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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

	For the quarterly period ended	January 31, 2026

	OR

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the transition period from to .

	COMMISSION FILE NUMBER
	000-53588

HIGHWATER ETHANOL, LLC

(Exact name of registrant as specified in its charter)


Minnesota									20-4798531
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)


24500 US Highway 14,	Lamberton,	MN	56152
(Address of principal executive offices)			(Zip Code)

(507) 752-6160

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes o No

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


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging Growth Company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of March 4, 2026 there were 4,750 membership units outstanding.

INDEX


			Page Number
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures about Market Risk			23
Item 4. Controls and Procedures			24
PART II. OTHER INFORMATION			25
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			25
Item 3. Defaults Upon Senior Securities			25
Item 4. Mine Safety Disclosures			25
Item 5. Other Information			25
Item 6. Exhibits			25
SIGNATURES			27

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HIGHWATER ETHANOL, LLC

Condensed Balance Sheets


ASSETS	January 31, 2026		October 31, 2025
	(Unaudited)
Current Assets
Cash and cash equivalents	$	19,784,199	$	23,450,627
Derivative instruments	278,607		488,535

Accounts receivable	1,995,103		1,888,340
Inventories	14,702,350		16,831,809
Prepaids and other	691,761		763,863
Total current assets	37,452,020		43,423,174

Property and Equipment
Land and land improvements	13,223,836		13,223,836
Buildings	40,488,280		40,119,360
Office equipment	1,314,147		1,314,147
Plant and process equipment	99,052,210		95,598,573
Vehicles	193,039		193,039
Construction in progress	616,001		3,076,940
	154,887,513		153,525,895
Less accumulated depreciation	(125,212,885)		(123,666,862)
Net property and equipment	29,674,628		29,859,033

Other Assets
Investments	5,284,834		5,244,803
Right of use asset - finance lease	514,852		549,175
Deposits	544,402		462,125
Tax credits	13,929,780		10,400,000
Total other assets	20,273,868		16,656,103

Total Assets	$	87,400,516	$	89,938,310


LIABILITIES AND MEMBERS' EQUITY	January 31, 2026		October 31, 2025
	(Unaudited)
Current Liabilities
Accounts payable	$	9,148,378	$	10,256,618
Accrued expenses	815,884		1,167,215


Current portion of finance lease liability	149,271		147,237
Total Current Liabilities	10,113,533		11,571,070

Long-Term Liabilities
Finance lease liability, net of current portion	455,355		493,444
Total Long-Term Liabilities	455,355		493,444

Commitments and Contingencies

Members' Equity
Members' equity, 4,752 units outstanding	76,831,628		77,873,796

Total Liabilities and Members’ Equity	$	87,400,516	$	89,938,310

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

HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Operations


	Three Months Ended
	January 31, 2026		January 31, 2025

Revenues	$	34,401,853	$	33,218,600

Cost of Goods Sold	30,878,792		32,248,207

Gross Profit	3,523,061		970,393

Operating Expenses	1,438,403		1,294,225

Operating Income (Loss)	2,084,658		(323,832)

Other Income (Expense)
Interest income	139,755		231,524
Other income	80,516		103,427
Interest expense	(59,939)		(61,550)

Income from equity method investments	64,942		58,739
Tax credits	3,300,000		—
Total other income (expense), net	3,525,274		332,140

Net Income	$	5,609,932	$	8,308

Weighted Average Units Outstanding	4,752		4,753
Net Income Per Unit, Basic and Diluted	$	1,180.54	$	1.75
Distributions Declared Per Unit	$	1,400	$	1,700

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

HIGHWATER ETHANOL, LLC

Statements of Changes in Members' Equity (Unaudited)


	Members' Equity

Balance - October 31, 2024	$	69,646,378

Net income for the three-month period ended January 31, 2025	8,308

Member distribution	(8,079,250)

Member unit repurchase, 1 units	(10,000)

Balance - January 31, 2025	$	61,565,436


	Members' Equity

Balance - October 31, 2025	$	77,873,796

Net income for the three-month period ended January 31, 2026	5,609,932

Member distribution	(6,652,100)



Balance - January 31, 2026	$	76,831,628

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

HIGHWATER ETHANOL, LLC

Condensed Unaudited Statements of Cash Flows


	Three Months Ended
	January 31, 2026		January 31, 2025

Cash Flows from Operating Activities
Net Income	$	5,609,932	$	8,308
Adjustments to reconcile net income to net cash provided by (used in) operations
Tax credit generation	(3,300,000)		—
Depreciation and amortization	1,580,346		1,372,181
Distributions in excess of earnings from equity method investments	89,058		157,590
Non-cash patronage income	(260,582)		(310,933)



Changes in working capital components


Accounts receivable	(106,763)		598,021
Inventories	2,129,459		(3,254,419)
Derivative instruments	209,928		205,729
Prepaids and other	(10,175)		130,584
Tax credits	(229,780)		—
Accounts payable	(1,088,769)		(8,176,995)
Accrued expenses	(351,331)		(438,529)
Net cash provided by (used in) operating activities	4,271,323		(9,708,463)

Cash Flows from Investing Activities
Capital expenditures	(1,381,088)		(555,144)
Proceeds from investments	131,492		—

Net cash used in investing activities	(1,249,596)		(555,144)

Cash Flows from Financing Activities
Member unit repurchases	—		(10,000)
Payment on finance lease liability	(36,055)		(34,130)
Member distributions	(6,652,100)		(8,079,250)
Net cash used in financing activities	(6,688,155)		(8,123,380)

Net Decrease in Cash and Cash Equivalents	(3,666,428)		(18,386,987)

Cash and Cash equivalents – Beginning of Period	23,450,627		33,830,684

Cash and Cash equivalents – End of Period	$	19,784,199	$	15,443,697

Supplemental Cash Flow Information
Cash paid for interest	$	8,645	$	10,570

Supplemental Disclosure of Noncash Financing and Investing Activities


Capital expenditures included in accounts payable	$	7,729	$	—

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

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. The accompanying balance sheet and related notes as of October 31, 2025 are derived from the audited financial statements as of that date. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2025, contained in the Company’s Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of January 31, 2026 and the results of operations and cash flows for all periods presented.

Nature of Business

Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates an ethanol plant near Lamberton, Minnesota. The ethanol plant was constructed as a 50 million gallon per year nameplate ethanol plant. The plant currently operates in excess of its nameplate capacity due to the approval of air permit by the Minnesota Pollution Control Agency which allows for 70.2 million gallons of denatured ethanol per 12-month rolling average. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, inventory valuation and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made.

Revenue Recognition

ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps are required as part of the guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied.

The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. The Company recognizes revenue when control of goods is transferred. For ethanol sales by single manifest railcars and trucks, and distillers grains sales, control transfers when loaded. For ethanol sales by unit trains, control transfers once the last railcar of the unit train has loaded and the shipping documentation transferred to the marketer.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

•ethanol sales

•modified distillers grains sales

•dried distillers grains sales

•corn oil sales

Disaggregation of revenue:

All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line for the three months ended January 31, 2026 and 2025:


	Three Months Ended January 31, 2026		Three Months Ended January 31, 2025
Revenue Sources	Amount		Amount

Ethanol Sales	$	25,782,158	$	25,088,382
Modified Distillers Grains Sales	1,549,281		1,683,594
Dried Distillers Grains Sales	3,756,471		3,833,090
Corn Oil Sales	3,313,943		2,613,534
Total Revenues	$	34,401,853	$	33,218,600

Contract assets and contract liabilities:

The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

The Company had short term contract liabilities from contracts with customers of $819,186 at January 31, 2026 and $35,112 and $138,528 at October 31, 2025 and October 31, 2024, respectively.

Shipping Costs

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

Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief executive officer, the chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Company has determined that it has one reportable business segment, the manufacturing and marketing of fuel-grade ethanol and the co-products of the ethanol production process. The Company's chief operating decision maker reviews the reported profit and loss information of the Company for purposes of assessing financial performance and making operating decisions. Accordingly, the Company considers itself to be operating in a single industry segment.

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

The following tables depicts the Company's cost of corn, natural gas and other cost of goods sold for the for the three months ended January 31, 2026 and 2025:


	January 31, 2026		January 31, 2025

Cost of goods sold
Ethanol and co-products
Cost of corn	$	23,347,332	$	24,360,380
Cost of natural gas	2,454,892		2,416,728
Other cost of goods sold	5,076,568		5,471,099
Total	$	30,878,792	$	32,248,207

Derivative Instruments

Derivatives are recognized in the balance sheets and the measurement of these instruments are at fair value. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.

Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements.

The Company enters into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative changes in fair market value are included in revenue. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

Carrying Value of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset group to the carrying value of the asset group. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

In accordance with the Company’s policy for evaluating impairment of long-lived assets described above, when a triggering event occurs management evaluates the recoverability of the facilities based on projected future cash flows from operations over the facilities’ estimated useful lives. In determining the projected future undiscounted cash flows, the Company makes significant assumptions concerning the future viability of the ethanol industry, the future price of corn in relation to the future price of ethanol and the overall demand in relation to production and supply capacity. The Company has not recorded any impairment for the three months ended January 31, 2026 and 2025.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, and other working capital items approximate fair value at January 31, 2026 due to the short maturity nature of these instruments (Level 2).

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

Derivative instruments are carried at fair value, based on dealer quotes and live trading levels (Note 5).

Investments

The Company has a 5% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of operations and added to the investment account. Distributions or dividends received from the investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income (loss) from equity method investments based on the most recent reliable data. Therefore, the net income (loss) which is reported in the Company's statement of operations for the period ended January 31, 2026 is based on the investees' results of operations for the period ended December 31, 2025.

The Company has cost method of investments in cooperatives. The corresponding patronage income is recorded in costs of goods sold.

Tax Credit Recognition

The Company accounts for tax credits associated with the U.S. federal clean fuel production incentives under Section 45Z of the Internal Revenue Code in accordance with IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance. These credits, as they are generated are recorded based on the eligible production tax credit rate per gallon, the emission factor based on the carbon intensity score and are adjusted to their estimated fair value. The credits are recognized as an other asset and other income.

Grants

The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy through production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. The Company received awards from the Bioincentive Program of approximately $72,000, recorded in the first quarter of fiscal 2026 in other income. The Company received awards from the Bioincentive Program of approximately $93,000, recorded in the first quarter of fiscal 2025 in other income, $102,000, recorded in the second quarter of fiscal 2025 in other income, and $69,000, recorded in the third quarter of fiscal 2025 in other income.

2. UNCERTAINTIES

The Company derives substantially all of its revenues from the sale of ethanol, distillers grains and corn oil. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement.

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

3. RECEIVABLES

Receivables consisted of the following at:


	January 31, 2026		October 31, 2025		October 31, 2024

Trade receivables	$	1,631,518	$	1,326,994	$	2,039,732
Other receivables	363,585		561,346		1,240,625
Total	$	1,995,103	$	1,888,340	$	3,280,357

4. INVENTORIES

Inventories consisted of the following at:


	January 31, 2026		October 31, 2025

Raw materials	$	3,678,375	$	6,964,801
Spare parts and supplies	6,353,872		6,129,555
Work in process	1,051,974		1,034,238
Finished goods	3,618,129		2,703,215
Total	$	14,702,350	$	16,831,809

The Company determined that no lower of cost or net realizable value write-down was necessary at January 31, 2026 or October 31, 2025.

5. DERIVATIVE INSTRUMENTS

As of January 31, 2026, the Company had entered into corn, natural gas and ethanol derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding are not designated as hedges for accounting purposes.

Commodity Contracts

The following tables provide details regarding the Company's derivative instruments at January 31, 2026 and October 31, 2025:


Instrument	Balance Sheet location	January 31, 2026		October 31, 2025



Corn, natural gas and ethanol contracts
In gain position		$	37,531	$	4,345
In loss position		(511,074)		(1,148,116)
Deposits with broker		752,150		1,632,306
	Current assets	$	278,607	$	488,535

These contracts and related deposits are subject to a master netting arrangements and, therefore, are presented on a net basis on the balance sheet.

The Company has 1,010,000 bushels of corn inventory delivered under delayed-pricing contracts as of January 31, 2026. The contracts have various pricing deadlines through August 27, 2026.

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

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


	Statement of	Three Months Ended January 31,
	Operations location	2026		2025
Ethanol contracts	Revenues	$	1,656	$	6,131
Corn contracts	Cost of goods sold	90,769		497,087
Natural gas contracts	Cost of goods sold	139,654		(19,292)

6. FAIR VALUE MEASUREMENTS

The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.


	Fair Value as of		Fair Value Measurement Using
	January 31, 2026		Level 1		Level 2		Level 3
Derivative instruments - commodities
In gain position	$	37,531	$	1,375	$	36,156	$	—
In loss position	$	(511,074)	$	(996)	$	(510,078)	$	—
Other assets - tax credits	$	13,929,780	$	—	$	—	$	13,929,780


	Fair Value as of		Fair Value Measurement Using
	October 31, 2025		Level 1		Level 2		Level 3
Derivative instruments - commodities
In gain position	$	4,345	$	750	$	3,595	$	—
In loss position	$	(1,148,116)	$	(2,091)	$	(1,146,025)	$	—
Other assets - tax credits	$	10,400,000	$	—	$	—	$	10,400,000

The Company determines the fair values of commodities by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade.

The Company determines the fair value of tax credits by including the observable inputs such as the gross credit amount net of broker fees, energy credits and compliance payments. The unobservable inputs include the discount rate from the tax credit sale.

The following table summarizes the roll forward of Level 3 fair value measurements as of January 31, 2026:


Fair Value as of October 31, 2025	$	10,400,000
Tax credit generation	3,300,000
Other	229,780
Net Fair Value at January 31, 2026	$	13,929,780

7. TAX CREDIT RECOGNITION

The U.S. federal government has introduced tax incentives to promote the production of low-carbon fuels and reduce Greenhouse Gas emissions, enhance energy security, and support the rural agricultural economy. Effective January 1, 2025, the Inflation Reduction Act of 2022 (IRA) replaces Section 6426 of the Internal Revenue Code with Section 45Z, providing a clean fuel production credit for the years 2025 through 2027. This was further updated and extended on July 4, 2025, under the OBBBA extending the credit through 2029. Producers of liquid transportation fuels are eligible to qualify for up to $1 per gallon.

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

The Company recognizes tax credits associated with the U.S. federal clean fuel production incentives under Section 45Z of the Internal Revenue Code in accordance with IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, the tax incentive is recognized when there is reasonable assurance the Company will comply with the provisions of the incentive and that the incentive will be received. These credits are recognized in Other Assets on the Company’s Balance Sheets and in Other Income on the Statements of Operations.

The Company is eligible for these federal tax credits, which are reasonable of being received during the three months ended January 31, 2026. For the three months ended January 31, 2026, the Company recognized $3,300,000 of Section 45Z tax credits. This amount includes the gross credit amount of approximately $3,700,000 net of broker fees, energy credits and compliance payments of approximately $400,000. The Company recorded $3,300,000 as an increase to Other Income and an asset recorded within Other Assets. The Company plans to monetize these tax credits through sale of such credits to third parties.

8. DEBT FINANCING

The Company had no long-term debt at January 31, 2026 or October 31, 2025, respectively.

Bank Financing

The Company has a loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") that includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. The loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.

Term Revolving Loan

The Term Revolving Loan is for $20,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at January 31, 2026 was 7.10%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on November 1, 2027. The outstanding balance on this note was $0 at January 31, 2026. The Company pays interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. The Company has no letters of credit outstanding at January 31, 2026. The Company is also required to pay unused commitment fees for the Term Revolving Loan.

Revolving Line of Credit Loan

The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000, and has a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at January 31, 2026 was approximately $564,000. The applicable interest rate at January 31, 2026 was 7.10%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2026. The maturity date may be extended for up to one additional one year term upon written request of the Company which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The Company has previously been granted three extensions. The outstanding balance on this note was $0 at January 31, 2026. The Company is also required to pay unused commitment fees for the Revolving Line of Credit Loan.

Covenants and other Miscellaneous Terms

The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements.

The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum working capital requirements. The Company is limited to incurring additional debt over certain amounts without prior approval and making additional investments as described in the Second Amended and Restated Credit Agreement without

HIGHWATER ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

January 31, 2026

prior approval. The minimum working capital is $9,000,000, which is calculated as current assets plus the amount available for drawing under our Term Revolving Loan, and undrawn amounts on outstanding letters of credit less current liabilities, and is measured quarterly. The Company is allowed to make distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $9,000,000, or an unlimited amount of net income if working capital is greater than or equal to $12,000,000.

9. LEASES

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liability are recognized based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for the lease is the Company's estimated incremental borrowing rate. An incremental borrowing rate of 5.5% was utilized for the Company's lease.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s finance lease has a remaining lease term of approximately 4 years. This lease includes an option to extend the lease. When it is reasonably certain the Company will exercise this option, the Company will update the remaining term of the lease. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s finance lease liabilities as of January 31, 2026:


For the Period Ending January 31,	Finance Leases
2027	$	178,800
2028	178,800
2029	178,800
2030	134,100
2031	—
Thereafter	—
Totals	670,500
Amount representing interest	(65,874)
Lease liability	$	604,626


Lease Cost	Three Months ended January 31, 2026		Three Months ended January 31, 2025

Operating lease cost	$	—	$	—
Short term lease cost	19,461		9,905
Finance lease cost
Amortization of leased assets	34,323		34,323
Interest on lease liabilities	8,645		10,570

Net lease cost	$	62,429	$	54,798

10. COMMITMENTS AND CONTINGENCIES

Marketing Agreements

The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute the ethanol produced by the Company. Based on the terms of the marketing agreement, RPMG will use commercially reasonable efforts to obtain the best price for all ethanol sold subject to the terms of the marketing agreement. RPMG shall have discretion to fix the price, terms and conditions of the sale of ethanol that is sold and marketed as Indexed Gallons. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement. The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement.

The Company has a distillers grains marketing agreement with a marketer (RPMG) to purchase and market all of the distillers grains produced at the plant beginning January 1, 2023. The Company pays a fee to the marketer to market distillers grains to third party end purchasers and the Company reimburses the marketer for certain charges paid to third parties. The marketer must market the distillers grains using commercially reasonable efforts and endeavor to maximize price and minimize freight and other costs but does not guarantee the price that will be obtained from the sale. Following an initial term, the agreement will be automatically extended for additional terms unless either party gives proper notice of non-extension.

The Company has a crude corn oil marketing agreement with a marketer (RPMG) to market and distribute all corn oil to be produced at the plant for an initial term. Under the agreement, the Company must provide estimates of production and inventory of corn oil. The marketer may execute sales contracts with buyers for future delivery of corn oil. The Company receives a percentage of the F.O.B. sale price less a marketing fee, actual freight and transportation costs and certain taxes and other charges related to the purchase, delivery or sale. The Company is required to provide corn oil meeting certain specifications as provided in the agreement and the agreement provides for a process for rejection of nonconforming corn oil. The agreement automatically renews for successive terms unless terminated in accordance with the agreement.

Regulatory Agencies

The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business.

Forward Contracts

In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. Forward contracts outstanding are as follows at January 31, 2026:


	Quantity	Average Price		Date Delivery Through

Purchase of corn (in bushels):
Basis contracts	1,867,527			7/31/26
Priced contracts	1,620,635	$	4.10	12/31/26
Total	3,488,162

Purchase of natural gas (in dekatherms):
Basis contracts	528,500			3/31/27
Priced contracts	2,173,800	$	3.40	10/31/29
Total	2,702,300





Purchase of denaturant (in gallons)
Price contracts	444,000	$	1.43	4/30/26
Total	444,000

Sales of dry distillers grains (in tons):
Priced contracts	2,743	$	146.15	9/30/26
Total	2,743

Sales of modified distillers grains (in tons)
Priced contracts	21,600	$	71.65	8/31/26
Total	21,600

Sales of corn oil (in pounds)
Priced contracts	3,072,000	$	0.56	3/31/26
Total	3,072,000

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended January 31, 2026, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2025.

Forward-Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “will,” “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:


			Changes in the availability and price of corn and natural gas;
			Reduction or elimination of the Renewable Fuel Standard;
			Volatile commodity and financial markets;
			Changes in legislation benefiting renewable fuels;
			Our ability to comply with the financial covenants contained in our credit agreements with our lenders;
			Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;
			Results of our hedging activities and other risk management strategies;
			Ethanol and distillers grains supply exceeding demand and corresponding price reductions;
			Our ability to generate cash flow to invest in our business and service our debt;
			Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations;
			Changes in our business strategy, capital improvements or development plans;
			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;
			Lack of transportation, storage and blending infrastructure preventing ethanol from reaching high demand markets;
			Changes in federal and/or state laws or policies impacting the ethanol industry;
			Changes and advances in ethanol production technology and the development of alternative fuels and energy sources and advanced biofuels;
			Competition from alternative fuel additives;
			Changes in interest rates and lending conditions;
			Decreases in the price we receive for our ethanol, distillers grains and corn oil;
			Our inability to secure credit or obtain additional equity financing we may require in the future;
			Our ability to retain key employees and maintain labor relations;
			Changes in the price of oil and gasoline;
			Competition from clean power systems using fuel cells and plug-in hybrids;
			Use by the EPA of small refinery exemptions;
			Competition from the increased use of electric vehicles;
			Global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices caused in part by the Russian invasion of Ukraine and resulting sanctions by the United States and other countries; and
			Changes in trade policy, trade actions, international trade disputes, and the institution of tariffs by the United States or foreign governments.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We are not under any duty to update the forward-looking statements contained in this report. Furthermore, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

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

Overview

Highwater Ethanol, LLC (“we,” “our,” “Highwater Ethanol” or the “Company”) was formed as a Minnesota limited liability company organized on May 2, 2006, for the purpose of constructing, owning, and operating an ethanol plant near Lamberton, Minnesota. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant. In October 2019, our air permit application to the Minnesota Pollution Control Agency to allow for 70.2 million gallons of denatured ethanol per 12-month rolling average was approved.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us

from profitably operating the ethanol plant, we may need to seek additional funding.

Results of Operations for the Three Months Ended January 31, 2026 and 2025

The following table shows the results of our operations and the approximate percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the three months ended January 31, 2026 and 2025:


	2026				2025
Statements of Operations Data	Amount (unaudited)		%		Amount (unaudited)		%

Revenues	$	34,401,853	100.00	%	$	33,218,600	100.00	%
Cost of Goods Sold	30,878,792		89.76	%	32,248,207		97.08	%
Gross Profit	3,523,061		10.24	%	970,393		2.92	%
Operating Expenses	1,438,403		4.18	%	1,294,225		3.90	%
Operating Income	2,084,658		6.06	%	(323,832)		(0.97)	%
Other Income, net	3,525,274		10.25	%	332,140		1.00	%
Net Income	$	5,609,932	16.31	%	$	8,308	0.03	%

The following table shows the sources of our revenue for the three months ended January 31, 2026 and 2025:


	2026				2025
Revenue Sources	Amount (Unaudited)		%		Amount (Unaudited)		%

Ethanol Sales	$	25,782,158	74.95	%	$	25,088,382	75.52	%
Modified Distillers Grains Sales	1,549,281		4.50	%	1,683,594		5.07	%
Dried Distillers Grains Sales	3,756,471		10.92	%	3,833,090		11.54	%
Corn Oil Sales	3,313,943		9.63	%	2,613,534		7.87	%
Total Revenues	$	34,401,853	100.00	%	$	33,218,600	100.00	%

Revenue

Ethanol

Our ethanol revenues were higher for the three months ended January 31, 2026, as compared to the three months ended January 31, 2025. Revenue from ethanol sales increased by approximately 2.8% during the three months ended January 31, 2026, as compared to the three months ended January 31, 2025.

The average price per gallon of ethanol sold for the three months ended January 31, 2026 was approximately the same compared to the average price for the three months ended January 31, 2025.

Approval of federal legislation to allow year round ethanol sales of E15 in the United States would likely have a positive effect on domestic ethanol demand and the market price of ethanol. In addition, the approval of E15 in California in October of 2025 could create additional domestic demand. Other factors likely to affect ethanol prices in the future include domestic corn prices and corn supply, energy prices, seasonal demand and inventory levels. In addition, trade actions and the possible institution of tariffs by the United States and retaliatory actions by foreign governments could have a negative effect on foreign ethanol demand, increase the volatility in commodity prices and impact the market price of ethanol.

The number of gallons of ethanol sold during the three months ended January 31, 2026 increased by approximately 2.0%, as compared to the three months ended January 31, 2025 due to the increase in bushels ground. Our ethanol production levels for the three months ended January 31, 2026 were at an annual rate of approximately 70 million gallons. Management anticipates that the amount of ethanol produced could decrease in the future if operating conditions worsen and we reduce ethanol production levels. Ethanol production could also decrease if delayed rail car shipments affect our ability to get sufficient rail cars to transport our ethanol.

We had gains related to ethanol based derivative instruments of $1,656 and $6,131 for the three months ended January 31, 2026 and 2025, respectively, which increased our ethanol revenue during the period.

Distillers Grains

Revenue from distillers grains sales decreased by approximately 3.8% during the three months ended January 31, 2026, as compared to the three months ended January 31, 2025 primarily due to lower distillers grains prices during the three months ended January 31, 2026 compared to the same period of 2025.

For the three months ended January 31, 2026, the average price per ton of dried distillers grains sold was approximately 8.0% lower than the average price we received during the three months ended January 31, 2025, due primarily to a decrease in the domestic prices of soybean meal. For the three months ended January 31, 2026, the average price per ton of modified distillers grains sold was approximately 2.8% lower than during the three months ended January 31, 2025, due primarily to decreases in the domestic prices of soybeans and additional soybean production resulting in lower protein prices.

Distillers grains prices typically change in proportion to domestic corn and other feed products including soybeans and soybean meal. Distillers grains prices are also influenced by seasonal demand and the number of livestock on feed. Other factors likely to affect distillers grains prices include prices and availability of other commodities and trade actions by foreign governments or the United States including the possible imposition of tariffs and retaliatory actions.

The tons of dried distillers grains sold during the three months ended January 31, 2026, increased by approximately 7.4%, as compared to the three months ended January 31, 2025. The tons of modified distillers grains sold during the three

months ended January 31, 2026, decreased by approximately 5.4%, as compared to the three months ended January 31, 2025. Management anticipates that the amount of distillers grains produced could decrease in the future if operating conditions worsen and there is a reduction in ethanol production levels which would then have a corresponding effect on distillers grains. In addition, an increase in ethanol or corn oil yields could have a negative effect of distillers grains production levels.

Corn Oil

Revenue from corn oil sales increased by approximately 26.8% during the three months ended January 31, 2026, as compared to the three months ended January 31, 2025, due primarily to higher corn oil prices and an increase in pounds of corn oil sold. The average price per pound of corn oil sold was approximately 20.5% higher during the three months ended January 31, 2026, as compared to the three months ended January 31, 2025, due primarily to an increase in soy oil prices. Factors likely to affect corn oil prices include corn oil and soy oil supply, biodiesel demand, prices of corn and soybeans, the status of the biodiesel blenders' tax credit and new crop corn oil content.

The pounds of corn oil sold increased by approximately 4.7%, as compared to the three months ended January 31, 2025. Management anticipates that the amount of corn oil produced may decrease in the future if there is a reduction in ethanol production levels which would then have a corresponding effect on corn oil. However, an increase in corn oil yields due to improved efficiencies or a corn crop with higher oil content could contribute to higher corn oil production levels.

At January 31, 2026, we had 3,072,000 pounds of forward corn oil sales contracts valued at approximately $1,716,000 or various delivery periods through March 31, 2026.

Cost of Goods Sold

Our two largest costs of production are corn (75.6% of cost of goods sold for the three months ended January 31, 2026) and natural gas (8.0% of cost of goods sold for the three months ended January 31, 2026). Our total cost of goods sold was approximately 4.2% less during the three months ended January 31, 2026, as compared to the three months ended January 31, 2025.

Corn

Our average price per bushel of corn for the three months ended January 31, 2026 decreased by approximately 5.7% per bushel, as compared to the three months ended January 31, 2025, due primarily to lower market value for corn as a result of higher corn stocks. We used approximately 1.7% more bushels of corn in the three months ended January 31, 2026, as compared to the three months ended January 31, 2025 due to an increase in gallons of ethanol sold.

Management expects there to be an adequate corn supply available in our area to operate the ethanol plant. However, corn prices are dependent on weather conditions, supply and demand, stocks and other factors which could contribute to price volatility and significantly impact our costs of production. In addition, corn prices could continue to be impacted in the future by global economic uncertainty, rising inflation, market disruptions and increased volatility in commodity prices.

At January 31, 2026, we had 1,867,527 bushels of forward fixed basis corn purchase contracts and 1,620,635 bushels of forward fixed price corn contracts valued at approximately $6,647,000. These purchase contracts are for various delivery periods through December 31, 2026.

We had gains related to corn derivative instruments of $90,769 and $497,087 for the three months ended January 31, 2026 and 2025, respectively, which reduced our cost of goods sold during the period.

Natural Gas

The average market price per MMBTU of natural gas was approximately 1.2% higher for the three months ended January 31, 2026, as compared to the three months ended January 31, 2025, due primarily to an increase in our natural gas transportation costs. Factors such as industry production problems or large increases in natural gas demand in the future could have a negative effect on natural gas prices.

For the three months ended January 31, 2026, we used approximately 1.1% less MMBTUs of natural gas as compared to the three months ended January 31, 2025, due primarily to an increase in efficiencies.

At January 31, 2026, we had 528,500 MMBTUs of forward fixed basis natural gas purchase contracts and 2,173,800 MMBTUs of fixed price natural gas purchase contracts valued at approximately $7,385,000 for delivery periods through October 31, 2029.

We had gains related to natural gas derivative instruments of $139,654 for the three months ended January 31, 2026, which reduced our cost of goods sold during the period. We had losses related to natural gas derivative instruments of ($19,292) for the three months ended January 31, 2025, which increased our cost of goods sold during the period.

Operating Expense

Our operating expenses for the three months ended January 31, 2026 were $1,438,403 compared to $1,294,225 for the three months ended January 31, 2025. Management attributes this increase in operating expenses to an increase in professional fees. Management continues to pursue strategies to optimize efficiencies and maximize production. These efforts may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady.

Other Income, net

We had total other income, net for the three months ended January 31, 2026 of $3,525,274, as compared to $332,140 for the three months ended January 31, 2025. Our other income, net for the three months ended January 31, 2026, was higher due primarily to our recognition of $3,300,000 in federal tax credits for the three months ended January 31, 2026 associated with incentives under Section 45Z.

Changes in Financial Condition for the Three Months Ended January 31, 2026

The following table highlights the changes in our financial condition as of January 31, 2026 from our previous fiscal year ended October 31, 2025:


	January 31, 2026		October 31, 2025
Current Assets	$	37,452,020	$	43,423,174
Current Liabilities	10,113,533		11,571,070
Long-Term Liabilities	455,355		493,444

Current Assets

The decrease in current assets is primarily the result of decreases in cash and cash equivalents at January 31, 2026, as compared to October 31, 2025, due primarily to cash distributions of $6,652,100 paid to our members on December 16, 2025, and corn payments to producers that were deferred until after the first of the year. We also experienced decreases in inventories at January 31, 2026, as compared to October 31, 2025, due primarily to lower value of corn inventory.

Current Liabilities

The decrease in current liabilities is primarily the result of decreases in accounts payable at January 31, 2026, as compared to October 31, 2025, due primarily to timing of deferred corn payments.

Long-Term Liabilities

Long-term liabilities decreased at January 31, 2026, as compared to October 31, 2025, due primarily to decreasing liabilities owed under a contract for use of a natural gas pipeline to transport natural gas to our facility.

Liquidity and Capital Resources

Based on financial forecasts prepared by our management, we anticipate that we will have sufficient cash on hand, cash from our current credit facilities, and cash from our operations to continue to operate the ethanol plant for the next 12 months. We do not currently anticipate seeking additional equity or debt financing in the near term in order to fund operations. However, if market conditions worsen, we could have difficulty maintaining our liquidity and may need to rely on our revolving lines of credit or seek increases.

The following table shows cash flows for the three months ended January 31, 2026 and 2025:


	2026		2025
	(unaudited)		(unaudited)
Net cash provided by (used in) operating activities	$	4,271,323	$	(9,708,463)
Net cash used in investing activities	(1,249,596)		(555,144)
Net cash used in financing activities	(6,688,155)		(8,123,380)

Cash Flow From Operations

We used less cash in operating activities for the three months ended January 31, 2026, as compared to the same period in 2025. This increase in cash from operations was primarily due to an increase in net income along with changes in inventories and accounts payable for the three months ended January 31, 2026, as compared to the same period in 2025.

Cash Flow From Investing Activities

We used more cash in investing activities for the three months period ended January 31, 2026, as compared to the same period in 2025. This change was primarily due to an increase in capital expenditures during the three months ended January 31, 2026.

Cash Flow From Financing Activities

We used less cash in financing activities during the three month ended January 31, 2026, as compared to the same period in 2025. Our cash used in financing activities decreased primarily due to decreased distributions to our members during the three months ended January 31, 2026.

Short-Term and Long-Term Debt Sources

Our loan facility with Compeer Financial f/k/a AgStar Financial Services, PCA ("Compeer") includes a $20,000,000 Term Revolving Loan and a Revolving Line of Credit Loan. Our loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants.

Term Revolving Loan

The Term Revolving Loan is for up to $20,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The applicable interest rate at January 31, 2026 was 7.10%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan with payment of all amounts outstanding due on November 1, 2027. The outstanding balance on this note was $0 at January 31, 2026. We pay interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. We had no letters of credit outstanding at January 31, 2026. We are also required to pay unused commitment fees for the Term Revolving Loan.

Revolving Line of Credit Loan

The Revolving Line of Credit Loan is for an amount equal to the borrowing base, with a maximum limit of $10,000,000 with a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10%. The amount available to borrow per the borrowing base calculations at January 31, 2026 was approximately $564,000. The applicable interest rate at January 31, 2026 was 7.10%. The Revolving Line of Credit Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Revolving Line of Credit Loan with payment of all amounts outstanding due on November 1, 2026. The maturity date may be extended for up to one additional one year term upon our written request which will be deemed automatically granted by Compeer upon written certification that there is no event of default. The Company has previously been granted three extensions. The outstanding balance on this note was $0 at January 31, 2026. We are also required to pay unused commitment fees for the Revolving Line of Credit Loan.

Covenants and Other Miscellaneous Financing Agreement Terms

The loan facility with Compeer is secured by substantially all business assets. We executed a mortgage in favor of Compeer creating a first lien on our real estate and plant and a security interest in all personal property located on the premises and assigned in favor of Compeer, all rents and leases to our property, our marketing contracts, our risk management services contract, and our natural gas, electricity, water service and grain procurement agreements.

We are also subject to various financial and non-financial covenants that limit distributions and new debt and require minimum working capital requirements. We are limited to incurring additional debt over certain amounts without prior approval and making additional investments as described in the Amended and Restated Credit Agreement without prior approval of Compeer. We are required to maintain a minimum working capital requirement of $9,000,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. We are allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $9,000,000, or an unlimited amount if working capital is greater than or equal to $12,000,000.

Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements. We will continue to work with Compeer to try to ensure that the terms of our loan agreements are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our loan covenants or in default on our principal payments in the future. Should unfavorable market conditions result in our violation of the terms or covenants of our loan and we fail to obtain a waiver of any such term or covenant, Compeer could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. In the event of a default, Compeer could also elect to proceed with a foreclosure action on our plant.

Grants

The Minnesota State Legislature established the Bioincentive Program in 2015 to encourage commercial-scale production of advanced biofuels, renewable chemicals, and biomass thermal energy through production incentive payments. Eligible producers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produced subject to program funding limitations. We received awards from the Bioincentive Program of approximately $72,000, recorded in the first quarter of fiscal 2026 in other income. We received awards from the Bioincentive Program of approximately $93,000, recorded in the first quarter of fiscal 2025 in other income, $102,000 recorded in the second quarter of fiscal 2025 in other income and $69,000, recorded in the third quarter of fiscal 2025 in other income.

Capital Expenditures

We entered into an agreement with ICM, Inc. to construct a sieve bottle and an EVAP Zero which are expected to increase efficiencies. The construction commenced in the spring of 2025. The sieve bottle was completed in August 2025 and the EVAP Zero was completed in approximately November 2025, at an aggregate cost of approximately $4,200,000. We funded the project from operations and existing debt facilities.

Tax Credit Generation

For the three months ended January 31, 2026, we recognized $3,300,000 of Section 45Z tax credits. This amount includes the gross credit amount of approximately $3,700,000 net of broker fees, energy credits and compliance payments of approximately $400,000. We recorded $3,300,000 as an increase to Other Income and an asset recorded within Other Assets. We plan to monetize these tax credits through sale of such credits to third parties. The recognition of these tax credits is contingent on meeting the requirements of Section 45Z.

Critical Accounting Estimates

Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates:

Inventory Valuation

We value our inventory at lower of cost or net realizable value. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider corn costs and ethanol prices, break-even points for our plant and our risk management strategies in place through our derivative instruments. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the valuation of the lower of cost or net realizable value on inventory to be a critical accounting estimate.

Derivatives

We are exposed to market risks from changes in interest rates, corn, natural gas, and ethanol prices. We may seek to minimize these commodity price fluctuation risks through the use of derivative instruments. In the event we utilize derivative instruments, we will attempt to link these instruments to financing plans, sales plans, market developments, and pricing activities. Such instruments in and of themselves can result in additional costs due to unexpected directional price movements.

We have entered into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices. In practice, as markets move, we actively attempt to manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which would match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we use fair value accounting for our hedge positions, which means that as the current market price of our hedge position changes, the gains and losses are immediately recognized in our statement of operations. The immediate recognition of hedging gains and losses under fair value accounting can cause net income (loss) 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 of January 31, 2026, the fair values of our commodity-based derivative instruments are a net liability of approximately $474,000. As the prices of the hedged commodity moves in reaction to market trends and information, our statement of operations will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to protect the Company over the term of the contracts for the hedged amounts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We may use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Term Revolving Loan and Revolving Line of Credit Loan, each bearing a variable interest rate. As of January 31, 2026, we had $0 outstanding on the Term Revolving Loan and the Revolving Line of Credit Loan. As of January 31, 2026, interest accrues on these loans at a variable interest rate based on the Wall Street Journal's Prime Rate plus 10 basis points with a minimum interest rate of 2.10% and the applicable interest rate was 7.10%. Given the balance owed on these loans as of January 31, 2026, we have determined that our exposure to market risk from changes in interest rates is not material. The specifics of each loan are discussed in greater detail in “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Commodity Price Risk

We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol and distillers grains. We may seek to minimize the risks from fluctuations in the prices of raw material inputs through the use of corn commodity-based and natural gas derivatives. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Corn and natural gas derivative changes in fair market value are included in costs of goods sold.

In the ordinary course of business, we enter into forward contracts for our commodity purchases. At January 31, 2026, we had 1,867,527 bushels of forward fixed basis corn purchase contracts and 1,620,635 bushels of forward fixed price corn purchase contracts valued at approximately $6,647,000. These purchase contracts are for various delivery periods through December 31, 2026. At January 31, 2026, we had 528,500 MMBTUs of forward fixed basis natural gas purchase contracts and 2,173,800 MMBTUs of fixed price natural gas purchase contracts valued at approximately $7,385,000 for delivery periods through October 31, 2029. At January 31, 2026, we had 444,000 gallons of fixed price denaturant purchase contracts valued at approximately $635,000 for various delivery periods through April 30, 2026.

In the ordinary course of business, we enter into forward contracts for our commodity sales. At January 31, 2026, we had 2,743 tons of forward fixed price dried distillers grains sales contracts valued at approximately $401,000 for delivery periods through April 30, 2026. At January 31, 2026, we had 21,600 tons of forward fixed price modified distillers grains sales contracts valued at approximately $1,548,000 for delivery periods through August 31, 2026. At January 31, 2026, we had 3,072,000 pounds of forward fixed price corn oil sales contracts valued at approximately $1,716,000 for delivery periods through March 31, 2026.

We recorded gains due to changes in the fair value of our outstanding corn derivative future positions of approximately $91,000 and $497,000 for the three months ended January 31, 2026 and 2025, respectively. We recorded gains due to changes in the fair value of our outstanding ethanol derivative future positions of approximately $2,000 and $6,000 for the three months ended January 31, 2026 and 2025, respectively. We recorded gains due to changes in fair value of our outstanding natural gas derivative future positions of approximately $140,000 for the three months ended January 31, 2026. We recorded losses due to changes in fair value of our outstanding natural gas derivative future positions of approximately ($19,000) for the three months ended January 31, 2025.

As commodity prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol and distillers grains prices as of January 31, 2026, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from January 31, 2026. The results of this analysis, which may differ from actual results, are approximately as follows:


	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of January 31, 2026		Approximate Adverse Change to Income
Natural Gas	676,000	MMBTU	10	%		$	294,000
Ethanol	70,000,000	Gallons	10	%		$	9,870,000
Corn	21,480,000	Bushels	10	%		$	8,398,680
DDGs	116,000	Tons	10	%		$	1,670,000

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

Our management, including our Chief Executive Officer (the principal executive officer), Brian Kletscher, along with our Chief Financial Officer (the principal financial officer), Lucas Schneider, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of

January 31, 2026. Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended January 31, 2026, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There are no material changes to our risk factors previously disclosed in the risk factors section included in our annual report on Form 10-K for the fiscal year ended October 31, 2025.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

Insider Trading Arrangements

On October 23, 2025, Ronald Jorgenson, our governor, posted a bid through FNCAgStock, our Unit Trading Bulletin Board, to buy some of our membership units at a stated price per unit. On October 23, 2025, Mr. Jorgenson executed a contract for purchase of four of our membership units. The purchase was effective as of January 1, 2026. This purchase was intended to satisfy the affirmative defense conditions of a non-rule 10b5-1 trading arrangement.

Item 6. Exhibits.

(a)The following exhibits are filed as part of this report.


Exhibit No.						Exhibit
31.1						Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2						Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1						Certificate Pursuant to 18 U.S.C. Section 1350*
32.2						Certificate Pursuant to 18 U.S.C. Section 1350*
101.INS						Inline XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101).

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		HIGHWATER ETHANOL, LLC

Date:	March 4, 2026	/s/ Brian Kletscher
		Brian Kletscher
		Chief Executive Officer
		(Principal Executive Officer)

Date:	March 4, 2026	/s/ Lucas Schneider
		Lucas Schneider
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

HIGHWATER ETHANOL LLC 10-Q