM the right to sell to the Company its 1,000 Series C and 18 Series A Membership Units (the "ICM Units") commencing anytime during the earliest of several alternative dates and events at a price equal to the greater of $10,987 per unit or the fair market value (as defined in the agreement) on the date of exercise (the "~~Put Option"). On August 16, 2019, ICM notified SIRE of its intent to exercise the Put Option and waived its right to determine the fair market value for the ICM Units. The agreement was effective~~

October 31, 2019. On November 15, 2019, the Company closed the repurchase transaction and paid $11.1 million to ICM in settlement of the Put Option provision consistent with the terms of the Unit Agreement.

Selected Financial Data

Modified EBITDA is defined as net income plus interest expense net of interest income, plus depreciation and amortization, or EBITDA, as adjusted for unrealized hedging (gains) losses. Modified EBITDA is not required by or presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity.

We present modified EBITDA because we consider it to be an important supplemental measure of our operating performance and it is considered by our management and Board of Directors as an important operating metric in their assessment of our performance.

We believe modified EBITDA allows us to better compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), the amortization of intangibles (affecting relative amortization expense), unrealized hedging (gains) losses and other items that are unrelated to underlying operating performance. We also present modified EBITDA because we believe it is frequently used by securities analysts and investors as a measure of performance. There are a number of material limitations to the use of modified EBITDA as an analytical tool, including the following:

•Modified EBITDA does not reflect our interest expense or the cash requirements to pay our principal and interest. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have limitations.

•Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and modified EBITDA does not reflect the cash requirements for such replacement. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and amortization expense may have limitations.

We compensate for these limitations by relying heavily on our GAAP financial measures and by using modified EBITDA as supplemental information. We believe that consideration of modified EBITDA, together with a careful review of our GAAP financial measures, is the most informed method of analyzing our operations. Because modified EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, modified EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The following table provides a reconciliation of modified EBITDA to net ~~(loss)~~income (in thousands except per unit data):


	Three months ended		Three months ended
	December 31, 2020		December 31, 2019

EBITDA
Net Income	$	1,111	$	3,853
Interest Expense	464		349
Depreciation	2,760		2,602
EBITDA	4,335		6,804

Unrealized Hedging Loss (Gain)	276		(131)



Modified EBITDA	$	4,611	$	6,673

Three months ended Three months ended Nine Months Ended Nine Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

EBITDA
Net (Loss) $ (1,417 ) $ (751 ) $ (2,314 ) $ (3,876 )
Interest Expense 574
298
1,568
750
Depreciation 2,741
2,537
7,946
7,670
EBITDA 1,898
2,084
7,200
4,544

Unrealized Hedging Loss (Gain) 97
(2,065 ) (448 ) (3,055 )

Modified EBITDA $ 1,995
$ 19
$ 6,752
$ 1,489

Liquidity and Capital Resources

The Company has certain loan agreements with FCSA and CoBank, as amended November 8, 2019 (the "FCSA Credit Facility") which provides the Company with a term loan in the amount of $30 million (the "Term Loan") and a revolving term loan in the amount of $40 million (the "Revolving Term Loan"). The interest rate on the FCSA Credit Facility is LIBOR plus 3.40%, and is secured by a security interest on all of the Company's assets. The Term Loan provides for payments by the Company to FCSA of semi-annual installments of $3.75 million, which ~~begins~~began on September 1, 2020 and matures November 15, 2024.

As of ~~June 30,~~December 31, 2020, we had a cash balance of ~~$0.8~~$1.3 million, and ~~$12.3~~18.0 million available under the Revolving Term Loan.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our current cash reserves, our PPP ~~Loan~~Loans and the available cash under our revolving term loan leave us well-positioned to manage our business through this crisis as it continues to unfold. However, the impacts of the COVID-19 pandemic are broad-reaching and the financial impacts associated with the COVID-19 pandemic include, but are not limited to, reduced production levels, lower net sales and potential incremental costs associated with mitigating the effects of the pandemic, including storage and logistics costs and other expenses. As a result, although we were in compliance with our financial covenants set forth in our FSCA Credit Facility as of ~~June 30,~~December 31, 2020, the impact the COVID-19 pandemic could adversely impact our operating results which could result in our inability to comply with certain of these financial covenants and require our lenders to waive compliance with, or agree to amend, any such covenant to avoid a default. However, based on

our current forecast of market conditions and our financial performance, we expect that we will be in a a position to satisfy all all of the financial covenants in our FCSA Credit Facility for the next twelve months.

Primary Working Capital Needs

During the ~~fourth~~second quarter of Fiscal ~~2020,~~2021, we estimate that we will require cash of approximately ~~$38.9~~$47.5 million for our primary input of corn and ~~$3.3~~$2.9 million for our energy sources of electricity, steam, and natural gas. Capital expenditure requirements for the ~~fourth~~second quarter are expected to be ~~$0.9~~$1.0 million.

Although there is uncertainty related to the anticipated impact of the ~~recent~~ COVID-19 outbreak on our future results, management expects to have sufficient cash available to fund operations for the next twelve months generated by cash from our continuing operations and available cash under our Revolving Term Loan. We cannot estimate the availability of funds for hedging in the future.

Commodity Price Risk

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains and the spread between them (the "crush margin"). As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distillers grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn through adjustments in prices for ethanol. We continue to monitor corn and ethanol prices and manage the "crush margin" to affect our longer-term profitability.

We enter into various derivative contracts with the primary objective of managing our exposure to adverse price movements in the commodities used for, and produced in, our business operations and, to the extent we have working capital available and available market conditions are appropriate, we engage in hedging transactions which involve risks that could harm our business. We measure and review our net commodity positions on a daily basis. Our daily net agricultural commodity position consists of inventory, forward purchase and sale contracts, over-the-counter and exchange traded derivative instruments. The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell sufficient products to use all of the commodities for which we have futures contracts. Although we actively manage our risk and adjust hedging strategies as appropriate, there is no assurance that our hedging activities will successfully reduce the risk caused by market volatility which may leave us vulnerable to high commodity prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which price changes in corn, ethanol and distillers grain to not work in our favor.

In addition, as described above, hedging transactions expose us to the risk of counterparty non-performance where the counterparty to the hedging contract defaults on its contract or, in the case of over-the-counter or exchange-traded contracts, where there is a change in the expected differential between the price of the commodity underlying the hedging agreement and the actual prices paid or received by us for the physical commodity bought or sold. We have, from time to time, experienced instances of counterparty non-performance but losses incurred in these situations were not significant.

Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match any 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 the current period (commonly referred to as the “mark to market” method). The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter 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 corn 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, our hedging strategies may cause immediate adverse effects, but are expected to produce long-term positive impact.

In the event we do not have sufficient working capital to enter into hedging strategies to manage our commodities price risk, we may be forced to purchase our corn and market our ethanol at spot prices and as a result, we could be further exposed to market volatility and risk. However, during the past year, the spot market has been advantageous.

Credit and Counterparty Risks

Through our normal business activities, we are subject to significant credit and counterparty risks that arise through normal commercial sales and purchases, including forward commitments to buy and sell, and through various other over-the-counter (OTC) derivative instruments that we utilize to manage risks inherent in our business activities. We define credit and counterparty risk as a potential financial loss due to the failure of a counterparty to honor its obligations. The exposure is measured based upon several factors, including unpaid accounts receivable from counterparties and unrealized gains (losses) from OTC derivative instruments (including forward purchase and sale contracts). We actively monitor credit and counterparty risk through credit analysis (by our marketing agent).

Impact of Hedging Transactions on Liquidity

Our operations and cash flows are highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative instruments, including forward corn contracts and over-the-counter exchange-traded futures and option contracts. Our liquidity position may be positively or negatively affected by changes in the underlying value of our derivative instruments. When the value of our open derivative positions decrease, we may be required to post margin deposits with our brokers to cover a portion of the decrease or we may require significant liquidity with little advanced notice to meet margin calls. Conversely, when the value of our open derivative positions increase, our brokers may be required to deliver margin deposits to us for a portion of the increase. We continuously monitor and manage our derivative instruments portfolio and our exposure to margin calls and while we believe we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings, we cannot estimate the actual availability of funds from operations or borrowings for hedging transactions in the future.

The effects, positive or negative, on liquidity resulting from our hedging activities tend to be mitigated by offsetting changes in cash prices in our business. For example, in a period of rising corn prices, gains resulting from long grain derivative positions would generally be offset by higher cash prices paid to farmers and other suppliers in local corn markets. These offsetting changes do not always occur, however, in the same amounts or in the same period.

We expect that a $1.00 per bushel fluctuation in market prices for corn would impact our cost of goods sold by approximately $45 million, or $0.34 per gallon, assuming our plant operates at 100% of our capacity. We expect the annual impact to our results of operations due to a $0.50 decrease in ethanol prices will result in approximately a $65 million decrease in revenue.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

SIRE's management, under the supervision and with the participation of SIRE's president and chief executive officer and SIRE's chief financial officer, is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to insure that information required to be disclosed in the reports that the Company files is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and performed an evaluation of the effectiveness of of SIRE's disclosures controls and procedures as of the end of the period covered by this quarterly report.

Based on that evaluation, SIRE's president and chief executive officer and SIRE's chief financial officer have concluded that, as of the end of the period covered by this quarterly report, SIRE's disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports SIRE files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to

management, including SIRE's principal executive and principal financial officers or persons performing such functions, as appropriate, to allow timely decisions regarding disclosure. SIRE believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No Changes in Internal Control Over Financial Reporting

No change in SIRE's internal control over financial reporting occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, SIRE's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time the Company is involved in various litigation matters arising in the ordinary course of its business. None of these matters, either individually or in the aggregate, currently is material to the Company except as reported in the Company’s annual report on Form 10-K for the year ended September 30, ~~2019~~2020 and there were no material developments to such matters.

Item 1A. Risk Factors.

Members should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended September 30, ~~2019,~~2020, in Part I, Item 1A, “Risk ~~Factors,” the discussion of risks in Part II, Item 1.A in our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2020~~Factors” along with the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Although we have attempted to discuss key factors, our members need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance.

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

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits




31.1	Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

32.1***		Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.

32.2***		Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

101.XML*		XBRL Instance Document

101.XSD101.BSD		XBRL Taxonomy Schema

101.CAL*		XBRL Taxonomy Calculation Database

101.LAB*		XBRL Taxonomy Label Linkbase

101.PRE*		XBRL Taxonomy Presentation Linkbase

***		This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
*		Furnished, not filed.

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Date:	~~August 7, 2020~~February 12, 2021	/s/ Michael D. Jerke
		Michael D. Jerke, President and Chief Executive Officer

Date:	~~August 7, 2020~~February 12, 2021	/s/ Brett L. Frevert
		Brett L. Frevert, CFO and Principal Financial Officer



Item No.	Item Matter	PAGE NO.
	PART 1 – FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS	4
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1817
Item 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS	3230
Item 4.	CONTROLS AND PROCEDURES	3230
	PART II – OTHER INFORMATION	3331
Item 1.	LEGAL PROCEEDINGS	3331
Item 1A.	RISK FACTORS	3331
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3331
Item 3.	DEFAULTS UPON SENIOR SECURITIES	3331
Item 4.	MINE SAFETY DISCLOSURES	3331
Item 5.	OTHER INFORMATION	3331
Item 6.	Exhibits	3331
	SIGNATURES	3533
	CERTIFICATIONS	SEE EXHIBITS 31 AND 32


	Three Months Ended 44196				Three Months Ended December 31, 2019
	Amounts in 000's		% of Revenues		Amounts in 000's		% of Revenues
Product Revenue Information
Denatured and Undenatured Ethanol	$	39,309	70.9	%	$	47,914	77.2	%
Distillers Grains	12,627		22.8	%	11,356		18.3	%
Corn Oil	3,190		5.8	%	2,479		4.0	%
Other	284		0.5	%	316		0.5	%

SOUTHWEST IOWA RENEWABLE ENERGY, LLC Statements of Cash Flows (Dollars in thousands)

(Unaudited)
	Nine Months Ended			Nine Months Ended
	June 30, 2020			June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)	$	(2,314	)	$	(3,876	)
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation	7,946			7,670
Amortization	83			54
Loss on disposal of property and equipment	12			—
Change in other assets, net	275			291
(Increase) decrease in current assets:
Accounts receivable	1,577			5,036
Inventory	159			(6,322		)
Prepaid expenses and other	(299		)	(168		)
Derivative financial instruments	60			(2,441		)
Increase (decrease) in current liabilities:
Accounts payable	(2,084		)	(206		)
Derivative financial instruments	(520		)	(1,567		)
Accrued expenses	(3,427		)	4,843
Increase in other long-term liabilities	426			(5,205		)
Net cash provided by (used in) operating activities	1,894			(1,891		)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(7,221		)	(5,759		)
Proceeds from sale of property and equipment	6			—
Net cash (used in) investing activities	(7,215		)	(5,759		)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments for financing costs	(223		)	—
Settlement of put option liability	(6,037		)	—
Proceeds from debt	186,171			137,960
Payments on debt	(151,784		)	(130,674		)
Repurchase of membership units	(23,059		)	—
Net cash provided by financing activities	5,068			7,286

Net (decrease) in cash and cash equivalents	(253		)	(364		)

CASH AND CASH EQUIVALENTS
Beginning	1,075			1,440
Ending	$	822		$	1,076

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	1,399		$	633

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Establishment of lease liability and right-of-use asset	$	9,684		$	—
Notes to Financial Statements are an integral part of this statement



	June 30, 2020			September 30, 2019
Beginning Balance	$	6,037		$	5,400
Put Option (Redeemed)	(6,037		)	—
Change in Value	—			637
Ending Balance	$	—		$	6,037


	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019						Three Months Ended 44196				Three Months Ended December 31, 2019
	Amounts			% of Revenues		Amounts			% of Revenues			Amounts		% of Revenues		Amounts		% of Revenues
	in 000's					in 000's						in 000's				in 000's
Income Statement Data											Income Statement Data
Revenues	$	34,107		100.0	%	$	53,505		100.0	%	Revenues	$	55,410	100.0	%	$	62,065	100.0	%
Cost of Goods Sold											Cost of Goods Sold
Material Costs	22,224			65.2	%	38,201			71.4	%	Material Costs	40,553		73.2	%	42,921		69.2	%
Variable Production Expense	4,336			12.7	%	7,305			13.7	%	Variable Production Expense	6,286		11.3	%	7,531		12.1	%
Fixed Production Expense	7,480			21.9	%	7,397			13.8	%	Fixed Production Expense	5,853		10.6	%	6,175		9.9	%
Gross Margin	67			0.2	%	602			1.1	%	Gross Margin	2,718		4.9	%	5,438		8.8	%
General and Administrative Expenses	1,288			3.8	%	1,061			2.0	%	General and Administrative Expenses	1,335		2.4	%	1,244		2.0	%
Interest and other expense, net	196			0.6	%	292			0.5	%	Interest and other expense, net	272		0.5	%	341		0.6	%
Net (Loss)	$	(1,417	)	(4.2	)%	$	(751	)	(1.4	)%

Net Income											Net Income	$	1,111	2.0	%	$	3,853	6.2	%



	Nine Months Ended June 30, 2020					Nine Months Ended June 30, 2019
	Amounts			% of Revenues		Amounts			% of Revenues
	in 000's					in 000's
Income Statement Data
Revenues	$	146,500		100.0	%	$	160,077		100.0	%
Cost of Goods Sold
Material Costs	105,448			72.0	%	116,347			72.7	%
Variable Production Expense	18,482			12.6	%	23,685			14.8	%
Fixed Production Expense	19,927			13.6	%	19,508			12.2	%
Gross Margin	2,643			1.8	%	537			0.3	%
General and Administrative Expenses	3,811			2.6	%	3,737			2.3	%
Interest and other expense, net	1,146			0.8	%	676			0.4	%
Net (Loss)	$	(2,314	)	(1.6	)%	$	(3,876	)	(2.4	)%