On July 31, 2013, the Company acquired 63.3% of the outstanding membership units of Heron Lake BioEnergy, LLC (“HLBE”) through its purchase of 100% of the membership units of Project Viking, L.L.C. (“Project Viking”), for a total purchase price of $17,024,500. HLBE is a 50 million gallon per year ethanol plant located in Heron Lake, Minnesota. Project Viking was formed by the previous investor to only hold equity interests in HLBE and the debt incurred to obtain those interests and did not have any other assets or liabilities. The previous owner of Project Viking also owned approximately 12.82% of the outstanding membership units of the Company at July 31, 2013.

Immediately following the closing, the Company, through its 100% ownership of Project Viking, owned 24,080,949 Class A units and 15,000,000 Class B units of HLBE, for a total of 39,080,949 units, or 63.3% of the 61,697,104 outstanding units. As a result, under HLBE's member control agreement, Project Viking is entitled to appoint five (5) of the nine (9) governors to HLBE's board of governors.

On July 31, 2013, the Company entered into a Management Services Agreement with HLBE. Under the Management Services Agreement, the Company agreed to supply its own personnel to act as part-time officers and managers of HLBE for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager. The initial term of the Management Services Agreement is three years. The Company will be paid $35,000 per month by HLBE for the first year of the Management Services Agreement. During years two and three of the agreement, HLBE agreed to pay the Company 50% of the total salary, bonuses, and other expenses and costs incurred by the Company for the three management positions. At the expiration of the initial term, the Management Services Agreement will automatically renew for successive one-year terms unless and until the Company or HLBE gives the other party 90-days written notice of termination prior to expiration of the initial term or the start of a renewal term.

The acquisition date fair value of the consideration transferred consisted of the following:



Cash	$	8,000,000
Note payable	4,024,500
Assumption of note payable to Granite Falls Bank	5,000,000
Total Consideration	$	17,024,500

The assets and liabilities of Project Viking were recorded at their respective estimated fair values as of the date of the acquisition using generally accepted accounting principles for business combinations. The Company used a combination of the market and cost approaches that included unobservable level 3 inputs, to estimate the fair values of the assets acquired and liabilities assumed. The fair value of the long-term debt acquired was determined based on the present value of future contractual cash flows discounted at an interest rate that reflects the current borrowing rates available to the Company for loans with similar terms. The fair market value of the debt assumed was approximately $36.5 million and resulted in a debt premium balance of approximately $2.3 million being recorded as of the acquisition date. The debt premium is amortized as a reduction of interest expense over the term of the debt using the effective interest method. The value of the 36.66% noncontrolling interest was determined by using the fair value method by using the most recent arms-length transaction of HLBE's units that did not include a control premium. The goodwill is attributable to the synergies expected to arise after the acquisition in the purchasing of inputs and the sale of outputs. Goodwill is not expected to be deductible for tax purposes. The fair value of the assets acquired includes account receivables of approximately $3,107,000, all of which are expected to be collectible.

Subsequent to the initial purchase price allocation and within the one year measurement period, new information was obtained about facts and circumstances that existed as of the acquisition date. As such, the purchase price allocation of the HLBE acquisition was retroactively adjusted to include the effect of this measurement period adjustment. An adjustment of approximately $273k was recorded to adjust the fair value of a noncontrolling interest in HLBE, which was adjusted through goodwill during the fourth quarter ended October 31, 2013. The retroactively adjusted purchase price allocation is as follows:



Cash	$	1,022,764
Restricted cash	510,955
Accounts receivable	3,107,121
Inventory	2,303,157
Prepaid expenses	1,107,025
Property, plant, and equipment	51,625,774
Other assets	924,252
Goodwill	1,372,473
Total assets acquired	$	61,973,521

Accounts payable	$	(936,893	)
Accrued expenses	(399,623		)
Notes payable	(36,452,764		)
Non-controlling interest	(7,159,741		)
Net purchase price	$	17,024,500

The acquisition occurred on the last day of the Company's fiscal third quarter, therefore the Company consolidated three months of HLBE's revenues and expenses in the consolidated statements of operations. HLBE contributed revenues of $38,560,522 and earnings of $1,305,044 to the Company for the three month period from August 1, 2013 to October 31, 2013. The net income attributable to non-controlling interests for the year ended October 31, 2013 totaled approximately $527,000.

The following represents the unaudited pro forma consolidated statement of operations as if the transaction occurred at the beginning of the following periods:



	For the years ended
	October 31, 2013		October 31, 2012			October 31, 2011
	Unaudited		Unaudited			Unaudited

Revenues	$	349,304,556	$	343,821,978		$	320,641,864
Net income, including portion attributable to non-controlling interest of $712,289, ($20,702,684), and $361,351, respectively	$	4,864,820	$	(31,794,779	)	$	13,612,987
Earnings per share (30,606, 30,614, and 30,656 weighted average units outstanding - basic and diluted, respectively)	$	116.16	$	(617.00	)	$	412.75

The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each of the periods presented. These amounts have been calculated after adjusting the results of HLBE to reflect the additional amortization of the debt premium that would have occurred assuming the fair value adjustment to long-term debt had been applied at the beginning of each period presented.