Item 1A. Risk Factors
We encourage you to carefully consider the risks
described below and other information contained in this report when considering an investment decision in REX common stock. Any of the
events discussed in the risk factors below may occur. If one or more of these events do occur, our results of operations, financial condition
or cash flows could be materially adversely affected. In this instance, the trading price of REX stock could decline, and investors might
lose all or part of their investment.
Risks Related to our Ethanol and By-Products
Business
The financial returns on our ethanol investments
are highly dependent on commodity prices, which are subject to significant volatility, uncertainty and regional supply shortages, so our
results could fluctuate substantially.
The financial returns on our
ethanol investments are highly dependent on commodity prices, especially prices for corn, natural gas, ethanol, distillers grains, distillers
corn oil and gasoline, and availability of corn. As a result of the volatility of the prices for these items, our returns may fluctuate
substantially and our investments could experience periods of declining prices for their products and increasing costs for their raw materials,
which could result in operating losses at our ethanol plants.
The gross margin at our ethanol
plants depends principally on the spread between ethanol, distillers grains, distillers corn oil, and corn prices. Fluctuations in the
spread are likely to continue to occur. A sustained narrow or negative spread, whether as a result of sustained high or increased corn
prices or sustained low or decreased ethanol prices, would adversely affect the results of operations at our ethanol plants.
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Our returns on ethanol
investments are highly sensitive to corn prices.
Corn is the principal raw material
our ethanol plants use to produce ethanol and by-products. As a result, changes in the price of corn can significantly affect our businesses.
Rising corn prices result in higher production costs of ethanol and by-products. Because ethanol competes with non-corn-based fuels, our
ethanol plants may not be able to pass along increased grain costs to our customers. At certain levels, grain prices may make ethanol
uneconomical to produce.
The price of corn is influenced
by weather conditions and other factors affecting crop yields, transportation costs, farmer planting decisions including input costs,
exports, foreign production, the value of the U.S. dollar, and general domestic and foreign economic, market and regulatory factors, including,
but not limited to, the impacts from the Russian-Ukraine and Middle Eastern conflicts as well as other conflicts and political unrest,
both foreign and domestic. These factors include government policies and subsidies with respect to agriculture, international trade and
tariffs, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is difficult
to predict. Any event that tends to negatively affect the production and/or supply of corn, such as adverse weather or crop disease, could
increase corn prices and potentially harm the business of our ethanol plants, to include intermittent production slowdowns or stoppages.
Increasing domestic ethanol production could boost the demand for corn and result in increased corn prices. International demand for corn
could also result in higher or lower corn prices. Our ethanol plants may also have difficulty, from time to time, in physically sourcing
corn on economic terms due to regional supply shortages, transportation issues, delays in farmer marketing decisions or unfavorable local
pricing. Such a shortage or price impact could require our ethanol plants to suspend operations which would have a material adverse effect
on our consolidated results of operations.
Our risk management strategies
may be ineffective and may expose us to decreased profitability and liquidity.
In an attempt to partially offset
the impact of volatility of commodity prices, we enter into: i) forward contracts to sell a portion of our ethanol, distillers grains,
and distillers corn oil production and to purchase a portion of our corn and natural gas requirements and; ii) commodity futures and swap
agreements. The financial impact of these risk management activities is dependent upon, among other items, the prices involved and our
ability to receive or deliver the commodities involved. Risk management activities can result in financial loss when positions are purchased
in a declining market or when positions are sold in an increasing market. In addition, we may not be able to match the appropriate quantity
of corn contracts with quantities of ethanol, distillers grains and distillers corn oil contracts. Further, our
results may be impacted by a mismatch of gains or losses associated with the positions during a reporting period when the physical commodity
purchase or sale has not yet occurred. We vary the amount and type of risk management techniques we utilize, and we may choose
not to engage in any risk management activities. Should we fail to properly manage the inherent volatility of commodity prices, our results
of operations and financial condition may be adversely affected.
The market for natural
gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that our ethanol plants use
in their manufacturing process.
Our ethanol plants rely upon
third parties for their supply of natural gas, which is consumed as fuel in the production process. The prices for and availability of
natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond the ethanol plants’
control, such as weather conditions, overall economic conditions, export market, governmental regulation and foreign and domestic relations,
including, but not limited to, the impacts from the Russian-Ukraine and Middle Eastern conflicts. Significant disruptions in the supply
of natural gas could impair or completely prevent the ethanol plants’ ability to economically manufacture ethanol for their customers.
Furthermore, increases in natural gas prices may adversely affect results of operations and financial position at our ethanol plants.
Fluctuations in the selling price of commodities
may reduce profit margins at our ethanol plants.
Ethanol is marketed as a fuel additive to reduce
vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of gasoline with which it is blended and, to a lesser
extent, as a gasoline substitute. As a result, ethanol prices are influenced by the supply and demand for gasoline, and our ethanol plants’
results of operations and financial position may be materially adversely affected if gasoline demand decreases or the price of gasoline
declines making ethanol less economical.
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Distillers grains compete with other protein-based
animal feed products. The price of distillers grains may decrease when the prices of competing feed products decrease. The prices of competing
animal feed products are based in part on the prices of the commodities from which these products are made. Historically, sales prices
for distillers grains have tracked along with the price of corn and soybean meal. However, there have been instances when price increases
for distillers grains have lagged increases in corn prices.
The production of distillers grains has increased
as a result of increases in dry mill ethanol production in the United States. This could lead to price declines in what we can sell our
distillers grains for in the future. Such declines could have a material adverse effect on our results of operations.
Pricing of distillers corn oil is primarily driven
by the demand from renewable diesel, biodiesel, and to some extent, synthetic aviation fuel markets. Distillers corn oil is marketed as
a low-carbon feedstock to be used in these markets which may see expanded demand due to the extended blending tax credit, credits included
in the IRA and LCFS markets, resulting in an impact to distillers corn oil demand. With a lower CI score, distillers corn oil may see
improved pricing compared to heating oil and soybean oil, which it has traditionally tracked closely in price. Alternatively, other feedstocks
such as cooking oil and animal fats, with lower CI scoring, could be preferred over distillers corn oil. A decrease in the price of or
demand for distillers corn oil could negatively impact our results of operations.
Inflation could impact the
cost and/or availability of material, labor and other input, which could adversely affect our operations.
We have experienced inflationary impacts on key
production inputs, labor costs consisting of both wages and other labor-related costs, services, equipment and other inputs. These inflationary
pressures could continue or worsen in future periods and may be beyond our control. We may not be able to pass these increased costs along
to our customers through the products we sell. As a result, inflation and higher prices could negatively impact our results of operations.
We are currently working on carbon sequestration
and plant expansion projects at the One Earth plant. We have experienced permitting delays which could lead to inflationary pricing increases
on the construction.
The price of ethanol and distillers grains
may decline as a result of trade restrictions, duties or tariffs on ethanol and distillers grains exports from the United States or from
unfavorable foreign currency exchange rates.
Ethanol and other products that we produce are
sold into various other countries with trade agreements with the United States. If the United States were to withdraw from or materially
modify certain international trade agreements, our business, financial condition and results of operations could be materially adversely
affected. In addition, there have been increased threats of tariffs on imports by the current Trump administration. If tariffs lead to
retaliatory actions by countries that are markets for our products, it could have material adverse effect on our business, financial condition
and results of operations.
The United States exported an estimated 2.2 billion
gallons of ethanol in 2025, up from approximately 1.9 and 1.4 billion gallons in 2024 and 2023, respectively. 36% of the 2025 exports
of ethanol were sold in Canada. Further, in 2025 and 2024, an estimated 11.6 and 12.1 million metric tons, respectively, of distillers
grains were exported by the United States, which represented approximately 36% and 37% in 2025 and 2024, respectively, of U.S production.
Of the total United States exports of distillers grains in 2025, 20% were exported to Mexico. If producers and exporters of ethanol and
distillers grains are subjected to trade restrictions, or additional duties or tariffs are imposed on U.S. exports, particularly by Canada
and Mexico, it may make it uneconomical to export these products. The industry has experienced various trade policy disputes, tariffs
and investigations in foreign countries that have adversely impacted the international demand for our products. Reduced international
demand could lead to further oversupply and reduce pricing.
Increased ethanol production
or decreases in demand for ethanol may result in excess production capacity in the ethanol industry, which may cause the price of ethanol,
distillers grains and distillers corn oil to decrease.
According to the RFA, domestic
ethanol production capacity is approximately 18.5 billion gallons per year. Under RFS II, there were mandated volumes through 2022 for
conventional and advanced biofuels. After 2022, RFS volumes are to be determined by the EPA in coordination with the Secretaries of Energy
and Agriculture. The EPA has set conventional
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renewable fuel
volumes of 15.0 billion gallons for 2023 through 2025. In addition, for 2023 the EPA restored 250 million gallons previously
waived. On March 27, 2026, the EPA issued RVOs for 2026 and 2027 of 15.0 billion gallons of conventional ethanol for
each year. The excess capacity over the EPA proposed
volumes could have an adverse effect on the results of our operations. In a manufacturing industry with excess capacity,
producers have an incentive to manufacture additional products for so long as the price exceeds the marginal cost of
production (i.e., the cost of producing only the next unit, without regard for interest, overhead or fixed costs). This
incentive could result in the reduction of the market price of ethanol to a level that is inadequate to generate sufficient
cash flow to cover costs.
A decrease in demand for ethanol
may also result in excess capacity, which could result from a number of factors, including, but not limited to, regulatory developments,
reduced U.S. gasoline consumption, and increases in gasoline prices. Reduced gasoline consumption could occur as a result of increased
prices for gasoline or crude oil, which could cause businesses and consumers to reduce driving or acquire vehicles with more favorable
gasoline mileage or acquire non-gasoline powered vehicles. In addition, decreased overall economic activity could also lead to reduced
gasoline consumption.
In addition, because ethanol
production produces distillers grains and distillers corn oil as by-products, increased ethanol production will also lead to increased
supplies of distillers grains and distillers corn oil. An increase in the supply of distillers grains and distillers corn oil, without
corresponding increases in demand, could lead to lower prices or an inability to sell our ethanol plants’ distillers grains and
distillers corn oil production. A decline in the price of distillers grains or distillers corn oil could have a material adverse effect
on the results of our business, financial condition, and results of operations.
Future demand for ethanol is uncertain and
changes in overall consumer demand for transportation fuel could affect demand.
There are limited markets for ethanol other than
what is federally mandated. Increased consumer acceptance of E-15 and E-85 fuel is likely necessary in order for ethanol to achieve significant
market share growth beyond federal mandate levels.
Consumer demand for gasoline may be impacted by
emerging transportation trends, such as hybrid and electric vehicles. Some automobile manufacturers have announced plans to phase out
internal combustion engine production by the mid-2030s. There also have been pledges to ban the sale of internal combustion engines in
countries such as Japan and the United Kingdom by 2035, as well as a statewide ban in California, which several states are imitating.
If realized, these bans would accelerate the decline of liquid fuel demand and by extension demand for ethanol, biodiesel and renewable
diesel. Recent federal legislation seeks to address the ever-increasing demand for electric vehicle infrastructure. Reduced demand for
ethanol could cause our results of operations to be materially impacted.
We may not successfully develop our planned
carbon sequestration facility near the One Earth Energy ethanol plant.
The Company has committed significant time and
resources towards a carbon sequestration project near the One Earth Energy ethanol plant. The completion and start-up of this project
requires numerous government approvals. If we are not successful in obtaining all these approvals, we may not be able to complete this
project and could result in a significant write off of our commitments and investment, which totals approximately $58.9 million as of
our most recent year-end. Recent delays in permitting could result in increased costs to complete the project.
If we are not successful on this project, our
ethanol plant could be at a disadvantage in the industry as our inability to sequester our carbon could result in a higher CI score than
our competitors if they are able to sequester their carbon. If we are unable to reduce our CI score, we may not be able to participate
in the state and federal clean fuel programs, including federal tax credits outlined in the IRA and OBBBA.
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Carbon capture and sequestration projects are
subject to federal, state, and local regulations.
In addition to our planned carbon sequestration
facility near our One Earth Energy ethanol plant, we have signed an agreement to deliver our carbon from the NuGen Energy facility to
an outside party. These projects may not result in any realized benefit due to delays or suspended operations. Investments being made
in these projects are based on regulatory guidelines, such as modeling for CI reductions, that may be adjusted outside of our control
and could deviate from our current strategy. Delays in the issuance or regulations or the elimination of clean fuel and other incentives
at the federal, state or local level could adversely affect our business. New legislation limiting our ability to sequester carbon could
be adopted at the federal, state or local levels.
We have secured land easements from all necessary
landowners to allow the construction of the CO2 connector pipeline on their land from the ethanol plant to the first two
injection wells for our carbon sequestration project near the One Earth Energy ethanol facility. We also have landowner subsurface easements
for the first injection well with capacity sufficient to allow for carbon sequestration for our One Earth plant for an estimated 15 years.
In July 2024, the governor of Illinois signed the Safety and Aid for the Environment in Carbon Capture and Sequestration Act. This legislation
imposes additional safety, environmental and other requirements on obtaining permits and approvals for carbon capture and sequestration
facilities in Illinois, including CO2 pipelines. Further, the legislation imposes a moratorium on the issuance of new certificates
of authority for the construction of CO2 pipelines until the earlier of the date federal CO2 pipeline safety standards
are finalized by the federal PHMSA or, subject to certain other conditions, July 1, 2026. As a result of this legislation, the ICC dismissed
our pipeline application without prejudice, and we will be required to resubmit an application after rules are finalized or subsequent
to July 1, 2026. The delays and additional requirements imposed as a result of this act could have an adverse impact on the cost and completion
of our project.
In March 2025, South Dakota enacted
a law that bans the use of eminent domain in connection with carbon dioxide pipelines. In addition, in March 2026, a North
Dakota Court voided the permits issued to Summit Carbon Solutions for underground storage of carbon dioxide as the Court has
deemed the law the permits were issued under to be unconstitutional. Our NuGen ethanol plant has a contract to be a part of
this project. Summit Carbon Solutions is analyzing the decision and is contemplating next steps. These actions could make
the sequestration project for the NuGen facility more difficult for Summit Carbon Solutions to complete.
Our ability to generate 45Z production tax
credits involves regulatory and market uncertainties.
We expect our consolidated ethanol
plants will be able to claim 45Z tax credits for 2025 based on current laws and proposed regulations. Guidelines issued by
the U.S. Department of Treasury are still being finalized. Costs associated with 45Z compliance, including prevailing wage and apprenticeship requirements, could become material. Changes in these requirements, as well as
changes in CI score modeling, could have a material impact on the amount of credits we are able to claim.
45Z tax credits can be utilized by the taxpayer
to reduce income tax payments or the credits can be monetized externally. Fluctuations in demand, uncertainty within the tax credit market
and changes in regulations can all impact our ability to monetize the credits, or impact the value at which the credits can be monetized.
We depend on our partners to operate certain
of our ethanol investments.
Our investments currently represent both majority
and minority equity positions. Day-to-day operating control of minority owned plants generally remains with the local investor group.
We do not have the ability to directly modify the operations of these plants in response to changes in the business environment or in
response to any deficiencies in local operations of the plants. In addition, local plant operators, who also represent the primary suppliers
of corn and other crops to the plants, may have interests, such as the price and sourcing of corn and other crops, that may differ from
our interest, which is based solely on the operating profit of the plant. The limitations on our ability to control day-to-day plant operations
could adversely affect plant results of operations.
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We may not successfully acquire or develop
additional ethanol investments or expansion.
The growth of our ethanol business
depends on our ability to identify and develop new ethanol investments. Any expansion strategy will depend on prevailing market conditions
for the price of ethanol and the cost of corn and natural gas and the expectations of future market conditions. Additional financing may
also be necessary to implement any expansion strategy, which may not be accessible or available on acceptable terms. In addition, failure
to adequately manage the risks associated with additional ethanol investments could have a material adverse effect on our business.
Our ethanol plants may be adversely affected
by technological advances and efforts to anticipate and employ such technological advances may prove unsuccessful.
The development and implementation of new technologies
may result in a significant reduction in the costs of ethanol production. For instance, any technological advances in the efficiency or
cost to produce ethanol from inexpensive cellulosic sources such as corn stalk, wheat, oat or barley straw could have an adverse effect
on our ethanol plants, because our plants are designed to produce ethanol from corn, which is, by comparison, a raw material with other
high value uses. We cannot predict when, or if, new technologies may become available, the rate of acceptance of new technologies by competitors
or the costs associated with new technologies. In addition, advances in the development of alternatives to ethanol could significantly
reduce demand for or eliminate the need for ethanol.
Any advances in technology which require significant
unanticipated capital expenditures to remain competitive or which reduce demand or prices for ethanol would have a material adverse effect
on the results of our ethanol operations.
In addition, alternative fuels, additives and
oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease
the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce
the use of oxygenates, which would lower the demand for ethanol. Reduced demand for ethanol could cause our results of operations to be
materially adversely affected.
The U.S. ethanol industry is highly dependent
upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely
affect our results of operations and financial position.
The renewable fuel standard program was authorized
under the Energy Policy Act of 2005 and was expanded under the EISA. EISA increased the amount of renewable fuel required to be blended
into gasoline with RFS II and required a minimum usage of corn-derived renewable fuels of 12.0 billion gallons in 2010, increasing annually
by 600 million gallons to 15.0 billion gallons in 2015 through 2022, with no specified volume subsequent to 2022. After 2022, RFS volumes
are to be determined by the EPA in coordination with the Secretaries of Energy and Agriculture. The EPA has the authority to assign the
mandated amounts of renewable fuels to be blended into transportation fuel to individual fuel blenders. RFS II has been a primary factor
in the growth of ethanol usage. Over the past several years various pieces of legislation have been introduced to the U.S. Congress that
were intended to reduce or eliminate ethanol blending requirements. To date, none of the bills have been successful but they are an indication
of the continued effort to undermine the EISA.
The EPA has set conventional
renewable fuel volumes of 15.0 billion gallons for 2023 through 2025. Additionally, for 2023, the EPA restored 250 million
gallons previously waived. On March 27, 2026, the EPA issued RVOs for 2026 and 2027 of 15.0 billion gallons of
conventional ethanol for each year.
Obligated parties use RINs to show compliance
with RFS-mandated volumes. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation
fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the
purchasing decisions by obligated parties. As a result of fluctuations in RINs pricing, certain obligated parties have petitioned the
EPA and filed court actions to change the point of obligation or to seek relief from their obligation. The EPA has the authority to waive
the biofuel mandate, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely
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harms the domestic economy or environment. In
addition, under RFS II, a small refiner that processes fewer than 75,000 barrels of oil per day can petition the EPA for a waiver of their
requirement to submit RINs. The EPA, through consultation with the United States Department of Energy and the USDA, can grant the refiner
a full or partial waiver, or deny the waiver. The waiving of a refiner’s obligation effectively lowers the amount of renewable fuels
required to be blended, and by extension the amount of RINs that need to be retired, which can impact their values and ultimately blending
levels of renewable fuels. There are multiple ongoing legal challenges to how the EPA has handled SREs and RFS rulemaking. On August 22,
2025, the EPA ruled on much of the backlog of SREs, issuing 63 full exemptions, 77 partial exemptions of 50%, 28 denials and 7 ruled as
ineligible. On November 7, 2025, the EPA issued two 100% waivers, twelve 50% waivers and two denials. As of March 19, 2026, there were
37 SRE petitions pending from compliance years 2023-2025.
Flexible fuel vehicles (“FFVs”) receive
preferential treatment in meeting federally mandated corporate average fuel economy (“CAFE”) standards for automobiles manufactured
by car makers. High blend ethanol fuels such as E-85 result in lower fuel efficiencies. Absent the CAFE preferences, car makers would
not likely build flexible-fuel vehicles. In recent years, automobile manufactures have lowered the production of FFVs for the U.S. Any
change in CAFE preferences could reduce the growth of E-85 markets and result in lower ethanol prices.
Unfavorable changes in legislation or regulations
could materially and adversely affect our results of operations and financial position.
The inability to generate or obtain RINs could
adversely affect our operating results.
Virtually all our ethanol is sold with RINs that
are used by customers to comply with RFS II. If our production does not meet EPA requirements for RIN generation, as an efficient producer,
in the future, we would have to purchase RINs in the open market or sell our ethanol at substantially lower prices, such as on the export
market, to adjust for the absence of RINs. The price of RINs varies based on many factors and cannot be predicted. Failure to obtain sufficient
RINs or reliance on invalid RINs could subject us to fines and penalties imposed by the EPA.
Various studies have criticized the efficiency
of ethanol, in general, and corn-based ethanol in particular, which could lead to the reduction or repeal of incentives and tariffs that
promote the use and domestic production of ethanol or otherwise negatively impact public perception and acceptance of ethanol as an alternative
fuel.
Although many trade groups, academics and governmental
agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming
considerably more energy and emitting more greenhouse gases than other biofuels and as potentially depleting water resources. Other studies
have suggested that corn-based ethanol negatively impacts consumers by causing prices to increase for dairy, meat and other foodstuffs.
If these views gain acceptance, support for existing
measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of these measures.
These views could also negatively impact public perception of the ethanol industry and acceptance of ethanol as an alternative fuel.
Federal support of cellulosic ethanol may result
in reduced incentives to corn-derived ethanol producers.
The American Recovery and Reinvestment Act of
2009 and EISA provide funding opportunities in support of cellulosic ethanol obtained from biomass sources such as switchgrass and poplar
trees. These federal policies may suggest a long-term political preference for cellulosic processes using alternative feedstocks such
as switchgrass, silage or wood chips. Cellulosic ethanol has a smaller carbon footprint than corn-derived ethanol and is unlikely to divert
foodstuff from the market. Our plants are designed as single-feedstock facilities, located in corn production areas with limited alternative
feedstock nearby, and would require significant additional investment to convert to the production of cellulosic ethanol. The adoption
of cellulosic ethanol as the preferred form of ethanol could have a significant adverse effect on our ethanol business.
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Our ethanol business is affected by environmental
and other regulations which could impede or prohibit our ability to successfully operate our plants.
Our ethanol production facilities are subject
to extensive air, water discharge, and other environmental regulations. We have had to obtain numerous permits to construct and operate
our plants. Regulatory agencies could impose conditions or other restrictions in the permits that are detrimental, or which increase our
costs. More stringent federal or state environmental regulations could be adopted which could significantly increase our operating costs
or require us to expend considerable resources.
Our ethanol plants emit various airborne pollutants
as by-products of the ethanol production process, including carbon dioxide (a greenhouse gas). In 2007, the U.S. Supreme Court classified
carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the EPA to regulate carbon dioxide in vehicle
emissions. In February 2010, the EPA released its final regulations on the Renewable Fuel Standard program. We believe our plants are
grandfathered up to certain operating capacity, but plant expansion requires us to meet a 20% threshold reduction in GHG emissions from
a 2005 baseline measurement to produce ethanol eligible for the RFS II mandate. To further expand our plant capacity, we may be required
to obtain additional permits, install advanced technology equipment, or reduce drying of certain amounts of distillers grains. We may
also be required to install carbon dioxide mitigation equipment or take other steps in order to comply with future laws or regulations.
Compliance with future laws or regulations with respect to emissions of carbon dioxide, or if we choose to expand capacity at certain
of our plants, compliance with then-current regulations of carbon dioxide, could be costly and may prevent us from operating our plants
at full capacity or as profitably, which may have a negative impact on our financial performance. We also face the risk of ethanol production
above our grandfathered capacity not qualifying for RINs if the plants do not meet certain emission requirements.
The California Air Resources Board adopted a LCFS
requiring a 10% reduction in GHG emissions from transportation fuels. An Indirect Land Use Charge is included in this lifecycle GHG emission
calculation. This standard could have an adverse impact on the market for corn-based ethanol in California if corn-based ethanol fails
to achieve lifecycle GHG emission reductions and in other states if they adopt similar standards. This could have a negative impact on
our financial performance.
Our ethanol business may become subject to
various environmental and health and safety and property damage claims and liabilities.
Operation of our ethanol business exposes the
business to the risk of environmental and health and safety claims and property damage claims, such as failure to comply with environmental
regulations. These types of claims could also be made against our ethanol business based upon the acts or omissions of other persons.
Serious claims could have a material negative impact on our results of operations, financial position and future cash flows.
Our business is not diversified.
Our financial results depend heavily on our ability
to operate our ethanol plants profitably. Our lack of diversification could have a material negative impact on our results of operations,
financial position and future cash flows should our ethanol plants operate unprofitably.
We may not be able to meet commitments to produce
and sell ethanol.
We may, at times, sell our products with forward
contracts. If we are unable to produce the products due to economic conditions, business interruption, or other factors, we may incur
additional costs or have to obtain commodities at unfavorable prices to meet our contractual commitments. This could have a material adverse
effect on our results of operations.
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We may not be able to meet commitments to purchase
commodities.
We may, at times, purchase certain commodities
with forward contracts without a corresponding quantity of ethanol sold via forward contracts at known prices. Should ethanol and by-product
prices decline to levels that would lead to significant unprofitable results of operations, we may incur additional costs and/or losses
to meet our contractual commitments. This could have a material adverse effect on our results of operations.
Our revenue from the sale of distillers grains
depends upon its continued market acceptance as an animal feed.
Distillers grains is a by-product from the fermentation
of corn to produce ethanol. Antibiotics may be used during the fermentation process to control bacterial contamination; therefore, antibiotics
may be present in small quantities in distillers grains marketed as animal feed. The U. S. Food and Drug Administration’s Center
for Veterinary Medicine has expressed concern about potential animal and human health hazards from the use of distillers grains as an
animal feed due to the possibility of antibiotic residues. If the public became concerned about the impact of distillers grains in the
food supply or as an acceptable animal feed, the market for distillers grains could be negatively impacted, which would have a negative
impact on our results of operations. We may not be able to obtain a suitable replacement for antibiotics, should this be required, which
would also negatively impact the market for distillers grains.
An estimated 36% of distillers grains produced
in the United States were exported in 2025. The price of distillers grains has benefitted from the exports of the product. In recent years,
certain countries have refused to import U.S. distillers grains for a variety of reasons. If export shipments are rejected or delayed,
the market price for distillers grains would be negatively impacted, which would have a negative impact on our ethanol results of operations.
We extract distillers corn oil immediately prior
to the production of distillers grains. Several studies are attempting to determine whether distillers corn oil extraction may impact
the nutritional value of the resulting distillers grains. If it is determined that distillers corn oil extraction adversely impacts the
nutritional energy content of distillers grains, the value of the distillers grains we sell may be negatively impacted, which would have
a negative impact on our results of operations.
We face significant competition
in the ethanol industry.
We face significant competition
for new ethanol investment opportunities. Many of our competitors are larger and may have greater financial resources than we do. We must
compete for investment opportunities based on our strategy of supporting and enhancing local development of ethanol plant opportunities.
We may not be successful in competing for investment opportunities based on our strategy.
The ethanol industry is primarily
comprised of entities that engage exclusively in ethanol production and large integrated grain companies that produce ethanol along with
their base grain business. Several large oil companies have entered the ethanol production market. If these companies increase their ethanol
plant ownership or if other oil companies seek to engage in direct ethanol production, there would be less of a need to purchase ethanol
from independent producers such as our ethanol plants. No assurance can be given that our ethanol plants will be able to compete successfully
or that competition from larger companies with greater financial resources will not have a materially adverse impact on the results of
our ethanol operations.
We may face competition from
foreign producers.
There is a risk of foreign competition
in the ethanol industry. Brazil is presently the second largest producer of ethanol in the world. Brazil’s ethanol production is mostly
sugarcane based, and, depending on feedstock prices, may be cheaper to produce than corn-derived ethanol. Under the RFS, certain parties
were obligated to meet an advanced biofuel standard. In recent years, sugarcane-based ethanol imported from Brazil has been one of the
most economical means for obligated parties to comply with this standard.
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If significant additional foreign
ethanol production capacity is created, such facilities could create excess supplies of ethanol, which may result in lower prices of ethanol.
In addition, foreign ethanol producers may be able to produce ethanol at costs lower than ours. These risks could have significant adverse
effects on our financial performance.
We are exposed to credit
risk from our sales of ethanol and distillers grains to customers.
The inability of a customer
to make payments to us for our accounts receivable may cause us to experience losses and may adversely impact our liquidity and our ability
to make our payments when due.
We may not be able to hire
and retain qualified personnel to operate our ethanol plants and carbon sequestration facility.
Our ability to attract and retain
competent personnel has a significant impact on operating efficiencies and plant profitability. Competition for key plant employees in
the ethanol industry can be intense, and there has been an increased demand for workers in the U.S. We may not be able to attract and
retain qualified employees. Failure to do so could have a negative impact on our financial results at individual plants.
Our plants depend on an uninterrupted supply
of energy and water to operate. Unforeseen plant shutdowns could harm our business.
Our plants require a significant and uninterrupted
supply of natural gas, electricity and water to operate. We generally rely on third parties to provide these resources. If there is an
interruption in the supply of energy or water for any reason, such as supply, delivery or mechanical problems and we are unable to secure
an adequate alternative supply to sustain plant operations, we may be required to stop production. A production halt for an extended period
of time could result in material losses.
We rely on information technology in our operations
and financial reporting and any material failure, inadequacy, interruption or security breach of that technology could harm our ability
to efficiently operate our business and report our financial results accurately and timely.
We rely heavily on information technology systems
across our operations, including for management of inventory, purchase orders, production, invoices, shipping, accounting and various
other processes and transactions. Our ability to effectively manage our business, coordinate the production, distribution and sale of
our products and ensure the timely and accurate recording and disclosure of financial information depends significantly on the reliability
and capacity of these systems. While we have taken appropriate precautions to protect our systems, and to date, we have not experienced
any material adverse events related to a security breach or cyber-attack, the failure of these systems to operate effectively, problems
with transitioning to upgraded or replacement systems, or a breach in security of these systems through a cyber-attack or otherwise could
cause delays and/or interruptions in plant operations, product sales, reduced efficiency of our operations and delays in reporting our
financial results. Significant capital investments could be required to remediate any such problem. Security breaches of employee information
or other confidential or proprietary data could also adversely impact our reputation and could result in litigation against us or the
imposition of penalties.
We are exposed to potential business disruption
from factors outside our control, including natural disasters, severe weather conditions, accidents, pandemic diseases, wars and other
conflicts, tariffs, and unforeseen operational failures any of which could negatively affect our transportation operations and could adversely
affect our cash flows and operating results.
Potential business disruption in available transportation
due to natural disasters, severe weather conditions, international wars and other conflicts, the outbreak of a pandemic disease, significant
track damage resulting from a train derailment, strikes or other interruptions by our transportation providers could result in delays
in procuring and supplying raw materials to our ethanol facilities, or transporting ethanol and distillers grains to our customers. Such
business disruptions may result in our inability to meet customer demand or contract delivery requirements, as well as the potential loss
of customers.
17
We ship much of our products and receive a
portion of our corn via rail, which involves risks involving potential regulatory changes that could adversely affect our cash flows and
operating results.
A large portion of our ethanol and distillers
grains sales are shipped via rail. In addition, we receive some corn via rail. Given the notoriety of recent major train derailments,
it is possible that additional regulations could be enacted. Any changes to existing laws and regulations, or new laws and regulations,
including voluntary measures taken by the rail industry, could result in higher shipping costs, or new requirements for the design, construction
or operation of tank cars that transport hazardous materials, such as ethanol. In addition, any derailments involving our products could
result in legal claims being brought against us that could involve significant liabilities.
We operate in a capital intensive industry.
Limitations on external financing could adversely affect our financial performance.
We may need to incur additional financing to fund
growth of our business or in times of increasing liquidity requirements (such as increases in raw material costs). Bankruptcy filings
by several ethanol companies in past years and capital market volatility has reduced available capital for the ethanol industry. Any delays
in obtaining additional financing, or our inability to do so, could have a material adverse impact on our financial results.
There is a risk of a pandemic that could spread
into the United States and other countries.
During the early months of 2020, a new strain
of COVID-19 spread into the United States and other countries. In an effort to contain the spread of this virus, there were various government
mandated restrictions, in addition to voluntary privately implemented restrictions, including limiting public gatherings, retail store
closures, restrictions on employees working and the quarantining of people who may have been exposed to the virus. The above actions led
to reduced demand for ethanol. If in the future, this or other viruses surface, it could lead to prolonged production stoppages at our
ethanol plants and could result in an adverse material impact on the results of operations and on our financial position.
Risks Related to our Former Refined Coal
Operations
We believe our refined coal production company
qualified to earn tax credits under IRC Section 45 through November 18, 2021. Although this operation has ceased, it remains subject to
various risks and uncertainties. These include, but are not limited to, the risks and uncertainties as set forth below.
Our refined coal operation and its by-products
may result in environmental and product liability claims and environmental compliance costs.
The construction and operation of refined coal
operations were subject to Federal, state and local laws, regulations and potential liabilities arising under or relating to the protection
or preservation of the environment, natural resources and human health and safety. Such laws and regulations generally require the operations
and/or the utilities at which the operations are located to obtain and comply with various environmental registrations, licenses, permits,
inspections and other approvals. Such laws and regulations also impose liability, without regard to fault or the legality of a party’s
conduct, on certain entities that are considered to have contributed to, or are otherwise involved in, the release or threatened release
of hazardous substances into the environment. Such risk remains even after production ceases at an operation to the extent the environmental
damage can be traced to the types of chemicals or compounds used or operations conducted in connection with the use of refined coal.
Our insurance may not cover all environmental
risk and costs or may not provide sufficient coverage in the event of an environmental claim. If significant uninsured losses arise from
environmental damage or product liability claims, or if the costs of environmental compliance increase for any reason, our results of
operations and financial condition could be adversely affected.
We used patented technology.
As part of the operations, we paid a license fee
for patented technology. If we or our third-party operator are subject to patent infringement claims, we may incur legal fees to defend
our position and be subject to additional costs and fees.
18
Risks Related to REX and General Risk Factors
We have concentrations of cash deposits at
financial institutions that exceed federal insurance limits.
We generally have cash deposits that exceed federal
insurance limits. Should the financial institutions we deposit our cash in experience insolvency or other financial difficulty, our access
to cash deposits could be limited. In extreme cases, we could lose our cash deposits entirely. This would negatively impact our liquidity
and results of operations.
We may fail to realize the anticipated benefits
of mergers, acquisitions, or other investments.
We intend to continue seeking growth opportunities.
Acquisitions and similar transactions involve many risks that could harm our business, which include:
● Future acquisitions could result in operating losses or loss of investment,
● Our carbon sequestration investment may not be successful, and
Rising focus on environmental, social and corporate
governance matters from investors and regulators may increase our operating costs, bring down the value of our products and assets, and
impact our ability to access capital markets.
Global climate change continues to receive significant
attention from the public and the scientific community concerning the impacts from human activity, particularly the impact of greenhouse
gas emissions, such as those from carbon dioxide and methane. Added requirements to reduce greenhouse gas emissions may increase our production
costs. In addition, legislation promoting alternatives to combustion engine vehicles could reduce the demand for our products.
Climate change is also thought by some to be the
cause for an increase in extreme weather events such as increased intensity of storms, rising sea levels, as well as heavy rains or droughts
in areas historically less prone to those events. Any of these events can have a significant impact on our operations or quality of raw
materials we purchase, resulting in increased costs. At this time, we are unable to determine the financial impact of any potential adverse
weather events caused by climate change.
In recent past years, certain institutional investors
adopted environmental, social and governance guidelines (ESG), and encouraged additional consideration of ESG practices in a manner that
could negatively impact our stock price if continued in the future. This may also result in a reduction of available capital funding for
potential development projects, further impacting our future financial results.
Federal, state and local jurisdictions may
challenge our tax return positions.
We use significant judgments, estimates and interpretation
and application of complex tax laws in preparing the tax returns we file, and the positions contained therein. We believe that our tax
return positions are fully supportable. However, certain positions may be successfully challenged by federal, state and local jurisdictions.
We are currently in the process of finalizing a federal income examination related to tax credits claimed for the years ended January
31, 2015 through 2022 and believe our financial statements reflect the agreed upon outcome of the examination.
Item 1B. Unresolved Staff Comments
None.
19
Item 1C. Cybersecurity
Our ability to effectively manage our business,
coordinate the production, distribution and sale of our products and ensure the timely and accurate recording and disclosure of financial
information depends significantly on the reliability and capacity of our information technology systems. While we have taken what we believe
are appropriate precautions to protect our systems, and to date, we have not experienced any material adverse events related to a security
breach or cyber-attack, the failure of these systems to operate effectively, the failure of our personnel to follow established procedures,
problems with transitioning to upgraded or replacement systems, or a breach in security of these systems through a cyber-attack or otherwise
could cause delays and/or interruptions in plant operations, product sales, reduced efficiency of our operations and delays in reporting
our financial results.
As part of our routine and periodic overall risk
management system or processes, we have incorporated various processes related to cybersecurity. Key cybersecurity controls, such as access
controls, are included within our internal control framework that we assess annually as part of Management’s Annual Report on Internal
Control Over Financial Reporting. Additionally, periodic discussions are held with outsourced IT professionals for both corporate and
consolidated plant environments to determine if appropriate actions are being taken to address potential risks. Through the assistance
of our qualified third-party IT professionals, we have implemented numerous security measures, including, but not limited to, multi-factor
authentication on critical systems, password requirements, access controls, and data encryption.Our IT policies and procedures include
the expectations of all employees and all third parties who may be given access to our IT systems to maintain the security of our IT systems.
Our commitment to the overall security of our
information technology systems starts at the highest levels of our Company, the Board of Directors and management. Management and the
Board of Directors provide oversight surrounding cybersecurity. Management oversees internal controls and the company-wide risk assessment
process.The Audit Committee is provided with regular updates by management regarding the control framework and whether any significant
deficiencies or material weaknesses exist in the IT control environment.The Audit Committee is also tasked with determining the appropriate
response to any submissions through the corporate whistleblower policy. The whistleblower policy includes the opportunity for employees
of the Company to notify the Audit Committee confidentially and anonymously of any concerns regarding cybersecurity, in addition to any
accounting, internal accounting controls or auditing matters. The audit committee will report any significant matters to the Board of
Directors.
As of January 31, 2026, we had not identified
an indication of a cybersecurity incident that would have a material impact on our business and consolidated financial statements.
Item 2. Properties
The information required by this Item 2 is set
forth in Item 1 of this report under “Ethanol Investments” and “Facilities”.
Item 3. Legal Proceedings
We are, from time to time, involved in various
legal proceedings incidental to the conduct of our business. We believe that any current proceedings will not have a material adverse
effect on our financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not Applicable.
20
Information About Our Executive Officers
Set forth below is certain information about each
of our executive officers.
Name Age Position
Stuart Rose 71 Executive Chairman of the Board*
Zafar Rizvi 76 Chief Executive Officer and President*
Edward Kress 76 Secretary*
*Also serves as a director.
Stuart Rose was elected our Executive Chairman
of the Board in 2015. Mr. Rose had served as our Chairman of the Board and Chief Executive Officer since our incorporation in 1984 as
a holding company. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex Radio and Television, Inc., which
he founded in 1980 to acquire the stock of a corporation which operated four retail stores.
Zafar Rizvi was elected Chief Executive
Officer in 2015. Mr. Rizvi has been our President and Chief Operating Officer since 2010, was Vice President from 2006 to 2010, and from
1991 to 2006, Mr. Rizvi was our Vice President – Loss Prevention.
Douglas Bruggeman has been our Vice President–Finance
and Treasurer since 1989 and was elected Chief Financial Officer in 2003. From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate
Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young prior to joining us in 1986.
Edward Kress has been our Secretary since
1984. Mr. Kress has been a partner of the law firm of Dinsmore & Shohl LLP (formerly Chernesky, Heyman & Kress P.L.L.), our legal
counsel, since 1988. Mr. Kress has practiced law in Dayton, Ohio since 1974.
PART II
Shareholder Information
Our common stock is traded on the New York Stock
Exchange under the symbol REX.
As of March 27, 2026, there were 58 holders of
record of our common stock, including shares held in nominee or street name by brokers which, in turn, hold shares of stock for numerous
beneficial owners.
Dividend Policy
The Company has no history of paying cash dividends
on our common stock.
Issuer Purchases of Equity Securities
On March 25, 2025, the Board of Directors authorized
the repurchase from time to time of up to an additional 3,000,000 shares through open market transactions, privately negotiated transactions,
or transactions by other means in accordance with applicable securities laws. At January 31, 2026, a total of 2,357,186 shares remained
available to purchase under this authorization.
There were no share repurchases in the fourth
quarter of fiscal year 2025.