10-Q 1 a10-qfqe6x30x19.htm 10-Q FQE 6-30-19 Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                    
FORM 10-Q
                    
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
For the fiscal quarter ended June 30, 2019
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Commission file number 000-53202
HOMELAND ENERGY SOLUTIONS, LLC
(Exact name of registrant as specified in its charter)
 
Iowa
 
20-3919356
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
2779 Highway 24, Lawler, Iowa
 
52154
(Address of principal executive offices)
 
(Zip Code)
 
(563) 238-5555
(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
o
 
Accelerated filer
o
Non-accelerated filer
x
 
Smaller Reporting Company
o
(Do not check if a smaller reporting company)
Emerging Growth Company
o
 
 
 
 
 
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 Act). o Yes x No

As of August 13, 2019, we had 90,420 membership units outstanding. On June 13, 2013, the Company entered into an agreement with Steve Retterath, the Company's largest equity holder, to repurchase and retire all of the units owned by Mr. Retterath. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million. Recently, a court ruled that the repurchase agreement was valid and enforceable. The Company's position is as of the closing date of the original agreement, Mr. Retterath is no longer the equitable owner of any membership units in the Company. As a result, the Company has recorded a $30 million short-term liability related to the amount the Company agreed to pay Mr. Retterath to repurchase his membership units and has correspondingly reduced members' equity on the balance sheet. The 90,420 membership units outstanding include the contested membership units the Company agreed to repurchase from Mr. Retterath.










PART I.        FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Homeland Energy Solutions, LLC
Balance Sheets
 
June 30, 2019
 
December 31, 2018
 ASSETS
(Unaudited)
 
(Audited)
 
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
5,325,524

 
$
28,751,994

Trading securities
46,827,752

 
30,553,821

Accounts receivable
9,283,510

 
7,231,721

Inventory
19,937,171

 
14,750,199

Prepaid and other
3,453,769

 
3,345,961

Derivative instruments
3,984,794

 
929,383

Total current assets
88,812,520

 
85,563,079

 
 
 
 
PROPERTY AND EQUIPMENT
 
 
 
Land and improvements
23,169,342

 
23,169,342

Buildings
8,718,139

 
8,718,139

Equipment
218,602,534

 
212,760,113

Construction in progress
1,641,498

 
4,131,692

 
252,131,513

 
248,779,286

Less accumulated depreciation
121,284,047

 
113,583,362

Total property and equipment
130,847,466

 
135,195,924

 
 
 
 
OTHER ASSETS
 
 
 
Right of use asset operating leases, net
5,569,808

 

Utility rights, net of amortization of $1,660,190 and $1,591,994
647,839

 
716,035

Other assets
3,926,251

 
4,118,614

Total other assets
10,143,898

 
4,834,649

 
 
 
 
TOTAL ASSETS
$
229,803,884

 
$
225,593,652


See Notes to Unaudited Financial Statements.

3


Homeland Energy Solutions, LLC
Balance Sheets (continued)
 
June 30, 2019
 
December 31, 2018
LIABILITIES AND MEMBERS' EQUITY
(Unaudited)
 
(Audited)
 
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
7,794,246

 
$
13,177,598

Due to former member
30,000,000

 
30,000,000

Accrued expenses
1,250,339

 
1,370,498

Current portion long term debt
9,000,000

 
6,000,000

Current portion operating lease liability
1,537,632

 

Total current liabilities
49,582,217

 
50,548,096

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 5)

 

 
 
 
 
LONG-TERM LIABILITIES
 
 
 
Term note
14,957,789

 
17,950,754

Operating lease liability
4,032,176

 

Total long-term liabilities
18,989,965

 
17,950,754

 
 
 
 
MEMBERS' EQUITY (64,560 units issued and outstanding)
161,231,702

 
157,094,802

 
 
 
 
TOTAL LIABILITIES AND MEMBERS' EQUITY
$
229,803,884

 
$
225,593,652

 
 
 
 

See Notes to Unaudited Financial Statements.


4


Homeland Energy Solutions, LLC
Statements of Operations
(Unaudited)
 
Three Months Ended
 
Three Months Ended
 
Six Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
 
 
 
 
 
 
 
Revenue
$
84,860,557

 
$
84,188,461

 
$
166,934,954

 
$
160,810,908

 
 
 
 
 
 
 
 
Costs of goods sold
80,260,448

 
72,098,034

 
156,766,974

 
142,794,154

 
 
 
 
 
 
 
 
Gross profit
4,600,109

 
12,090,427

 
10,167,980

 
18,016,754

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
978,893

 
1,102,757

 
2,144,397

 
1,847,830

 
 
 
 
 
 
 
 
Operating income
3,621,216

 
10,987,670

 
8,023,583

 
16,168,924

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest (expense)
(111,775
)
 
(361,170
)
 
(407,882
)
 
(723,938
)
Interest income
10,143

 
3,747

 
22,543

 
6,450

Other income
740,261

 
69,789

 
1,340,656

 
321,354

Total other income (expense)
638,629

 
(287,634
)
 
955,317

 
(396,134
)
 
 
 
 
 
 
 
 
Net income
$
4,259,845

 
$
10,700,036

 
$
8,978,900

 
$
15,772,790

 
 
 
 
 
 
 
 
Basic & diluted net income per capital unit
$
65.98

 
$
165.67

 
$
139.08

 
$
244.22

 
 
 
 
 
 
 
 
Weighted average number of units outstanding for the calculation of basic & diluted net income per capital unit
64,560

 
64,585

 
64,560

 
64,585

 
 
 
 
 
 
 
 
Distribution per Unit
$
75

 
$
150

 
$
75

 
$
150


See Notes to Unaudited Financial Statements.


5


Homeland Energy Solutions, LLC
Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
8,978,900

 
$
15,772,790

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,775,916

 
7,550,064

Unrealized gain on risk management activities
(3,055,411
)
 
46,669

Unrealized gain on trading securities activities
(1,273,931
)
 
95,766

Change in working capital components:
 
 
 
Accounts receivable
(2,051,789
)
 
(4,894,579
)
Inventory
(5,186,972
)
 
1,049,248

Prepaid and other
(107,808
)
 
261,918

Accounts payable and other accrued expenses
(3,732,818
)
 
(2,635,963
)
Net cash provided by operating activities
1,346,087

 
17,245,913

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchase of trading securities
(20,000,000
)
 

Sales of trading securities
5,000,000

 

Payments for equipment and construction in progress
(5,122,920
)
 
(4,792,034
)
Decrease (increase) in other assets
192,363

 
(573,004
)
Net cash (used in) investing activities
(19,930,557
)
 
(5,365,038
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Distribution to members
(4,842,000
)
 
(9,687,750
)
Payments on long-term borrowings

 
(3,000,000
)
Net cash (used in) financing activities
(4,842,000
)
 
(12,687,750
)
 
 
 
 
Net decrease in cash and cash equivalents
(23,426,470
)
 
(806,875
)
 
 
 
 
Cash and Cash Equivalents - Beginning
28,751,994

 
29,568,227

Cash and Cash Equivalents - Ending
$
5,325,524

 
$
28,761,352

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest, net of capitalized interest of $179,142 and $0
$
308,240

 
$
840,645

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Establishment of lease liability and right-of-use asset
$
6,320,411

 
$

 
 
 
 
Accounts payable issued for property and equipment additions
$
25,386

 
$
196,277


See Notes to Unaudited Financial Statements.

6


Homeland Energy Solutions, LLC
Statements of Changes in Members' Equity

 
Members' Equity
 
 
Balance - December 31, 2017
$
151,600,547

 
 
Net income for the three-month period ended March 31, 2018
5,072,754

 
 
Balance - March 31, 2018
156,673,301

 
 
Net income for the three-month period ended June 30, 2018
10,700,036

 
 
Member distribution
(9,687,750
)
 
 
Balance - June 30, 2018
$
157,685,587


 
Members' Equity
 
 
Balance - December 31, 2018
$
157,094,802

 
 
Net income for the three-month period ended March 31, 2019
4,719,055

 
 
Balance - March 31, 2019
161,813,857

 
 
Net income for the three-month period ended June 30, 2019
4,259,845

 
 
Member distributions
(4,842,000
)
 
 
Balance - June 30, 2019
$
161,231,702


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


7

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements


1.
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed 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. These 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 December 31, 2018, contained in the Company's annual report on Form 10-K for 2018.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments.

Nature of Business
Homeland Energy Solutions, LLC (an Iowa Limited Liability Company) is located near Lawler, Iowa and was organized to pool investors for a 100 million gallon ethanol plant with distribution primarily throughout the United States. The Company has capacity to produce in excess of 190 million gallons annually and sells distillers dried grains and corn oil as byproducts of ethanol production.

Organization
Homeland Energy Solutions, LLC is organized as an Iowa limited liability company. The members' liability is limited as specified in Homeland Energy Solutions' operating agreement and pursuant to the Iowa Revised Uniform Limited Liability Company Act.

Significant Accounting Policies:

Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with United States 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. Actual results could differ from those estimates.

Cash & Cash Equivalents
The Company maintains its accounts primarily at one financial institution. At various times, the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced losses in such accounts. Also included in cash and equivalents are highly liquid investment that are readily convertible into known amounts of cash, which are subject to an insignificant risk of change in value due to interest rate, quoted price or penalty on withdrawal and have a maturity of three months or less.

Trading Securities
Investments bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are measured at fair value using prices obtained from pricing services. Any interest, dividends, and unrealized or realized gains and losses on the trading securities are recorded as part of other income.

At June 30, 2019, trading securities consisted of short term bond mutual funds with an approximate cost of $46,739,000 and fair value of $46,828,000. At December 31, 2018, trading securities consisted of corporate bonds and short term bond mutual funds with an approximate cost of $31,292,000 and fair value of $30,554,000. For the three and six months ended June 30, 2019, the Company recorded interest, dividend and net realized and unrealized gains from these investments of approximately $688,000 and $1,273,000, respectively, included in other income on the statement of operations. During the same time period of 2018, the Company recorded interest, dividends and net unrealized gains and losses from these investments of approximately $59,000 and $(96,000), respectively.

The Board of Directors voted to set aside up to $30 million in trading securities that will be used by the Company for the repurchase of 25,860 membership units per the terms of an agreement with Mr. Retterath entered into on June 13, 2013 with the Company.


8

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

Receivables
Credit sales are made primarily to two customers and no collateral is required. The Company carries these accounts receivable at original invoice amount with no allowance for doubtful accounts due to the historical collection rates on these accounts.

Investments
The Company has a less than 20% investment interest in Renewable Products Marketing Group, LLC ("RPMG"). This investment is being accounted for under the equity method of accounting, as the Company has significant influence, under which the Company's share of net income is recognized as income in the Company's statement of operations and added to the investment account. The investment balance is included in other assets and the income recognized as other income. The investment is evaluated for indications of impairment on a regular basis. A loss would be recognized when the fair value is determined to be less than the carrying value.

Revenue and Cost Recognition
In the first quarter of 2018, the Company adopted Accounting Standards Update (ASU) 2014-9, Revenue from Contracts with Customers (Topic 606). Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration 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 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 Company generally has a single performance obligation in its arrangements with customers. The Company believes for its contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When the Company performs shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The implementation of the new standard does not have any material impact on the measurement or recognition of revenue of prior periods, however additional disclosures have been added in accordance with the ASU.

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.

sales of ethanol;

sales of distiller grains; and

sales of corn oil;

All revenue recognized in the income statement is considered to be revenue from contracts with customers. The disaggregation of revenue according to product line, along with accounts receivable from contracts with customers, is as disclosed in Note 5.

Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer. Rail car lease costs incurred by the Company in the sale and shipment of distiller grain products are included in the cost of goods sold.

Inventories
Inventories are generally valued at the lower of cost (first-in, first-out) 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 reasonably predictable costs of completion, disposal, and transportation.

Property & Equipment
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset group may not be recoverable. If circumstances require an asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by the asset group to the carrying value of the asset group. If the carrying value of the asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent

9

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

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.
 
Derivative Instruments
The Company evaluates its 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. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.
 
The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
 
As part of its trading activity, the Company uses futures and option contracts through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.
 
Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenue in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative instruments. All contracts with the same counter party are reported on a net basis.

Committed Shares to be Redeemed
On June 13, 2013, the Company entered into an agreement with Steve Retterath, the Company's largest member, to repurchase and retire all of the membership units owned by Mr. Retterath. The Company agreed to close on this repurchase on or before August 1, 2013. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million, to be paid in two equal installments payable at closing and on July 1, 2014. The transaction failed to close by the scheduled date due to objections by Mr. Retterath. Due to all conditions of the agreement being met prior to, or on, August 1, 2013, and a court ruling which found the agreement to be binding and enforceable, the Company believes that it has a binding agreement with Mr. Retterath; as such the commitment to repurchase and retire the membership units is reflected in the financial statements as a current liability, due to former member, as if the transaction had closed on August 1, 2013. See Note 9 for additional information.

Net Income per Unit
Basic and diluted net income per unit is computed by dividing net income by the weighted average number of members' units and members' unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company's basic and diluted net income per unit are the same.

Prior to, or on, August 1, 2013, the Company believes it has a binding agreement with Steve Retterath to repurchase and retire all 25,860 membership units owned by Mr. Retterath. These membership units have thus been excluded in the determination of net income per capital unit as presented in the Statement of Operations. The Company is currently involved in litigation with Mr. Retterath. There is potential that Mr. Retterath will continue as a unit holder upon conclusion of the litigation and said membership units would not be redeemed under the repurchase agreement. If the units are not redeemed, basic and diluted net income per unit, including the 25,860 units, for the three and six months ended June 30, 2019 would be $47.11 and $99.30, respectively. Net income per unit for the three and six months ended June 30, 2018 would have been $118.30 and $174.39, respectively.

Risks and Uncertainties
The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distiller grains and corn oil to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the six months ended June 30, 2019, ethanol sales averaged

10

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

approximately 78% of total revenues, while approximately 18% of revenues were generated from the sale of distiller grains. Corn oil sales attributed approximately 4% of revenues during this time period. For the six months ended June 30, 2019, corn costs averaged approximately 77% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which ethanol is sold and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, and government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

Recent & Pending Accounting Pronouncements
In February 2016, FASB issued ASU No. 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 of 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 January 1, 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 nonlease components as a single lease component. See Note 6 for more detailed information regarding leases.

In August 2018, FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 changes some of the disclosure requirements related to fair value measurements related to the Level 1, 2 and 3 investments. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and for interim periods within that fiscal year. The Company is currently evaluating the impact of its pending adoption of the new standard on the financial statement.

2.    INVENTORY

Inventory consisted of the following as of June 30, 2019 and December 31, 2018:
 
 
June 30, 2019
 
December 31, 2018
Raw Materials
 
$
14,214,645

 
$
8,983,124

Work in Process
 
2,816,885

 
2,295,715

Finished Goods
 
2,905,641

 
3,471,360

Totals
 
$
19,937,171

 
$
14,750,199


3.    DEBT

Master Loan Agreement with Home Federal Savings Bank
On June 29, 2017, the Company amended and restated the Master Loan Agreement with Home Federal Savings Bank ("Home Federal"), amending the term revolving loan to provide funding to operate the plant and establishing a term loan to help fund the Company's $42 million expansion project. In return, the Company entered into agreements providing Home Federal a security interest in substantially all personal property located on Company property. The Company currently has two loans with Home Federal, a term revolving loan and a term loan.

Term Revolving Loan
Under the terms of the Second Supplement to the Master Loan Agreement, dated June 29, 2017, the Company has a $30 million term revolving loan which has a maturity date of December 31, 2022. Interest on the term revolving loan is due monthly and accrues at a rate equal to the one month LIBOR plus 310 basis points, 5.53% on June 30, 2019. There was no balance outstanding on the term revolving loan and $30 million available to be drawn as of June 30, 2019 and December 31, 2018, respectively.

11

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements


Term Debt
Under the terms of the Fourth Supplement to the Master Loan Agreement, dated June 29, 2017, the Company has a $30 million term loan which has a maturity date of December 31, 2022. Interest on the term loan is at a fixed rate of 4.79%. The Company is required to make monthly interest payments beginning July 1, 2017 and bi-annual principal payments of $3 million beginning on June 30, 2018. The long-term portion of the outstanding debt is presented net of unamortized debt issuance costs of $42,211 and $49,246 as of June 30, 2019 and December 31, 2018, respectively.

At June 30, 2019, the Company had the following debt maturities on the term loan for the twelve month periods ended June 30:
2020
 
$
9,000,000

2021
 
6,000,000

2022
 
6,000,000

2023
 
3,000,000

         Total principal payments
 
$
24,000,000


Covenants
During the term of the loans, the Company is subject to certain financial covenants at various times calculated monthly, quarterly or annually, including restriction of the payment of dividends and capital expenditures and maintenance of certain financial ratios including the minimum working capital and a fixed charge ratio as defined by the Master Loan Agreement. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. The Company is in compliance with all debt covenants as of June 30, 2019.

4.    RELATED PARTY TRANSACTIONS

Due to former member
On June 13, 2013, we entered into an agreement with Steve Retterath, the Company's largest member, to repurchase and retire all of the units owned by Mr. Retterath. The Company agreed to close on this repurchase on or before August 1, 2013. The Company agreed to repurchase and retire 25,860 membership units owned by Mr. Retterath in exchange for $30 million, to be paid in two equal installments payable at closing and on July 1, 2014. The transaction failed to close by the scheduled date due to objections by Mr. Retterath. The Company believes that it has a binding agreement with Mr. Retterath. On August 14, 2013, the Company filed a lawsuit against Mr. Retterath in Iowa state court to enforce the terms of the repurchase agreement. The Company is asking the Iowa state court to require Mr. Retterath to complete the repurchase agreement pursuant to its terms.

Mr. Retterath contends he is not bound by the agreement.  The Company's position is as of the closing date, Mr. Retterath is no longer the equitable owner of any membership units in the Company. As a result, in 2013 the Company recorded a $30 million short-term liability related to the amount the Company agreed to pay Mr. Retterath to repurchase his membership units and correspondingly reduced members' equity on the balance sheet. If the Company is ultimately unsuccessful in its lawsuit against Mr. Retterath, the Company will reevaluate the accounting considerations made during the period of time that the lawsuit is pending.

Other matters
The Company has purchased corn and materials from members of its Board of Directors who own or manage elevators or are local producers of corn. Purchases during the three and six months ended June 30, 2019 totaled approximately $559,000 and $1,979,000 respectively, and during the three and six months ended June 30, 2018 totaled approximately $354,000 and $1,542,000, respectively. There was approximately $24,000 and $0 due to these members at June 30, 2019 and December 31, 2018, respectively.

5.    COMMITMENTS, CONTINGENCIES, AGREEMENTS AND SUBSEQUENT EVENTS

Ethanol, corn oil, and distiller grains marketing agreements and major customers

The Company has entered into a marketing agreement with RPMG to sell all ethanol produced at the plant at a mutually agreed on price, less commission and transportation charges. As of June 30, 2019, the Company had no commitments to sell ethanol at

12

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

fixed prices and 50 million of its produced gallons of ethanol at basis price levels indexed against exchanges for delivery through September 30, 2019.

The Company has entered into a marketing agreement with RPMG to sell all corn oil produced at the plant at a mutually agreed on price, less marketing fees and transportation charges. As of June 30, 2019, the Company had commitments to sell approximately 8 million pounds of corn oil at various fixed and basis price levels indexed against exchanges for delivery through August 31, 2019.

The Company also has an investment in RPMG, included in other assets, totaling approximately $2,356,000 and $2,522,000 as of June 30, 2019 and December 31, 2018, respectively.

The Company has entered into a marketing agreement to sell all distiller grains produced at the plant to CHS, an unrelated party, at a mutually agreed on price, less commission and transportation charges. The agreement was renewed for another one year term on April 1, 2019. The agreement calls for automatic renewal for successive one-year terms unless 90-day prior written notice is given before the current term expires. As of June 30, 2019, the Company had approximately 50,000 tons of distiller grains sales commitments for delivery through September 2019 at various fixed prices.

Sales and marketing fees related to the agreements in place for the three and six months ended June 30, 2019 and 2018 were approximately as follows:
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2019
 
June 30, 2018
 
June 30, 2018
Sales ethanol
$
66,325,000

 
$
129,946,000

 
$
63,999,000

 
$
123,172,000

Sales distiller grains
14,973,000

 
30,255,000

 
16,855,000

 
31,650,000

Sales corn oil
3,562,000

 
6,734,000

 
3,335,000

 
5,989,000

 
 
 
 
 
 
 
 
Marketing fees ethanol
$
61,000

 
$
122,000

 
$
66,000

 
$
132,000

Marketing fees distiller grains
168,000

 
402,000

 
216,000

 
422,000

Marketing fees corn oil
27,000

 
51,000

 
28,000

 
50,000

 
 
 
 
 
 
 
 
 
As of June 30, 2019
 
As of December 31, 2018
 
 
 
 
Amount due from RPMG
$
7,292,000

 
$
4,927,000

 

 

Amount due from CHS
1,991,000

 
2,170,000

 

 


At June 30, 2019, the Company had approximately $21,138,000 in outstanding priced corn purchase commitments for bushels at various prices and approximately 2,420,000 bushels of basis contracts through December 2020 accounted for under the normal purchase exclusion.

The Company has commitments for minimum purchases of various utilities such as natural gas and electricity over the next 12 months totaling approximately $7,192,000 accounted for under the normal purchase exclusion.

As of June 30, 2019, the Company had locked in place approximately 2,422,500 decatherms of natural gas at fixed prices through December 31, 2019 accounted for under the normal purchase exclusion. As of June 30, 2018, approximately 5,362,000 decatherms of natural gas was locked into place at fixed prices through December 31, 2019.

6.    LEASE OBLIGATIONS

Effective January 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 2018. The Company elected the short-term lease

13

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

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 7 years. 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. Rent expense incurred for the operating leases during the three and six months ended June 30, 2019 was approximately $433,000 and $854,000, respectively, and for the same period in 2018 was approximately $379,000 and $753,000, respectively. The lease agreements have maturity dates ranging from March 2022 to October 2025. The weighted average remaining life of the lease term for these leases was 3.40 years as of June 30, 2019.

The discount rate used in determining the lease liability for each individual lease was the Company's estimated incremental borrowing rate of 4.79%. The right-of-use asset operating lease, included in other assets, and operating lease liability, included in current and long term liabilities was $5,569,808 as of June 30, 2019.

At June 30, 2019, the Company had the following approximate minimum rental commitments under non-cancelable operating leases for the twelve month period ended June 30:
2020
 
$
1,789,000

2021
 
1,789,000

2022
 
1,598,000

2023
 
586,000

2024
 
163,000

2025
 
154,000
         Total lease commitments
 
$
6,079,000


A reconciliation of the undiscounted future payments in the schedule above and the lease liability recognized in the consolidated balance sheet as of June 30, 2019, is shown below.
Undiscounted future payments
 
$
6,079,000

Discount effect
 
(509,192
)
 
 
$
5,569,808


7. DERIVATIVE INSTRUMENTS

The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures and options contracts to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and uses exchange traded futures and options contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of exchange traded futures and options contracts related to corn and natural gas are recorded in costs of goods sold and changes in market prices of contracts related to the sale of ethanol, if applicable, are recorded in revenues.

14

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

The Company uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The Company's plant will grind approximately 67 million bushels of corn per year.  Over the next twelve months, the Company has hedged and anticipates hedging between 5% and 25% of its anticipated annual grind.  At June 30, 2019, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately 14% of its anticipated monthly grind over the next twelve months.
  
The following table represents the approximate amount of realized/unrealized gains (losses) and changes in fair value recognized in earnings on commodity contracts for the three and six months ending June 30, 2019 and 2018 and the fair value of derivatives as of June 30, 2019 and December 31, 2018:
 
Income Statement Classification
 
Realized Gain (Loss)
 
 Change In Unrealized Gain (Loss)
 
Total Gain (Loss)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts for the
 
 


 


 


three months ended June 30, 2019
Cost of Goods Sold
 
$
(2,141,000
)
 
$
(460,000
)
 
$
(2,601,000
)
 
 
 


 


 


Commodity contracts for the
 
 


 


 


three months ended June 30, 2018
Cost of Goods Sold
 
$
737,000

 
$
2,509,000

 
$
3,246,000

 
 
 


 


 


Commodity contracts for the
 
 


 


 


six months ended June 30, 2019
Cost of Goods Sold
 
$
(1,318,000
)
 
$

 
$
(1,318,000
)
 
 
 
 
 
 
 
 
Commodity contracts for the
 
 


 


 


six months ended June 30, 2018
Cost of Goods Sold
 
$
(405,000
)
 
$
1,743,000

 
$
1,338,000

 
Balance Sheet Classification
 
June 30, 2019
 
December 31, 2018
Futures contracts
 
 
 
 
 
In gain position
 
 
$
804,000

 
$
271,000

In loss position
 
 
(551,000
)
 
(19,000
)
Cash held by broker
 
 
3,732,000

 
677,000

 
Current Asset
 
$
3,985,000

 
$
929,000


8.    FAIR VALUE MEASUREMENTS

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 uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes 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 observability of the 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: 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.

15

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

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 classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Trading securities: Trading securities consisting of corporate bonds and short term bond mutual funds are reported at fair value utilizing Level 1 inputs. Trading securities are measured at fair value using prices obtained from pricing services.

Derivative financial instruments: Commodity futures and exchange-traded commodity options contracts 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 CBOT and NYMEX markets. 

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 
Total
 
Level 1
 
Level 2
 
Level 3
As of June 30, 2019
 
 
 
 
 
 
 
Trading securities, assets
$
46,828,000

 
$
46,828,000

 
$

 
$

Derivative financial instruments


 


 


 


Assets
$
804,000

 
$
804,000

 
$

 
$

     Liabilities
(551,000
)
 
(551,000
)
 

 

 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
Trading securities, assets
$
30,554,000

 
$
30,554,000

 
$

 
$

Derivative financial instruments


 


 


 


Assets
$
271,000

 
$
271,000

 

 

     Liabilities
(19,000
)
 
(19,000
)
 

 


The Company's financial assets and liabilities not recorded at fair value, for which carrying value approximates fair value, consists of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. Additionally, fixed rate term debt, carried at book value of $24,000,000 at June 30, 2019, had an estimated fair value of approximately $23,862,000, determined based on a discounted cash flows model. As of December 31, 2018, carrying value of long term debt carried at book value of $24,000,000 at December 31, 2018, had an estimated fair value of approximately $23,520,000.

9.    LITIGATION MATTERS

Retterath

In relation to the repurchase agreement discussed in Note 4, on August 1, 2013 Mr. Retterath filed a lawsuit against the Company along with several directors, the Company's former CEO, former CFO, COO, a former director and the Company's outside legal counsel in Florida state court. In August 2016, this lawsuit was voluntarily dismissed without prejudice by the Retteraths. On August 14, 2013, the Company filed a lawsuit in Iowa state court to enforce the repurchase agreement the Company entered into with Mr. Retterath. No distributions have been paid to Mr. Retterath since the time of the original expected closing date of August 1, 2013. On June 15, 2017, the Iowa Court ruled in favor of Homeland that the repurchase agreement was valid and directed Mr. Retterath to perform his obligations under the repurchase agreement by August 1, 2017. Mr. Retterath subsequently filed various motions with the Iowa Court and was granted a stay regarding his obligation to perform the repurchase agreement while the court considered his post trial motions. On May 7, 2018, the Iowa Court denied Mr. Retterath's motions for a new trial and to reconsider the Iowa Court's prior ruling. Mr. Retterath is appealing the Iowa Court's decisions which is pending.



16

Homeland Energy Solutions, LLC
Notes to Unaudited Financial Statements

GS Cleantech Corporation

On August 9, 2013, GS Cleantech Corporation (GS Cleantech), a subsidiary of Greenshift Corporation, filed a complaint against the Company alleging that the Company's operation of a corn oil extraction process licensed by the Company infringes patent rights claimed by GS Cleantech. GS Cleantech seeks royalties, damages and potentially triple damages associated with the alleged infringement, as well as attorney's fees from the Company. The Company filed a motion for summary judgment which was granted by the Court. GS Cleantech is appealing this decision.

17


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
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 "may," "will," "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. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report or in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We are not under any duty to update the forward-looking statements contained in this report. 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.

Overview

Homeland Energy Solutions, LLC (referred to herein as "we," "us," the "Company," or "Homeland") is an Iowa limited liability company. Homeland was formed on December 7, 2005 for the purpose of pooling investors for the development, construction and operation of a 100 million gallon per year ethanol plant located near Lawler, Iowa. We began producing ethanol and distiller grains at the plant in April 2009. We completed installation of corn oil extraction equipment and commenced selling corn oil during our fourth quarter of 2011. During our fourth quarter of 2017, we completed a plant expansion project. The ethanol plant is now capable of operating at a rate in excess of 190 million gallons of ethanol per year.

Results of Operations

Comparison of Fiscal Quarters Ended June 30, 2019 and 2018     

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended June 30, 2019 and 2018:
 
 
2019
 
2018
Income Statement Data
 
Amount
 
%
 
Amount
 
%
Revenue
 
$
84,860,557

 
100.0

 
$
84,188,461

 
100.0

 
 
 
 
 
 
 
 
 
Costs of goods sold
 
80,260,448

 
94.6

 
72,098,034

 
85.6

 
 
 
 
 
 
 
 
 
Gross profit
 
4,600,109

 
5.4

 
12,090,427

 
14.4

 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
978,893

 
1.2

 
1,102,757

 
1.3

 
 
 
 
 
 
 
 
 
Operating income
 
3,621,216

 
4.3

 
10,987,670

 
13.1

 
 
 
 
 
 
 
 
 
Other income (expense)
 
638,629

 
0.8

 
(287,634
)
 
(0.3
)
 
 
 
 
 
 
 
 
 
Net income
 
$
4,259,845

 
5.0

 
$
10,700,036

 
12.7


Revenue

Our total revenue for our second quarter of 2019 was approximately 1% greater than our total revenue for our second quarter of 2018. Management attributes this increase in revenue with increased sales of our ethanol and distiller grains, products, partially offset by lower average ethanol and distiller grains prices during the 2019 period.

For our second quarter of 2019, our total ethanol revenue was approximately 4% greater than our second quarter of 2018 due to increased gallons of ethanol sold, partially offset by lower average ethanol sales prices. The average price we received for our ethanol during our second quarter of 2019 was approximately 1% less than during our second quarter of 2018. Management attributes this decrease in ethanol prices with decreased ethanol demand due to small refinery exemptions from the Renewable Fuels Standard (RFS) issued by the EPA during 2018 and 2019 which was not offset by increased demand from exports. Management

18


anticipates ethanol prices to remain lower for the rest of our 2019 fiscal year. If export demand decreases, it may result in additional excess ethanol in the United States market which could negatively impact prices.

We sold approximately 5% more gallons of ethanol during our second quarter of 2019 compared to the same period of 2018. Management attributes this increase in ethanol sales with increased production at the ethanol plant due to our plant expansion project and further increases in plant production efficiency. Management anticipates additional increases in ethanol production as we work to optimize our expanded plant and seek additional operating efficiencies.
    
Our total distiller grains revenue was approximately 11% less during our second quarter of 2019 compared to the same period of 2018, due primarily to decreased dried distiller grains prices. The average price we received for our dried distiller grains was approximately 15% less during our second quarter of 2019 compared to the same period of 2018. We sell nearly all of our distiller grains in the dried form. Management attributes these lower distiller grains prices to supply and demand imbalances which have decreased distiller grains prices. Market corn prices are higher but distiller grains prices have not kept pace with increases in corn prices. Distiller grains are typically used as a feed substitute for corn and soybean meal. Management anticipates distiller grains prices will remain lower unless China reenters the distillers grains market, which could result in a significant increase in distiller grains demand. However, due to recent trade tensions between the United States and China, it is not anticipated that China will reenter the distiller grains market in the near term.

We sold approximately 6% more total tons of distiller grains during our second quarter of 2019 compared to the same period of 2018. This increase was due to increased production of distiller grains due to our increased total production along with decreased corn oil production. As we extract less corn oil from our distiller grains, it results in more tons of distiller grains production. Management anticipates distiller grains production will continue to increase as we continue to maximize production of our expanded plant.

Our total corn oil revenue was approximately 7% greater for our second quarter of 2019 compared to the same period of 2018 due to increased corn oil average prices during the 2018 period. We sold approximately 4% fewer pounds of corn oil during our second quarter of 2019 compared to the same period of 2018 primarily because of decreased corn oil extraction efficiency. The average price we received for our corn oil was approximately 11% greater during our second quarter of 2019 compared to the same period of 2018. The increase in corn oil prices occurred, in part, due to increased corn oil demand from biodiesel production and favorable corn oil sales contracts we procured during the 2019 period.

Cost of Goods Sold

Our two primary costs of production are corn costs and natural gas costs. Our total cost of goods sold was approximately 11% greater for our second quarter of 2019 compared to the same period of 2018. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 6% greater during our second quarter of 2019 compared to our second quarter of 2018, due to increased corn consumption from our increased production along with higher average corn costs per bushel. Our average cost per bushel of corn was approximately 2% greater during our second quarter of 2019 compared to our second quarter of 2018 due to increased corn demand and late planting during 2019 which raises concerns about the size of the corn crop that will be harvested in the fall of 2019. We processed approximately 4% more bushels of corn during our second quarter of 2019 compared to our second quarter of 2018 due to increased production at the plant. Management anticipates corn prices to continue to increase until harvest and potentially after harvest depending on the size of the corn crop. The effect of late planting and poor weather conditions could result in higher corn prices during the rest of our 2019 fiscal year and into our 2020 fiscal year.

Our total cost of goods sold related to natural gas was less during our second quarter of 2019 compared to the same period of 2018 primarily due to lower average natural gas prices, partially offset by increased natural gas consumption during the 2019 period. During our second quarter of 2019, the average delivered price we paid per MMBtu of natural gas was approximately 7% less compared to the same period of 2018. We used approximately 5% more MMBtu of natural gas during our second quarter of 2019 compared to our second quarter of 2018 due to increased production. Management anticipates natural gas prices will be lower in the remaining months of our 2019 fiscal year due to decreased natural gas usage for heating. However, if we experience another cold and long winter next year, it could result in higher natural gas prices during the winter months. In an effort to offset the risk of such increases, the Company has locked in pricing for approximately 85% of its anticipated natural gas needs through the end of 2019. Further, if a shortage of natural gas were to occur, it could result in significantly higher natural gas prices which could negatively impact our profitability.

We engage in risk management activities that are intended to fix the purchase price of the corn and natural gas we require to produce ethanol, distiller grains and corn oil. During our second quarter of 2019, we had a realized loss of approximately $2,141,000 and an unrealized loss of approximately $460,000 related to our corn and natural gas derivative instruments. During

19


our second quarter of 2018, we had a realized gain of approximately $737,000 and an unrealized gain of approximately $2,509,000 related to our corn derivative instruments. We recognize the gains or losses that result from changes in the value of our corn and natural gas derivative instruments in cost of goods sold as the changes occur. Our plant is expected to use approximately 67 million bushels of corn per year following our expansion. As of June 30, 2019, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately between 5% and 25% of its anticipated monthly grind for the next twelve months.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were less during our second quarter of 2019 than our second quarter of 2018, due to fewer legal and accounting expenses as compared to 2018.

Other Income (Expense)

We had less interest expense during our second quarter of 2019 compared to the same period of 2018 due to less borrowing outstanding during the 2019 period as well as capitalized interest in second quarter of 2019. We had more other income during our second quarter of 2019 compared to the same period of 2018 due to more income earned from our equity method investments in 2019.

Comparison of Six Months Ended June 30, 2019 and 2018     

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the six months ended June 30, 2019 and 2018:

 
 
2019
 
2018
Income Statement Data
 
Amount
 
%
 
Amount
 
%
Revenue
 
$
166,934,954

 
100.0

 
$
160,810,908

 
100.0

 
 
 
 
 
 
 
 
 
Costs of goods sold
 
156,766,974

 
93.9

 
142,794,154

 
88.8

 
 
 
 
 
 
 
 
 
Gross profit
 
10,167,980

 
6.1

 
18,016,754

 
11.2

 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
2,144,397

 
1.3

 
1,847,830

 
1.1

 
 
 
 
 
 
 
 
 
Operating income
 
8,023,583

 
4.8

 
16,168,924

 
10.1

 
 
 
 
 
 
 
 
 
Other income (expense)
 
955,317

 
0.6

 
(396,134
)
 
(0.2
)
 
 
 
 
 
 
 
 
 
Net income
 
$
8,978,900

 
5.4

 
$
15,772,790

 
9.8


Revenue

Our total revenue for our six months ended June 30, 2019 was approximately 4% greater than our total revenue for our six months ended June 30, 2018. Management attributes this increase in revenue with increased sales of our products partially offset by decreased average ethanol and distiller grains sales prices during the 2019 period.

For our six months ended June 30, 2019, our total ethanol revenue was approximately 5% greater than our six months ended June 30, 2018 due to increased ethanol production from our completed expansion partially offset by a decrease in the average price we received per gallon of ethanol sold during the 2019 period. The average price we received for our ethanol during our six months ended June 30, 2019 was approximately 2% less than during our six months ended June 30, 2018. Management attributes this decrease in ethanol prices with increased domestic supply of ethanol along with decreased demand due to certain small refinery exemptions from the RFS issued by the EPA.

We sold approximately 8% more gallons of ethanol during our six months ended June 30, 2019 compared to the same period of 2018. Management attributes this increase in ethanol sales with increased plant production from our completed expansion.
    
Our total distiller grains revenue was approximately 4% less during our six months ended June 30, 2019 compared to the same period of 2018, primarily due to decreased distiller grains prices. The average price we received for our dried distiller grains was approximately 7% less during our six months ended June 30, 2019 compared to the same period of 2018. We sold

20


approximately 4% more total tons of distiller grains during our six months ended June 30, 2019 compared to the same period of 2018 due to increased total production at the plant.

Our total corn oil revenue was approximately 12% greater for our six months ended June 30, 2019 compared to the same period of 2018 due to increased corn oil prices and increased corn oil sales during the 2019 period. We sold approximately 1% more pounds of corn oil during our six months ended June 30, 2019 compared to the same period of 2018 primarily because of increased total production at the ethanol plant. The average price we received for our corn oil was approximately 11% greater during our six months ended June 30, 2019 compared to the same period of 2018.

Cost of Goods Sold

Our total cost of goods sold was approximately 10% greater for our six months ended June 30, 2019 compared to the same period of 2018. Our cost of goods sold related to corn, without taking into account derivative instruments, was approximately 12% greater during our six months ended June 30, 2019 compared to our six months ended June 30, 2018 due to higher corn prices and increased corn consumption. Our average cost per bushel of corn was approximately 4% more during our six months ended June 30, 2019 compared to our six months ended June 30, 2018 due to unfavorable weather conditions which impacted our corn supply area during 2018. In addition, wet and cold weather delayed planting and resulted in uncertainty about the corn crop in the area that supplies the plant. Our increased corn consumption due to the plant expansion project may have resulted in higher market corn prices. We processed approximately 8% more bushels of corn during our six months ended June 30, 2019 compared to our six months ended June 30, 2018 due to increased production at the ethanol plant.

We experienced decreased natural gas prices during our six months ended June 30, 2019 compared to the same period of 2018 primarily due to ample natural gas supplies and relatively consistent demand. During our six months ended June 30, 2019, the average delivered price we paid per MMBtu of natural gas was approximately 8% less compared to the same period of 2018. We used approximately 7% more MMBtu of natural gas during six months ended June 30, 2019 compared to our six months ended June 30, 2018 due to increased production at the ethanol plant due to our plant expansion project.

We engage in risk management activities that are intended to fix the purchase price of the corn and natural gas we require to produce ethanol, distiller grains and corn oil. During our six months ended June 30, 2019, we had a realized loss of approximately $1,318,000 related to our corn and natural gas derivative instruments. During our six months ended June 30, 2018, we had a realized loss of approximately $405,000 and an unrealized gain of approximately $1,743,000 related to our corn derivative instruments. We recognize the gains or losses that result from changes in the value of our corn and natural gas derivative instruments in cost of goods sold as the changes occur. Our plant is expected to use approximately 67 million bushels of corn per year following our expansion.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were greater during six months ended June 30, 2019 than our six months ended June 30, 2018, primarily due to increased legal expenses in 2019 as compared to 2018.

Other Income (Expense)

We had less interest expense during our six months ended June 30, 2019 compared to the same period of 2018 due to less borrowing during the 2019 period and interest that was capitalized in the six months ended June 30, 2019. We had more other income during our six months ended June 30, 2019 compared to the same period of 2018 due to more income earned from our equity method investment in the 2019 period.


21


Changes in Financial Condition for the Six Months Ended June 30, 2019
Balance Sheet Data
 
June 30, 2019
 
December 31, 2018
Total current assets
 
$
88,812,520

 
$
85,563,079

Total property and equipment
 
130,847,466

 
135,195,924

Total other assets
 
10,143,898

 
4,834,649

Total Assets
 
$
229,803,884

 
$
225,593,652

 
 
 
 
 
Total current liabilities
 
$
49,582,217

 
$
50,548,096

Total long-term liabilities
 
18,989,965

 
17,950,754

Total members' equity
 
161,231,702

 
157,094,802

Total Liabilities and Members' Equity
 
$
229,803,884

 
$
225,593,652


We had less cash and cash equivalents as of June 30, 2019 compared to December 31, 2018 due to cash invested in short term mutual funds along with cash we used in our operations. As of June 30, 2019, the value of our trading securities was greater compared to the trading securities we had at December 31, 2018 due to increased investment in trading securities and market changes. In order to fund our purchase obligation related to the Retterath repurchase agreement, we have allocated $30 million of our trading securities to the Retterath repurchase. Our accounts receivable was greater at June 30, 2019 compared to December 31, 2018 due to the timing of our quarter end with respect to shipments of our ethanol and payments from our marketer along with increased production which results in increased accounts receivable. We had more inventory on hand at June 30, 2019 compared to December 31, 2018 primarily due to having more corn inventory at June 30, 2019. We had slightly more prepaid expenses at June 30, 2019 compared to December 31, 2018 due to prepaid quarterly and annual dues. The value of our derivative instruments was greater at June 30, 2019 compared to December 31, 2018 due primarily to cash which is held in our margin account with our commodities broker at June 30, 2019.

Our net property and equipment was lower at June 30, 2019 compared to December 31, 2018 due to the net effect of capital expenditures offset by depreciation . The value of our other assets was greater at June 30, 2019 compared to December 31, 2018 due to lease right of use assets resulting from a new accounting pronouncement.

Our current liabilities were less at June 30, 2019 compared to December 31, 2018, primarily due to decreased accounts payable as of June 30, 2019. Our accounts payable was less at June 30, 2019 compared to December 31, 2018 due primarily to having less deferred corn payments at June 30, 2019. Our accrued expenses were lower at June 30, 2019 compared to December 31, 2018 due to payment of wages and performance bonuses and deferred corn payments accrued at December 31, 2018.

Our long-term liabilities were greater at June 30, 2019 compared to December 31, 2018 due to a change in accounting treatment of leases which is reflected on our balance sheet at June 30, 2019.

Liquidity and Capital Resources

Our primary sources of liquidity as of June 30, 2019 were cash from our operations and our $30 million long-term revolving loan. Our credit facilities are described in greater detail below under "Short-Term and Long-Term Debt Sources." As of June 30, 2019, we had $30.0 million available pursuant to our revolving loan and approximately $5.3 million in cash and cash equivalents. We also had $46 million at June 30, 2019 of trading securities, of which $30 million is set aside related to the Retterath repurchase agreement. Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our revolving loan and cash from our operations to continue to operate the ethanol plant at capacity for the next 12 months and beyond. However, should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity financing for working capital or other purposes.


22


The following table shows cash flows for the six months ended June 30, 2019 and 2018:
 
 
2019
 
2018
Net cash provided by operating activities
 
$
1,346,087

 
$
17,245,913

Net cash (used in) investing activities
 
(19,930,557
)
 
(5,365,038
)
Net cash (used for) financing activities
 
(4,842,000
)
 
(12,687,750
)
Cash at beginning of period
 
28,751,994

 
29,568,227

Cash and cash equivalents at end of period
 
$
5,325,524

 
$
28,761,352


Cash Flow From Operations

Our operations used more cash during our first six months of 2019 compared to the same period of 2018 due primarily to changes in our derivative instrument positions and inventory which impacted cash during the 2019 period.

Cash Flow From Investing Activities

We used more cash from investing activities during our first six months of 2019 compared to the first six months of 2018 due to purchases of trading securities during the 2019 period.
Cash Flow From Financing Activities

We used less cash for financing activities during our first six months of 2019 compared to the first six months of 2018 due to decreased distributions and debt payments during the 2019 period.

Short-Term and Long-Term Debt Sources

Master Loan Agreement with Home Federal Savings Bank

On June 29, 2017, we entered into a new $30 million term loan (the "Term Loan") and increased and extended our existing revolving loan (the "Revolving Loan") with Home Federal Savings Bank ("Home Federal"). Each loan is described below.

Term Loan

We have a $30 million term loan with a fixed interest rate of 4.79%.  We will pay interest on the Term Loan monthly with semi-annual principal payments of $3 million commencing on June 30, 2018.  The maturity date of the Term Loan is December 31, 2022.  We have the ability to prepay principal on the Term Loan without penalty or premium by giving Home Federal thirty days advance notice.  If we choose to refinance the Term Loan within the first thirty-six months following the closing, we may be required to pay Home Federal a prepayment fee.  In the event we default on the Term Loan, Home Federal can charge a default interest rate 2% in excess of the current interest rate. As of June 30, 2019, we had approximately $24 million outstanding on the Term Loan. 

Revolving Loan

We have a $30 million term revolving loan which has a maturity date of December 31, 2022. Interest on the Revolving Loan accrues at 310 basis points in excess of the 30-day London Interbank Offered Rate (LIBOR). We are required to make monthly payments of interest until the maturity date on December 31, 2022, on which date the unpaid principal balance of the Revolving Loan becomes due. We agreed to pay a fee of 30 basis points on a per annum basis on the unused portion of the Revolving Loan payable on a quarterly basis. As of June 30, 2019, we had $0 outstanding on the Revolving Loan and $30 million available to be drawn. Interest accrued on the Revolving Loan as of June 30, 2019 at a rate of 5.53% per year.

Covenants

In connection with the Master Loan Agreement, we are required to comply with certain debt covenants and financial ratios. We agreed to a debt service coverage ratio of 1:15 to 1:00 and agreed to increase our minimum working capital covenant from $27.5 million to $30 million once our expansion is complete.  We are permitted to pay distributions to our members up to 100% of our net income for the year in which the distributions are paid provided that immediately prior to the distribution and after giving effect to the distribution, no default exists and we are in compliance with all of our loan covenants including compliance

23


with the financial covenants.  Further, our maximum capital expenditure covenant was increased from $5 million to $10 million per year.      

As of June 30, 2019, we were in compliance with all of our debt covenants and financial ratios. Management anticipates that we will be in compliance with all of our debt covenants and financial ratios for at least the next 12 months.

Failure to comply with the loan covenants or to maintain the required financial ratios may cause acceleration of any future outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the fees, charges or penalties may restrict or limit our access to the capital resources necessary to continue plant operations.

Should we default on any of our obligations pursuant to the Home Federal loans, Home Federal may terminate its commitment to provide us funds and declare any future unpaid principal balance of the loans, plus accrued interest, immediately due and payable. Events of default include the failure to make payments when due, our insolvency, any material adverse change in our financial condition or the breach of any of the covenants, representations or warranties we have made in the loan agreements.

Application of Critical Accounting Estimates

Management uses 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.  Of the significant accounting policies described in the notes to our financial statements, we believe that the following are the most critical:

Derivative Instruments

The Company evaluates its contracts to determine whether the contracts are derivative instruments. Certain contracts that literally meet the definition of a derivative my 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. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.

The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company's derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of its trading activity, the Company uses futures and option contracts through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of all contracts with the same counter-party are presented net on the accompanying balance sheet as derivative instruments net of cash due from/to broker.

Revenue Recognition

Revenue from the sale of the Company's products is recognized at the time control transfer to the customers. This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Interest income is recognized as earned. Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


24


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars and we have no amounts outstanding on variable interest rate debt. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn, natural gas and ethanol. 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.

Commodity Price Risk

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. 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 the 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 our cost of goods sold or as an offset to revenues. 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 of June 30, 2019, we had price protection in place for approximately 14% of our anticipated corn needs, 85% of our natural gas needs and none of our ethanol sales for the next 12 months. A sensitivity analysis has been prepared to estimate our exposure to ethanol, 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 price as of June 30, 2019, 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 June 30, 2019. The results of this analysis, which may differ from actual results, are as follows:
 
 
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)
 
Unit of Measure
 
Hypothetical Adverse Change in Price
 
Approximate Adverse Change to income
Natural Gas
 
2,654,000

 
MMBTU
 
10%
 
$
(663,500
)
Ethanol
 
200,000,000

 
Gallons
 
10%
 
(30,000,000
)
Corn
 
56,760,000

 
Bushels
 
10%
 
(22,704,000
)

For comparison purposes, our sensitivity analysis for our second quarter of 2018 is set forth below.
 
 
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)
 
Unit of Measure
 
Hypothetical Adverse Change in Price
 
Approximate Adverse Change to income
Natural Gas
 
1,200,000

 
MMBTU
 
10%
 
$
(350,400
)
Ethanol
 
190,000,000

 
Gallons
 
10%
 
(25,650,000
)
Corn
 
54,000,000

 
Bushels
 
10%
 
(18,900,000
)

ITEM 4. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, including our President and Chief Executive Officer (the principal executive officer), James Broghammer, along with our Chief Financial Officer, (the principal financial officer), Beth Eiler, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded,

25


processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended June 30, 2019, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.

ITEM 1. LEGAL PROCEEDINGS.

Retterath Lawsuit

On August 14, 2013, the Company filed a lawsuit against Steve Retterath in the Iowa state court located in Polk County, Iowa. The purpose of the lawsuit is to enforce the terms of the repurchase agreement the Company executed with Mr. Retterath on June 13, 2013. The Company asked the Iowa state court to require Mr. Retterath to perform his obligations under the repurchase agreement pursuant to its terms. Mr. Retterath removed the case to federal court in the Federal District Court for the Southern District of Iowa in December 2013. The Company believed that this removal was improper and as a result the Company moved to remand the case back to the Iowa state court in Polk County which was granted. Mr. Retterath answered the lawsuit in August 2014, denying the validity of the repurchase agreement. In addition, the Iowa state court permitted Jason Retterath and Annie Retterath, the son and daughter-in-law of Steve Retterath, to be added as parties to the Iowa state lawsuit. In February 2015, the Company filed a motion for summary judgment asking the Iowa state court to enforce the repurchase agreement. The Retteraths also filed motions for summary judgment asking the Iowa state court to find the repurchase agreement invalid. On October 16, 2015, the Iowa state court entered a ruling granting Homeland's motion for summary judgment and determined no membership vote was required as Mr. Retterath has contended. The Iowa state court also denied the summary judgment motions filed by Mr. Retterath and his son and daughter-in-law.

Mr. Retterath and his son and daughter-in-law filed a motion to add a significant number of additional parties to the Iowa lawsuit along with additional claims against the Company. We filed a resistance to Mr. Retterath's attempts to expand the scope of the Iowa lawsuit. In November 2016, the Iowa Court ruled that our original claims against Mr. Retterath would proceed to trial in January 2017 as scheduled and that any other issues that remain following that trial would be litigated after a ruling is issued in the January 2017 trial. The trial was held in January 2017. On June 15, 2017, the Iowa Court ruled in favor of Homeland that the repurchase agreement was valid and directed Mr. Retterath to perform his obligations under the repurchase agreement by August 1, 2017. Mr. Retterath subsequently filed motions with the Iowa Court to reconsider its ruling or alternatively award Mr. Retterath a new trial. Mr. Retterath also asked the Iowa Court to stay his obligation to perform the repurchase agreement until these motion are ruled on by the Iowa Court. The Iowa Court granted Mr. Retterath's stay while the court considered his post-trial motions. On May 7, 2018, the Iowa Court denied Mr. Retterath's motions for a new trial and to reconsider the Iowa Court's prior ruling. Mr. Retterath filed an appeal of the Iowa Court's decision which is pending.

GS Cleantech Patent Litigation

On August 9, 2013, GS Cleantech Corporation ("GS Cleantech"), a subsidiary of Greenshift Corporation, filed a complaint in the United States District for the Northern District of Iowa against the Company. The Company is one of more than twenty ethanol manufacturers that were sued by GS Cleantech. The complaint alleges that the Company's operation of a corn oil extraction process infringes patent rights claimed by GS Cleantech. GS Cleantech seeks royalties, damages and potentially triple damages associated with the alleged infringement, as well as attorney's fees. The complaint was transferred to the United States District Court for the Southern District of Indiana due to a finding that the action involves questions of fact common to several other lawsuits which were joined in a multi-district litigation ("MDL"). The MDL Court developed two tracks of defendants in this litigation. The first track includes defendants which were originally sued by GS Cleantech in 2010 and a second track of defendants sued in 2013 which includes the Company. On October 23, 2014, the MDL Court granted summary judgment in favor of the first track defendants and found that the GS Cleantech patents which the Company is alleged to have infringed are invalid. Further, in a January 16, 2015 decision, the MDL ruled in favor of a stipulated motion for partial summary judgment finding that all of the GS Cleantech patents in the suit were invalid and, therefore, not infringed.  GS Cleantech filed its notice of appeal for these decisions.

ITEM 1A. RISK FACTORS.

There has not been any material change to the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2018.


26


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.

None.

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)    The following exhibits are filed as part of this report.
Exhibit No.
Exhibit
31.1
31.2
32.1
32.2
101
The following financial information from Homeland Energy Solutions, LLC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of June 30, 2019 and December 31, 2018, (ii) Statements of Operations for the three and six months ended June 30, 2019 and 2018, (iii) Statements of Cash Flows for the six months ended June 30, 2019 and 2018, and (iv) the Notes to Unaudited Financial Statements.**
________________________________
(*) Filed herewith.
(**) Furnished herewith.





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
 
HOMELAND ENERGY SOLUTIONS, LLC
 
 
Date:
August 13, 2019
 
  /s/ James Broghammer
 
James Broghammer
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
Date:
August 13, 2019
 
/s/ Beth Eiler
 
Beth Eiler
 
Chief Financial Officer
(Principal Financial Officer)

28