UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission file number: 001-33530

BIOFUEL ENERGY CORP.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

20-5952523(I.R.S. Employer Identification No.)1600 Broadway, Suite 2200
Denver, Colorado(Address of principal executive offices)

80202(Zip Code)


(303) 640-6500(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.01 per share

NASDAQ Global Market


Securities registered pursuant to Section 12(g) of the Act:

None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    Noý

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. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of voting and non-voting stock held by non-affiliates of the Registrant as of June 30, 2008 was
$19,446,000.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class

As of March 26, 2009Common Stock, par value $0.01 per share
Class B Common Stock, par value $0.01 per share

22,576,681 shares, net of 809,606 shares held in treasury
10,012,097 shares


DOCUMENTS INCORPORATED BY REFERENCE

The
Registrant's definitive Proxy Statement for its 2009 Annual Meeting of Shareholders is incorporated by reference into Part III of this Form 10-K.

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FORWARD LOOKING STATEMENTS

Certain information included in this report, other materials filed or to be filed by BioFuel Energy Corp. (the "Company", "we", "our",
or "us") with the Securities and Exchange Commission ("SEC"), as well as information included in oral statements or other written statements made or to be made by the Company contain or incorporate by
reference certain statements (other than statements of historical or present fact) that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.

All
statements other than statements of historical fact are "forward-looking statements", including any projections of earnings, revenue or other financial items, any statements
concerning future commodity prices and their effect on the Company, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new
projects or other developments, any statements regarding future economic conditions or performance, any statements of management's beliefs, goals, strategies, intentions and objectives, and any
statements of assumptions underlying any of the foregoing. Words such as "may", "will", "should", "could", "would", "predicts", "potential", "continue", "expects", "anticipates", "future", "intends",
"plans", "believes", "estimates" and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These
statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or
achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from
expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact,
the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the
success of our business. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time and in relatively new and rapidly developing industries such as ethanol.

Forward-looking
statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our
performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management's belief as of that time with respect to
future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Form 10-K.

Should
one or more of the risks or uncertainties described above or elsewhere in this Form 10-K occur, or should underlying assumptions prove incorrect, our actual
results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a
forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.

All
forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

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PART I

ITEM 1.    BUSINESS

Overview

BioFuel Energy Corp. produces and sells ethanol and its co-products (primarily distillers grain), through its two ethanol
production facilities located in Wood River, Nebraska and Fairmont, Minnesota. Our ultimate goal is to become a leading ethanol producer in the United States. In late June 2008, we commenced
commercial operations and began to produce ethanol at both of our plants, each having a nameplate capacity, based on the maximum amount of permitted denaturant, of 115 million gallons per year
("Mmgy"). In December 2008, we achieved project completion of both of the plants. We are now focused on optimizing production and streamlining operations with the goal of producing at nameplate
capacity at the lowest possible cost per gallon.

From
inception, we have worked closely with Cargill, Inc., one of the world's leading agribusiness companies, with whom we have an extensive contractual relationship. The two
plant locations were selected primarily based on access to corn supplies, the availability of rail transportation and natural gas and Cargill's competitive position in the area. At each location,
Cargill has a strong local presence and owns adjacent grain storage facilities. Cargill provides corn procurement services, markets the ethanol and distillers grain we produce and provides
transportation logistics for our two plants under long-term contracts. In addition, we lease grain storage and handling facilities adjacent to our plants from affiliates of Cargill. We
believe that our relationship with Cargill will provide us with a number of competitive advantages.

The
Company previously evaluated three similar sites and incurred site development costs for the possible construction of additional plants. During the year ended December 31,
2008, the Company decided to no longer pursue construction of these sites and therefore has written off the associated development costs.

Our
operations and cash flows are subject to fluctuations due to changes in commodity prices. We intend to use derivative financial instruments such as futures contracts, swaps and
option contracts to manage commodity prices. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and capital resources;
andHedging Losses" elsewhere in this report.

We
are a holding company with no operations of our own, and are the sole managing member of BioFuel Energy, LLC, (the "LLC"), which is itself a holding company and indirectly owns
all of our operating assets. The Company's ethanol plants are owned and operated by the Operating Subsidiaries of the LLC.

Restructuring Strategy

As disclosed elsewhere in this Annual Report, we incurred a loss before minority interest of $84.1 million in 2008, primarily
due to hedging losses on corn contracts and significant costs associated with the start up and operation of our plants. We continue to suffer operating losses in 2009 resulting from poor operating
margins due to the relative prices of corn and ethanol. Our liquidity position continues to decline as a result of these losses. In addition, under the terms on the Company's senior debt facility with
a group of lenders financing construction of our plants, minimum quarterly principal payments of $3,150,000 are scheduled to begin on June 30, 2009. Based on current operating margins and the
Company's liquidity position, the Company may not be able to generate sufficient cash flow to make principal and interest payments when they become due during 2009. Failure to make these payment
obligations when they become due would result in events of default under the senior debt facility, which we would have up to 3 days to cure.

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We
have initiated a company-wide business restructuring plan to reduce costs and are currently exploring various alternatives to address our liquidity issues. These include:
(i) reducing operating expenses through headcount reductions or operating efficiency initiatives; (ii) reducing the cost of various inputs and services by renegotiating the terms of
supply and service agreements, including our agreements with Cargill; (iii) seeking forbearance or some other accommodation from our lenders; (iv) seeking new capital, either from new or
existing investors or (v) some combination of the foregoing or other measures. However there can be no assurance that we will be successful in achieving any of these objectives or, if
successfully implemented, that these initiatives will be sufficient to address our lack of liquidity. Our ability to execute our operating strategies will be dependent upon our ability to overcome our
lack of liquidity. If we are unable to reach an agreement with our lenders to restructure our debt or are unable to raise additional capital, or are otherwise unable to generate sufficient liquidity
from our operations to satisfy our debt obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern. This in turn could
potentially force us to seek relief from creditors through a filing under the U.S. Bankruptcy Code. See, "Management's Discussion and Analysis of Financial Condition and Results of
OperationsGoing Concern" elsewhere in this Annual Report.

Our relationship with Cargill

We have entered into a number of long-term contracts with Cargill, which will provide us access to corn supply, an
extensive logistics and transportation network and an experienced marketer of ethanol and distillers grain. We also have the opportunity to utilize Cargill's risk management services. Cargill
participates in almost every aspect of the corn industry in the United States, including operation of grain elevators, management of export facilities, transportation, ethanol production and livestock
nutrition. Pursuant to 10-year ethanol marketing agreements and 10-year distillers grain marketing agreements, Cargill has agreed to market 100% of the ethanol and distillers
grain produced at our Wood River and Fairmont facilities and, under 20-year corn supply agreements, has agreed to supply 100% of our corn for these facilities. In addition, Cargill,
through an equity investment, owns approximately 5% of our company. We believe that our relationship with Cargill will provide us with a number of competitive advantages.

During
the second quarter of 2008, the LLC entered into various derivative instruments with Cargill in order to manage exposure to commodity prices for corn and ethanol, generally
through the use of futures, swaps, and option contracts. During August 2008, the market price of corn declined sharply, exposing the LLC to large unrealized losses and significant unmet margin
calls under these contracts. Cargill began liquidating the hedge contracts in August 2008 and by September 30, 2008 the LLC was no longer a party to any hedge contracts for any of its
commodities. The Company recorded $39.9 million
in losses during the year ended December 31, 2008 resulting from the liquidation of its hedge contracts. In January 2009, the LLC and Cargill entered into an agreement which finalized
the payment terms for the remaining $17.4 million owed to Cargill by the LLC related to these hedging losses. See "Management's Discussion and Analysis of Financial Condition and Results
of OperationsLiquidity and capital resourcesCargill debt agreement" elsewhere in this Annual Report.

Corn supply

Our ethanol facilities each require approximately 41 million bushels of corn per year in order to produce the 115 Mmgy of
expected ethanol output. Under our corn supply agreements, Cargill will be the exclusive supplier of corn to our facilities for a period of 20 years, and has agreed to provide 100% of the
plants' corn requirements. Under the agreements, Cargill will deliver U.S. No. 2 yellow dent corn with maximum moisture of 15.0% and meeting other certain specifications. On a daily basis,
Cargill is providing bid sheets reflecting the expected price levels required to purchase corn for the

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upcoming
delivery period at each of the plants. We pay the applicable corn futures price then in effect, less the local basis differential paid by Cargill to purchase corn on our behalf, plus an
origination fee of $0.045 per bushel.

We
have also entered into concurrent 20-year leases of Cargill's existing grain elevators at each of our Wood River and Fairmont sites. These elevators will provide
sufficient corn storage capacity to service the plants at normal operating levels plus excess capacity to allow us to purchase corn opportunistically, for example, based on seasonality.

Sales logistics

Both of our ethanol plants are located adjacent to a rail mainline operated by the Union Pacific Railroad. A railcar unit train loading
facility capable of handling up to 110 cars has been constructed at each of the plants. A 110 car unit train will hold approximately 3.3 million gallons of ethanol, roughly equivalent to nine
days of ethanol production at each of these plants. We also have storage capacity to accommodate 10 days of ethanol production and 10 days of dried distillers grain production at each of
these plants. Each of our plants also has road access for loading and transportation of ethanol and distillers grain by truck, as needed.

Under
our ethanol marketing agreements and distillers grain marketing agreements with Cargill, Cargill performs a number of logistics functions relating to the ethanol and distillers
grain produced at our facilities, utilizing its extensive network of rail and trucking relationships. These functions include arranging for rail and truck freight, bills of lading and scheduling
pick-up appointments. Under the ethanol marketing agreements, we are responsible for providing tank railcars to service these facilities, and under the distillers grain marketing
agreements, we are responsible for providing covered hopper railcars to service these facilities. In that regard, we have entered into 10-year leases for approximately 529 tank railcars
and 346 hopper railcars from Trinity Industries Leasing Company.

Marketing arrangements

Ethanol marketing

We expect all of our ethanol to be sold to Cargill as our third party marketer and distributor. Cargill has established relationships
with many of the leading end-users of ethanol products such as major oil companies and refiners, as well as independent jobbers, storage companies and transportation companies. Our ethanol
is "pooled" into a cooperative system whereby we receive the average price of the ethanol sold for all producers in the marketing group, which includes all ethanol produced by Cargill in the United
States.

Under
our existing ethanol marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to purchase from us, 100% of the fuel grade ethanol produced at
our two facilities, including as a result of any expansion of these facilities, for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive
marketer of the ethanol produced at these facilities. We have agreed to pay Cargill a commission for its ethanol marketing. Cargill markets and distributes our ethanol pursuant to a common marketing
pool program, under which Cargill currently markets its own ethanol and ethanol for third parties. Each participant in the pool receives the same price for its share of ethanol sold, net of freight
and other agreed costs incurred by Cargill with respect to the pooled ethanol. Freight and other charges are divided among pool participants based upon each participant's ethanol volume in the pool
rather than the location of the plant or the delivery point of the customer.

Under
our arrangements with Cargill, we have the ability to opt out of the marketing pool described above. In order to opt out of the marketing pool, we would need to provide
six-months notice prior to the date on which ethanol will first be delivered under the contract or any anniversary

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of
that date, except that we may be obligated to participate in the pool for up to 18 months to the extent necessary to allow Cargill to fulfill contractual commitments to deliver ethanol from
the pool. We will also have the ability to sell ethanol directly to end-customers on a long-term basis, using Cargill as an agent, and in the future we may do so if an
attractive opportunity arises. In these circumstances, Cargill would continue to provide transportation and logistics services, would act as a contracting agent and would continue to be paid
commissions by us. We will evaluate the desirability of selling ethanol directly to end-customers on an ongoing basis.

Distillers grain marketing

We expect all of our distillers grain to be sold to Cargill as our third party marketer and distributor. Our dried distillers grain is
primarily marketed nationally to agricultural customers for use as an animal feed ingredient. Due to its limited shelf life and high freight costs, our wet distillers grain is sold to local
agricultural customers for use as an animal feed ingredient. Under our existing distillers grain marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to
purchase from us, all of the distillers grain produced at our two facilities for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive marketer
of the distillers grain produced at these facilities. We have agreed to pay Cargill a commission for its distillers grain marketing.

Other agreements with Cargill

In addition to the agreements described above, our relationships with Cargill with respect to our ethanol facilities are each governed
by a master agreement. Each of these master agreements provides certain terms and conditions that apply to all of our agreements with Cargill with respect to the relevant plant. The master agreements
contain a right of first negotiation in favor of Cargill in the event we subsequently acquire or construct additional ethanol facilities. Under this right, Cargill and we have agreed to negotiate in
good faith for Cargill to provide all of the commercial arrangements covered by the agreements described below with respect to any additional facilities. The master agreements allow for payments due
and owing to each party under all of our agreements with Cargill to be netted and offset by the parties. There are currently no plans to net or offset such amounts. We have also entered into grain
facility leases and corn advisory agreements with
respect to each of our facilities, and an additional agreement with Cargill regarding certain ownership matters.

Grain facility leases

We have leased Cargill's grain facilities located adjacent to each plant, for the purpose of receiving, storing and transferring corn
to each ethanol facility. Under each of these leases, which have an initial term of twenty years, the annual rental amount is $800,000 for the Fairmont plant and $1,000,000 for the Wood River plant so
long as the associated corn supply agreements with Cargill remain in effect. Should the Company not maintain its corn supply agreements with Cargill, the minimum annual payments under each lease
increase to $1,200,000 and $1,500,000, respectively, and increase annually based on the percentage change in the Consumer Price Index. Under the lease agreements, we are responsible for the
maintenance and repair of the premises. We will be in default under the leases, and Cargill will have the right to terminate the relevant lease, if we fail to pay any rent or other amounts due to
Cargill within 30 days following written notice that such amounts are due and payable, default in any non-monetary obligation under the lease and fail to cure such default within a
specified time, become subject to certain events of bankruptcy or insolvency or permit the relevant lease to be sold under any attachment or execution.

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Corn risk management services

We have entered into a futures advisory agreement with Cargill for each of our Wood River and Fairmont facilities. Pursuant to these
agreements, which have initial terms of ten years, Cargill will provide us with its hedging and other risk management services for corn purchasing. Pursuant to the futures advisory agreements, we will
pay Cargill a flat fee per bushel per calendar month based on the projected number of bushels of corn that are hedged.

Additional agreement with Cargill

Cargill has made an equity investment in our company. Under the terms of an agreement with Cargill, Cargill has the right to terminate
any or all of its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires 30% or more of our common stock or the power to elect a majority
of our Board. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of
designated parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company,
CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited.

Delta-T technology licenses

Each of our two facilities was constructed by TIC Wyoming, an industrial general contracting firm, under engineering, construction and
procurement (EPC) contracts, utilizing an operations and process technology licensed from its joint venture Delta-T Corporation, an engineering and design firm. In connection with each of
the EPC contracts, Delta-T granted to us limited licenses to use Delta-T's proprietary technology and information in connection with the operation, maintenance, optimization, enhancement
and expansion of each of our facilities up to the designed limits. Consideration for the licenses was included as part of the payments under the EPC contracts.

Industry

Ethanol is a clean burning, high-octane fuel that is produced from the fermentation of carbohydrates such as grains,
starches and sugars. In the United States, ethanol is produced primarily from corn. It is used primarily as a gasoline additive to increase octane rating and to comply with air emissions regulations
by reducing emissions of carbon monoxide and nitrogen oxide. The Renewable Fuel Standard, or RFS, mandates that renewable biofuels comprise a minimum of 10.5 billion gallons of the U.S. fuel
supply in 2009 rising to 15 billion gallons in 2015. Fuel blended with up to 10% ethanol, also referred to as E10 fuel, is approved for use by major motor vehicle manufacturers and is often
recommended as a result of ethanol's clean burning characteristics. Ethanol comprises up to 85% of E85 fuel. E85 fuel currently represents a relatively small portion of the U.S. gasoline supply.
Approximately six million vehicles out of more than 200 million vehicles in the United States today are Flexible Fuel Vehicles, or FFVs, capable of using E85 fuel.

We
believe the ethanol market will continue to grow as a result of a shortage of domestic petroleum refining capacity, federally mandated renewable fuel usage, favorable tax treatment,
ethanol's clean burning characteristics and geopolitical and environmental concerns with petroleum based fuels. Reasons for continued growth prospects in the ethanol market include:

Blending benefits

Ethanol has an octane rating of 113, and is added to gasoline to raise the octane level of gasoline. Unblended gasoline typically has a
base octane level of approximately 84. Typical gasoline and ethanol blends (up to E10) have octane ratings ranging from 87 to 93. Higher octane gasoline has the benefit

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of
reducing engine knocking. Gasoline with higher octane typically has been sold at a higher price per gallon than lower octane gasoline.

Expansion of gasoline supply

By blending ethanol with gasoline, refiners can expand the volume of fuel available for sale. As a result, refiners can produce more
fuel from a barrel of oil and expand their ability to meet consumer demand, especially when refinery capacity and octane sources are limited. According to the Energy Information Administration,
between 1980 and 2005, petroleum refining capacity in the United States decreased approximately 5% while domestic demand increased approximately 21%. We believe that increased pressure on domestic
fuel refining capacity will result in greater demand for ethanol.

Legislative and government policy support

The Energy Policy Act of 2005, or the 2005 Act, established the initial RFS, which is a minimum standard for use of renewable fuels by
refiners, importers and certain blender's of gasoline sold in the United States. The original RFS mandated minimum annual use of 7.5 billion gallons per year of renewable fuels in the United
States by 2012, including a mandate of 5.4 billion gallons in 2008.

The
Energy Independence and Security Act of 2007, or the 2007 Act, increased the original RFS mandate to require 15.2 billion gallons per year by 2012, increasing to
36 billion gallons of renewable fuels per year by 2022. The new target is expected to be reached by phasing in additional volumes of both conventional biofuels (including corn-based
ethanol) and "advanced biofuels," such as cellulosic ethanol and biomass based diesel.

The
2007 Act increased the mandated minimum level of use of renewable fuels for the year 2008 to 9 billion gallons (up from 5.4 billion gallons under the original RFS
enacted in 2005), all of which may come from conventional biofuels. The RFS for conventional biofuels then increases each year from 2008 through 2015, leveling off at 15 billion gallons per
year for 2015 and each subsequent year through 2022.

The
RFS for alternative fuels begins in 2009 with 600 million gallons per year, increasing incrementally to 21 billion gallons of the overall mandate of 36 billion
gallons of renewable fuel by 2022.

As
it provides for mandatory minimums, the RFS sets a floor on the amount of ethanol to be consumed. According to the Renewable Fuels Association ("RFA"), industry capacity in the United
States was approximately 12.4 billion gallons per year as of January 2009, with an additional 2.1 Bgpy of capacity under construction. The ethanol industry in the United States consisted of
approximately 193 production facilities as of January 2009 with 25 facilities under construction or expansion, and is

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primarily
corn-based. The RFS requires motor fuels sold in the United States to contain in the aggregate the following minimum volumes of renewable fuels:

Year

Total Volume
(in billions
of gallons)

Conventional
Biofuels

Advanced
Biofuels2008


9.00


9.00


0.002009


11.10


10.50


0.602010


12.95


12.00


0.952011


13.95


12.60


1.352012


15.20


13.20


2.002013


16.55


13.80


2.752014


18.15


14.40


3.752015


20.50


15.00


5.502016


22.25


15.00


7.252017


24.00


15.00


9.002018


26.00


15.00


11.002019


28.00


15.00


13.002020


30.00


15.00


15.002021


33.00


15.00


18.002022


36.00


15.00


21.00


RFS
volumes for both conventional and advanced renewable fuels in the years to follow 2022 will be determined by a governmental administrator, in coordination with the U.S. Department of
Energy and U.S. Department of Agriculture.

The
2007 Act and the 2005 Act also proposed credit trading programs to facilitate meeting the industry-wide renewable fuels requirements. The Environmental Protection Agency
has proposed a rule for issuing and trading the credits.

Environmental benefits

Ethanol, as an oxygenate, reduces tailpipe emissions when added to gasoline. The additional oxygen in the ethanol results in a more
complete combustion of the fuel in the engine cylinder, resulting in reduced carbon monoxide and nitrogen oxide emissions. Prior federal programs that mandated the use of oxygenated gasoline in areas
with high levels of air pollution spurred widespread use of ethanol in the United States.

Favorable tax treatment

Refiners and blenders that blend ethanol with gasoline can also take advantage of Volumetric Ethanol Excise Tax Credits, or VEETC
(commonly referred to as the "blender's credit"), that entitles them to a credit of $0.45 a gallon of ethanolor $0.045 a gallon of gasoline for a 10% ethanol blend against the excise tax
they pay on gasoline. We believe the VEETC will enable ethanol to continue to comprise a significant portion of the U.S. fuel supply. The blender's credit is scheduled to expire on December 31,
2011, unless it is extended by Congress. The benefit of the blenders' tax credit can be captured by refiners or passed on to consumers.

Replacement of MTBE

Because of their blend characteristics, availability and cost, ethanol and MTBE were the two primary additives used to meet the Clean
Air Act's oxygenate requirements. Because MTBE could be produced and blended with gasoline at the refinery and transported through a pipeline, it was initially the preferred oxygenate ingredient used
by the petroleum industry in most reformulated gasoline.

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Before
2003, ethanol was used primarily as a fuel extender and octane enhancer, predominantly in the Midwest.

In
recent years, health and environmental concerns have arisen from the discovery of the presence of MTBE, a suspected carcinogen, in ground water supplies. As a result, 25 states,
including California, New York and Connecticut, have banned or significantly limited the use of MTBE. These states accounted for more than half of the MTBE consumed in the US. Product liability
concerns regarding MTBE increased following passage of the Energy Policy Act, which did not contain limitations on product liability claims relating to MTBE use. As a result, refiners have been
phasing out MTBE, creating additional demand for ethanol outside of the Midwest and California. Ethanol has served as a replacement for much of the MTBE volumes that have been eliminated because of
its favorable production economics, high octane rating, and clean burning characteristics.

Geopolitical concerns

The United States is dependent on foreign oil. Political unrest and attacks on oil infrastructure in the major
oil-producing nations, particularly in the Middle East, have periodically disrupted the flow of oil. Fears of terrorist attacks have added a "risk premium" to world oil prices. At the same
time, developing nations such as China and India have increased their demand for oil. As a result, NYMEX oil prices have ranged dramatically in recent years, particularly in the summer and fall of
2008. As a domestic, renewable source of energy, ethanol can help to reduce the United States' dependence on foreign oil by increasing the amount of fuel that can be consumed for each barrel of
imported crude oil.

Ethanol as a gasoline substitute

Automakers in the United States have been accelerating work on their Flexible Fuel Vehicles, or FFVs, programs, producing vehicles that
are capable of running on blends up to 85% ethanol, according to the American Coalition for Ethanol. Management believes that motorists may increasingly choose FFVs due to their lower greenhouse gas
emissions, flexibility and performance characteristics. Future widespread adoption of FFVs could significantly boost ethanol demand and reduce the consumption of gasoline. According to the RFA, there
are currently more than six million FFVs and 1,400 gasoline stations in the United States that distribute E85. In addition to E85, select gasoline stations in South Dakota and Minnesota have blender
pumps that allow consumers to choose between several ethanol blends such as E10, E20, E30, E40 and E85. A recent study conducted by the University of North Dakota and the Minnesota Center for
Automotive Research concluded that of several models of FFV's tested, the optimum blends were between E20 and E40, and resulted in these vehicles obtaining improved gas mileage over straight unleaded
gasoline.

Supply of ethanol

The primary feedstock for ethanol production in the United States is corn. Proximity to corn supplies is a crucial factor in the
economics of ethanol plants, as transporting corn is much more expensive than transporting the finished ethanol product. As such, the ethanol industry is geographically concentrated in the Midwest
based on the proximity to the highest concentration of corn supply. In addition to corn, the ethanol production process requires natural gas or, in some cases, coal in order to power the facility and
dry distillers grain.

Despite
the geographic concentration, production in the ethanol industry remains fragmented. According to the RFA, while domestic ethanol production increased from 1.3 billion
gallons in 1997 to 9.2 billion gallons in 2008, the top ten producers (including the Company) accounted for approximately 48% of the industry's total estimated production capacity as of
December 2008. Smaller producers and farmer-owned cooperatives, all of which have production capacities less than ours, generate the

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remaining
production. Since a typical ethanol facility can be constructed in approximately 18 months from groundbreaking to operation, the industry is able to forecast capacity additions for up
to 18 months in the future. As of January 2009, the RFA estimates that approximately 2.1 Bgpy of additional production capacity was under construction at 25 new or existing ethanol facilities.
Archer Daniels Midland Company, the second largest domestic ethanol producer, has announced plans to increase its production capacity by 550 Mmgy, approximately 51%, by the end of 2009. As a result of
this projected increase in production, the ethanol industry faces the risk of excess capacity. See "Risk Factors".

Ethanol
is typically either produced by a dry-milling or wet-milling process. Although the two processes feature numerous technical differences, the primary
operating trade-off of the wet-milling process is a higher co-product yield in exchange for a lower ethanol yield. Dry-milling ethanol production
facilities constitute the substantial majority of new ethanol production facilities constructed in the past five years because of the increased efficiencies and lower capital costs of
dry-milling technology. Older dry-mill ethanol facilities typically produce between five and 50 Mmgy, with newer dry-mill facilities producing over 100 Mmgy and
enjoying economies of scale in both construction and operating costs per gallon. According to the RFA, over 90% of the ethanol production capacity in 2008 was comprised of dry-mill
facilities, with the remainder coming from wet-mill facilities.

With
the largest proportion of ethanol production, the Midwest is also one of the largest consumers of ethanol fuel in the United States. After California, which is the largest consumer
of ethanol, Midwestern states such as Minnesota, Illinois and Ohio are the largest consumers of ethanol. Additionally, the state MTBE bans in Connecticut and New York have increased the ethanol
consumption in these states. Various states have mandated ethanol use, including Minnesota, Ohio and Hawaii. These state policies require the use of ethanol above what is required by federal
regulations, including the RFS.

Legislation

In addition to the legislation described above, there have been various other legislative incentives that have spurred growth in the
ethanol industry. These incentives include:

State and local incentives

Twenty-one states have implemented incentives to encourage ethanol production and use. These incentives include tax
credits, producer payments, loans, grants, tax exemptions and other programs. Midwestern states have initiated most of the programs and policies to promote ethanol production and development. States
on the East and West Coasts also are beginning to initiate ethanol production programs in connection with drives to construct ethanol plants in these states.

State legislation banning or significantly limiting the use of MTBE

In recent years, due to environmental concerns, a number of states, including California, Connecticut and New York, have banned, or
significantly limited, the use of MTBE. Ethanol has served as a replacement for much of the discontinued MTBE volumes and is expected to continue to serve as a primary replacement product in the
future for MTBE volumes that are removed from the fuel supply.

Federal tariff on imported ethanol

In 1980, Congress imposed a tariff on foreign produced ethanol, which typically is produced at a significantly lower cost from sugar
cane, to encourage the development of a domestic, corn-derived ethanol supply. This tariff was designed to prevent the federal tax incentive from benefiting non-U.S. producers
of ethanol. The tariff is $0.54 per gallon and is scheduled to expire on December 31, 2010. In addition, there is a flat 2.5% ad valorem tariff on all imported ethanol.

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Ethanol imports from 24 countries in Central America and the Caribbean Islands are exempt from the tariff under the Caribbean Basin Initiative. The Caribbean Basin Initiative provides
that specified nations may export an aggregate of 7.0% of U.S. ethanol production per year into the United States, with additional exemptions from ethanol produced from feedstock in the Caribbean
region over the 7.0% limit. In addition, the North American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free.
Imports from the exempted countries may increase as a result of new plants under development.

Ethanol production process

The dry-mill process of using corn to produce ethanol and co-products that we use at our plants is described
below.

Step one: grain receiving, storing and milling

Corn is delivered by rail and by truck, at which point it is inspected, weighed and unloaded in a receiving building and then
transferred to storage bins. On the grain receiving system, a dust collection system limits particulate emissions. Truck scales and a rail car scale weigh delivered corn. The corn is then unloaded to
the storage systems consisting of concrete and steel storage bins. From its storage location, corn is conveyed to cleaning machines called scalpers to remove debris from the corn before it is
transferred to hammermills or grinders where it is ground into a flour, or "meal."

Step two: conversion and liquefaction, fermentation and evaporation systems

The meal is conveyed into slurry tanks for processing. The meal is mixed with water and enzymes and heated to break the ground grain
into a fine slurry. The slurry is routed through pressure vessels and steam flashed in a flash vessel. This liquefied meal, now called "mash", reaches a temperature of approximately
200[nc_cad,191]F, which reduces bacterial build-up. The sterilized mash is then pumped to a liquefaction tank where additional enzymes are added. This cooked mash continues
through liquefaction tanks and is pumped into one of the fermenters, where propagated yeast is added, to begin a batch fermentation process.

The
fermentation process converts the cooked mash into carbon dioxide and beer, which contains ethanol as well as all the solids from the original corn feedstock. The mash is kept in a
fermentation tank for approximately two days. Circulation through heat exchangers keeps the mash at the proper temperature.

Step three: distillation and molecular sieve

After batch fermentation is complete, the fermented mash, now called "beer", is pumped to an intermediate tank called the beer well and
then to the columnar distillation tank to vaporize and separate the alcohol from the mash. The distillation results in a 96%, or 190-proof, alcohol. This alcohol is then transported
through a system of tanks and sieves where it is dehydrated to produce 200-proof anhydrous ethanol. The 200-proof ethanol is then denatured (rendered unfit for human
consumption) by mixing with approximately 5% unleaded gasoline to prepare it for sale.

Step four: liquidsolid separation system

The residue corn mash from the distillation stripper, called "stillage", is pumped into one of several decanter type centrifuges for
dewatering. The water, or thin stillage, is then pumped from the centrifuges back to mashing or to an evaporator where it is dried into a thick syrup. The solids that exit the centrifuges, known as
"wet cake", are conveyed to the wet cake storage pad or the gas-fired dryer for removal of residual water. Syrup is added to the wet cake. The result is wet distillers grain with

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solubles.
The wet distillers grain can then be placed into a dryer, where moisture is removed. The end result of the process is dried distillers grain.

Step five: product storage

Storage tanks hold the denatured ethanol product prior to being transferred to loading facilities for truck and rail car
transportation. Our plants each have approximately 3.1 million gallons of ethanol tank storage capacity, which will accommodate nine days of ethanol production per plant.

Co-products of ethanol production

Dried distillers grain with solubles.A co-product of dry-mill ethanol production, dried distillers grain is a
high-protein and high-energy animal feed that is sold primarily as an ingredient in beef and dairy cattle rations. Dried distillers grain consists of the concentrated nutrients
(protein, fat, fiber, vitamins and minerals) remaining after the starch in corn is converted to ethanol. Over 85% of the dried distillers grain is fed to cattle. It is also used in poultry, swine and
other livestock feed.

Wet distillers grain with solubles.Wet distillers grain is similar to dried distillers grain except that the final drying stage of
dried distillers
grain is bypassed and the product is sold as a wet feed containing 25% to 35% dry matter, as compared to dried distillers grain, which contains about 90% dry matter. Wet distillers grain is an
excellent livestock feed with better nutritional characteristics than dried distillers grain because it has not been exposed to the heat of drying. The sale of wet distillers grain is usually more
profitable because the plant saves the cost of natural gas for drying. The product is sold locally because of its limited shelf life and the higher cost of transporting the product to distant markets.

Carbon dioxide.Carbon dioxide, or CO2, is also a by-product of our dry-mill ethanol production process. We do
not currently market our CO2. Currently, we scrub the CO2 during the production process and release it to the atmosphere, as allowed under the air permits obtained for each of
our facilities. However, our ability to release the CO2 into the atmosphere may be limited by laws or regulations in the future and any controls on CO2 emissions could result
in additional costs. In the future, we also may explore the possibility of collecting and disposing of or marketing the CO2.

Competition

The markets where our ethanol is sold are highly competitive. According to the RFA, industry capacity in the United States was
approximately 12.4 billion gallons per year as of January 2009, with an additional 2.1 Bgpy of capacity under construction. The ethanol industry in the United States consisted of approximately
193 production facilities as of January 2009 with 20 new facilities under construction, and is primarily corn-based.

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We
compete with three very large ethanol producers (Archer Daniels Midland Company, Poet, and VeraSun Energy Corporation) that together controlled 33% of the ethanol produced in the
United States as of the end of 2008.

Company

Producing
Capacity
MmgyArcher Daniels


1,070Poet


1,419VeraSun(1)


1,635Total


4,124Market share of U.S. production capacity


33
%






In
November, 2008, VeraSun Energy Corporation filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. VeraSun subsequently announced that seven of its
ethanol plants were in the process of being sold to Valero Energy, a producer and retailer of gasoline, as a result of an auction process conducted under the auspices of the bankruptcy court. Its
remaining plants were sold in the auction to various secured lenders and, as of the date of this filing, it was unclear which, if any, of these VeraSun plants could be expected to continue operation.
During 2008 and early 2009, a variety of smaller ethanol producers likewise filed for protection under Chapter 11 or comparable state law. While it is too soon to estimate what effect, if any,
these events may have on our business or competitive prospects, if a sufficient number of competitors cease operations it could reduce industry capacity overall and provide us with a competitive
advantage. However, it is also possible that one or more of our competitors may emerge from bankruptcy with improved capital structures, or without significant debt service obligations, which could
have the effect of placing us at a competitive disadvantage. We also compete with other large ethanol producers such as Aventine Renewable Energy, Inc., Abengoa Bioenergy Corporation and
Hawkeye Holdings Inc. A number of our competitors have substantially greater financial and other resources than we do. The remainder of the industry is highly fragmented, with many small,
independent firms and farmer-owned cooperatives constituting the rest of the market. Through our ethanol marketing agreements with Cargill, we compete with our competitors on a national basis.

Ethanol
is a commodity and as such is priced on a very competitive basis. We believe that our ability to compete successfully in the ethanol production industry depends on many factors,
including price, reliability of our production processes and delivery schedule and volume of ethanol produced and sold. We try to differentiate ourselves from our competition through continuous focus
on cost control and production efficiency and by utilization of Cargill's expertise in ethanol marketing and corn supply. We constructed our ethanol facilities with a focus on minimizing cost inputs
such as corn, natural gas and transportation. We have chosen the sites for our Wood River and Fairmont plants in part because of their access to significant local corn production, their proximity to
competitive natural gas supplies and their access to transportation infrastructure, the costs of each we expect to keep lower than industry averages. We also expect to promote a
company-wide culture of continuous improvement, cost control and efficiency regardless of the economic cycle. We strive to be one of the lowest cost ethanol producers in the industry
through the application of the latest technology, strict attention to cost efficiencies and, where appropriate, long-term contracts for the supply of inputs such as corn and natural gas.

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With
respect to distillers grain, we compete with other ethanol producers as well as a number of large and smaller suppliers of competing animal feed. We believe the principal
competitive factors are price, proximity to purchasers and, especially, product quality. We try to differentiate ourselves from our competition through high product quality, strategic plant locations
and access to Cargill's expertise in feed merchandising.

Environmental matters

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of
materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, access to and use of water supply, and the health and safety of
our employees. These laws and regulations can require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws
and regulations or permit conditions can result in substantial fines, natural resource damage claims, criminal sanctions, permit revocations and facility shutdowns. We do not anticipate a material
adverse impact on our business or financial condition as a result of our efforts to comply with these requirements. We also do not expect to incur material capital expenditures for environmental
controls in this or the succeeding fiscal year.

There
is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where
we arrange for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites
that undergo investigation or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental, Response, Compensation and Liability Act of 1980, or CERCLA, or other
environmental laws for all or part of the costs of investigation or remediation and for damage to natural resources. We also may be subject to related claims by private parties alleging property
damage and personal injury due to exposure to hazardous or other materials at or from these properties. Some of these matters may require us to expend significant amounts for investigation and/or
cleanup or other costs. We do not currently have material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported
or arranged for the disposal of hazardous substances.

In
addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional
significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our ongoing
operations. Present and future environmental laws and regulations and related interpretations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown
conditions may require substantial capital and other expenditures. Our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local
laws and associated regulations. The U.S. EPA has promulgated National Emissions Standards for Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could apply to facilities that
we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we
would be required to comply with the NESHAP related to our manufacturing process and would be required to come into compliance with another NESHAP applicable to boilers and process heaters. Although
emissions from our plants are not expected to exceed the relevant threshold levels, new or expanded facilities would be required to comply with both standards upon startup if they exceed the hazardous
air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards also may limit our operating flexibility. Because other domestic
ethanol manufacturers will have similar restrictions, however, we believe that compliance with more stringent air emission control or other environmental laws and regulations is not likely to
materially affect our competitive position.

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The hazards and risks associated with producing and transporting our products, such as fires, natural disasters, explosions, abnormal pressures, blowouts and pipeline ruptures also may
result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. Our
coverage includes physical damage to assets, employer's liability, comprehensive general liability, automobile liability and workers' compensation. We believe that our insurance is adequate and
customary for our industry, but losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. We do not currently have pending material claims for
damages or liability to third parties relating to the hazards or risks of our business.

Employees

As of March 12, 2009, we had 147 full-time employees and 4 part-time employees, who are responsible for
our management and development and the operation of the Wood River and Fairmont plants. None of these employees is subject to a collective bargaining agreement.

Organizational structure

Company history

Bio Fuel Solutions Colorado was formed in January 2005, and throughout 2005 and early 2006, worked to develop plans for the Wood River
and Fairmont plants. BioFuel Solutions Delaware was formed in 2005 and held a minority interest in Bio Fuel Solutions Colorado until October 2005 when the remaining interest of Bio Fuel Solutions
Colorado was acquired by BioFuel Solutions Delaware. In January 2006, BioFuel Energy, LLC was founded to take over development and construction of the plants from Biofuel Solutions Delaware.
BioFuel Energy Corp. was formed as a Delaware corporation in April 2006 as a holding company. In September 2006, BioFuel Solutions Delaware was contributed to the LLC and BioFuel Solutions Delaware
was dissolved.

In
August 2006, we began construction of our Wood River plant and, in October 2006, we began construction of our Fairmont plant. In June 2008, both plants began commercial operation and
in August 2008 achieved the provisional acceptance construction milestone. Both plants achieved project completion in December 2008.

In
June 2007, we completed an initial public offering of 5,250,000 shares of our common stock and the private placement of 4,250,000 shares of our common stock to our three largest
pre-existing shareholders at a gross per share price of $10.50 (the "offering"), resulting in $93.2 million in net proceeds. In July 2007, the underwriters of the offering exercised
their over-allotment option, purchasing 787,500 additional shares of common stock. The shares were purchased at the $10.50 per share offering price, resulting in $7.7 million of
additional proceeds to us. In total, we received approximately $100.9 million in net proceeds from this offering and private placement, after expenses. All net proceeds from the offering were
transferred to the LLC as contributed capital subsequent to the offering. With these proceeds, we retired $30.0 million of our subordinated debt, leaving $20.0 million outstanding.

At
December 31, 2008, we owned 69.1% of the LLC units with the remaining 30.9% owned by the historical equity investors of the LLC. There were 23,318,636 shares of our common
stock and 10,082,248 shares of our Class B common stock issued and outstanding as of December 31, 2008. The Class B common shares are held by the historical equity investors of
the LLC, who also hold 10,082,248 membership interests in the LLC that, when combined with the Class B shares, can be exchanged for newly issued shares of our common stock on a
one-for-one basis. The membership interests held by historical equity investors of the LLC are recorded as minority interest on the consolidated balance sheets. Holders of
shares of Class B common stock have no economic rights but are entitled to one

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vote
for each share held. The Class B common stock will be retired upon exchange of the related membership interests.

Incorporation of BioFuel Energy Corp.

BioFuel Energy Corp. was incorporated as a Delaware corporation in April 2006. BioFuel Energy Corp. has not engaged in any business or
other activities except in connection with its formation and its holding of interests in the LLC. The certificate of incorporation of BioFuel Energy Corp.:



Holding company structure

BioFuel Energy Corp. is a holding company and its sole asset is a 69.1% equity interest in the LLC. As the sole managing member of the
LLC, BioFuel Energy Corp. operates and controls all of the business and affairs of the LLC and its subsidiaries. BioFuel Energy Corp. consolidates the financial results of the LLC and its
subsidiaries. The ownership interest of the historical LLC equity investors in the LLC is reflected as a minority interest in BioFuel Energy Corp.'s consolidated financial statements.

Pursuant
to the amended limited liability company agreement of the LLC, BioFuel Energy Corp. has the right to determine when distributions will be made to the members of the LLC and the
amounts of any such distributions. If BioFuel Energy Corp. authorizes a distribution, such distribution will be made to the members of the LLC (1) in the case of a tax distribution (as
described below), to the holders of
membership interests in proportion to the amount of taxable income of the LLC allocated to such holder and (2) in the case of other distributions, pro rata in accordance with the percentages of
their respective membership interests.

The
holders of membership interests in the LLC, including BioFuel Energy Corp., will incur U.S. federal, state and local income taxes on their proportionate shares of any net taxable
income of the LLC. Net profits and net losses of the LLC will generally be allocated to its members, including BioFuel Energy Corp., the managing member, pro rata in accordance with the percentages of
their respective membership interests. Because BioFuel Energy Corp. owns approximately 69.1% of the total membership interests in the LLC, BioFuel Energy Corp. will generally be allocated
approximately 69.1% of the net profits and net losses of the LLC. The remaining net profits and net losses will generally be allocated to the other historical equity investors of the LLC. These
percentages are subject to change, including upon an exchange of membership interests for shares of our common stock and upon issuance of additional shares to the public. The amended limited liability
company agreement provides for cash distributions to the holders of membership interests of the LLC if BioFuel Energy Corp. determines that the taxable income of the LLC will give rise to taxable
income for its members. In accordance with the amended limited liability company agreement, we will generally intend to cause the LLC to make cash distributions to the holders of its membership
interests for purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally, these tax

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distributions
will be computed based on our estimate of the net taxable income of the LLC allocable to such holders of membership interests multiplied by an assumed tax rate equal to the highest
effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain
expenses and the character of our income).

BioFuel
Energy Corp. does not intend to pay any dividends on its common stock. If, however, BioFuel Energy Corp. declares dividends on its common stock, the LLC will make distributions
to BioFuel Energy Corp. in order to fund any dividends. If BioFuel Energy Corp. declares dividends, the historical LLC equity investors will be entitled to receive equivalent distributions pro rata
based on their membership interests in the LLC.

ITEM 1A.    RISK FACTORS

You should carefully consider the following risks, as well as other information contained in this
Form 10-K, including "Management's discussion and analysis of financial condition and results of operations". The risks described below are those that we believe are the material
risks we face. Any of these risks could significantly and adversely affect our business, prospects, financial condition and results of operations.

Risks relating to our business and industry

We have a very limited operating history and our business may not succeed.

We are a relatively new company with very limited operating results to date, and therefore you do not have a sufficient operating
history upon which you can evaluate our business and prospects. In addition, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in
rapidly evolving markets, such as the ethanol market, where supply and demand and other factors may change significantly over a short period.

Some
of these risks relate to our potential inability to:



If
we cannot successfully manage these risks, our business and results of operations and financial condition will suffer.

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Our auditors have expressed substantial doubt about our ability to continue as a going concern.

In connection with its year-end audit of our annual financial statements, our independent auditor assesses whether a
statement should be included in its audit report regarding the existence of substantial doubt related to our ability to continue as a going concern. Our auditors have issued an opinion on our
consolidated financial statements for the fiscal
year ended December 31, 2008, which is included with this Annual Report, that states that the consolidated financial statements were prepared assuming we will continue as a going concern and
further states that the factors discussed in Note 1 to the consolidated financial statements raise substantial doubt about our ability to continue as a going concern. This is due mainly to the
losses we have incurred to date and the contracting margins we have experienced as the price of a gallon of ethanol has declined relative to the cost of the corresponding amount of corn required to
produce it (known as the "crush spread"). This has adversely affected our results of operations and caused our operating cash flow to decrease below the amount needed to service our debt on a
sustained basis.

We
have initiated a company-wide business restructuring plan to reduce costs and are currently exploring various alternatives to address our liquidity issues. These include:
(i) reducing operating expenses through headcount reductions or operating efficiency initiatives; (ii) reducing the cost of various inputs and services by renegotiating the terms of
supply and service agreements, including our agreements with Cargill; (iii) seeking forbearance or some other accommodation from our lenders; (iv) seeking new capital, either from new or
existing investors or (v) some combination of the foregoing or other measures. However there can be no assurance that we will be successful in achieving any of these objectives or, if
successfully implemented, that these initiatives will be sufficient to address our lack of liquidity.

In
the event that our margins do not improve, or we are unable to raise additional capital, or we are otherwise unable to generate sufficient cash flow from operations, we may not be
able to pay principal or interest on our debt. This would result in an event of default under our bank agreements and, in the absence of forbearance, debt service abeyance or other accommodations from
our lenders, require us to curtail operations or cease operating altogether, and may result in our inability to continue as a going concern and could potentially force us to seek relief through a
filing under the U.S. Bankruptcy Code. Our liquidity and ability to continue as a going concern could also be impacted by any number of other unforeseen material adverse developments in the
commodities markets or our operations.

We may encounter unanticipated difficulties in operating our plants, which could reduce sales and cause us to incur substantial losses.

Our revenues are derived from the sale of ethanol and distillers grain that we produce at our facilities. TIC Wyoming, a subsidiary of
TIC, constructed our Wood River and Fairmont plants and had not previously constructed an entire ethanol plant of the size and type such as ours. In addition, the Delta-T technology
utilized at our plants is currently in use only in a small number of ethanol plants, mostly with smaller capacities than ours. We are aware of certain plant design issues that may impede the reliable
operation of the plants and continuous operations. We are in the process of addressing these and a variety of other reliability issues at our plants, but we have no assurance that our initiatives will
be successful or can be implemented in a timely fashion or without an extended period of interruption to operations. Further, we are also responsible for the maintenance of certain infrastructure
outside of the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. As a result, we may encounter unanticipated
difficulties and the operation of our plants may be more costly or inefficient than we anticipate. We may be entitled to seek damages from TIC for warranty claims under our engineering, procurement
and construction, or EPC, contracts if we encounter unanticipated difficulties in operating our plants due to deficiencies in design, construction or materials, but our ability to seek damages may

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be
limited. In any event, we would not be able to recover lost sales or lost profits that might result from any defect in the design or construction of our plants.

We
may also encounter other factors that could prevent us from conducting operations as expected, resulting in decreased capacity or interruptions in production, including shortages of
workers or materials, design issues relating to improvements, construction and equipment cost escalation, transportation constraints, adverse weather, unforeseen difficulties or labor issues, or
changes in political administrations at the federal, state or local levels that result in policy change towards ethanol in general or our plants in particular. Furthermore, local water, electricity
and gas utilities may not be able to reliably supply the resources that our facilities will need or may not be able to supply them on acceptable terms. Our operations may be subject to significant
interruption if any of our facilities experiences a major accident or is damaged by severe weather or other natural disasters. In addition, our operations may be subject to labor disruptions,
unscheduled downtime or other operational hazards inherent in our industry. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and
equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to cover the potential operational
hazards described above and we may not be able to renew our insurance on commercially reasonable terms or at all. Any cessation of operations due to any of the above factors would cause our sales to
decrease significantly, which would have a material adverse effect on our results of operation and financial condition.

Crush spreads have narrowed, and may decline further, making profitable operation of our plants difficult or impossible.

Our gross profit depends principally on our "crush spread", which is the difference between the price of a gallon of ethanol and the
cost of the amount of corn required to produce a gallon of ethanol. Using our dry-mill technology, we expect each bushel of corn to produce approximately 2.7 gallons of fuel grade ethanol.
From 2007 through 2008, this spread has fluctuated widely, as average U.S. ethanol rack prices, reported by Bloomberg, have ranged from $1.69 to $3.08 per gallon, and Chicago No. 2 yellow corn
spot prices, reported by Bloomberg, have ranged from $2.68 to $7.15 per bushel. As of March 16, 2009, based on these same sources, the ethanol rack price was $1.88 per gallon, the spot price of
corn was $3.76 per bushel. Based on the two year average price of a bushel of corn of $4.10, the cost of corn per gallon of ethanol would be approximately $1.52 (.37 bushels per
gallon × $4.10). As such, the "crush spread" would have been $.75 per gallon based on the 2007 to 2008 average ethanol price of $2.27 per gallon.

Recent
price volatility in the commodities markets, primarily in the prices of ethanol and corn, have greatly diminished or, in some instances eliminated, our daily gross operating
margins at the plant level. During the first two months of 2009, the crush spread, based on Bloomberg prices, has ranged from approximately $0.44 per gallon to $0.71 per gallon. These fluctuations
affect our results of operations and can cause our operating cash flow to decrease below the amount needed to service our debt on a sustained basis. In the event our margins do not improve, we may not
be able to pay principal or interest on our debt, which may lead to an event of default under our bank agreements and, in the absence of forbearance, debt service abeyance or other accommodations from
our lenders, require us to curtail operations or cease operating altogether. We expect fluctuations in the crush spread to continue. Any further reduction in the crush spread may cause our operating
margins to deteriorate further, resulting in an impairment charge and also causing the consequences described above to occur sooner.

Our significant hedging losses in 2008 have resulted in decreased liquidity.

During the year ended December 31, 2008, the LLC recorded a $39.9 million loss from hedging. All of the hedge
contracts that caused this loss were entered into with Cargill, which conducts all corn

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purchases
and sales of ethanol and distillers grain for the LLC and its subsidiaries. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and capital resourcesHedging Losses" elsewhere in this report. On January 16, 2009, the Company announced that it had finalized an agreement with
Cargill resolving matters related to these unpaid losses. Following a $3.0 million payment in early December, the remaining balance due Cargill totaled $11.4 million and interest began
accruing at a 5% annual rate, with future payments to Cargill being contingent on available cash flow, as defined in the agreement. Although this agreement resolved
the immediate issues between the parties, it will have the likely effect of limiting the ways in which the Company can use certain future cash flows that might otherwise have become available for
other purposes, including pursuit of business opportunities, plant expansion or acquisitions.

Results may be adversely affected by future hedging transactions and other strategies.

We may enter into contracts to sell a portion of our ethanol and distillers grain production or to purchase a portion of our corn or
natural gas requirements on a forward basis to offset some of the effects of volatility of ethanol prices and costs of commodities. From time to time, we may also engage in other hedging transactions
involving exchange-traded futures contracts for corn and natural gas. The financial statement impact of these activities will depend upon, among other things, the prices involved, changes in the
underlying market price and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts or our ability to sell excess corn or natural gas
purchased in hedging transactions. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the
case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us.

Although
we attempt to link our hedging activities to sales and production plans and pricing activities, such hedging activities can themselves result in losses. Hedging activities can
result in losses when a position is purchased in a declining market or a position is sold in a rising market. This risk can be increased in highly volatile conditions such as those recently
experienced in corn and other commodities futures markets. A hedge position is often settled when the physical commodity is either purchased (corn and natural gas) or sold (ethanol or distillers
grain). In the interim, we are and may continue to be subject to the risk of margin calls and other demands on our financial resources arising from hedging activities. We may experience hedging losses
in the future. We may also vary the amount of hedging or other price mitigation strategies we undertake, and we may choose not to engage in hedging transactions at all. As a result, our results of
operations and financial condition may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol.

During
the year ended December 31, 2008, the LLC recorded a $39.9 million loss from hedging. All of the hedge contracts that caused this loss were entered into with
Cargill, which conducts all corn purchases and sales of ethanol and distillers grain for the LLC and its subsidiaries. See "Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and capital resourcesHedging Losses" elsewhere in this report.

The
Company has adopted a risk management policy which is intended to provide additional, formal oversight over the hedging activities of the LLC and the Operating Subsidiaries of
the LLC. There can be no assurances, however, that this policy will prevent or mitigate future hedging losses.

We have incurred a significant amount of indebtedness to construct our facilities and to operate our business, virtually all of which is secured by our assets.

We expect to borrow a total of approximately $230 million of bank debt in order to finance the construction, operations and
financing costs of our two facilities, of which $198.2 million, including $17 million for working capital, was borrowed as of December 31, 2008. In addition, we have incurred

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$20 million
in subordinated debt, $14.4 million in Cargill debt, $6.0 million of tax increment financing, and $4.8 million in other notes payable and capital leases. We may
also borrow additional amounts in order to provide additional working capital or to finance capital improvements or other operational requirements.

Our substantial indebtedness could have important consequences by adversely affecting our financial position.

Our substantial indebtedness could:



Our
ability to make payments on and refinance our indebtedness will depend on our ability to generate cash from our operations. Our ability to generate cash from operations is subject,
in large part, to our crush spread as well as general economic, competitive, legislative and regulatory factors and other factors that are beyond our control. During our limited period of operations
we have been unable to generate positive cash flow. If this continues, we may not be able to generate enough cash flow from operations or obtain enough capital to service our debt, finance our
business operations or fund our planned capital expenditures. If we do not have sufficient cash flow to service our debt, we would need to refinance all or part of our existing debt, sell assets,
borrow more money or sell securities, any or all of which we may not be able to do on commercially reasonable terms or at all.

We are subject to risks associated with our existing debt arrangements.

Our bank facility.The Operating Subsidiaries of the LLC that own and operate our Wood River and Fairmont plants have entered into a
bank facility
with a group of financial institutions that is secured by substantially all of those subsidiaries' assets. Although we have completed significant borrowing under our bank facility, additional
borrowings remain subject to the satisfaction of a number of additional conditions precedent, including compliance with debt covenants and payment of principal and interest when due. To the extent
that we are not able to satisfy these requirements, we will not be able to make additional borrowings under the bank facility without obtaining a waiver or consent from the lenders, which could
prevent or delay our borrowing. In addition, our bank agreement contains standard clauses
regarding occurrence of a "material adverse effect," which is defined very broadly and in such fashion as to be subjective. In the event our banks should determine that a "material adverse effect" has
occurred, they could declare us in default and accelerate payment of all principal and interest due, or prevent us from borrowing additional funds under the bank facility.

The
terms of the bank facility include customary events of default and covenants that limit the applicable subsidiaries from taking certain actions without obtaining the consent of the
lenders. In particular, our bank facility places significant restrictions on the ability of those subsidiaries to

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distribute
cash to the LLC, which limits our ability to use cash generated by those subsidiaries for other purposes. In addition, the bank facility restricts those subsidiaries' ability to
incur additional indebtedness. Under our bank facility, if Cargill, or as long as any warranty obligations remain outstanding under our Wood River or Fairmont EPC contracts, TIC or Delta-T
admits in writing its inability to, or is generally unable to, pay its debts as such debts become due, we will be deemed to be in default. In addition, should the Company, or any of its subsidiaries
that are borrowers under the bank facility, admit in writing its inability to, or is generally unable to, pay its debts as such debts become due, we will be deemed to be in default.

A
default under our bank facility would also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding. In the
event of a default, the lenders could also proceed to foreclose against the assets securing such obligations. Because the debt under our existing arrangements subjects substantially all of our assets
to liens, there may be no assets left for stockholders in the event of a liquidation. In the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to operate
as a going concern.

Our subordinated debt agreement.The LLC has entered into a subordinated debt agreement with entities affiliated with Greenlight Capital,
 Inc.
and entities and individuals affiliated with Third Point LLC. Subordinated borrowings are secured by the subsidiary equity interests owned by the LLC. A default under our bank facility would
also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding. In the event of a default, the lenders could also proceed to
foreclose against the assets securing such obligations. Because the debt under our existing arrangements subjects substantially all of our assets to liens, there may be no assets left for stockholders
in the event of a liquidation. In the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to operate as a going concern.

During
the third and fourth quarters of 2008, the LLC did not make the quarterly interest payments that were due on the last day of each quarter, which upon written notice to
the LLC would constitute an event of default under the subordinated debt agreement. On January 16, 2009, the Company announced that it had entered into an agreement with the subordinated
debt lenders, whereby future payments to the lenders will be contingent on available cash flow, as defined. As part of the agreement,
the subordinated debt holders received an immediate $2.0 million cash payment, which paid $767,000 of accrued interest due September 30, 2008 and reduced the principal balance by
$1,233,000. Effective December 1, 2008, interest on the subordinated debt began to accrue at a 5% annual rate, compared to the previous rate of 15%, which rate will continue to apply until
certain payment obligations have been met under an agreement simultaneously entered into with Cargill. Although this agreement prevented the occurrence of an event of default under the subordinated
debt agreement and resolved the immediate issues among the parties, it will have the likely effect of limiting the ways in which the Company can use certain future cash flows that might otherwise have
become available for other purposes, including pursuit of business opportunities, plant expansion or acquisitions.

Our future debt facilities will likely be secured by substantially all our assets.We expect that the debt we will incur to finance any
future needs
will be incurred either pursuant to an expanded version of our current bank facility, a new, separate credit facility (which would require the consent of our existing banks) or a new corporate credit
facility that would replace our current bank facility. In any event, it is most likely that this indebtedness would be secured by substantially all of our assets. Because the debt under these
facilities may subject substantially all of our assets to liens, there may be no assets left for stockholders in the event of a liquidation. Moreover, because the bank facility only contains limits on
the amount of indebtedness that certain of our subsidiaries may incur, we have the ability to incur substantial additional indebtedness, and any additional indebtedness we incur could exacerbate the
risks described above.

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Increased acceptance of ethanol as a fuel and construction of additional ethanol production plants could lead to shortages of availability and increases in the price of
corn.

We anticipate that the expansion of the ethanol industry will lead to significantly greater demand for corn. Cargill, which supplies
corn for our plants, may have difficulty from time to time in sourcing corn on economical terms, due to supply shortages or elevated market prices. Any supply shortage could require us to suspend
operations until corn becomes available on economical terms. Suspension of operations would materially harm our business, results of operations and financial condition. Additionally, the price we pay
for corn could increase if another ethanol production facility were built in the same general vicinity, if we expand one of our production facilities or based on market conditions. One of our
competitors has constructed a large scale ethanol production plant approximately six miles from our Fairmont site, near Welcome, Minnesota. Two plants in such close proximity could lead to increases
in the price of corn or shortages of availability of corn in the area. In addition, the price of corn increased significantly over historical levels in late 2006, through 2007 and into the third
quarter of 2008. This increase in corn prices was attributed in part to the anticipated demand from new ethanol production plants under construction or development. Although corn prices declined
rapidly in the later part of 2008, and have since fluctuated in a range closer to historical levels, we cannot assure you that the price of corn will not rise significantly in the future, which could
adversely affect our results of operations.

Excess production capacity in our industry resulting from new plants under construction or decreases in the demand for ethanol or distillers grain could adversely affect our
business.

According to the Renewable Fuels Associate (RFA), a trade group, domestic ethanol production capacity has increased from approximately
1.8 billion gallons per year (Bgpy) in 2001, to an estimated 12.4 Bgpy at the end of 2008. The RFA estimates that, as of December 31, 2008, approximately 2.1 Bgpy of additional
production capacity, an increase of approximately 17% over current production levels, is under construction at 25 new and existing facilities. Archer Daniels Midland Company, the second largest
domestic ethanol producer, has announced plans to increase its production capacity by 550 Mmgy, or approximately 51% by the end of 2009. As a result of this increase in production, the ethanol
industry faces the risk of excess capacity. In a manufacturing industry with excess capacity, producers have an incentive to continue manufacturing products as long as the price of the product exceeds
the marginal cost of production (i.e., the cost of producing only the next unit, without regard to interest, overhead or other fixed costs). If there is excess capacity in our industry, this
could result in a reduction of the market price of ethanol to a level that is inadequate to generate sufficient cash flow to cover costs, which could result in an impairment charge and could have an
adverse effect on our results of operations, cash flows and financial condition. If such circumstances were to arise, it would be extremely unlikely that the potential sale of one or more plants would
be worth pursuing at that time.

Excess
ethanol production capacity also may result from decreases in the demand for ethanol, which could result from a number of factors, including regulatory developments and reduced
gasoline consumption in the United States. Reduced gasoline consumption could occur as a result of a decrease in general economic conditions, 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 as a result of technological advances, such as the commercialization of
hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid
vehicles and consumer education programs. There is emerging evidence that reduced gasoline consumption has occurred recently in the United States, as the economy has experienced a recession.

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In
addition, because ethanol production produces distillers grain as a co-product, increased ethanol production will also lead to increased supplies of distillers grain. An
increase in the supply of distillers grain, without corresponding increases in demand, could lead to lower prices.

Competition for qualified personnel in the ethanol industry is intense, and we may not be able to retain qualified personnel to operate our ethanol plants.

Our success depends in part on our ability to attract and retain competent personnel. For each of our plants, we must hire and retain
qualified managers, engineers and operations and other personnel, which can be challenging in a rural community. Competition for both managers and plant employees in the ethanol industry can be
intense. Although we have hired substantially all of the personnel necessary to operate our plants, we may not be able to maintain or retain qualified personnel. If we are unable to hire and maintain
or retain productive and competent personnel, our strategy may be adversely affected and we may not be able to efficiently operate our ethanol plants as planned.

We are dependent upon our officers for management and direction, and the loss of any of these persons could adversely affect our operations and results.

We are dependent upon the diligence and skill of our senior management team for implementation of our proposed strategy and execution
of our business plan, and our future success depends to a significant extent on the continued service and coordination of our senior management team. We do not have employment agreements with any of
our officers or key employees, other than Mr. Pearce and Mr. Simon. We do not maintain "key person" life insurance for any of our officers or other employees. The loss of any of our
officers could delay or prevent the achievement of our business objectives.

We are dependent on our commercial relationship with Cargill and subject to various risks associated with this relationship.

Our operating results may suffer if Cargill does not perform its obligations under our contracts.We have entered into an extensive
commercial
relationship with Cargill and will be dependent on Cargill for the success of our business. This relationship includes long-term marketing agreements with Cargill, under which Cargill has
agreed to market and distribute 100% of the ethanol and distillers grain produced at our Wood River and Fairmont production plants. We have also entered into corn supply agreements with Cargill, under
which Cargill will supply 100% of the corn for our Wood River and Fairmont plants. The success of our business will depend on Cargill's ability to provide our production plants with the required corn
supply in a cost-effective manner and to market and distribute our products successfully. If Cargill defaults on payments owed to us, fails to
perform any of its responsibilities or does not perform its responsibilities as effectively as we expect them to under our agreements, our results of operations will be adversely affected.

Cargill may terminate its arrangements with us in the event that certain parties acquire 30% or more of our common stock or the power to elect a majority of the
Board.Cargill has the right to terminate its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires
30% or more of our common stock or the power to elect a majority of our Board of Directors. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural
commodities business, and it has the right to annually update this list of identified parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties
currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited. Cargill's termination right may have the
effect of deferring, delaying or discouraging transactions with these parties and their affiliates that might otherwise be beneficial to us. If Cargill were to terminate any of our goods and services
agreements, it would have a significant negative impact on our business and we would be unable to continue our operations at each

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affected
facility until alternative arrangements were made. If we were required to make alternative arrangements, we may not be able to make such arrangements or, if we are able to make such
arrangements, they may not be on terms as favorable as our agreements with Cargill. We currently have no agreements or structure in place that would prohibit any of the parties identified by Cargill
from acquiring 30% or more of our common stock and we do not expect to have any such agreements or structures in the future. However, we have no expectation that any of these parties would have an
interest in acquiring shares of our common stock. We monitor Schedule 13D filings so that we will be informed of any parties accumulating ownership of our stock. If any identified party
accumulates a significant amount of stock, our Board of Directors will address the matter at that time consistent with its fiduciary duties under applicable law.

If we do not meet certain quality and quantity standards under our marketing agreements with Cargill, our results of operations may be adversely
affected.If our ethanol or distillers grain does not meet certain quality standards, Cargill may reject our products or accept our products and decrease the
purchase price to reflect the inferior quality. In addition, if our distillers grain is subject to a recall reasonably determined by Cargill to be necessary, we will be responsible for all reasonable
costs associated with the recall. If we fail to produce a sufficient amount of ethanol or distillers grain and, as a result, Cargill is required to purchase replacement products from third parties at
a higher purchase price to meet sale commitments, we must pay Cargill the price difference plus a commission on the deficiency volume. Our failure to meet the quality and quantity standards in our
marketing agreements with Cargill could adversely affect our results of operations.

We will be subject to certain risks associated with Cargill's ethanol marketing pool.Under the terms of our ethanol marketing
agreements, Cargill
may place our ethanol in a common marketing pool with ethanol produced by Cargill and certain other third party producers. Each participant in the pool will receive the same price for its share of
ethanol sold, net of freight and other agreed costs incurred by Cargill with respect to the pooled ethanol. Freight and other charges will be divided among pool participants based solely upon each
participant's ethanol volume in the pool. As a result, we may be responsible for higher freight and other costs than we would be if we did not participate in the marketing pool, depending on the
freight and other costs attributable to the other marketing pool members. In addition, we may become committed to sell ethanol at a fixed price in the future under the marketing pool, exposing us to
the risk of increased corn prices if we are unable to hedge such sales. We have the right to opt out of the ethanol marketing pool for any contract year by giving Cargill a six-month
advance notice. However, we may be required to participate in the pool for an additional 18 months if Cargill has contractually committed to sell ethanol based on our continued participation in
the pool.

We are subject to certain risks associated with our corn supply agreements with Cargill.We have agreed to purchase our required corn
supply for our
Wood River and Fairmont plants exclusively from Cargill and will pay Cargill a per bushel fee for all corn Cargill sells to us. We cannot assure you that the prices we will pay for corn under our corn
supply agreements with Cargill, together with the fee we have agreed to pay to Cargill, will be lower than the prices we could pay or that our competitors will be paying for corn from other sources.

Our interests may conflict with the interests of Cargill.According to the RFA, as of February 2009, Cargill has two of its own plants
which were
producing approximately 120 Mmgy. In addition, we understand that Cargill may market ethanol for other third parties under the marketing pool arrangements described above. We cannot assure you that
Cargill will not favor its own interests or those of other parties over our interests. Under our marketing agreements with Cargill, other than our right to terminate to the extent such conflict
results in material quantifiable pecuniary loss, we have waived any claim of conflict of interest against Cargill for failure to use commercially reasonable efforts to maximize our returns to the
extent such claims relate to an alleged conflict of interest or alleged

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preference
to third parties for which Cargill provides marketing services. If we elected to terminate the marketing agreements in these circumstances, we would need to enter into replacement marketing
arrangements with another party, which may not be possible at all or on terms as favorable as our current agreements with Cargill. To the extent a conflict of interest does not result in material
quantifiable pecuniary loss, we would be without recourse against Cargill.

New, more energy-efficient technologies for producing ethanol could displace corn-based ethanol and materially harm our results of operations and financial
condition.

The development and implementation of new technologies may impact our business significantly. The current trend in ethanol production
research is to develop an efficient method of producing ethanol from cellulosic biomass such as agricultural waste, forest residue, and municipal solid waste. This trend is driven by the fact that
cellulosic biomass is generally cheaper than corn and producing ethanol from cellulosic biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in
ethanol production research is to produce ethanol through a chemical process rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although
current technology does not allow these production methods to be cost competitive, new technologies may develop that would allow these or other methods to become viable means of ethanol production in
the future thereby displacing corn-based ethanol in whole or in part or intensifying competition in the ethanol industry. Our plants are designed to produce corn-based ethanol
through a fermentation process. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors,
and retrofitting our plants may be very time-consuming and could require significant capital expenditures. In addition, advances in the development of alternatives to ethanol, such as
alternative fuel additives, or technological advances in engine and exhaust system design performance, such as the commercialization of hydrogen fuel-cells or hybrid engines, or other
factors could significantly reduce demand for or eliminate the need for ethanol. We cannot predict when new technologies may become available, the rate of acceptance of new technologies, the costs
associated with new technologies or whether these other factors may harm demand for ethanol.

Our profit margins may be adversely affected by fluctuations in the selling price and production cost of gasoline.

Ethanol is marketed as a fuel additive to reduce vehicle emissions from gasoline, as an octane enhancer to improve the octane rating of
the 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 of and demand for gasoline. Our results of operations
may be materially harmed if the demand for, or the price of, gasoline decreases. Conversely, a prolonged increase in the price of, or demand for, gasoline could lead the U.S. government to relax
import restrictions on foreign ethanol that currently benefit us.

Our business will be highly dependent on commodity prices, which are subject to significant volatility and uncertainty, and on the availability of raw materials supplies, so
our results of operations, financial condition and business outlook may fluctuate substantially.

Our results of operations will depend substantially on the prices of various commodities, particularly the prices for ethanol, corn,
natural gas and unleaded gasoline. The prices of these commodities are volatile and beyond our control. As a result of the volatility of the prices for these and other items, our results may fluctuate
substantially. We may experience periods during which the prices of our products decline and the costs of our raw materials increase, which in turn may result in operating losses or impairment charges
and hurt our financial condition. If a substantial imbalance occurred, we may take actions to mitigate the effect of the imbalance, such as storing our uncontracted

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ethanol
for a period of time. These actions could involve additional costs and could have a negative impact on our operating results.

Our business is highly sensitive to corn prices, and we generally cannot pass along increases in corn prices to our customers.

Corn is the principal raw material we use to produce ethanol and distillers grain. We expect corn costs to represent approximately 72%
of our total operating expenses, assuming a corn price of $3.50 per bushel. Changes in the price of corn therefore will significantly affect our business. In general, rising corn prices result in
lower profit margins and may result in negative margins if not accompanied by increases in ethanol prices. Under current market conditions, because ethanol competes with fuels that are not
corn-based, we generally will be unable to pass along increased corn costs to our customers. At certain levels, corn prices would make ethanol uneconomical to use in fuel markets. Over the
period from January 2007 through December 2008, corn prices, based on the Chicago Board of Trade, or CBOT, daily futures data, have ranged from a low of $2.68 per bushel in December 2008 to a high of
$7.15 per bushel in July 2008, with prices averaging $4.10 per bushel during this two year period. As of March 16, 2009, the CBOT spot price of corn was $3.76 per bushel. The price of corn is
influenced by a number of factors, including weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors, government
policies and subsidies with respect to agriculture and international trade, and global and local supply and demand. In addition, any event that tends to increase the demand for corn could cause the
price of corn to increase. We believe that the increasing ethanol production capacity has contributed to, and will continue to contribute to, a period of elevated corn prices compared to historical
levels.

The market for natural gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that we will use in our manufacturing
process.

We rely upon third parties for our supply of natural gas, which we use in the ethanol production process. The prices for and
availability of natural gas are subject to volatile market conditions. The fluctuations in natural gas prices over the period from January 2007 through December 2008, based on the New York Mercantile
Exchange, or NYMEX, daily futures data, have ranged from a low of $5.29 per Mmbtu in September 2007 to a high of $13.31 per Mmbtu in July 2008, averaging $7.73 per Mmbtu during this two year period.
As of March 16, 2009 the NYMEX spot price of natural gas was $3.77 per Mmbtu. These market conditions are often affected by factors beyond our control such as the price of oil as a competitive
fuel, higher prices resulting from colder than average weather conditions or the impact of hurricanes and overall economic conditions. Depending upon business conditions, we anticipate using
approximately 7,200,000 Mmbtu's of natural gas annually at our Wood River and Fairmont plants. Local variation in the cost or supply of natural gas at either plant may also negatively impact our
operations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol for our customers. Furthermore, increases in natural gas prices could adversely affect
our results of operations.

We may not be able to compete effectively.

We compete with a number of significant ethanol producers in the United States, including Archer Daniels Midland Company, VeraSun
Energy Corporation, Aventine Renewable Energy, Inc., Abengoa Bioenergy Corporation, Poet, Pacific Ethanol, Inc. and Hawkeye Holdings Inc. Some of our competitors are divisions of
larger enterprises and have substantially greater financial resources than we do. According to the RFA, the three largest producers (Archer Daniels Midland Company, Poet and VeraSun Energy
Corporation) together control 33% of the ethanol market as of the end of 2008.

In
November, 2008, VeraSun Energy Corporation filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. VeraSun subsequently announced that seven of its
ethanol

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plants
were in the process of being sold to Valero Energy, a producer and retailer of gasoline as a result of an auction process conducted under the auspices of the bankruptcy court. In addition,
VeraSun announced that its remaining plants were sold in the auction to various secured lenders and, as of the date of this filing it was unclear which, if any, of these VeraSun plants would continue
in operation. During 2008 and early 2009, a variety of smaller ethanol producers likewise filed for protection under Chapter 11 or comparable state law. While it is too soon to estimate what
effect, if any, these events may have on our business or competitive prospects, it is possible that one or more of our competitors may emerge from bankruptcy with improved capital structures, or
without significant
debt service obligations, which could have the potential effect of placing us at a competitive disadvantage.

In
addition to the larger sized competitors described above, there are many smaller competitors that have been able to compete successfully in the ethanol industry made up mostly of
farmer-owned cooperatives and independent firms consisting of groups of individual farmers and investors. As many of these smaller competitors are farmer-owned, they receive greater government
subsidies than we will and often require their farmer-owners to commit to selling them a certain amount of corn as a requirement of ownership. We expect competition to increase as the ethanol industry
becomes more widely known and demand for ethanol increases.

In
addition, Cargill operates its own ethanol facilities and markets ethanol for other parties. If Cargill decides to forgo future opportunities to do business with us, or chooses to
give these opportunities to our competitors or to retain them for itself, whether due to our performance or for reasons beyond our control, our business may not perform as expected.

We
also face increasing competition from international suppliers. International suppliers produce ethanol primarily from sugar cane and have cost structures that may be substantially
lower than ours. Although there is a $0.54 per gallon tariff on foreign-produced ethanol that is approximately equal to the federal blenders' credit, ethanol imports equivalent to up to 7% of total
domestic production in any given year from various countries were exempted from this tariff under the Caribbean Basin Initiative in order to spur economic development in Central America and the
Caribbean. In addition, this tariff is currently scheduled to expire on December 31, 2010, and there can be no assurance that it will be renewed beyond that time. Any increase in domestic or
foreign competition could force us to reduce our prices and take other steps to compete effectively, which may adversely affect our results of operations and financial position.

Growth in the sale and distribution of ethanol depends on changes to and expansion of related infrastructure which may not occur on a timely basis, if at all.

It currently is impracticable to transport by pipeline fuel blends that contain ethanol. Substantial development of infrastructure will
be required by persons and entities outside our control for our business, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited
to:



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The substantial investments or government support required for these infrastructure changes and expansions may not be made on a timely basis or at all. Any delay or failure in making the
changes to or expansion of infrastructure could weaken the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise materially harm our results of
operations or financial position.

Transportation delays, including as a result of disruptions to infrastructure, could adversely affect our operations.

Our business depends on the availability of rail and road distribution infrastructure. Any disruptions in this infrastructure network,
whether caused by earthquakes, storms, other natural disasters or human error or malfeasance, could materially impact our business. It currently is impracticable to transport by pipeline fuel blends
that contain ethanol, and we have limited ethanol storage capacity at our facilities. Therefore, any unexpected delay in transportation of our ethanol could result in significant disruption to our
operations, possibly requiring shutting down our plant operations. We will rely upon others to maintain our rail lines from our production plants to national rail networks, and any failure on their
part to maintain the lines could impede our delivery of products, impose additional costs on us or otherwise cause our results of operations or financial condition to suffer.

Disruptions in the supply of oil or natural gas could materially harm our business.

Significant amounts of oil and natural gas are required for the growing, fertilizing and harvesting of corn, as well as for the
fermentation, distillation and transportation of ethanol and the drying of distillers grain. A serious disruption in the supply of oil or natural gas and
any related period of elevated prices could significantly increase our production costs and possibly require shutting down our plant operations which would materially harm our business.

Our business may be influenced by seasonal fluctuations.

Our operating results may be influenced by seasonal fluctuations in the price of our primary operating inputs, corn and natural gas,
and the price of our primary product, ethanol. Generally speaking, the spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest
in October and November. The price for natural gas, however, tends to move inversely to that of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition,
ethanol prices have historically been substantially correlated with the price of unleaded gasoline. The price of unleaded gasoline tends to rise during the summer and winter. Due to the blender's
credit, ethanol historically has traded at a per gallon premium to gasoline, although there have been times that ethanol has traded at a discount to gasoline. This discount, or price inversion, is
believed to be the result of the rapid growth in the supply of ethanol compounded by the limited infrastructure and blending capacity required for distribution. Given our limited operating history, we
do not know yet how these seasonal fluctuations will affect our operating results over time.

The price of distillers grain is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the
price of distillers grain.

Distillers grain is one of many animal feed products and competes with other protein-based animal feed products. The price of
distillers grain may decrease when the price of competing feed products decreases. The prices of competing animal feed products are based in part on the prices of the commodities from which they are
derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers
grain. Because the price of distillers grain is not tied to production costs, decreases in the price of distillers grain will result in us generating less revenue and lower profit

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margins.
In addition, the production of distillers grain is expected to rise significantly in connection with the projected expansion of ethanol production capacity in the United States over the next
several years. As a result of this likely significant increase in supply, the market price of distillers grain may fall sharply from its current levels. If the market price of distillers grain falls,
our business and financial results may be harmed.

Our financial results may be adversely affected by potential future acquisitions or sales of our plants, which could divert the attention of key personnel, disrupt our
business and dilute stockholder value.

As part of our business strategy, and as market and financing conditions permit, we intend to (1) pursue acquisitions of other
ethanol producers, building sites, production facilities, storage or distribution facilities and selected infrastructure and (2) seek opportunities to sell one or more plants or plant sites on
a basis more favorable than we would expect to realize by holding them. Due to increased competition, however, we may not be able to secure suitable acquisition opportunities. Further, we may not be
able to find a buyer or buyers for one or more of our plants or plant sites at prices that we consider attractive. In addition, the completion of any acquisition may result in unforeseen operating
difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our operations. Acquisitions also frequently
result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions
by issuing equity securities or debt that is convertible into equity securities, our existing stockholders may be diluted, which could affect the market price of our common stock. The failure to
successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

The domestic ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could adversely
affect our results of operations and financial position.

The elimination of, or any significant reduction in, the blenders' credit could have a material impact on our results of operations and financial
position.The cost of production of ethanol is made significantly more competitive with that of gasoline as a result of federal tax incentives. Before
January 1, 2005, the federal excise tax incentive program allowed gasoline distributors that blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon
they sold. If the fuel was blended with 10% ethanol, the refiner/marketer paid $0.052 per gallon of ethanol sold less tax, which amounted to an incentive of $0.52 per gallon of ethanol. The $0.52 per
gallon incentive for ethanol was reduced to $0.45 per gallon in 2009 and is scheduled to expire on December 31, 2011. It is possible that the blenders' credit will not be renewed beyond 2011 or
will be renewed on different terms. In addition, the blenders' credit, as well as other federal and state programs benefiting ethanol (such as tariffs), generally are subject to U.S. government
obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, and may be the subject of challenges, in whole
or in part.

The elimination of or significant changes to the Freedom to Farm Act could reduce corn supplies.In 1996, Congress passed the Freedom
to Farm Act,
which allows farmers continued access to government subsidies while reducing restrictions on farmers' decisions about land use. This act not only increased acreage dedicated to corn crops but also
allowed farmers more flexibility to respond to increases in corn prices by planting greater amounts of corn. The elimination of this act could reduce the amount of corn available in future years and
could reduce the farming industry's responsiveness to the increasing corn needs of ethanol producers.

Ethanol can be imported into the United States duty-free from some countries, which may undermine the domestic ethanol industry.Imported
ethanol is generally subject to a $0.54 per gallon tariff that was

31

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designed
to offset the "blender's credit" ethanol incentive available under the federal excise tax incentive program for refineries that blend ethanol in their gasoline. A special exemption from the
tariff exists for ethanol imported from 24 countries in Central America and the Caribbean Islands, which is limited to a total of 7.0% of U.S. production per year. In addition, the North American Free
Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new
plants under development. The tariff is scheduled to expire on December 31, 2010. If it is not extended by Congress, imports of ethanol from non-exempt countries may increase.
Production costs for ethanol in these countries can be significantly less than in the United States and the duty-free import of lower price ethanol through the countries exempted from the
tariff may reduce the demand for domestic ethanol and the price at which we sell our ethanol. The RFA estimates that the U.S. imported 600Mmgy of ethanol in 2008.

The effect of the Renewable Fuel Standard, or RFS, program in the Energy Independence and Security Act signed into law in December 2007 and the Energy Policy Act signed into law in
August 2005 is uncertain.The use of fuel oxygenates, including ethanol, was mandated through regulation, and much of the forecasted growth in demand for ethanol
was expected to result from additional mandated use of oxygenates. Most of this growth was projected to occur in the next few years as the remaining markets switch from MTBE to ethanol. The Energy
Independence and Security Act of 2007 and the Energy Policy Act of 2005, however, eliminated the mandated use of oxygenates and instead established minimum nationwide levels of renewable
fuelsethanol, biodiesel or any other liquid fuel produced from biomass or biogasto be blended with gasoline. The legislation also included provisions for trading of credits
for use of renewable fuels and authorized potential reductions in the RFS minimum by action of a governmental administrator. The rules for implementation of the RFS and the energy bill became
effective in September 2007, and the ultimate effects of these rules on the ethanol industry are uncertain. In addition, the favorable ethanol provisions in the 2007 Act and 2005 Act may be adversely
affected by the enactment of additional legislation.

The
legislation did not include MTBE liability protection sought by refiners. Management predicts that this lack of protection may result in accelerated removal of MTBE and increased
demand for ethanol. Refineries, however, may use replacement additives other than ethanol, such as iso-octane, iso-octene and alkylate. Accordingly, the actual demand for
ethanol may increase at a lower rate than previously estimated, resulting in excess production capacity in our industry, which would negatively affect our business.

Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a material adverse affect on our results of operations.Under
the Energy Policy Act, the U.S. Department of Energy, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more
states if the Administrator of the Environmental Protection Agency determines that implementing the requirements would severely harm the economy or the environment of a state, a region or the nation,
or that there is inadequate supply to meet the requirement. Any waiver of the RFS with respect to one or more states would reduce demand for ethanol and could cause our results of operations to
decline and our financial condition to suffer.

We may be adversely affected by environmental, health and safety laws, regulations and liabilities.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of
materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, access to and impacts on water supply, and the health and safety
of our employees. Some of these laws and regulations require our facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can require
expensive emissions testing and pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and

32

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regulations
or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and facility shutdowns. We may not be at all times in compliance with
these laws, regulations or permits or we may not have all permits required to operate our business. We may be subject to legal actions brought by environmental advocacy groups and other parties for
actual or alleged violations of environmental laws or permits. In addition, we may be required to make significant capital expenditures on an ongoing basis to comply with increasingly stringent
environmental laws, regulations and permits.

We
may be liable for the investigation and cleanup of environmental contamination at any of the properties that we own or operate and at off-site locations where we arrange
for the
disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under
CERCLA, or other environmental laws for all or part of the costs of investigation and remediation, and for damage to natural resources. We also may be subject to related claims by private parties
alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant amounts for
investigation, cleanup or other costs.

New
laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant
expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our production facilities.
Environmental laws and regulations applicable to our operations now or in the future, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial
expenditures that could have a negative impact on our results of operations and financial condition. For example, carbon dioxide is a co-product of the ethanol manufacturing process and
may be released into the atmosphere. Emissions of carbon dioxide resulting from the manufacturing process are not currently subject to applicable permit requirements. If new laws or regulations are
passed relating to the production, disposal or emissions of carbon dioxide, we may be required to incur significant costs to comply with such new laws or regulations.

The
hazards and risks, such as fires, natural disasters, explosions and abnormal pressures and blowouts, associated with producing and transporting ethanol also may result in personal
injury claims or damage to property and third parties. We could sustain losses for uninsurable or uninsured risks, or in amounts in excess of our insurance coverage. Events that result in significant
personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could materially harm our results of operations and financial condition.

Risks relating to the ownership of our common stock

The existing market for our common stock is illiquid, and we do not know whether a liquid trading market will develop.

Prior to our initial public offering, our common stock had not been traded on a public market. Although our common stock is now listed
on Nasdaq, the trading market is relatively illiquid as there are less than 6.0 million shares in publicly traded hands, exclusive of any officers, directors and affiliates. As a result, there
are few institutional stockholders and we do not
receive a significant amount of analyst coverage. An illiquid market will limit your ability to resell shares of our common stock.

Our common stock could be delisted from The Nasdaq Global Market, which could negatively impact the price of our common stock and our ability to access the capital markets.

Our common stock is currently listed on The Nasdaq Global Market under the symbol "BIOF." The listing standards of The Nasdaq Global
Market provide, among other things, that a company may

33

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be
delisted if the bid price of its stock drops below $1.00 for a period of 30 consecutive business days. The bid price of our stock has been below $1.00 for a period of greater than 30 consecutive
business days. As such, we may receive a Nasdaq Staff Determination Letter informing us that we must regain compliance with listing requirements or face delisting. However, given the current
extraordinary market conditions, on October 16, 2008, Nasdaq filed an immediately effective rule change with the Securities and Exchange Commission to implement the suspension of enforcement of
the bid price and market value of publicly held shares requirements through Friday, January 16, 2009. On December 19, 2008, Nasdaq issued a revised rule extending suspension of the rule
until April 20, 2009. As a result of this suspension, even if our common stock continues to trade at a bid price below $1.00, the Company does not expect to receive a Nasdaq Staff Determination
Letter prior to expiration of the thirty trading-day period commencing after April 20, 2009, which would be on or about June 2, 2009. To the extent that we receive a Nasdaq
Staff Determination Letter, we will have 180 days in which to satisfy the minimum bid price requirements; however, given the suspension of enforcement of the minimum bid price rule, such
180 day period will not commence until after June 2, 2009, at the earliest.

If
we fail to comply with the listing standards, our common stock listing may be moved, in our discretion and subject to the satisfaction of certain listing requirements, including,
without limitation, the payment of a listing fee, to the Nasdaq Capital Market, which is a lower tier market, or our common stock may be delisted and traded on the
over-the-counter bulletin board network. Moving our listing to the Nasdaq Capital Market could adversely affect the liquidity of our common stock and the delisting of our
common stock would significantly affect the ability of investors to trade our securities and could significantly negatively affect the value and liquidity of our common stock. In addition, the
delisting of our common stock could materially adversely affect our ability to raise capital on terms acceptable to us or at all. Delisting from Nasdaq could also have other negative results,
including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities.

The price of our common stock may be volatile.

The trading price of our common stock is likely to be highly volatile and could be subject to fluctuations in response to a number of
factors beyond our control. Some of these factors are:



34

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In
recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies.
These broad market fluctuations may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our
company or its performance, and those fluctuations could materially reduce our common stock price.

Certain stockholders' shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock
to decrease significantly.

We currently have outstanding approximately 23.4 million shares of common stock and 10 million shares of Class B
common stock. Of these shares, the approximately 6.0 million shares we sold in our initial public offering in June 2007 are freely tradable without restriction under the Securities Act of 1933,
as amended, or the Securities Act, except for any shares purchased by one of our "affiliates" as defined in Rule 144 under the Securities Act. All of the shares outstanding other than the
shares sold in the initial public offering are "restricted securities" within the
meaning of Rule 144 under the Securities Act and will become eligible for sale in the public market over time under Rule 144 of the Securities Act, subject to volume limitations and
other restrictions contained in Rule 144. In addition, holders of these shares will have the right to require us to register the resale of their shares. If holders sell substantial amounts of
these shares, the price of our common stock could decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional equity securities.

The historical equity investors, including some of our officers and directors own a significant percent of our shares and will exert significant influence over us. Their
interests may not coincide with yours and they may make decisions with which you may disagree.

Our certificate of incorporation provides that the holders of shares of our Class B common stock will be entitled to one vote
for each share held of record on all matters submitted to a vote of stockholders. Accordingly, Greenlight Capital, Inc. and its affiliates, Third Point LLC and its affiliates and Cargill
each control approximately 36.4%, 17.1% and 5.1% of the voting power in BioFuel Energy Corp., respectively, and our officers and Directors together control approximately 76.6% of the voting power in
BioFuel Energy Corp. The shares of common stock and Class B common stock held by affiliates of Greenlight Capital, Inc. and Third Point LLC, which are controlled or represented on
our board by two of our Directors, were included in the calculation of voting power attributable to our officers and Directors. The historical equity investors (including the private purchasers),
acting together, could determine substantially all matters requiring stockholder approval, including the election of Directors and approval of significant corporate transactions. In addition, this
concentration of ownership may delay or prevent a change in control of our company and make some transactions more difficult or impossible without the support of these stockholders. The interests of
these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or
agreements that you would not approve or make decisions with which you may disagree.

We do not intend to pay dividends on our common stock.

We have not paid any dividends since inception and do not anticipate paying any cash dividends on our common stock in the foreseeable
future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund
the development and operation of our business. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the Board of Directors

35

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deems
relevant. In addition, our bank facility imposes restrictions on the ability of the subsidiaries that own and operate our Wood River and Fairmont plants to pay dividends or make other
distributions to us, which will restrict our ability to pay dividends. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a
return on their investment. Investors seeking cash dividends should not purchase our common stock.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may
strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

We are required to comply with laws, regulations and requirements, including certain corporate governance provisions of the
Sarbanes-Oxley Act of 2002 and related regulations of the SEC and requirements of NASDAQ. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of
our Board of Directors and management. We are required to:



If
we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting
companies could be impaired, and we may be subject to sanctions or investigation by regulatory authorities such as the SEC or NASDAQ. In addition, failure to comply with Section 404 or a report
of a material weakness may cause investors to lose confidence in us and may have a material adverse effect on our stock price.

Risks relating to our organizational structure

Our only material asset is our interest in BioFuel Energy, LLC, and we are accordingly dependent upon distributions from BioFuel Energy, LLC to pay dividends,
taxes and other expenses.

BioFuel Energy Corp. is a holding company and has no material assets other than its ownership of membership interests in the LLC.
BioFuel Energy Corp. has no independent means of generating revenue. We intend to cause the LLC to make distributions to its members in an amount sufficient to cover all applicable taxes payable, if
any, by such members. Our bank facility contains negative covenants, which limit the ability of our operating subsidiaries to declare or pay dividends or distributions. To the extent that BioFuel
Energy Corp. needs funds, and the LLC is restricted from making such distributions under applicable law or regulations, or is otherwise unable to provide such funds due, for example, to the
restrictions in our bank facility that limit the ability of our operating subsidiaries to distribute funds, our liquidity and financial condition could be materially harmed.

36

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We will be required to pay the historical LLC equity investors for a portion of the benefits relating to any additional tax depreciation or amortization deductions we may
claim as a result of tax basis step-ups we receive in connection with future exchanges of BioFuel Energy, LLC membership interests for shares of our common stock.

The membership interests in the LLC held by the historical LLC equity investors may in the future be exchanged for shares of our common
stock. The exchanges may result in increases in the tax basis of the assets of the LLC that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that we
would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge. At the current trading price, which
was $0.35 as of March 6, 2009, we do not anticipate any material change in the tax basis of the LLC's assets.

We
have entered into a tax benefit sharing agreement with the historical LLC equity investors that will provide for the payment by us to the historical LLC equity investors of 85% of the
amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of these increases in tax basis. The increase in tax basis, as well as
the amount and timing of any payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our common stock at the time of the
exchange, the extent to which such exchanges are taxable, and the amount and timing of our income. As a result of the size of the increases in the tax basis of the tangible and intangible assets of
the LLC attributable to our interest in the LLC, during the expected term of the tax benefit sharing agreement, we expect that the payments that we may make to the historical LLC equity investors
could be substantial.

Although
we are not aware of any issue that would cause the IRS to challenge a tax basis increase, the historical LLC equity investors will not reimburse us for any payments that may
previously have been made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to the historical LLC equity investors under the tax benefit sharing
agreement in excess of our cash tax savings. Our ability to achieve benefits from any tax basis increase, and the payments to be made under the tax benefit sharing agreement, will depend upon a number
of factors, as discussed above, including the timing and amount of our future income.

Provisions in our charter documents and our organizational structure may delay or prevent our acquisition by a third party or may reduce the value of your investment.

Some provisions in our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder may deem to be in his or her best interest. For example, our Board may determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock without any vote or action by our stockholders. In addition, stockholders must provide advance notice to nominate Directors or to propose business to
be considered at a meeting of stockholders and may not take action by written consent. Our corporate structure, which provides our historical LLC equity investors, through the shares of Class B
common stock they will hold, a number of votes equal to the number of shares of common stock issuable upon exchange of their membership interests in the LLC, may also have the effect of delaying,
deferring or preventing a future takeover or change in control of our company. The existence of these provisions and this structure could also limit the price that investors may be willing to pay in
the future for shares of our common stock.

37

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If BioFuel Energy Corp. were deemed an "investment company" under the Investment Company Act of 1940 as a result of its ownership of BioFuel Energy, LLC, applicable
restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

If BioFuel Energy Corp. were to cease participation in the management of the LLC, its interest in the LLC could be deemed an
"investment security" for purposes of the Investment Company Act of 1940, or the 1940 Act. Generally, a person is deemed to be an "investment company" if it owns investment securities having a value
exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items), absent an applicable exemption. BioFuel Energy Corp. has no material assets other than its
equity interest in the LLC. A determination that this interest was an investment security could result in BioFuel Energy Corp. being an investment company under the 1940 Act and becoming subject to
the registration and other requirements of the 1940 Act.

The
1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder
limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We
intend to conduct our operations so that BioFuel Energy Corp. will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause BioFuel Energy
Corp. to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates
and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among BioFuel Energy
Corp., the LLC or the historical equity investors, or any combination thereof and materially adversely affect our business, financial condition and results of operations.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Facilities

Headquarters

Our corporate headquarters are located at 1600 Broadway, Denver, Colorado, where we currently lease approximately 9,000 square feet of
office space.

Production Facilities

The table below provides an overview of our Wood River, Nebraska and Fairmont, Minnesota ethanol plants, which began operations in
2008.

Wood River
Plant

Fairmont
PlantDate operations began

June, 2008

June, 2008Annual nameplate ethanol production capacity

115 Mmgy

115 MmgyOwnership

100%

100%Production process

dry-milling

dry-millingPrimary energy source

natural gas

natural gasEstimated distillers grain production (dry equivalents) per year

360,000 tons

360,000 tonsTransportation

Union Pacific

Union Pacific


38

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Wood River plant

Our Wood River production plant began operations late in the second quarter of 2008 with an initial production capacity of 115 Mmgy,
and reached substantial completion in December 2008. The plant is located on an approximately 125 acre site owned by us approximately 100 miles west of Lincoln, Nebraska. The site is immediately
adjacent to an existing Cargill grain elevator. The grain elevator provides all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased,
effective in September 2008, from Cargill pursuant to a 20-year lease. Natural gas distribution to the site's lateral pipeline is provided by the Kinder Morgan Interstate Pipeline.
Electricity to the site is being provided by the City of Wood River. We have drilled our own wells for water needed at the facility.

Fairmont plant

Our Fairmont production plant began operations late in the second quarter of 2008 with an initial production capacity of 115 Mmgy, and
reached substantial completion in December 2008. The plant is located on an approximately 200 acre site owned by us approximately 150 miles southwest of Minneapolis, Minnesota. The site is immediately
adjacent to an existing Cargill grain elevator. The grain elevator provides all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased,
effective in September 2008, from Cargill pursuant to a 20-year lease. Natural gas distribution to the plant's lateral pipeline is provided by the Northern Border Interstate Pipeline.
Electricity to the site is being provided by Federated Rural Electric Association. Wells on the site will provide water needed at the facility.

ITEM 3.    LEGAL PROCEEDINGS

None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

We completed an initial public offering, or "IPO", of shares of our common stock in June 2007. Our common stock trades on the NASDAQ
Global Market under the symbol "BIOF." The following table sets forth the high and low closing prices for the common stock as reported on the NASDAQ Global Market for the quarterly periods since our
IPO. These prices do not include retail markups, markdowns or commissions.

Year ended, December 31, 2007

High

LowSecond Quarter (since June 14, 2007)

$
10.65

$
10.20Third Quarter

$
11.33

$
5.47Fourth Quarter

$
7.29

$
4.04




Year ended, December 31, 2008

High

LowFirst Quarter

$
7.31

$
3.82Second Quarter

$
4.96

$
2.55Third Quarter

$
2.67

$
0.54Fourth Quarter

$
0.73

$
0.31


39

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On
March 26, 2009, the closing price of our common stock was $0.39. As of March 26, 2009, there were approximately 37 shareholders of record of our common stock and 17
shareholders of record of our Class B common stock. We believe the number of beneficial owners is substantially greater than the number of record holders because a large portion of our
outstanding common stock is held of record in broker "street names" for the benefit of individual investors. As of March 26, 2009, there were 22,576,681 common shares outstanding, net of
809,606 shares held in treasury, and 10,012,097 Class B common shares outstanding.

Repurchases of Equity Securities

On October 15, 2007, the Company announced the adoption of a stock repurchase plan. The repurchase of up to $7.5 million
of the Company's common stock was authorized.
Purchases will be funded out of cash on hand and made from time to time in the open market. From the inception of the buyback program through March 26, 2009, the Company had repurchased 809,606
shares at an average price of $5.30 per share, leaving $3,184,000 available under the basket for future repurchases.

The
share repurchases made from inception of the buyback program through December 31, 2008 were as follows:

Period

Total Number of
Shares
Purchased

Average Price
Paid per
Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans(1)

Approximate
Value of Shares
that May Yet be
Purchased Under
the Plans10/15/07 - 10/31/07


59,442

$
5.18


59,442

$
7,190,00011/01/07 - 11/30/07


152,240

$
4.47


152,240

$
6,504,00012/01/07 - 12/31/07


182,364

$
5.70


182,364

$
5,460,00001/01/08 - 01/31/08


58,477

$
6.48


58,477

$
5,079,00002/01/08 - 02/29/08


215,359

$
6.14


215,359

$
3,750,00003/01/08 - 03/31/08


46,700

$
4.24


46,700

$
3,551,00004/01/08 - 04/30/08


9,359

$
3.96


9,359

$
3,514,00005/01/08 - 05/31/08


41,363

$
4.00


41,363

$
3,347,00006/01/08 - 06/30/08


44,302

$
3.64


44,302

$
3,184,000Total


809,606

$
5.30


809,606

$
3,184,000


---

Dividend Policy

We have not paid any dividends since our inception and do not anticipate declaring or paying any cash dividends on our common stock in
the foreseeable future. We currently
anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund the development and
operation of our business. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend on many factors, including general economic and business conditions,
our strategic plans, our financial results and condition, legal requirements and other factors as our Board of Directors deems relevant. In addition, our bank facility imposes restrictions on the
ability of the subsidiaries that own our Wood River and Fairmont plants to pay dividends or make other distributions to us, which will restrict our ability to pay dividends.

BioFuel
Energy Corp. is a holding company and has no material assets other than its ownership of membership interests in the LLC. We intend to cause the LLC to make
distributions to BioFuel Energy Corp. in an amount sufficient to cover dividends, if any, declared by us. If the LLC makes such

40

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distributions,
the historical LLC equity investors will be entitled to receive equivalent distributions from the LLC on their membership interests. To ensure that our public stockholders
are treated fairly with the historical LLC equity investors, our charter requires that all distributions received from the LLC, other than distributions to cover tax obligations and
other corporate expenses, will be dividended to holders of our common stock.

Equity Compensation Plans

The information required by this item concerning equity compensation plans is incorporated by reference to "Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of the Annual Report on Form 10-K.

ITEM 6.    SELECTED FINANCIAL DATA

The selected financial data of BioFuel Energy Corp. as of December 31, 2008 and 2007 and for the years then ended has been
derived from the audited consolidated financial statements of BioFuel Energy Corp. included elsewhere in this Form 10-K.

You
should read the selected historical financial data in conjunction with the information included under the heading "Management's discussion and analysis of financial condition and
results of operations" and the consolidated financial statements and accompanying notes included in this Form 10-K.

Year Ended
December 31, 2008

Year Ended
December 31, 2007(in thousands, except
per share amounts)Statement of Operations DataNet sales

$
179,867

$
Cost of goods sold


199,163


Gross loss


(19,296
)

General and administrative expenses:Compensation expense


8,063


5,379Other expense


8,981


3,836Other operating expense


1,350


Operating loss


(37,690
)

(9,215
)Other income (expense):Interest income


1,087


1,812Interest expense


(5,831
)

Other non-operating expense


(1,781
)

Loss on derivative financial instruments


(39,912
)

Loss before income taxes and minority interest


(84,127
)

(7,403
)Minority interest


43,262


4,982Net loss


(40,865
)

(2,421
)Beneficial conversion charge





(1,327
)Net loss to common shareholders

$
(40,865
)
$
(3,748
)Per Share data:Loss per sharebasic and diluted

$
(2.65
)
$
(0.35
)Basic and diluted weighted average number of common shares


15,419


10,643


41

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As of December 31,2008

2007(in thousands)Balance Sheet DataCash and equivalents

$
12,299

$
55,987Current assets


46,865


56,181Property, plant and equipment, net


305,350


276,785Total assets


365,724


344,099Current liabilities


38,157


24,814Long-term debt, net of current portion


226,351


122,440Total liabilities


270,965


153,629Minority Interest


14,069


68,799Stockholders' equity


80,690


121,671Total liabilities and stockholders' equity


365,724


344,099


42

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the audited consolidated financial statements and
the accompanying notes included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Specifically, forward-looking statements
may be preceded by, followed by or may include such words as "estimate", "plan", "project", "forecast", "intend", "expect", "is to be", "anticipate", "goal", "believe", "seek", "target" or other
similar expressions. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Form 10-K, or in the case of a document
incorporated by reference, as of the date of that document. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to
reflect any events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Our actual results may differ materially from those
discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed elsewhere in this Form 10-K and those
listed in other documents we have filed with the Securities and Exchange Commission.

Overview

BioFuel Energy Corp. produces and sells ethanol and distillers grain through its two ethanol production facilities located in Wood
River, Nebraska and Fairmont, Minnesota. In late June 2008, we commenced start-up of commercial operations and
began to produce ethanol at both of our plants, each having a nameplate capacity, based on the maximum amount of permitted denaturant, of 115 million gallons per year ("Mmgy"). During the
remainder of 2008, we focused on optimizing production and streamlining operations with the goal of producing at nameplate capacity, which was achieved in December 2008. From inception, we have worked
closely with Cargill, Inc., one of the world's leading agribusiness companies, with whom we have an extensive contractual relationship. The two plant locations were selected primarily based on
access to corn supplies, the availability of rail transportation and natural gas and Cargill's competitive position in the area. At each location, Cargill, has a strong local presence and owns
adjacent grain storage facilities. Cargill provides corn procurement services, markets the ethanol and distillers grain we produce and provides transportation logistics for our two plants under
long-term contracts. In addition, we lease grain storage and handling facilities adjacent to our plants from affiliates of Cargill.

The
Company previously evaluated three similar sites and incurred site development costs for the possible construction of additional plants. During the year ended December 31,
2008, the Company decided to no longer pursue construction of these sites and therefore has written off the associated development costs which totaled $1,100,000.

Our
operations and cash flows are subject to fluctuations due to changes in commodity prices. We may use derivative financial instruments such as futures contracts, swaps and option
contracts to manage commodity prices. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and capital resources; andHedging
Losses" elsewhere in this report.

We
are a holding company with no operations of our own, and are the sole managing member of BioFuel Energy, LLC, or the LLC, which is itself a holding company and indirectly owns
all of our operating assets. The Company's ethanol plants are owned and operated by the Operating Subsidiaries of the LLC.

The
Operating Subsidiaries of the LLC entered into engineering, procurement and construction ("EPC") contracts with The Industrial CompanyWyoming ("TIC") for the
construction of the Wood River and Fairmont plants. Pursuant to these EPC contracts, TIC was to be paid a total of $272.0 million, subject to certain adjustments, for the turnkey construction
of the two plants. The Operating Subsidiaries of the LLC entered into agreements with TIC, effective December 11, 2008,

43

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that
settled various issues that had arisen between the parties under the terms of the EPC contracts during the course of constructing the plants. Among the items agreed to were that TIC had met both
substantial completion and project completion, that TIC would continue to be responsible for its warranty obligations, and that TIC would pay the subsidiaries of the LLC $2.0 million for
each plant, which amounts would be deducted from the retainage amounts owed to TIC. The construction retainage liability at December 31, 2008 of $9.4 million was recorded net of the
$2.0 million for each plant owed by TIC as part of the settlement agreement and was paid to TIC in February 2009. At
December 31, 2008, property, plant and equipment related to the EPC contracts was $248.9 million, net of liquidated damages of $19.1 million arising out of completion delays at
both plants and net of $4.0 million arising out of the settlement agreements with TIC. Spending on construction of the Wood River and Fairmont plants, exclusive of corporate overhead and
financing charges, is expected to total approximately $319 million, or $300 million net of liquidated damages. As of December 31, 2008 the Company estimated that an additional
$5 million will be spent by the Operating Subsidiaries of the LLC on plant infrastructure and other construction requirements to permit the plants to be operated safely and reliably at
their nameplate capacities.

Going Concern

In connection with their year-end audit of our annual financial statements, our independent auditor assesses whether a
statement should be included in their audit report regarding the existence of substantial doubt related to our ability to continue as a going concern. Our auditors have issued an opinion on our
consolidated financial statements for the fiscal year ended December 31, 2008, which is included with this report, that states that the consolidated financial statements were prepared assuming
we will continue as a going concern and further states that the factors discussed in Note 1 to the consolidated financial statements raise substantial doubt about our ability to continue as a
going concern. As shown in the accompanying consolidated financial statements, the Company incurred a loss before minority interest of $84.1 million in 2008, primarily due to hedging losses on
corn contracts and significant costs associated with the start up and operation of our plants. We continue to suffer operating losses in 2009 resulting from poor operating margins due to the relative
prices of corn and ethanol. The Company's liquidity position continues to decline as a result of these losses. In addition, under the terms on the Company's senior debt facility with a group of
lenders financing construction of our plants, minimum quarterly principal payments of $3,150,000 are scheduled to begin on June 30, 2009. Based on current operating margins and the Company's
liquidity position, the Company may not be able to generate sufficient cash flow to make principal and interest payments when they become due during 2009. Failure to make these payment obligations
when they become due would result in events of default under the senior debt facility, which we would have up to 3 days to cure. We have initiated a company-wide business
restructuring plan to reduce costs and are currently exploring various alternatives to address our liquidity issues. These include: (i) reducing operating expenses through headcount reductions
or operating efficiency initiatives; (ii) reducing the cost of various inputs and services by renegotiating the terms of supply and service agreements, including our agreements with Cargill;
(iii) seeking forbearance or some other accommodation from our lenders; (iv) seeking new capital, either from new or existing investors or (v) some combination of the foregoing or
other measures. However there can be no assurance that we will be successful in achieving any of these objectives or, if successfully implemented, that these initiatives will be sufficient to address
our lack of liquidity. If the Company is unable to reach an agreement with the senior lenders, raise additional capital, or is unable to generate sufficient liquidity from its operations to satisfy
its obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern, and could potentially force us to seek relief from creditors
through a filing under the U.S. Bankruptcy Code.

44

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Revenues

Our primary source of revenue is the sale of ethanol. The selling prices we realize for our ethanol are largely determined by the
market supply and demand for ethanol, which, in turn, is influenced by industry factors over which we have little control. Ethanol prices are extremely volatile.

We
also receive revenue from the sale of distillers grain, which is a residual co-product of the processed corn and is sold as animal feed. The selling prices we realize for
our distillers grain are largely determined by the market supply and demand, primarily from livestock operators and marketing companies in the U.S. and internationally. Distillers grain is sold by the
ton and, based upon the amount of moisture retained in the product, can either be sold "wet" or "dry".

Cost of goods sold and gross profit (loss)

Our gross profit (loss) is derived from our revenues less our cost of goods sold. Our cost of goods sold is affected primarily by the
cost of corn and natural gas. The prices of both corn and natural gas are volatile and can vary as a result of a wide variety of factors, including weather, market demand, regulation and general
economic conditions, all of which are outside of our control.

Corn
is our most significant raw material cost. Historically, rising corn prices result in lower profit margins because ethanol producers are unable to pass along increased corn costs to
customers. The price and availability of corn is influenced by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory
factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. Historically, the spot price of corn tends
to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November.

We
also purchase natural gas to power steam generation in our ethanol production process and as fuel for our dryers to dry our distillers grain. Natural gas represents our second largest
operating cost after corn, and natural gas prices are extremely volatile. Historically, the spot price of natural gas tends to be highest during the heating and cooling seasons and tends to decrease
during the spring and fall.

Corn
procurement fees paid to Cargill are included in our cost of goods sold. Other cost of goods sold primarily consists of our cost of chemicals and enzymes, electricity, depreciation,
manufacturing overhead and rail car lease expenses.

General and administrative expenses

General and administrative expenses consist of salaries and benefits paid to our management and administrative employees, expenses
relating to third party services, insurance, travel, office rent, marketing and other expenses, including certain expenses associated with being a public company, such as costs associated with our
annual audit and quarterly reviews, compliance with Section 404 of the Sarbanes-Oxley Act, and listing and transfer agent fees.

Results of operations

The following discussion summarizes the significant factors affecting the consolidated operating results of the Company for the years
ended December 31, 2008 and 2007. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this
Form 10-K.

At
December 31, 2008, the Company owned 69.1% of the LLC and the remainder was owned by our founders and original equity investors. As a result, the Company consolidates
the results of the LLC. The amount of income or loss allocable to the 30.9% holders is reported as minority interest in our Consolidated Statements of Operations.

45

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The
Company's plants located in Wood River, Nebraska and Fairmont, Minnesota, commenced start-up and began commercial operations in late June 2008. Because of this, there are
no net sales, cost of goods sold, or gross profit (loss) for the year ended December 31, 2007 for comparison purposes.

The
following table sets forth net sales, expenses and net loss, as well as the percentage relationship to net sales of certain items in our consolidated statements of operations (no
percentages are provided for the year ended December 31, 2007 due to the Company not having any net sales during such periods):

Year Ended December 31,2008

2007(unaudited)
(dollars in thousands)Net sales

$
179,867


100.0
%
$
Cost of goods sold


199,163


110.7


Gross loss


(19,296
)

(10.7
)

General and administrative expenses


17,044


9.5


9,215Other operating expense


1,350


0.8


Operating loss


(37,690
)

(21.0
)

(9,215
)Other income (expense), net


(46,437
)

(25.8
)

1,812Loss before income taxes


(84,127
)

(46.8
)

(7,403
)Minority interest


43,262


24.1


4,982Net loss


(40,865
)

(22.7
)

(2,421
)Beneficial conversion charge








(1,327
)Net loss to common shareholders

$
(40,865
)

(22.7
)
$
(3,748
)


The
following table sets forth key operational data for 2008 that we believe are important indicators of our results of operations (no data exists for 2007 as the plants were not
operational until June 2008):

Year Ended December 31, 2008(unaudited)Ethanol sold (gallons, in thousands)


82,582Dry distillers grains sold (tons, in thousands)


170.9Wet distillers grains sold (tons, in thousands)


185.8Average price of ethanol sold (per gallon)

$
1.85Average price of dry distillers grains sold (per ton)

$
133.68Average price of wet distillers grains sold (per ton)

$
37.21Average corn cost (per bushel)

$
4.54


Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Both of the Company's plants commenced start-up and began commercial operations in late June 2008. Because of this, there
are no net sales, cost of goods sold, or gross profit (loss) for the year ended December 31, 2007 for comparison purposes.

Cost of goods sold and gross loss:Cost of goods sold was $199,163,000 for the year ended December 31, 2008 which resulted in a
gross loss of
$19,296,000 for the year ended December 31, 2008. Cost of goods sold included $140,454,000 for corn, $19,767,000 for natural gas, $3,071,000 for

46

---



denaturant,
$5,137,000 for electricity, $10,416,000 for chemicals and enzymes, $11,729,000 for general operating expenses, and $8,589,000 for depreciation. Our cost of goods sold was higher in
relation to revenues for several reasons. The cost of corn per gallon of ethanol increased at a rate greater than the price of ethanol as the crush spread narrowed. For the remaining cost of goods
sold expense categories, except depreciation, our costs were higher than expected due to the delays in our plants' completion and the resulting inability to operate at capacity, which resulted in
inefficiencies in all cost categories. Our plants ran at 64% and 84% of capacity for the quarters ended September 30, 2008 and December 31, 2008, respectively. We achieved 100%
production capacity on a combined basis in December 2008.

General and administrative expenses:General and administrative expenses increased $7,829,000, or 85.0%, to $17,044,000 for the year
ended
December 31, 2008, compared to $9,215,000 for the year ended December 31, 2007. The increase was primarily due to an increase in compensation expense of $2,684,000 and other expense of
$5,145,000. Of the $2,684,000 increase in compensation expense, $2,531,000 was attributable to plant employees who began working and training at the plants in early 2008. As the plants did not begin
commercial operation until June, the plant employees compensation costs were included in general and administrative expenses until that time. Subsequent to June, the plant employees costs are now
included in cost of goods sold. Of the $5,145,000 increase in other
expense, $4,371,000 was attributable to expenses at the plants. As the plants did not begin commercial operation until June, all start-up costs were included in general and administrative
expenses until that time. Subsequent to June, plant costs are now included in cost of goods sold. The most significant start-up costs related to rail car leases for $2,048,000 and elevator
leases for $450,000.

Other operating expense:Other operating expense was $1,350,000 for the year ended December 31, 2008 compared to zero for the year
ended
December 31, 2007. The expense consisted of a $250,000 insurance claim deductible expense and a $1,100,000 write off of development costs associated with the evaluation of three additional
plant sites.

Other income (expense):Interest income decreased $725,000, or 40.0%, to $1,087,000 for the year ended December 31, 2008, compared
to
$1,812,000 for the year ended December 31, 2007. The decrease was primarily attributable to a decrease in the amount of funds available to be invested in money market mutual funds as a result
of the Company having to fund operating losses with its existing cash balances.

Interest
expense was $5,831,000 for the year ended December 31, 2008, compared to zero for the year ended December 31, 2007, as a result of the Company no longer
capitalizing interest associated with the loans financing the construction of the plants effective September 1, 2008. The amount represents four months of interest expense on such loans.

Other
non-operating expense was $1,781,000 for the year ended December 31, 2008, compared to zero for the year ended December 31, 2007. The expense consisted of
a $1,879,000 loss on the sale of corn prior to operations commencing, which was offset by $98,000 of other miscellaneous income.

Loss
on derivative financial instruments was $39,912,000 for the year ended December 31, 2008, compared to zero for the year ended December 31, 2007. The increase was a
result of the Company incurring losses associated with commodities hedging contracts during the third quarter of 2008. The Company was not a party to any such hedging contracts during the year ended
December 31, 2007.

Minority Interest.Minority interest increased $38,280,000 to $43,262,000 for the year ended December 31, 2008, compared to
$4,982,000 for the
year ended December 31, 2007. The increase was attributable to the Company's loss before minority interest increasing from $7,403,000 for the year ended December 31, 2007 to $84,127,000
for the year ended December 31, 2008.

47

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Liquidity and capital resources

Our cash flows from operating, investing and financing activities during the years ended December 31, 2008 and
December 31, 2007 are summarized below (in thousands):

For the
Year Ended,
December 31, 2008

For the
Year Ended,
December 31, 2007Cash provided by (used in):Operating activities

$
(91,063
)
$
(5,607
)Investing activities


(41,763
)

(190,686
)Financing activities


89,138


225,041Net increase (decrease) in cash and equivalents

$
(43,688
)
$
28,748


Cash used in operating activities.Net cash used in operating activities was $91,063,000 for the year ended December 31, 2008,
compared to
$5,607,000 for the year ended December 31, 2007. For the year ended December 31, 2008, the amount was primarily comprised of a net loss, before minority interest, of $84,127,000, an
increase in accounts receivable of $16,669,000 and an increase in inventories of $14,929,000 which were offset by an increase in hedging loss liability of $14,402,000 and noncash depreciation and
amortization expense of $9,791,000. The $84,127,000 net loss, before minority interest, resulted from a $37,690,000 operating loss due to poor operating margins resulting from plant
start-up coupled with the relative prices of corn and ethanol and $46,437,000 in nonoperating expenses. The nonoperating expenses were primarily comprised of $39,912,000 in losses on corn
hedging contracts and $5,831,000 in interest expense. The increase in accounts receivable and inventories resulted from the Company beginning commercial operations in June 2008 thereby resulting in
accounts receivable and inventory at December 31, 2008 versus having none at December 31, 2007. For the year ended December 31, 2007 the amount was primarily comprised of a net
loss, before minority interest, of $7,403,000, offset by share based compensation expense of $1,370,000.

Cash used in investing activities.Net cash used in investing activities was $41,763,000 for the year ended December 31, 2008,
compared to
$190,686,000 for the year ended December 31, 2007. During both periods, the cash used was primarily for construction of the Wood River and Fairmont ethanol plants. The decrease from 2007 to
2008 was a result of the construction being at its peak in 2007 versus winding down in the middle of 2008 as the projects neared completion and began operating.

Cash provided by financing activities.Net cash provided by financing activities was $89,138,000 for the year ended December 31,
2008,
compared to $225,041,000 for the year ended December 31, 2007. For the year ended December 31, 2008, the amount was primarily comprised of $17,000,000 of borrowings under the Company's
working capital facility and $77,150,000 of proceeds under its construction loan facilities, which were partially offset by $2,276,000 in payments for treasury stock purchases. For the year ended
December 31, 2007, the amount was primarily comprised of $103,581,000 of proceeds related to our initial public offering and concurrent private placement, $104,000,000 in borrowings under the
Company's construction facilities, and $50,000,000 in borrowings of Subordinated Debt, which were offset by $30,000,000 of principal payments of the Subordinated Debt.

48

---



Our
principal sources of liquidity at December 31, 2008 consisted of cash and equivalents and available borrowings under our bank facilities as summarized in the following table
(in thousands).

December 31, 2008Cash and equivalents

$
12,299Working capital


8,708Working capital loan availability


3,000Construction loan availability


28,850


Our
principal liquidity needs are expected to be funding our operations, funding remaining construction costs, debt service requirements of our indebtedness, and general corporate
purposes. Our construction
loan availability will be utilized to pay construction retainage of $9.4 million (which was paid in February 2009), fund a debt service reserve of $10.8 million, and fund remaining
construction costs of $5.0 million. The remaining $3.6 million can be used for general operating purposes.

Going Concern Considerations

As shown in the accompanying consolidated financial statements, the Company incurred a loss before minority interest of
$84.1 million in 2008, primarily due to hedging losses on corn contracts and significant costs associated with the start up and operation of our plants. We continue to suffer operating losses
in 2009 resulting from poor operating margins due to the relative prices of corn and ethanol. The Company's liquidity position continues to decline as a result of these losses. In addition, under the
terms on the Company's senior debt facility, minimum quarterly principal payments of $3,150,000 are scheduled to begin on June 30, 2009. Based on current operating margins and the Company's
liquidity position, the Company may not be able to generate sufficient cash flow to make principal and interest payments when they become due during 2009. Failure to make these payment obligations
when they become due would result in events of default under the senior debt facility, which we would have up to 3 days to cure. We have initiated a company-wide business
restructuring plan to reduce costs and are currently exploring various alternatives to address our liquidity issues. These include: (i) reducing operating expenses through headcount reductions
or operating efficiency initiatives; (ii) reducing the cost of various inputs and services by renegotiating the terms of supply and service agreements, including our agreements with Cargill;
(iii) seeking forbearance or some other accommodation from our lenders; (iv) seeking new capital, either from new or existing investors or (v) some combination of the foregoing or
other measures. However there can be no assurance that we will be successful in achieving any of these objectives or, if successfully implemented, that these initiatives will be sufficient to address
our lack of liquidity. If the Company is unable to reach an agreement with the senior lenders, raise additional capital, or is unable to generate sufficient liquidity from its operations to satisfy
its obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern, and could potentially force us to seek relief through a filing
under the U.S. Bankruptcy Code.

Hedging Losses

During the second quarter of 2008, the LLC entered into various derivative instruments with Cargill in order to manage exposure
to commodity prices for corn and ethanol, generally through the use of futures, swaps, and option contracts. During August 2008, the market price of corn declined sharply, exposing the LLC to
large unrealized losses and significant unmet margin calls under these contracts. Cargill began liquidating the hedge contracts in August 2008 and by September 30, 2008 the LLC was no
longer a party to any hedge contracts for any of its commodities. The Company recorded $39.9 million in losses during the year ended December 31, 2008 resulting from the liquidation of
its hedge contracts. All of the related contracts were entered into with Cargill, which conducts all corn purchases and sales of ethanol and distillers grain for the LLC and its subsidiaries.
As

49

---



of
December 31, 2008, the LLC had converted its payable with Cargill relating to its hedging contract losses into a note payable. See "Management's Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and capital resourcesCargill debt agreement" elsewhere in this report.

Stock repurchase plan

On October 15, 2007, the Company announced the adoption of a stock repurchase plan pursuant to which the repurchase of up to
$7.5 million of the Company's common stock was authorized. Purchases will be funded out of cash on hand and made from time to time in the open market. From the inception of the buyback program
through March 26, 2009 the Company had repurchased 809,606 shares at an average price of $5.30 per share, leaving $3,184,000 available under the repurchase plan. The shares repurchased are held
as treasury stock. As of December 31, 2008, there are no plans to repurchase any more shares.

Construction

In late June 2008, we commenced start-up of commercial operations and began to produce ethanol at both of our plants.
During the remainder of 2008, we focused on optimizing production and streamlining operations with the goal of producing at nameplate capacity, which was achieved in December 2008. We entered into
agreements with TIC, effective
December 11, 2008, that settled certain issues that had arisen between the parties under the terms of the EPC contracts during the course of construction. Among the items agreed to were that
TIC had met both substantial completion and project completion, that TIC would continue to be responsible for its warranty obligations, and that TIC would pay the subsidiaries of the LLC
$2.0 million for each plant, which amounts would be deducted from the retainage amounts owed to TIC. The construction retainage liability at December 31, 2008 of $9.4 million was
recorded net of the $2.0 million for each plant owed by TIC as part of the settlement agreement, and was paid to TIC in February 2009 with borrowings under our existing bank facility. As of
December 31, 2008, the Company estimated that an additional $5 million will be spent on plant infrastructure and other construction requirements to permit the plants to be operated
safely and reliably at their nameplate capacities, and will be funded with borrowings under the existing bank facility. We estimate that the total project costs, exclusive of corporate overhead and
financing charges, to complete these plants will be approximately $319 million.

In
connection with the formation of the Company, we secured a $50.0 million subordinated debt facility from a group of our initial shareholders. Subsequently, we entered into a
$230.0 million bank facility in connection with the construction of our Wood River and Fairmont facilities. The full $50.0 million of available subordinated debt had been drawn by May
2007 when we made our initial bank borrowing. In July 2007, we repaid $30.0 million of the subordinated debt with a portion of the proceeds of our initial public offering.

To
date, we have used the net proceeds of equity investments by the historical equity investors, the proceeds of the initial public offering and the private placement, and borrowings
under our bank facility and subordinated debt agreement to finance the construction of both facilities. As of December 31, 2008, we had borrowings of $181.2 million under our
construction loan facility, $17.0 million under the working capital facility, and $20.5 million under our Subordinated Debt facility.

Tax and our tax benefit sharing agreement

As a result of future exchanges of membership interests in the LLC for shares of our common stock, the tax basis of
the LLC's assets attributable to our interest in the LLC may be increased. These increases in tax basis, if any, will result in a potential tax benefit to the Company that would not have
been available but for the exchanges of the LLC membership interests for shares of our common stock.

50

---



These
increases in tax basis would reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court
could sustain such a challenge. There have been no assets recognized with respect to any exchanges made through December 31, 2008. The amount of any potential increases in tax basis and the
resulting recording of tax assets are dependent upon the share price of our common stock at the time of the exchange of the membership interests in the LLC for shares of our common stock. At
the current
trading price, which was $.35 as of March 6, 2009, we do not anticipate any material change in the tax basis of the LLC's assets.

We
have entered into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits, if any, between the Company
and the historical LLC equity investors. Under this agreement, the Company will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal,
state and local income tax that we actually realize as a result of this increase in tax basis. The Company and its common stockholders will benefit from the remaining 15% of cash savings, if any, in
income tax that is realized by the Company. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of
such taxes that we would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of the LLC as a result of the exchanges and had we not
entered into the tax benefit sharing agreement. The term of the tax benefit sharing agreement will continue until all such tax benefits have been utilized or expired, unless a change of control occurs
and we exercise our resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments remaining to be made under the agreement.

Although
we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors are not required to reimburse us for any
payments previously made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit
sharing agreement in excess of our cash tax savings. Our historical LLC equity investors will receive 85% of our cash tax savings, leaving us with 15% of the benefits of the tax savings. The
actual amount and timing of any payments under the tax benefit sharing agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are
taxable, the price of our common stock at the time of the exchange and the amount and timing of our income. As a result of the size of the potential increases of the tangible and intangible assets of
the LLC attributable to our interest in the LLC, during the expected term of the tax benefit sharing agreement, the payments that we may make to our historical LLC equity
investors could be substantial should our stock price appreciate prior to their exchanging their membership interests in the LLC.

Bank facility

In September 2006, the Operating Subsidiaries of the LLC entered into a $230.0 million senior secured bank facility with BNP
Paribas and a syndicate of lenders to finance the construction of our Wood River and Fairmont plants. Neither the Company nor the LLC is a borrower under the bank facility, although the equity
interests and assets of our subsidiaries are pledged as collateral to secure the debt under the facility.

The
bank facility consists of $210.0 million of non-amortizing construction loans, which will convert into term loans amortizing in an amount equal to $3,150,000 per
quarter and maturing in
September 2014, if certain conditions precedent are satisfied prior to June 2009, which we expect to occur. The construction loans otherwise mature in June 2009. Once repaid, the construction loans
may not be re-borrowed in whole or in part.

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The bank facility also includes working capital loans of up to $20.0 million, a portion of which is available to us in the form of letters of credit. The working capital loans are
available to pay certain operating expenses of the plants. Effective August 29, 2008, the Operating Subsidiaries of the LLC entered into an amendment to the bank facility which permitted them
access to the $20 million working capital facility and the ability to disburse funds from their revenue account on a daily basis, in each case solely for the purchase of corn, natural gas,
chemicals, enzymes, denaturant and electricity. Prior to this amendment, the Operating Subsidiaries of the LLC had access to only $5 million of their working capital line and the ability to
disburse their revenues only at the end of each month. The working capital loans mature in September 2010 or, with consent from two-thirds of the lenders, in September 2011. As of
December 31, 2008, we had borrowings of $17.0 million under the working capital loans.

Although
we have borrowed substantial amounts under the bank facility, additional borrowings remain subject to the satisfaction of a number of additional conditions precedent, including
continued compliance with debt covenants and payment of principal and interest when due. To the extent that we are not able to satisfy these requirements, we will not be able to make additional
borrowings under the bank facility without obtaining a waiver or consent from the lenders.

The
obligations under the bank facility are secured by first priority liens on all assets of the borrowers and a pledge of all of our equity interests in our subsidiaries. In addition,
substantially all cash of the borrowers is required to be deposited into blocked collateral accounts subject to security interests to secure any outstanding obligations under the bank facility. Funds
will be released from such accounts only in accordance with the terms of the bank facility.

Interest
rates on each of the loans under the bank facility will be, at our option, (a) a base rate equal to the higher of (i) the federal funds effective rate plus 0.5% or
(ii) BNP Paribas's prime rate, in each case, plus 2.0% or (b) a Eurodollar rate equal to LIBOR adjusted for reserve requirements plus 3.0%. Interest periods for loans based on a
Eurodollar rate will be, at our option, one, three or six months, or, if available, nine or twelve months. Accrued interest is due quarterly in arrears for base rate loans, on the last date of each
interest period for Eurodollar loans with interest periods of one or three
months, and at three month intervals for Eurodollar loans with interest periods in excess of three months. Overdue amounts bear additional interest at a default rate of 2.0%. The average interest rate
in effect on the bank borrowings at December 31, 2008 was 3.5%.

The
bank facility includes certain limitations on, among other things, the ability of our subsidiaries to incur additional indebtedness, grant liens or encumbrances, declare or pay
dividends or distributions, conduct asset sales or other dispositions, mergers or consolidations, conduct transactions with affiliates and amend, modify or change the scope of the construction
projects, the project agreements or the budgets relating to the projects. The Company has established collateral deposit accounts maintained by an agent of the banks, into which our revenues are to be
deposited. These funds will then be allocated into various sweep accounts held by the collateral agent, with the remaining cash, if any, distributed to the Company each month. The sweep accounts have
various provisions, including an interest coverage ratio and debt service reserve requirements, which will restrict the amount of cash that is made available to the Company each month.

The
terms of the bank facility also contain customary events of default including failure to meet payment obligations, failure to complete construction of the Wood River and Fairmont
plants by June 30, 2009, failure to pay financial obligations, failure of the LLC or its principal contractors to remain solvent and failure to obtain or maintain required governmental
approvals. In addition, our bank agreement contains standard clauses regarding occurrence of a "material adverse effect," which is defined very broadly and in such fashion as to be subjective. In the
event our banks should determine that a "material adverse effect" has occurred, we could be placed in default. Minimum quarterly principal payments of $3,150,000 are scheduled to begin on
June 30, 2009. Based on current operating

52

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margins
and the Company's liquidity position, the Company may not be able to make principal and interest payments when they become due during 2009. Failure to make these payment obligations when they
become due would result in events of default under the bank facility, which we would have up to 3 days to cure. The Company is currently exploring various alternatives to address its liquidity
issues however there can be no assurance that the Company will be successful in achieving its objectives. If the Company is unable to reach an agreement with the senior lenders, raise additional
capital, or is unable to generate sufficient liquidity from its operations to satisfy its obligations, it may have a material adverse effect on our liquidity and may result in our inability to
continue as a going concern, and could potentially force us to seek relief from creditors through a filing under the U.S. Bankruptcy Code.

We
are required to pay certain fees in connection with our bank facility, including a commitment fee equal to 0.50% per annum on the daily average unused portion of the construction
loans and working capital loans and letter of credit fees.

Debt
issuance fees and expenses of approximately $8.5 million ($6.1 million, net of accumulated amortization) have been incurred in connection with the bank facility at
December 31, 2008. These costs
have been deferred and are being amortized over the term of the bank facility, although the amortization of debt issuance costs during the period of construction through August 2008, were capitalized
as part of the cost of the constructed assets.

As
of December 31, 2008, we had borrowed $198,150,000 under our bank facilities, and had remaining availability of $31,850,000 million which was comprised of
$3,000,000 million in working capital loans and $28,850,000 in construction loans. The remaining availability on both loans is subject to certain restrictions and milestones.

Subordinated Debt agreement

The LLC is the borrower of subordinated debt under a loan agreement dated September 25, 2006, entered into with certain
affiliates of Greenlight Capital, Inc. and Third Point LLC, each of which are related parties. The loan agreement provides for up to $50.0 million of non-amortizing
loans, all of which must be used for general corporate purposes, working capital or the development, financing and construction of our ethanol plants. Interest on the Subordinated Debt is payable
quarterly in arrears at a 15.0% annual rate. The entire principal balance, if any, plus all accrued and unpaid interest will be due in March 2015. Once repaid, the subordinated debt may not be
re-borrowed. The subordinated debt is secured by the subsidiary equity interests owned by the LLC and are fully and unconditionally guaranteed by all of the LLC's
subsidiaries, which guarantees are subordinated to the obligations of these subsidiaries under our bank facility. The subordinated debt may be prepaid at any time in whole or in part without penalty.
A default under our bank facility would also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding.

All
$50.0 million available under the subordinated debt agreement was borrowed in the first six months of 2007. During the third quarter of 2007, the Company retired
$30.0 million of its subordinated debt with a portion of the initial public offering proceeds, leaving $20.0 million of subordinated debt outstanding at December 31, 2008. This
resulted in accelerated amortization of deferred fees of approximately $3.1 million, which represents the fees relating to the pro rata share of the retired debt.

The LLC
did not make the scheduled quarterly interest payments which were due on September 30, 2008 and December 31, 2008. Under the terms of the subordinated debt,
the failure to pay interest when due is an event of default. In January 2009, the LLC and the lenders of the subordinated debt entered into a waiver and amendment agreement to the loan
agreement. Under the waiver and amendment, an initial payment of $2.0 million, which was made on January 16, 2009, was made to pay the $767,000 of accrued interest due
September 30, 2008 and to reduce outstanding

53

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principal
by $1,233,000. Effective upon the $2.0 million initial payment, the subordinated debt lenders waived the defaults and any associated penalty interest relating to the
September 30, 2008 and the December 31, 2008 quarterly interest payments. Effective December 1, 2008, interest on the subordinated debt began accruing at a 5.0% annual rate
compounded quarterly, a rate that will apply until the debt owed to Cargill, under an agreement entered into simultaneously, has been paid in full, at which time the rate will revert to a 15.0% annual
rate and quarterly payments in arrears are required. As long as the debt to Cargill remains outstanding, future payments to the subordinated debt lenders will be contingent upon available cash (as
defined in both agreements) being received by the LLC.

Debt
issuance fees and expenses of approximately $5.5 million ($1.7 million, net of accumulated amortization) have been incurred in connection with the subordinated debt at
December 31, 2008. Debt issuance costs associated with the subordinated debt are being deferred and amortized over the term of the agreement, although the amortization of debt issuance costs
during the period of construction through August 2008 were capitalized as part of the cost of the constructed assets.

Cargill debt agreement

In January 2009, the LLC and Cargill entered into an agreement which finalized the payment terms for $17.4 million owed
to Cargill by the LLC related to hedging losses with respect to corn hedging contracts that had been liquidated in the third quarter of 2008. The agreement with Cargill required an initial
payment of $3.0 million on the outstanding balance, which was paid on December 5, 2008. Upon the initial payment of $3.0 million, Cargill also forgave $3.0 million.
Effective December 1, 2008, interest on the Cargill debt began accruing at a 5.0% annual rate compounded quarterly. Future payments to Cargill of both principal and interest are contingent upon
the receipt by the LLC of available cash, as defined in the agreement. Cargill will forgive, on a dollar for dollar basis a further $2.8 million as it receives the next
$2.8 million of principal payments. The Cargill debt is being accounted for in accordance with SFAS No. 15,Accounting by Debtors and Creditors for Troubled Debt
Restructurings.As the future cash payments specified by the terms exceed the carrying amount of the debt before the $3.0 million is forgiven, the carrying amount of the
debt is not reduced and no gain is recorded. As future payments are made, the LLC will determine, based on the timing of payments, whether or not any gain contingency should be recorded.

Capital lease

The LLC, through its subsidiary that constructed the Fairmont plant, entered into an agreement with the local utility pursuant
to which the utility has built and owns and operates a substation and distribution facility in order to supply electricity to the plant. The LLC is paying a fixed facilities charge based on the
cost of the substation and distribution facility of $34,000 per month, over the 30-year term of the agreement. This fixed facilities charge is being accounted for as a capital lease in the
accompanying financial statements. The agreement also includes a $25,000 monthly minimum energy charge which also began in the first quarter of 2008.

Notes payable

Notes payable relate to certain financing agreements in place at each of our sites. The subsidiaries of the LLC that constructed
the plants entered into finance agreements in the first quarter of 2008 for the purchase of certain rolling stock equipment to be used at the facilities for $748,000. The notes have a fixed interest
rate of approximately 5.4% and require 48 monthly payments of principal and interest, maturing in the first and second quarter of 2012. In addition, the subsidiary of the LLC that
constructed the Wood River facility has entered into a note payable for $2,220,000 with a fixed interest rate of 11.8% for the purchase of our natural gas pipeline. The note requires 36 monthly
payments of principal and interest and matures in the first quarter of 2011.

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Tax increment financing

In February 2007, the subsidiary of the LLC that constructed the Wood River plant received $6.0 million from the proceeds
of a tax increment revenue note issued by the City of Wood River, Nebraska. The proceeds funded improvements to property owned by the subsidiary. The City of Wood River will pay the principal and
interest of the note from the incremental increase in the property taxes related to the improvements made to the property. The proceeds have been recorded as a liability and will be reduced as
the LLC remits property taxes to the City of Wood River beginning in 2008 and continuing for approximately 13 years. The LLC has guaranteed the principal and
interest of the tax increment revenue note if, for any reason, the City of Wood River fails to make the required payments to the holder of the note.

On
June 15, 2008, and again on December 15, 2008 the first two principal payments on the note were made. Due to delays in the plant construction, property taxes on the
plant in 2008 were lower than anticipated and therefore, the LLC was required to pay $760,000 as a portion of the note payments.

Letters of credit

The Company had obtained four letters of credit, for a total of approximately $4.0 million outstanding, as of
December 31, 2008. These letters of credit have been provided as collateral to the owner of the natural gas pipeline lateral constructed to connect to the Wood River plant, the natural gas
provider at the Fairmont plant, and the electrical service providers at both the Fairmont and Wood River plants, and are all secured by certificates of deposit in the respective amounts, which will
automatically renew each year.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Summary of critical accounting policies and significant estimates

The consolidated financial statements of BioFuel Energy Corp. included in this Form 10-K have been prepared in
conformity with accounting principles generally accepted in the United States. Note 2 to the consolidated financial statements contains a summary of our significant accounting policies, certain
of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge
and experience about the past and current events and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects of matters that
are inherently uncertain and that affect the carrying value
of our assets and liabilities, the disclosure of contingent liabilities and reported amounts of expenses during the reporting period.

The
accounting estimates and assumptions discussed in this section are those that we believe involve significant judgments and the most uncertainty. Changes in these estimates or
assumptions could materially affect our financial position and results of operations and are therefore important to an understanding of our consolidated financial statements.

Recoverability of property, plant and equipment

We have made a significant investment in property, plant and equipment. Construction of our two ethanol facilities located in Wood
River and Fairmont has been completed. We evaluate the

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recoverability
of fixed assets whenever events or changes in circumstances indicate that the carrying value of our property, plant and equipment may not be recoverable.

Management
must continuously assess whether or not circumstances require a formal evaluation of the recoverability of our property, plant and equipment. In analyzing impairment,
management must estimate future ethanol and distillers grain sales volume, ethanol and distillers grain prices, corn and natural gas prices, inflation and capital spending, among other factors. These
estimates involve significant inherent uncertainties, and the measurement of the recoverability of the cost of our property, plant and equipment is dependent on the accuracy of the assumptions used in
making the estimates and how these estimates compare to our future operating performance. Certain of the operating assumptions will be particularly sensitive and subject to change as the ethanol
industry develops.

Recoverability
is measured by comparing the carrying value of an asset with estimated undiscounted future cash flows expected to result from the use of the asset and its eventual
disposition. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on the present value of
estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. As of
December 31, 2008, the Company performed an impairment evaluation of the recoverability of its long-lived assets due to the circumstances identified in Note 1 to the
consolidated financial statements. We evaluated the recoverability of property, plant and equipment in accordance with SFAS No. 144. For purposes of testing impairment of its
long-lived assets at December 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by
comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The estimated undiscounted cash flows were dependent on
a number of critical management assumptions, including estimates of future capacity, crush spread, corn, and natural gas prices and other inputs, operating costs and other relevant assumptions.

As
a result of this impairment evaluation, it was determined that the future cash flows from the assets exceeded the current carrying values, and therefore, no further analysis was
necessary and no impairment was recorded. However, in the event that high corn prices relative to low ethanol prices (e.g., a reduced "crush spread") persist for an extended period, the Company
may be required to record an impairment in the future.

Share-based compensation

We account for the issuance and exchanges of equity instruments for employee services in accordance with Statement of Financial
Accounting Standard No. 123 (revised 2004),Share-Based Payments, or SFAS 123R. Under the fair value recognition provisions of this
statement, share-based compensation cost is measured at the grant date based on the award's fair value as calculated by the Black-Scholes option-pricing model and is recognized as expense over the
requisite service period. The key assumptions generally used in the Black-Scholes calculations include the expected term, the estimated volatility of our common stock, the vesting schedule and the
risk-free rate of return during the expected term. Additionally, we are required to estimate the expected forfeiture rate, as we recognize expense only for those shares or stock options
expected to vest. Due to the uncertainties inherent in these estimates, the amount of compensation expense to be recorded will be dependent on the assumptions used in making the estimates.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 141R,Business Combinations,or
("SFAS 141R.") SFAS 141R changes how a reporting enterprise accounts for the acquisition of a business. When

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effective,
SFAS 141R will replace existing SFAS 141. However, SFAS 141R carries forward the existing requirements to account for all business combinations using the acquisition
method (formerly called the purchase method) to both identify the acquirer for every business combination and recognize intangible assets acquired separately from goodwill, based on the
contractual-legal and separability criteria.
SFAS 141R will be effective for the Company on January 1, 2009. The effect of adopting SFAS 141R will depend on the terms and timing of future acquisitions, if any.

In
December 2007, the FASB issued SFAS No. 160,Consolidations/Investments in SubsidiariesNoncontrolling Interests in Consolidated Financial
Statements,or SFAS 160. SFAS 160 replaces the minority-interest provisions of Accounting Research Bulletin 51,Consolidated Financial
Statements, by defining a new termnoncontrolling intereststo replace what were previously called minority interests. SFAS 160 will be effective
for the Company on January 1, 2009. The Company has not assessed the impact of SFAS 160 on its consolidated results of operations, cash flows or financial position; however, at
December 31, 2008 the Company had $14.1 million of minority interest liability that, under the provisions of SFAS 160, would be presented as a component of stockholders' equity.
Under SFAS 160, the amount of net income attributable to the Company and to the noncontrolling interest will be identified on the Statements of Operations. Future exchanges of LLC units
for Company common stock will be accounted for in accordance with SFAS 160 as equity transactions, with any difference between the fair value of the Company's common stock and the amount by
which the noncontrolling interest is adjusted being recognized in equity.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement
No. 133("SFAS 161"), which requires enhanced disclosures for derivative and hedging activities. SFAS 161 will become effective beginning with our first
quarter of 2009. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

Other
new pronouncements issued but not effective until after December 31, 2008, are not expected to have a significant effect on the Company's consolidated financial position or
results of operations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to significant risks relating to the prices of four primary commodities: corn and natural gas, our principal production
inputs, and ethanol and distillers grain, our principal products. These commodities are also subject to geographic basis differentials, which can vary considerably. In recent years, ethanol prices
have been primarily influenced by gasoline prices, the availability of other gasoline additives and federal, state and local laws, regulations, subsidies and tariffs. Distillers grain prices tend to
be influenced by the prices of alternative animal feeds. However, in the short to intermediate term, logistical issues may have a significant impact on ethanol prices. In addition, the acceptance by
livestock operators of the anticipated sharp increase in quantities of distillers grain production as new ethanol plants become operational could significantly depress its price.

We
expect that lower ethanol prices will tend to result in lower profit margins even when corn prices decrease due to the significance of fixed costs. The price of ethanol is subject to
wide fluctuations due to domestic and international supply and demand, infrastructure, government policies, including subsidies and tariffs, and numerous other factors. Ethanol prices are extremely
volatile. From January 1, 2007 to December 31, 2008, the ethanol Bloomberg rack prices have fluctuated from a low of $1.69 per gallon in October 2007 to a high of $3.08 per gallon in
July 2008 and averaged $2.27 per gallon during this period.

We
expect that lower distillers grain prices will tend to result in lower profit margins. The selling prices we realize for our distillers grain are largely determined by market supply
and demand, primarily

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from
livestock operators and marketing companies in the U.S. and internationally. Distillers grain are sold by the ton and can either be sold "wet" or "dry".

We
anticipate that higher corn prices will tend to result in lower profit margins, as it is unlikely that such an increase in costs can be passed on to ethanol customers. The
availability as well as the price of corn is subject to wide fluctuations due to weather, carry-over supplies from the previous year or years, current crop yields, government agriculture
policies, international supply and demand and numerous other factors. Using an average corn price of $3.50 per bushel, we estimate that corn will represent approximately 72% of our operating costs.
Historically, the spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November. From January 1, 2007
to December 31, 2008 the Bloomberg rack price of corn has fluctuated from a low of $2.68 per bushel in December 2008 to a high of $7.15 per bushel in July 2008 and averaged $4.10 per bushel
during this period.

Higher
natural gas prices will tend to reduce our profit margin, as it is unlikely that such an increase in costs can be passed on to ethanol customers. Natural gas prices and
availability are affected by weather, overall economic conditions, oil prices and numerous other factors. Using an average corn price of $3.50 per bushel and an average price of $5.75 per Mmbtu for
natural gas, we estimate that natural gas will represent approximately 10% of our operating costs. Historically, the spot price of natural gas tends to be highest during the heating and cooling
seasons and tends to decrease during the spring and fall. From January 1, 2007 to December 31, 2008, the Bloomberg rack price of natural gas has fluctuated from a low of $5.29 per Mmbtu
in September 2007 to a high of $13.31 per Mmbtu in July 2008 and averaged $7.73 per Mmbtu during this period.

To
reduce the risks implicit in price fluctuations of these four principal commodities and variations in interest rates, we plan to continuously monitor these markets and to hedge a
portion of our exposure, provided we have the financial resources to do so. Specifically, when we can reduce volatility through hedging on an attractive basis, we expect to do so. Our objective would
be to hedge between 60% and 75% of our commodity price exposure on a rolling 12 to 24 month basis when a positive margin can be assured. This range would include the effect of intermediate to
longer-term purchase
and sales contracts we may enter into, which act as de facto hedges. In hedging, we may buy or sell exchange-traded commodities futures or options, or enter into swaps or other hedging arrangements.
In doing so, we may access Cargill's risk management and futures advisory services and utilize its trading capabilities. While there is an active futures market for corn and natural gas, the futures
market for ethanol is still in its infancy and very illiquid, and we do not believe a futures market for distillers grain currently exists. Although we will attempt to link our hedging activities such
that sales of ethanol and distillers grain match pricing of corn and natural gas on an attractive basis, there is a limited ability to do this against the current forward or futures market for ethanol
and corn. Consequently, our hedging of ethanol and distillers grain may be limited or have limited effectiveness due to the nature of these markets. Due to the Company's limited operating history and
lack of liquidity, obtaining credit from potential third-party brokerage companies with respect to hedging transactions will be difficult. Due to the Company's limited liquidity resources and the
potential for required postings of significant cash collateral or margin deposits resulting from changes in commodity prices associated with hedging activities, the Company may be limited in its
ability to hedge with third-party brokers. We also may vary the amount of hedging activities we undertake, and may choose to not engage in hedging transactions at all. As a result, our operations and
financial position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol or unleaded gasoline.

We
have prepared a sensitivity analysis as set forth below to estimate our exposure to market risk with respect to our projected corn and natural gas requirements and our ethanol sales
for 2009. Market risk related to these factors is estimated as the potential change in pre-tax income, resulting from a hypothetical 10% adverse change in the fair value of our corn and
natural gas requirements and our ethanol sales based on current prices as of December 31, 2008, excluding corn and natural gas forward

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and
futures contracts used to hedge our market risk. Actual results may vary from these amounts due to various factors including significant increases or decreases in the LLC's production
capacity during 2009.

Volume
Requirements

Units

Hypotehtnical
Adverse Change
in Price

Change in
2009 Pre-tax
Income(in millions)





(in millions)Ethanol


224.8

Gallons


10
%
$
(33.5
)Corn


80.7

Bushels


10
%
$
(31.2
)Natural Gas


6.4

Mmbtu


10
%
$
(3.5
)


At
December 31, 2008 the Company had committed through its Fairmont plant subsidiary to purchase 1,000 Mmbtu of natural gas per day starting January 1, 2009 through
June 30, 2009. The price of the gas will be based on the local gas index in effect at the first of the month of scheduled delivery plus an additional $0.0425 per Mmbtu.

We
believe that managing our commodity price exposure has the potential to reduce the volatility implicit in a commodity-based business. However, it may also tend to reduce our ability
to benefit from favorable commodity price changes. Hedging arrangements also expose us to risk of financial loss if the counterparty defaults or in the event of extraordinary volatility in the
commodities markets. Furthermore, if geographic basis differentials are not hedged, they could cause our hedging programs to be ineffective or less effective than anticipated. In the third quarter of
2008, corn prices pulled back sharply resulting in the Company realizing significant losses on its hedge contracts. See "Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and capital resourcesHedging Losses" elsewhere in this report.

We
are subject to interest rate risk in connection with our bank facility. Under the facility, our bank borrowings bear interest at a floating rate based, at our option, on LIBOR or an
alternate base rate. Pursuant to our bank facility, we are required to hedge no less than 50% of our interest rate risk until all obligations and commitments under the facility are paid and
terminated. In September 2007, the Operating Company, through its subsidiaries, entered into an interest rate swap for a two-year period. The contract is for $60.0 million principal
with a fixed interest rate of 4.65% payable by the Operating Company, and the variable interest rate, the one-month LIBOR, payable by the third party. The difference between the Operating
Company's fixed rate of 4.65% and the one-month LIBOR rate, which is reset every 30 days, is received or paid every 30 days in arrears. In March 2008, the Operating Company,
through its subsidiaries, entered into a second interest rate swap for a two-year period. The contract is for $50.0 million principal with a fixed interest rate of 2.766%, payable
by the Operating Company, and the variable
interest rate, the one-month LIBOR, payable by the third party. The difference between the Operating Company's fixed rate of 2.766% and the one-month LIBOR rate, which is reset
every 30 days, is received or paid every 30 days in arrears. As of December 31, 2008, we had borrowed $198.2 million under our bank facility. After considering the
$110.0 million of interest rate swaps in place with respect to our bank borrowings, a hypothetical 100 basis points increase in interest rates under our bank facility would result in an
increase of $882,000 in our annual interest expense.

At
December 31, 2008, we had $12.3 million of cash and equivalents invested in money market mutual funds held at two financial institutions, which is in excess of FDIC
insurance limits. We also had certificates of deposit for $4.0 million held at two financial institutions, which is in excess of FDIC insurance limits. The money market mutual funds are not
invested in any auction rate securities.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Financial Statements of BioFuel Energy Corp.

PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets, December 31, 2008 and 2007

F-2Consolidated Statements of Operations for the years ended December 31, 2008 and 2007

F-3Consolidated Statement of Stockholders' Equity and Comprehensive Loss for the years ended December 31, 2008 and
2007

F-4Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007

F-5Notes to Consolidated Financial Statements

F-6Schedule I

F-34


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Stockholders of
BioFuel Energy Corp.

We
have audited the accompanying consolidated balance sheets of BioFuel Energy Corp. (a Delaware corporation) and subsidiaries (collectively, the "Company") as of December 31, 2008 and 2007,
and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for the years then ended. Our audits of the basic financial statements included the
financial statement schedule listed in the index appearing under Item 8. These financial statements and financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BioFuel Energy Corp. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company incurred a loss before
minority interest of $84.1 million during the year ended December 31, 2008, and experienced declining liquidity. These factors, among others, as discussed in Note 1 to the
consolidated financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/
GRANT THORNTON LLP

Denver,
Colorado
March 27, 2009

F-1

---





BioFuel Energy Corp.        Consolidated Balance Sheets        (in thousands, except share and per share data)

December 31,
2008

December 31,
2007AssetsCurrent assetsCash and equivalents

$
12,299

$
55,987Accounts receivable


16,669


Inventories


14,929


Prepaid expenses


2,153


194Restricted cash


612


Other current assets


203


Total current assets


46,865


56,181Property, plant and equipment, net


305,350


276,785Certificates of deposit


4,015


2,155Debt issuance costs, net


7,917


8,852Restricted cash


1,003


Other assets


574


126Total assets

$
365,724

$
344,099Liabilities and stockholders' equityCurrent liabilitiesAccounts payable

$
11,274

$
10,429Construction retainage


9,407


11,536Current portion of long-term debt


11,588


1,560Current portion of derivative financial instrument


2,658


424Current portion of tax increment financing


298


228Other current liabilities


2,932


637Total current liabilities


38,157


24,814Long-term debt, net of current portion


226,351


122,440Tax increment financing, net of current portion


5,887


5,823Derivative financial instrument, net of current portion


83


525Other non-current liabilities


487


27Total liabilities


270,965


153,629Minority interest


14,069


68,799Commitments and contingenciesStockholders' equityPreferred stock, $0.01 par value; 5.0 million shares authorized and no shares outstanding at December 31, 2008 and December 31,
2007





Common stock, $0.01 par value; 100.0 million shares authorized and 23,318,636 shares outstanding at December 31, 2008 and 15,994,124
shares outstanding at December 31, 2007


233


160Class B common stock, $0.01 par value; 50.0 million shares authorized and 10,082,248 shares outstanding at December 31, 2008 and
17,396,686 shares outstanding at December 31, 2007


101


174Less common stock held in treasury, at cost, 809,606 shares at December 31, 2008 and 394,046 shares at December 31, 2007


(4,316
)

(2,040
)Additional paid-in capital


134,360


130,409Accumulated other comprehensive loss


(2,741
)

(950
)Accumulated deficit


(46,947
)

(6,082
)Total stockholders' equity


80,690


121,671Total liabilities and stockholders' equity

$
365,724

$
344,099


The accompanying notes are an integral part of these financial statements.

F-2

---



BioFuel Energy Corp.        Consolidated Statements of Operations        (in thousands, except per share data)

Years Ended December 31,2008

2007Net sales

$
179,867

$
Cost of goods sold


199,163


Gross loss


(19,296
)

General and administrative expenses:Compensation expense


8,063


5,379Other


8,981


3,836Other operating expense


1,350


Operating loss


(37,690
)

(9,215
)Other income (expense):Interest income


1,087


1,812Interest expense


(5,831
)

Other non-operating expense


(1,781
)

Loss on derivative financial instruments


(39,912
)

Loss before income taxes


(84,127
)

(7,403
)Income tax provision (benefit)





Loss before minority interest


(84,127
)

(7,403
)Minority interest


43,262


4,982Net loss


(40,865
)

(2,421
)Beneficial conversion charge





(1,327
)Net loss to common shareholders

$
(40,865
)
$
(3,748
)Loss per sharebasic

$
(2.65
)
$
(0.35
)Loss per sharediluted

$
(2.65
)
$
(0.35
)Weighted average shares outstandingBasic


15,419


10,643Diluted


15,419


10,643


The
accompanying notes are an integral part of these financial statements.

F-3

---





BioFuel Energy Corp.        Consolidated Statement of Stockholders' Equity and Comprehensive Loss        Years Ended December 31, 2007 and December 31, 2008
      (in thousands, except share data)

Common Stock

Class B Common Stock







Accumulated
Other
Comprehensive
LossTreasury
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Total
Stockholders'
EquityShares

Amount

Shares

AmountBalance at December 31, 2006


5,042,104

$
50




$


$


$
26,903

$
(2,334
)
$


$
24,619Sale of common stock, net of expenses


10,287,500


103











100,745








100,848Stock based compensation

















515








515Issuance of Class B common shares








17,957,896


180





(180
)







Issuance of restricted stock


103,310


1











(1
)







Purchase of common stock for treasury














(2,040
)










(2,040
)Issuance of LLC units to management

















193








193Exchange of Class B shares to common


561,210


6


(561,210
)

(6
)




2,234








2,234Beneficial conversion charge




















(1,327
)




(1,327
)Comprehensive loss:Hedging settlements























40


40Change in hedging liability fair value























(990
)

(990
)Net loss




















(2,421
)




(2,421
)Total comprehensive loss


























(3,371
)Balance at December 31, 2007


15,994,124


160


17,396,686


174


(2,040
)

130,409


(6,082
)

(950
)
$
121,671Stock based compensation

















682








682Exchange of Class B shares to common


7,314,438


73


(7,314,438
)

(73
)




3,269








3,269Issuance of restricted stock,(net of forfeitures)


10,074























Purchase of common stock for treasury














(2,276
)










(2,276
)Comprehensive loss:Hedging settlements























1,098


1,098Change in hedging liability fair value























(2,889
)

(2,889
)Net loss




















(40,865
)




(40,865
)Total comprehensive loss


























(42,656
)Balance at December 31, 2008


23,318,636

$
233


10,082,248

$
101

$
(4,316
)
$
134,360

$
(46,947
)
$
(2,741
)
$
80,690


The accompanying notes are an integral part of these financial statements.

F-4

---





BioFuel Energy Corp.        Consolidated Statements of Cash Flows        (in thousands)

Years Ended December 31,2008

2007Cash flows from operating activitiesNet loss

$
(40,865
)
$
(2,421
)Adjustments to reconcile net loss to net cash used in operating activities:Minority interest


(43,262
)

(4,982
)Share based compensation expense


682


1,370Depreciation and amortization


9,791


79Loss on disposal of assets


1,100


Changes in operating assets and liabilities:Accounts receivable


(16,669
)

Inventories


(14,929
)

Prepaid expenses


(1,959
)

448Accounts payable


845


414Other current liabilities


1,524


(421
)Hedging loss liability


14,402


Other assets and liabilities


(1,723
)

(94
)Net cash used in operating activities


(91,063
)

(5,607
)Cash flows from investing activitiesCapital expenditures


(40,674
)

(188,531
)Proceeds from insurance claim


771


Purchase of certificates of deposit


(1,860
)

(2,155
)Net cash used in investing activities


(41,763
)

(190,686
)Cash flows from financing activitiesProceeds from sale of common stock





103,581Proceeds from issuance of debt


94,150


154,000Repayment of debt





(30,000
)Funding of debt services reserves


(1,615
)

Proceeds from tax increment financing





6,051Payment of offering costs





(2,513
)Payment of debt issuance costs


(457
)

(4,038
)Payment of notes payable and capital lease


(664
)

Purchase of treasury stock


(2,276
)

(2,040
)Net cash provided by financing activities


89,138


225,041Net increase (decrease) in cash and equivalents


(43,688
)

28,748Cash and equivalents, beginning of period


55,987


27,239Cash and equivalents, end of period

$
12,299

$
55,987Cash paid for interest

$
13,187

$
6,396Non-cash investing and financing activities:Additions to property, plant and equipment unpaid during period

$
232

$
18,395Additions to property, plant and equipment financed with notes payable and capital leases


5,457


Additions to debt and deferred offering costs unpaid during period





11


The
accompanying notes are an integral part of these financial statements.

F-5

---





BioFuel Energy Corp.        Notes to Consolidated Financial Statements

1. Organization, Nature of Business, and Basis of Presentation

Organization and Nature of Business

BioFuel Energy Corp. (the "Company", "we", "our" or "us") produces and sells ethanol and distillers grain, through its two ethanol
production facilities located in Wood River, Nebraska ("Wood River") and Fairmont, Minnesota ("Fairmont"). Both facilities, with a combined annual nameplate production capacity, based on the maximum
amount of permitted denaturant, of 230 Mmgy, commenced start-up and began commercial operations in late June 2008. At each location, Cargill, Incorporated, ("Cargill"), with whom we have
an extensive contractual relationship, has a strong local presence and owns adjacent grain storage facilities. From inception, we have worked closely with Cargill, one of the world's leading
agribusiness companies. Cargill provides corn procurement services, markets the ethanol and distillers grain we produce and provides transportation logistics for our two plants under
long-term contracts. In addition, we lease their adjacent grain storage and handling facilities. Our operations and cash flows are subject to fluctuations due to changes in commodity
prices. We use derivative financial instruments, such as futures contracts, swaps and option contracts to manage commodity prices as further discussed in Note 9.

The
Company previously evaluated three similar sites and incurred site development costs for the possible construction of additional plants. During the year ended December 31,
2008, the Company decided to no longer pursue construction of these sites and therefore has written off the associated development costs in the amount of $1,100,000 which is included in other
operating expense in the Consolidated Statements of Operations.

We
were incorporated as a Delaware corporation on April 11, 2006 to invest solely in BioFuel Energy, LLC (the "LLC"), a limited liability company organized on
January 25, 2006 to build and operate a series of ethanol production facilities in the Midwestern United States. The Company's headquarters are located in Denver, Colorado.

In
June 2007, the Company completed an initial public offering of 5,250,000 shares of our common stock (the "offering") and the private placement of 4,250,000 shares of our common stock
to the Company's three largest pre-existing shareholders at a gross per share price of $10.50 (the "private placement"), resulting in $93.2 million in net proceeds. In July 2007,
the underwriters of the offering exercised their over-allotment option, purchasing 787,500 additional shares of common stock. The shares were purchased at the $10.50 per share offering
price, resulting in $7.7 million of additional proceeds to the Company. In total, the Company received approximately $100.9 million in net proceeds from the offering and private
placement, after expenses. All net proceeds from the offering and the private placement were transferred to the LLC as contributed capital subsequent to the offering. With a portion of these
proceeds, the Company retired $30.0 million of subordinated debt, leaving $20.0 million outstanding.

At
December 31, 2008, the Company owned 69.1% of the LLC units with the remaining 30.9% owned by the historical equity investors of the LLC. The Class B
common shares are held by the historical equity investors of the LLC, who held 10,082,248 membership interests in the LLC that, when combined with the Class B shares, can be
exchanged for newly issued shares of common stock of the Company on a one-for-one basis. The Class B common stock and associated LLC membership interests are
recorded as minority interest on the consolidated balance sheets. Holders of shares of Class B common stock have no economic rights but are entitled to one vote for each share held. The
Class B common stock will be retired upon exchange of the related membership interests in the LLC.

F-6

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

1. Organization, Nature of Business, and Basis of Presentation (Continued)

The
aggregate book value of the LLC at December 31, 2008 and December 31, 2007 was approximately $373.6 million and $344.1 million, respectively, and
are collateral for the LLC's obligations. Our bank facility imposes restrictions on the ability of the LLC's subsidiaries that own our Wood River and Fairmont plants to pay dividends or
make other distributions to us, which will restrict our ability to pay dividends.

From
inception through June 30, 2008, the LLC's operations primarily consisted of arranging financing for and constructing its two ethanol plants in Wood River and
Fairmont. Both plants commenced start-up and began the production of ethanol in late June 2008. In late August 2008, both plants reached provisional acceptance, the first of three tests
required under their respective turn-key construction contracts, at which time operational control of the plants passed to
the LLC from the contractor. We exited development stage status in the third quarter of 2008. Both plants achieved project completion milestones in December 2008.

Basis of Presentation and Going Concern Considerations

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America, which contemplate our continuation as a going concern. As shown in the accompanying consolidated financial statements, the Company incurred a loss before minority
interest of $84.1 million in 2008, primarily due to hedging losses on corn contracts and significant costs associated with the start up and operation of our plants. We continue to suffer
operating losses in 2009 resulting from poor operating margins due to the relative prices of corn and ethanol. The Company's liquidity position continues to decline as a result of these losses. In
addition, under the terms on the Company's senior debt facility, minimum quarterly principal payments of $3,150,000 are scheduled to begin on June 30, 2009. Based on current operating margins
and the Company's liquidity position, the Company may not be able to generate sufficient cashflow to make principal and interest payments when they become due during 2009. Failure to make these
payment obligations when they become due would result in events of default under the senior debt facility, which, in the case of interest, we would have up to three days to cure. We have initiated a
company-wide business restructuring plan to reduce costs and are currently exploring various alternatives to address our liquidity issues. These include: (i) reducing operating
expenses through headcount reductions or operating efficiency initiatives; (ii) reducing the cost of various inputs and services by renegotiating the terms of supply and service agreements,
including our agreements with Cargill; (iii) seeking forbearance or some other accommodation from our lenders; (iv) seeking new capital, either from new or existing investors or
(v) some combination of the foregoing or other measures. However there can be no assurance that we will be successful in achieving any of these objectives or, if successfully implemented, that
these initiatives will be sufficient to address our lack of liquidity. If the Company is unable to reach an agreement with the senior lenders, raise additional capital, or is unable to generate
sufficient liquidity from its operations to satisfy its obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern. The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company's
ability to do so. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

F-7

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies

Principles of Consolidation and Minority Interest

The accompanying consolidated financial statements include the Company, the LLC and its wholly owned subsidiaries: BFE Holding
Company, LLC; BFE Operating Company, LLC; Buffalo Lake Energy, LLC; and Pioneer Trail Energy, LLC. All inter-company balances and transactions have been eliminated in
consolidation.

At
December 31, 2008, the Company owned 69.1% of the LLC units. The remaining 30.9% of the LLC units owned by the historical equity investors will continue to be
reported as minority interest until all Class B common shares and LLC membership units have been exchanged for the Company's common stock.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures in the accompanying notes at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and
earned when it has persuasive evidence that an arrangement exists, risk of loss and title has transferred to the customer, the price is fixed or determinable and collection is reasonably assured in
conformity with the Securities and Exchange Commission's ("Commission") Staff Accounting Bulletin ("SAB") No. 104,Revenue Recognition.

Sales
and related costs of goods sold are included in income when risk of loss and title transfers upon delivery of ethanol and distillers grain to Cargill. In accordance with
the LLC's agreements, through its subsidiaries, with Cargill for the marketing and sale of ethanol and related products, commissions, freight, and shipping and handling charges are deducted
from the gross sales price at the time revenue is recognized. Ethanol sales are recorded net of commissions, which totaled $1,672,000 during the year ended December 31, 2008. Sales of dried
distillers grain with solubles ("DDGS") and wet distillers grain with solubles ("WDGS") are also recorded net of commissions, which totaled $1,252,000 in the year ended December 31, 2008.

Cost of goods sold

Cost of goods sold primarily includes costs of raw materials (primarily corn and natural gas), purchasing and receiving costs,
inspection costs, shipping costs, other distribution expenses, plant management, certain compensation costs and general facility overhead charges.

General and administrative expenses

General and administrative expenses consist of salaries and benefits paid to our management and administrative employees, expenses
relating to third party services, insurance, travel, office rent, marketing and other expenses, including certain expenses associated with being a public company, such

F-8

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

as
fees paid to our independent auditors associated with our annual audit and quarterly reviews, compliance with Section 404 of the Sarbanes-Oxley Act, and listing and transfer agent fees.

Cash and Equivalents

Cash and equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are
currently comprised of money market mutual funds. At December 31, 2008, we had $12.3 million invested in money market mutual funds held at two financial institutions, which is in excess
of FDIC insurance limits.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all
outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial
condition, credit history and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction to bad
debt expense when received. As of December 31, 2008, Cargill was our only customer and no allowance was considered necessary.

Concentrations of Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist for groups of customers or counterparties
when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions described below.

The LLC,
through its subsidiaries, sells all of its ethanol and distillers grain to Cargill. During the year ended December 31, 2008, the Company recorded sales to Cargill
representing 100% of total net sales. As of December 31, 2008, the LLC, through its subsidiaries, had receivables from Cargill of approximately $16.7 million, representing 100% of
total accounts receivable.

The LLC,
through its subsidiaries, purchases corn, its largest cost component in producing ethanol, from Cargill. During the year ended December 31, 2008, corn purchases
from Cargill totaled $170.7 million.

Inventories

Raw materials inventories, which consist primarily of corn, denaturant, supplies, and chemicals and work in process inventories are
valued at the lower-of-cost-or-market, with cost determined on a first-in, first-out basis. Finished goods inventories consist
of ethanol and distillers grain and are stated at lower of average cost or market.

F-9

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

A
summary of inventories is as follows (in thousands):

December 31,
2008

December 31,
2007Raw materials

$
8,687

$
Work in process


2,052


Finished goods


4,190


$
14,929

$



Due
to a decline in commodities prices, the LLC recorded a lower of cost or market inventory write-down of $450,000 for ethanol at December 31, 2008.

Derivative Instruments and Hedging Activities

The Company accounts for derivative instruments and hedging activities in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. Derivatives are recognized on the balance sheet at their fair value and are
included in the accompanying balance sheets as "derivative financial instruments." On the date the derivative contract is entered into, the Company may designate the derivative as a hedge of a
forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge). Changes in the fair value of a derivative that is
highly effective and that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income, net of tax effect, until earnings are affected by the variability of cash flows
(e.g., when periodic settlements on a variable rate asset or liability are recorded in earnings). Changes in the fair value of undesignated derivative instruments or derivatives that do not
qualify for hedge accounting are recognized in current period earnings. The Company's derivative positions related to corn, ethanol and natural gas have been undesignated instruments, and accordingly,
changes in the fair value of these economic hedges are included in other non-operating income in the respective periods in the statements of operations. The Company designates interest
rate swaps as cash flow hedges. The value of these instruments is recorded on the balance sheet as an asset in other assets, and as a liability under derivative financial instruments, while the
unrealized gain/loss on the change in the fair value has been record in other comprehensive income. The income statement impact of these hedges is included in interest expense.

SFAS 133
requires a company to evaluate contracts to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempted as
normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that
will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. The Company's contracts that meet the requirements of normal purchases are
exempted from the accounting and reporting requirements of SFAS 133.

Certificates of Deposit

At December 31, 2008, certificates of deposit was comprised of approximately $4.0 million held in four certificates of
deposit with original maturities greater than one year. These certificates of deposit have been pledged as collateral supporting four letters of credit and will automatically renew each year

F-10

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

as
long as the letters of credit are outstanding. Three of these certificates of deposit totaling $2.8 million are held at one financial institution, which is in excess of FDIC insurance
limits. The remaining certificate of deposit for $1.2 million is held with another financial institution and this amount is also in excess of FDIC insurance limits.

Restricted Cash

At December 31, 2008, restricted cash was comprised of approximately $1.6 million held in debt service reserve accounts
in accordance with our senior credit facility. These balances are comprised of a current portion of $.6 million held in reserve to pay the interest amounts due during 2009, and a long term
portion of $1.0 million, held in reserve for the term of the senior credit facility.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. All costs related to purchasing and developing land or the engineering, design and
construction of a plant are capitalized. Costs not directly related to a site or plants are expensed. The Company began depreciation of land improvements and its plant assets in September 2008 as
construction was considered to be complete at the end of August 2008. Depreciation is computed by the straight-line method over the following estimated useful lives:

YearsLand improvements


20-30Buildings and improvements


7-40Machinery and equipment:Railroad equipment


20-39Facility equipment


20-39Other


5-7Office furniture and equipment


3-10


Maintenance,
repairs and minor replacements are charged to operating expenses while major replacements and improvements are capitalized.

Capitalized Interest

In accordance with Statement of Financial Accounting Standard ("SFAS") No. 34,Capitalization of
Interest, the Company capitalized interest costs and the amortization of debt issuance costs related to its ethanol plant development and construction expenditures during the
period of construction as part of the cost of constructed assets. Interest and debt issuance costs capitalized for the years ended December 31, 2008 and December 31, 2007 totaled
$10,208,000 and $10,684,000, respectively. Interest costs were capitalized during the period of construction and included in property, plant and equipment. Interest was capitalized through August 2008
at which time the plants reached provisional acceptance.

Debt Issuance Costs

Debt issuance costs are stated at cost, less accumulated amortization. Debt issuance costs represent costs incurred related to the
Company's senior debt, subordinated debt and tax increment financing credit agreements. These costs are being amortized over the term of the related debt and any such

F-11

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

amortization
was capitalized as part of the value of construction in progress during the construction period. After the plants reached provisional acceptance in August 2008, the amortization of debt
issuance costs which totaled $477,000 have been expensed. Estimated future debt issuance cost amortization as of December 31, 2008 is as follows (in thousands):

2009

$
1,4462010


1,4092011


1,2982012


1,2982013


1,298Thereafter


1,168Total

$
7,917


Impairment of Long-Lived Assets

The Company assesses impairment of long-lived assets, which are comprised primarily of property, plant and equipment
related to the Company's ethanol plants whenever circumstances indicate their carrying value may not be fully recoverable. Recoverability is measured by comparing the carrying value of an asset with
estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is reflected as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted
market prices or appraised values, depending on the nature of the assets. As of December 31, 2008, the Company performed an impairment evaluation of the recoverability of its
long-lived assets due to the circumstances identified in Note 1. We evaluated the recoverability of property, plant and equipment in accordance with SFAS No. 144. For
purposes of testing impairment of its long-lived assets at December 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable
by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The estimated undiscounted cash flows were dependent
on a number of critical management assumptions, including estimates of future capacity, crush margin, corn, natural gas and other inputs, operating costs and other relevant assumptions.

As
a result of this impairment evaluation, it was determined that the future cash flows from the assets exceeded the current carrying values, and therefore, no further analysis was
necessary and no impairment was recorded.

Stock-Based Compensation

Expenses associated with stock-based awards and other forms of equity compensation are recorded in accordance with SFAS
No. 123(R),Share-Based Payments. The expense
associated with these awards is based on fair value at grant and recognized on a straight line basis in the financial statements over the requisite service period, if any, for those awards that are
expected to vest. The Company adopted the use of the simplified method of calculating expected term for grants awarded in 2007 and 2008, as allowed by the SEC Staff Accounting Bulletin No. 110
("SAB 110"). SAB 110 allows a company to extend the use of the simplified method for grants issued beyond December 31, 2007.

F-12

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Asset Retirement Obligations

Asset retirement obligations are recognized when a contractual or legal obligation exists and a reasonable estimate of the amount can
be made. At December 31, 2008, the Company had accrued asset retirement obligation liabilities of $129,000 and $162,000 for its plants at Wood River and Fairmont, respectively. As of
December 31, 2007, the Company had not accrued any asset retirement obligations.

The
asset retirement obligations accrued for Wood River at December 31, 2008 relate to the obligations in our contracts with Cargill and Union Pacific Railroad. According to the
grain elevator lease with Cargill, the equipment that is adjacent to the grain elevator may be required at Cargill's discretion to be removed at the end of the lease. In addition, according to the
contract with Union Pacific, the buildings that are built near their land in Wood River may be required at Union Pacific's request to be removed at the end of our contract with them. The asset
retirement obligations accrued for Fairmont relate to the obligations in our contracts with Cargill and in our water permit with the state of Minnesota. According to the grain elevator lease with
Cargill, the equipment that is adjacent to the grain elevator being leased may be required at Cargill's discretion to be removed at the end of the lease. In addition, the water permit in Fairmont
requires that we secure all above ground storage tanks whenever we discontinue the use of our equipment for an extended period of time in Fairmont. The estimated costs of these obligations have been
accrued at the current net present value of these obligations at the end of an estimated 20 year life for each of the plants. These liabilities have corresponding assets recorded in Property,
Plant and Equipment which are being depreciated over 20 years.

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company regularly reviews historical and anticipated future pre-tax results of operations to determine whether the Company will be able to realize the benefit of its deferred tax
assets. A valuation allowance is required to reduce the potential deferred tax asset when it is more likely than not that all or some portion of the potential deferred tax asset will not be realized
due to the lack of sufficient taxable income. The Company establishes reserves for uncertain tax positions that reflect its best estimate of deductions and credits that may not be sustained. As the
Company has incurred losses since its inception and expects to continue to incur losses for the foreseeable future, it will provide a valuation allowance against all deferred tax assets until it is
reasonably assured that such assets will be realized. The Company classifies interest on tax deficiencies and income tax penalties as provision for income taxes.

F-13

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The Company's financial instruments, including cash and equivalents, accounts receivable, certificates of deposit, accounts payable and
construction retainage are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. The fair market value of the Company's senior debt
and notes payable (excluding the Cargill note payable) approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for
similar issues of debt, taking into account the current credit risk of the Company and other market factors. The Company is unable to determine a fair value of its subordinated debt and its note
payable to Cargill due to the nature of the relationship between the parties and the Company. The derivative financial instruments are carried at fair value. Effective January 1, 2008, the
Company adopted the provisions of SFAS No. 157 and 159, with no material impact to our financial statements. The Company did not elect the fair value option available under SFAS 159 for
any of its financial instruments.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of the unrealized changes in the market value on the Company's financial instruments designated as
cash flow hedges. The changes in market value are reflected in the corresponding asset or liability with the offset recorded as other comprehensive income (loss).

Segment Reporting

According to SFAS No. 131,Disclosures about Segments of an Enterprise and Related
Information("SFAS 131"), operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly
by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance. Each of our plants is considered its own unique operating segment
under these criteria. However, when two or more operating segments have similar economic characteristics, SFAS 131 allows for them to be aggregated into a single operating segment for purposes
of financial reporting. Our two plants are very similar in all characteristics defined by SFAS 131. Accordingly, the Company presents a single reportable segment, the manufacture of
fuel-grade ethanol and the co-products of the ethanol production process.

3. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS 141R"). SFAS 141R changes how a
reporting enterprise accounts for the acquisition of a business. When effective, SFAS 141R will replace existing SFAS 141. However, SFAS 141R carries forward the existing
requirements to account for all business combinations using the acquisition method (formerly called the
purchase method) to both identify the acquirer for every business combination and recognize intangible assets acquired separately from goodwill, based on the contractual-legal and separability
criteria. SFAS 141R will be effective for the Company on January 1, 2009. The effect of adopting SFAS 141R will depend on the terms and timing of future acquisitions, if any.

In
December 2007, the FASB issued SFAS No. 160,Consolidations/Investments in SubsidiariesNoncontrolling Interests in Consolidated Financial
Statements("SFAS 160"). SFAS 160 replaces the

F-14

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

3. Recent Accounting Pronouncements (Continued)

minority-interest
provisions of Accounting Research Bulletin 51,Consolidated Financial Statements, by defining a new termnoncontrolling
intereststo replace what were previously called minority interests. SFAS 160 will be effective for the Company on January 1, 2009. The Company has not assessed the impact of
SFAS 160 on its consolidated results of operations, cash flows or financial position; however, at December 31, 2008, the Company had $14.1 million of minority interest liability
that, under the provisions of SFAS 160, would be presented as a component of stockholders' equity. Under SFAS 160, the amount of net income attributable to the Company and to the
noncontrolling interest will be identified on the Statements of Operations. Future exchanges of LLC units for Company common stock will be accounted for in accordance with SFAS 160 as
equity transactions, with any difference between the fair value of the Company's common stock and the amount by which the noncontrolling interest is adjusted being recognized in equity.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement
No. 133("SFAS 161"), which requires enhanced disclosures for derivative and hedging activities. SFAS 161 will become effective beginning with our first
quarter of 2009. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

Other
new pronouncements issued but not effective until after December 31, 2008, are not expected to have a significant effect on the Company's consolidated financial position or
results of operations.

4. Property, Plant and Equipment

Property, plant and equipment, stated at cost, consist of the following at December 31, 2008 and December 31, 2007, respectively (in thousands):

December 31,
2008

December 31,
2007Land and land improvements

$
18,887

$
6,382Construction in progress


1,690


269,710Buildings and improvements


49,138


Machinery and equipment


238,918


Office furniture and equipment


5,982


777314,615


276,869Accumulated depreciation


(9,265
)

(84
)Property, plant and equipment, net

$
305,350

$
276,785


Depreciation
expense related to property, plant and equipment was $9,181,000 and $79,000 for the years ended December 31, 2008 and December 31, 2007, respectively.

The
Company began depreciating land improvements and its plant assets in September 2008 as construction was considered to be complete at the end of August 2008. The Company has netted
liquidated damages, arising out of completion delays at both plants, of $19.1 million against its plant assets. Also included in its plant assets are amounts withheld by the Company for
approximately 5% of the progress payments billed by the construction contractor. These amounts have been recorded as liabilities in the accompanying consolidated balance sheets and are to be remitted
by the LLC to the

F-15

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

4. Property, Plant and Equipment (Continued)

contractor
upon substantial completion of the plants. The construction retainage amounts included in property, plant and equipment at December 31, 2008 and December 31, 2007 were
$5,218,000 and $5,870,000 related to the Fairmont facility and $4,189,000 and $5,666,000 related to the Wood River facility, respectively. The construction retainage amounts payable as of
December 31, 2008 were paid in full in February 2009.

In
anticipation of the possible construction of three additional plants, the Company incurred site development costs totaling $1,100,000 which were included in property, plant and
equipment. The
Company decided to no longer pursue construction of these sites and therefore the development costs were written off and included in other operating expense during the year ended December 31,
2008.

5. Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share are calculated
using the treasury stock method in accordance with SFAS No. 128,Earnings per Share, and includes the effect of all dilutive securities,
including stock options, restricted stock and Class B common shares. For those periods in which the Company incurred a net loss, the inclusion of the potentially dilutive shares in the
computation of diluted weighted average shares outstanding would have been anti-dilutive to the Company's loss per share, and, accordingly, all potentially dilutive shares have been
excluded from the computation of diluted weighted average shares outstanding in those periods.

For
the years ended December 31, 2008 and 2007, 557,700 shares and 327,950 shares, respectively, issuable upon the exercise of stock options would have been excluded from the
computation of diluted earnings per share as the exercise price exceeded the average price of the Company's shares during the period.

A
summary of the reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding follows:

Years Ended December 31,2008

2007Weighted average common shares outstandingbasic


15,418,624


10,642,574Potentially dilutive common stock equivalentsClass B common shares


17,152,818


9,855,316Restricted stock


96,229


54,908Stock options





10217,249,047


9,910,32632,667,671


20,552,900Less anti-dilutive common stock equivalents


(17,249,047
)

(9,910,326
)Weighted average common shares outstandingdiluted


15,418,624


10,642,574


F-16

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

6. Long-Term Debt

The following table summarizes long-term debt (in thousands):

December 31,
2008

December 31,
2007Construction loans

$
181,150

$
104,000Subordinated debt


20,595


20,000Working capital loans


17,000


Notes payable


16,709


Capital leases


2,485


237,939


124,000Less current portion


(11,588
)

(1,560
)Long term portion

$
226,351

$
122,440


In
September 2006, subsidiaries of the LLC (the "Operating Subsidiaries of the LLC") entered into a Senior Secured Credit Facility providing for the availability of
$230.0 million of borrowings ("Senior Debt") with BNP Paribas and a syndicate of lenders to finance construction and operation of the Wood River and Fairmont plants. The Senior Debt consists of
two construction loans, which together total $210.0 million of available borrowings and must convert into term loans (under the same interest rate structure as the construction loans) no later
than June 30, 2009. No principal payments are required until the construction loans are converted to term loans. Thereafter, principal payments will be payable quarterly at a minimum amount of
$3,150,000, with additional pre-payments to be made out of available cash flow. These term loans mature in September 2014. Senior Debt also includes working capital loans of up to
$20.0 million, a portion of which may be used as letters of credit. Effective August 29, 2008, the Operating Subsidiaries of the LLC entered into an amendment to the Senior Debt which
permitted them access to the $20 million working capital facility and the ability to disburse funds from their revenue account on a daily basis, in each case solely for the purchase of corn,
natural gas, chemicals, enzymes, denaturant and electricity. Prior to this amendment, the Operating Subsidiaries of the LLC had access to only $5 million of the working capital line and the
ability to disburse their revenues only at the end of each month. As of December 31, 2008, $17.0 million has been borrowed under the working capital loans. The working capital loans
mature in September 2010 or, with consent from two-thirds of the lenders, at September 30, 2011. Interest rates on Senior Debt (construction loans and working capital loans) are, at
management's option, set at: i) a Base Rate, which is the higher of the federal funds rate plus 0.5% or BNP Paribas' prime rate, in each case plus a margin of 2.0%; or ii) at LIBOR plus
3.0%. Interest is payable quarterly. The weighted average interest rate in effect on the bank borrowings at December 31, 2008 was 3.5%. Neither the Company nor the LLC is a borrower
under the Senior Debt, although the equity interests and assets of our subsidiaries are pledged as collateral to secure the debt under the facility.

While
we have borrowed substantial amounts under our Senior Debt facility, additional borrowings remain subject to the satisfaction of a number of additional conditions precedent,
including continuing compliance with debt covenants and payment of principal and interest when due. In addition, our bank agreement contains standard clauses regarding occurrence of a "material
adverse effect," which is defined very broadly and in such fashion as to be subjective. The Senior Debt is secured by a first lien on all rights, titles and interests in the Wood River and Fairmont
plants and any accounts receivable or property associated with those plants. The Company has established collateral deposit accounts

F-17

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

6. Long-Term Debt (Continued)

maintained
by an agent of the banks, into which our revenues are deposited. These funds are then allocated into various sweep accounts held by the collateral agent, with the remaining cash, if any, to
be distributed to the Company each month. The sweep accounts have various provisions, including an interest coverage ratio and debt service reserve requirements, which restrict the amount of cash that
is made available to the Company each month. The terms of the Senior Debt include certain limitations on, among other things, the ability of the borrowing subsidiaries to incur additional debt, grant
liens or encumbrances, declare or pay dividends or distributions, conduct asset sales or other dispositions, merge or consolidate, conduct transactions with affiliates and amend, modify or change the
scope of the Wood River and Fairmont construction projects, the project agreements or the budgets relating to them. The terms of the Senior Debt also contain customary events of default including
failure to meet payment obligations, failure to complete construction of the Wood River and Fairmont plants by June 30, 2009, failure to pay financial obligations, failure of the LLC or
its principal contractors to remain solvent and failure to obtain or maintain required governmental approvals.

Minimum
quarterly principal payments of $3,150,000 are scheduled to begin on June 30, 2009. Based on current operating margins and the Company's liquidity position, the Company
may not be able to make principal and interest payments when they become due during 2009. Failure to make these payment obligations when they become due would result in events of default under the
Senior Debt facility, which, in the case of interest, we would have up to 3 days to cure. The Company is currently exploring various alternatives to address its liquidity issues however there
can be no assurance that the Company will be successful in achieving its objectives. If the Company is unable to reach an agreement with the senior lenders, raise additional capital, or is unable to
generate sufficient liquidity from its operations to satisfy its obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

A
quarterly commitment fee of 0.50% per annum on the unused portion of available Senior Debt is payable. Debt issuance fees and expenses of approximately $8.5 million
($6.1 million, net of accumulated amortization) have been incurred in connection with the Senior Debt at December 31, 2008. These costs have been deferred and are being amortized over
the term of the Senior Debt, although the amortization of debt issuance costs during the period of construction through August 2008 were capitalized as part of the cost of the constructed assets.

In
September 2006, the LLC entered into a loan agreement with certain Class A unitholders ("Sub Lenders") providing for up to $50.0 million of loans ("Subordinated
Debt") to be used for general corporate purposes including construction of the Wood River and Fairmont plants. The Subordinated Debt must be repaid by no later than March 2015. Interest on
Subordinated Debt was payable quarterly in arrears at a 15.0% annual rate. The Subordinated Debt is secured by the equity of the subsidiaries of the LLC owning the Wood River and Fairmont plant
sites and fully and unconditionally guaranteed by those subsidiaries, which guarantees are subordinated to the obligations of the subsidiaries under our Senior Debt facility. A default under our bank
facility would also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding. The Subordinated Debt may be prepaid at any time
in whole or in part without penalty. The LLC did not make the scheduled quarterly interest payments which were due on September 30, 2008 and December 31, 2008. Under the terms of
the Subordinated Debt, the failure to pay interest when due is an event of default. In January 2009, the LLC and the Sub Lenders entered

F-18

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

6. Long-Term Debt (Continued)

into
a waiver and amendment agreement to the loan agreement ("Waiver and Amendment"). Under the Waiver and Amendment, an initial payment of $2.0 million, which was made on January 16,
2009, was made to pay the $767,000 of accrued interest due September 30, 2008 and to reduce outstanding principal by $1,233,000. Effective upon the $2.0 million initial payment, the Sub
Lenders waived the defaults and any associated penalty interest relating to the September 30, 2008 and the December 31, 2008 quarterly interest payments. Effective December 1,
2008, interest on the Subordinated Debt began accruing at a 5.0% annual rate compounded quarterly, a rate that will apply until the debt with Cargill (under an agreement entered into simultaneously)
has been paid in full, at which time the rate will revert to a 15.0% annual rate and quarterly payments in arrears are required. As long as the debt with Cargill remains outstanding, future payments
to the Sub Lenders are contingent upon available cash received by the LLC, as defined in the waiver and amendment.

Debt
issuance fees and expenses of approximately $5.5 million ($1.7 million, net of accumulated amortization) have been incurred in connection with the Subordinated Debt at
December 31, 2008. Debt issuance costs associated with the Subordinated Debt are being deferred and amortized over the term of the agreement, although the amortization of debt issuance costs
during the period of construction through August 2008 were capitalized as part of the cost of the constructed assets. All $50.0 million available under the Subordinated Debt was borrowed in the
first six months of 2007. During the third quarter of 2007, the Company retired $30.0 million of its Subordinated Debt with a portion of the proceeds from the offering. This resulted in
accelerated amortization of debt issuance fees of approximately $3.1 million in 2007, which represents the pro rata share of the retired debt.

In
January 2009, the LLC and Cargill entered into an agreement ("Cargill Agreement") which finalized the payment terms for $17.4 million owed to Cargill ("Cargill Debt") by
the LLC related to hedging losses with respect to corn hedging contracts that had been liquidated in the third quarter of 2008. The Cargill Agreement required an initial payment of
$3.0 million on the outstanding balance, which was paid on December 5, 2008. Upon the initial payment of $3.0 million, Cargill also forgave $3.0 million. Effective
December 1, 2008, interest on the Cargill Debt began accruing at a 5.0% annual rate compounded quarterly. Future payments to Cargill of both principal and interest are contingent upon available
cash received by the LLC, as defined. Cargill will forgive, on a dollar for dollar basis a further $2.8 million as it receives the next $2.8 million of principal payments. The
Cargill Debt is being accounted for in accordance with SFAS No. 15,Accounting by Debtors and Creditors for Troubled Debt
Restructurings.As the future cash payments specified by the terms exceed the carrying amount of the debt before the $3.0 million is forgiven, the carrying amount of the
debt is not reduced and no gain is recorded. As future payments are made, the LLC will determine, based on the timing of payments, whether or not any gain contingency should be recorded.

The
Company had four letters of credit for a total of approximately $4.0 million outstanding as of December 31, 2008. These letters of credit have been provided as
collateral to the owner of the natural gas pipeline lateral constructed to connect to the Wood River plant, the natural gas provider at the Fairmont plant, and the electrical service providers at both
the Fairmont and Wood River plants, and are all secured by certificates of deposit in the respective amounts, which will automatically renew each year.

The
LLC, through its subsidiary that constructed the Fairmont plant, has entered into an agreement with the local utility pursuant to which the utility has built and owns and operates a
substation and distribution facility in order to supply electricity to the plant. The LLC is paying a fixed

F-19

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

6. Long-Term Debt (Continued)

facilities
charge based on the cost of the substation and distribution facility of $34,000 per month, over the 30-year term of the agreement. This fixed facilities charge is being
accounted for as a capital lease in the accompanying financial statements. The agreement also includes a $25,000 monthly minimum energy charge which also began in the first quarter of 2008.

Notes
payable relate to certain financing agreements in place at each of our sites, as well as the Cargill Debt. The subsidiaries of the LLC that constructed the plants entered
into financing agreements in the first quarter of 2008 for the purchase of certain rolling stock equipment to be used at the facilities for $748,000. The notes have a fixed interest rate of
approximately 5.4% and require 48 monthly payments of principal and interest, maturing in the first and second quarter of 2012. In addition, the subsidiary of the LLC that constructed
the Wood River facility has entered into a note payable for $2,220,000 with a fixed interest rate of 11.8% for the purchase of our natural gas pipeline. The note requires 36 monthly payments of
principal and interest and matures in the first quarter of 2011.

The
following table summarizes the aggregate maturities of our long term debt as of December 31, 2008 (in thousands):

2009

$
11,5882010


30,6062011


12,9502012


12,6672013


12,607Thereafter


157,521Total

$
237,939


7. Tax Increment Financing

In February 2007, the subsidiary of the LLC that constructed the Wood River plant received $6.0 million from the proceeds of a tax increment revenue note issued by the City
of Wood River, Nebraska. The proceeds funded improvements to property owned by the subsidiary. The City of Wood River will pay the principal and interest of the note from the incremental increase in
the property taxes related to the improvements made to the property. The interest rate on the note is 7.85%. The proceeds have been recorded as a liability and will be reduced as the LLC remits
property taxes to the City of Wood River, beginning in 2008 and continuing for approximately 13 years.

The
LLC has guaranteed the principal and interest of the tax increment revenue note if, for any reason, the City of Wood River fails to make the required payments to the holder of the
note.

On
June 15, 2008, and again on December 15, 2008 the first two principal payments on the note were made. Due to delays in the plant construction, property taxes on the
plant in 2008 were lower than anticipated and therefore, the LLC was required to pay $760,000 as a portion of the note payments.

F-20

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

7. Tax Increment Financing (Continued)

The
following table summarizes the aggregate maturities of the tax increment financing debt as of December 31, 2008 (in thousands):

2009

$
2982010


3182011


3432012


3702013


399Thereafter


4,457Total

$
6,185


8. Stockholders' Equity

On October 15, 2007, the Company announced the adoption of a stock repurchase plan authorizing the repurchase of up to $7.5 million of the Company's common stock. Purchases
will be funded out of cash on hand and made from time to time in the open market. From the inception of the buyback program through December 31, 2008, the Company had repurchased 809,606 shares
at an average price of $5.30 per share, leaving $3,184,000 available under the repurchase plan. The shares repurchased are being held as treasury stock.

The
Company has not declared any dividends on its common stock and does not anticipate paying dividends in the foreseeable future. In addition, the terms of the Senior Debt contain
restrictions on the ability of the LLC to pay dividends or other distributions, which will restrict the Company's ability to pay dividends in the future.

The
amended limited liability company agreement provides for cash distributions to the holders of membership interests of the LLC if the Company determines that the taxable income of the
LLC will give rise to taxable income for its members. In accordance with the amended limited liability company
agreement, the Company will generally intend to cause the LLC to make cash distributions to the holders of its membership interests for purposes of funding their tax obligations in respect of the
income of the LLC that is allocated to them. Generally, these tax distributions will be computed based on the Company's estimate of the net taxable income of the LLC allocable to such holders of
membership interests multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident
in New York, New York (taking into account the nondeductibility of certain expenses and the character of the LLC's income).

9. Derivative Financial Instruments

In September 2007, the LLC, through its subsidiary, entered into an interest rate swap for a two-year period that has been designated as a hedge of cash flows related
to the interest payments on the underlying debt. The contract is for $60.0 million principal with a fixed interest rate of 4.65%, payable by the LLC and the variable interest rate, the
one-month LIBOR, payable by the third party. The difference between the LLC's fixed rate of 4.65% and the one-month LIBOR rate, which is reset every 30 days, is
received or paid every 30 days in arrears. The fair value of this swap ($1,773,000) has been recorded as a derivative financial instrument liability and in accumulated other comprehensive

F-21

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

9. Derivative Financial Instruments (Continued)

income
on the balance sheet at December 31, 2008. The Company made payments under this swap arrangement for the year ended December 31, 2008 totaling $1,071,000 and received payments
under this swap arrangement for the year ended December 31, 2007 totaling $40,000. These payments or receipts were included in the amounts capitalized as part of construction in progress
through the end of August 2008. After September 1, 2008 these amounts were included in interest expense.

In
March 2008, the LLC, through its subsidiary, entered into a second interest rate swap for a two-year period that has been designated as a hedge of cash flows
related to the interest payments on the underlying debt. The contract is for $50.0 million principal with a fixed interest rate of 2.766%, payable by the LLC and the variable interest
rate, the one-month LIBOR,
payable by the third party. The difference between the LLC's fixed rate of 2.766% and the one-month LIBOR rate, which is reset every 30 days, is received or paid every
30 days in arrears. The fair value of this swap ($968,000) has been recorded as a derivative financial instrument liability and in accumulated other comprehensive income on the balance sheet at
December 31, 2008. The LLC made net payments under this swap arrangement in the year ended December 31, 2008 totaling $27,000. These payments were included in the amounts
capitalized as part of construction in progress through the end of August 2008. After September 1, 2008 these amounts were included in interest expense.

During
the second quarter of 2008, the LLC entered into various derivative instruments with Cargill in order to manage exposure to commodity prices for corn and ethanol, generally
through the use of futures, swaps, and option contracts. During August 2008, the market price of corn declined sharply, exposing the LLC to large unrealized losses and significant unmet margin
calls under those contracts. Cargill began liquidating the hedge contracts in August 2008 and by September 30, 2008 the LLC was no longer a party to any hedge contracts for any of its
commodities. The Company recorded $39.9 million in losses during the year ended December 31, 2008 resulting from the liquidation of its hedge contracts. All of the related contracts were
entered into with Cargill, which handles all corn purchases and sales of ethanol and distillers grain for the LLC and its subsidiaries. As of December 31, 2008, the LLC had
converted its payable with Cargill relating to its hedging contract losses into a note payable. See further discussion of the Cargill note payable in Note 6Long Term Debt.

Effective
January 1, 2008, the Company adopted the provisions of SFAS 157. SFAS 157 defines and establishes a framework for measuring fair value and expands
disclosures about fair value measurements. In accordance with SFAS 157, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique,
into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the
lowest level input that is significant to the fair value measurement of the instrument.

Financial
assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1Financial
assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company
has the ability to access at the measurement date. We currently do not have any Level 1 financial assets or liabilities.

F-22

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

9. Derivative Financial Instruments (Continued)

Level 2Financial
assets and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted
prices of instruments with similar attributes in active markets. Level 2 inputs include the following:



Level 3Financial
assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the
overall fair value measurement. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability. We currently do not have any
Level 3 financial assets or liabilities.

The
following table presents the financial assets and liabilities we measure at fair value on a recurring basis, based on the fair value hierarchy as of December 31, 2008 (in
thousands):

Level 2

December 31,
2008Financial Liabilities:Interest rate swaps

$
(2,741
)Total liabilities

$
(2,741
)Total net position

$
(2,741
)


The
fair value of our interest rate swaps are primarily based on the LIBOR index.

10. Stock-Based Compensation

The following table summarizes the stock based compensation incurred by the Company and the LLC:

Years Ended,(In thousands)

December 31, 2008

December 31, 2007LLC units issued to management

$


$
855Stock options


462


286Restricted stock


220


229Total

$
682

$
1,370


In
February 2007, 85,000 Class C Units and 30,000 Class D Units of the LLC were issued to two officers. These units vested upon issuance and compensation expense of
$588,000 was recorded. In April 2007, all remaining Units (27,507 Class C Units and 7,503 Class D Units) were issued to certain employees. These units vested upon issuance and
compensation expense of $267,000 was recorded.

F-23

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

10. Stock-Based Compensation (Continued)

In
conjunction with the initial public offering and the private placement, the LLC recorded a beneficial conversion charge of $4.6 million related to the conversion of
the LLC's membership units, which resulted in a beneficial charge of approximately $1.3 million on a consolidated basis (based on the Company's 28% ownership interest in the LLC
prior to the offering). The intrinsic value of the beneficial conversion charge was calculated as $11.9 million; however the charge recorded was limited to the amount of actual proceeds
received with respect to certain equity units.

2007 Equity Incentive Compensation Plan

Immediately prior to the Company's initial public offering, the Company adopted the 2007 Equity Incentive Compensation Plan ("2007
Plan"). The 2007 Plan provides for the grant of options intended to qualify as incentive stock options, non-qualified stock options, stock appreciation rights or restricted stock awards
and any other equity-based or equity related awards. The 2007 Plan is administered by the Compensation Committee of the Board of Directors. Subject to adjustment for changes in capitalization, the
aggregate number of shares that may be delivered pursuant to awards under the 2007 Plan is 3,000,000 and the term of the Plan is ten years, expiring in June 2017.

Stock
OptionsExcept as otherwise directed by the Compensation Committee, the exercise price for options cannot be less than the fair market
value of our common stock on the grant date. Other than the stock options issued to Directors, the options will generally vest and become exercisable with respect to 30%, 30% and 40% of the shares of
our common stock subject to such options on each of the first three anniversaries of the grant date. Compensation expense related to
these options is expensed on a straight line basis over the 3 year vesting period. Options issued to Directors generally vest and become exercisable on the first anniversary of the grant date.
All stock options have a five year term from the date of grant.

During
the year ended December 31, 2008, the Company issued 299,025 stock options under the 2007 Plan to certain of our employees and non-employee Directors with a per
share exercise price equal to the market price of the stock on the date of grant. The determination of the fair value of the stock option awards, using the Black-Scholes model, incorporated the
assumptions in the following table for stock options granted during the year ended December 31, 2008. There were 375,950 stock options granted during the year ended December 31, 2007.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant over the expected term. Expected volatility is calculated by considering, among other things,
the expected volatilities of public companies engaged in the ethanol industry. Due to the lack of historical experience, the expected option term is calculated using the "simplified" method permitted
by SAB 110.

The
weighted average variables used in calculating fair value and the resulting compensation expense in the years ended December 31, 2008 and 2007 are as follows:

Years Ended December 31,2008

2007Expected stock price volatility


58
%

58
%Expected life (in years)


3.6


3.7Risk-free interest rate


2.70
%

5.00
%Expected dividend yield


0.00
%

0.00
%Expected forfeiture rate


35.00
%

5.00
%Weighted average grant date fair value

$
2.32

$
4.98


F-24

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

10. Stock-Based Compensation (Continued)

A summary of the status of outstanding stock options at December 31, 2008 and the changes during the year ended December 31, 2008 is as follows:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Life (years)

Aggregate
Intrinsic
Value

Unrecognized
Remaining
Compensation
ExpenseOptions outstanding, January 1, 2008


327,950

$
10.45Granted


299,025


5.18Exercised





Forfeited


(69,275
)

9.45Options outstanding, December 31, 2008


557,700

$
7.75


3.9

$
Options vested or expected to vest at December 31, 2008


398,933

$
7.93


3.9

$


$
440,501Options exercisable, December 31, 2008


92,535

$
10.31


3.7

$



Based
on the Company's closing common stock price of $0.35 on December 31, 2008, there was no intrinsic value related to any stock options outstanding.

Restricted
StockIn the year ended December 31, 2008, the Company granted 27,500 shares to its non-employee directors. The
shares vest 100% on the first anniversary of the grant date.

A
summary of the restricted stock activity during the year ended December 31, 2008 is as follows:

Shares

Weighted
Average
Grant Date
Fair Value
per Award

Weighted
Average
Remaining
Life (years)

Aggregate
Intrinsic
Value

Unrecognized
Remaining
Compensation
ExpenseRestricted stock outstanding, January 1, 2008


103,310

$
10.42Granted


27,500


4.46Vested


(37,077
)

10.27Cancelled or expired


(17,426
)

10.50Restricted stock outstanding, December 31, 2008


76,307

$
8.32


3.8

$
26,707Restricted stock expected to vest at December 31, 2008


52,246

$
7.69


3.8

$
18,286

$
210,874


In
accordance with SFAS 123(R), the Company recorded $462,000 and $220,000, respectively, of non-cash compensation expense during the year ended December 31,
2008, relating to stock options and restricted stock. During the year ended December 31, 2007, the company recorded $286,000 and $229,000, respectively, of non-cash compensation
expense relating to stock options and restricted stock. Compensation expense was determined based on the fair value of each award type at the grant date and is recognized on a straight line basis over
their respective vesting periods. The remaining unrecognized option and restricted stock expense will be recognized over 1.6 and 2.3 years, respectively. After considering the stock option and
restricted stock awards issued and outstanding, net of

F-25

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

10. Stock-Based Compensation (Continued)

forfeitures,
the Company had 2,328,916 shares of common stock available for future grant under our 2007 Plan at December 31, 2008.

11. Income Taxes

The Company has not recognized any income tax provision (benefit) for the years ended December 31, 2008, and December 31, 2007. At December 31, 2007 the Company
provided a valuation allowance for the full amount of its deferred tax assets since it has no history of generating taxable income. At December 31, 2008, the Company recognized a current tax
receivable of $305,000, related to expected tax refunds in the next 12 months.

The
U.S. statutory federal income tax rate is reconciled to the Company's effective income tax rate as follows:

Years Ended,December 31, 2008

December 31, 2007Statutory U.S. federal income tax rate


(34.0
)%

(34.0
)%Expected state tax benefit, net


(3.6
)%

(3.6
)%Valuation allowance


37.6
%

37.6
%0.0
%

0.0
%


The
effects of temporary differences and other items that give rise to deferred tax assets and liabilities are presented below (in thousands).

December 31,
2008

December 31,
2007Deferred tax assets:Capitalized start up costs

$
4,528

$
2,021Net unrealized loss on derivatives


712


357Net operating loss carryover


20,993


Other


779


245Deferred tax asset


27,012


2,623Valuation allowance


(18,412
)

(2,623
)Deferred tax liabilities:Property, plant and equipment


(8,600
)

Deferred tax liabilities


(8,600
)

Net deferred tax asset

$


$
Current tax receivable

$
305

$



The
Company assesses the recoverability of deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, management considers all available
positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized in future periods. This assessment requires
significant judgment and estimates involving current and deferred income taxes, tax attributes relating to the interpretation of

F-26

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

11. Income Taxes (Continued)

various
tax laws, historical bases of tax attributes associated with certain assets and limitations surrounding the realization of deferred tax assets.

As
of December 31, 2008, the net operating loss carryforward is $55.8 million, which will expire if not used by December 31, 2028. The U.S. federal statute of
limitations remains open for our 2006 and subsequent tax years.

12. Employee Benefit Plans

Deferred Compensation Plan

The Company maintains a deferred compensation plan. The plan is available to executive officers of the Company and certain key managers
of the Company as designated by the Board of Directors or its Compensation Committee. The plan allows participants to defer all or a portion of their salary and annual bonuses. The Company may make
discretionary matching contributions of a percentage of the participant's salary deferral and those assets are invested in instruments as directed by the participant. The deferred compensation plan
does not have dollar limits on tax-deferred contributions. The assets of the deferred compensation plan are held in a "rabbi trust" and, therefore, may be available to satisfy the claims
of the Company's creditors in the event of bankruptcy or insolvency. Participants may direct the plan administrator to invest their salary and bonus deferrals into pre-approved mutual
funds held by the trust or other investments approved by the Board. In addition, each participant may request that the plan administrator re-allocate the portfolio of investments in the
participant's individual account within the trust. However, the plan administrator is not required to honor such requests. Matching contributions, if any, will be made in cash and vest ratably over a
three-year period. Assets of the trust are invested in over ten mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds are
publicly quoted and reported at market value. Approximately $28,000 of employee deferrals was contributed to the plan in both of the years ending December 31, 2008 and December 31, 2007.
These funds incurred a loss in value of $24,500 in the year ended December 31, 2008, and a loss in value of $1,000 during the year ended December 31, 2007. These deferrals have been
recorded as other assets and other non-current liabilities on the consolidated balance sheet at December 31, 2008 and December 31, 2007.

401(k) Plan

The LLC sponsors a 401(k) profit sharing and savings plan for its employees. Employee participation in this plan is voluntary.
Contributions to the plan by the LLC are discretionary and totaled $179,000 for 2008, and $163,000 for 2007.

13. Commitments and Contingencies

The LLC, through its subsidiaries, entered into two operating lease agreements with Cargill, a related party. Cargill's grain handling and storage facilities, located adjacent to
the Wood River and Fairmont plants, are being leased for 20 years, which began in September 2008 for both plants. Minimum annual payments are $800,000 for the Fairmont plant and $1,000,000 for
the Wood River plant so long as the associated corn supply agreements with Cargill remain in effect. Should the Company not maintain its corn supply agreements with Cargill, the minimum annual
payments under each lease increase to $1,200,000 and $1,500,000, respectively. The leases contain escalation clauses which are based on the percentage change in the Midwest Consumer Price Index. The
escalation clauses are considered to be contingent rent and, accordingly, are not included in minimum lease

F-27

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

payments.
Rent expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary
obligations and insolvency.

Subsidiaries
of the LLC entered into agreements to lease a total of 875 railroad cars. Pursuant to these lease agreements, which began in the second quarter of 2008, these
subsidiaries will pay approximately $7.1 million annually for ten years. Monthly rental charges escalate if modifications of the cars are required by governmental authorities or mileage exceeds
30,000 miles in any calendar year. Rent expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or
non-monetary obligations and insolvency.

In
April 2008, the LLC entered into a five year lease which began July 1, 2008 for office space for its corporate headquarters. Rent expense is being recognized on a
straight line basis over the term of the lease.

Future
minimum operating lease payments at December 31, 2008 are as follows (in thousands):

2009

$
10,2382010


10,1762011


9,3632012


9,1892013


9,149Thereafter


57,183Total

$
105,298


Rent
expense recorded for the years ended December 31, 2008 and December 31, 2007, totaled $6,621,000 and $143,000, respectively.

The LLC,
through its subsidiaries that constructed the Wood River and Fairmont plants, has entered into agreements with electric utilities pursuant to which the electric utilities
built, own and operate substation and distribution facilities in order to supply electricity to the plants. For its Wood River plant, the LLC paid the utility $1.5 million for the cost
of the substation and distribution facility, which was recorded as property, plant and equipment. The balance of the utilities direct capital costs is being recovered from monthly demand charges of
approximately $124,000 per month for three years which began in the second quarter of 2008. For its Fairmont plant, the LLC is paying a fixed facilities charge based on the cost of the
substation and distribution facility of $34,000 per month, over the 30-year term of the agreement. This fixed facilities charge is being accounted for as a capital lease in the
accompanying financial statements. The agreement also includes a $25,000 monthly minimum energy charge which began in the first quarter of 2008.

Subsidiaries
of the LLC entered into engineering, procurement and construction ("EPC") contracts with The Industrial CompanyWyoming ("TIC") for the construction of
the Wood River and Fairmont plants. Pursuant to these EPC contracts, TIC was to be paid a total of $272.0 million, subject to certain adjustments, for the turnkey construction of the two
plants. As part of the EPC contracts, the subsidiaries of the LLC were permitted to withhold approximately 5% of progress payments billed by TIC as retainage, payable upon substantial
completion of the plants. Substantial completion was attained at both plants in December 2008. The subsidiaries of the LLC entered into settlement agreements with TIC, effective
December 11, 2008, that settled all outstanding issues between the parties under the terms of the EPC contracts. Among the items agreed to were that TIC had met both substantial completion and
project completion, that TIC would continue to be responsible for its

F-28

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

warranty
obligations, and that TIC would pay the subsidiaries of the LLC $2.0 million for each plant, which amounts would be deducted from the retainage amounts currently owed. The
construction retainage in the consolidated balance sheets at December 31, 2008 of $9.4 million is net of the $2.0 million for each plant owed by TIC as part of the settlement
agreement. The $9.4 million of construction retainage was paid to TIC in February 2009. At December 31, 2008, property, plant and equipment related to the EPC contracts totals
$248.9 million, which is net of liquidated damages of
$19.1 million arising out of completion delays at both plants and net of $4.0 million arising out of the settlement agreements. At December 31, 2007, construction in progress
reflected $230.1 million related to the EPC contracts. To ensure that the plants are reliable and safe up to their nameplate capacities, it is estimated as of December 31, 2008 that an
additional $5 million will be spent by the subsidiaries of the LLC on plant infrastructure and other construction requirements.

Pursuant
to long-term agreements, Cargill is the exclusive supplier of corn to the Wood River and Fairmont plants for twenty years commencing September 2008. The price of
corn purchased under these agreements is based on a formula including cost plus an origination fee of $0.045 per bushel. The minimum annual origination fee payable to Cargill per plant under the
agreements is $1.2 million. The agreements contain events of default that include failure to pay, willful misconduct, purchase of corn from another supplier, insolvency or the termination of
the associated grain facility lease.

At
December 31, 2008, the LLC had committed, through its subsidiaries, to purchase 5,421,000 bushels of corn to be delivered between January 2009 and March 2010 at our
Fairmont location, and 6,195,000 bushels of corn to be delivered between January 2009 and December 2010 at our Wood River location. These purchase commitments represent 11% and 8% of the projected
corn purchases during those periods for Fairmont and Wood River, respectively. The purchase price of the corn will be determined at the time of delivery. These normal purchase commitments are not
marked to market or recorded in the consolidated balance sheet.

At
December 31, 2008, the Company had committed through its Fairmont plant subsidiary to purchase 1,000 Mmbtu of natural gas per day starting January 1, 2009 through
June 30, 2009. This purchase commitment represents 10% of the projected natural gas purchases for the Fairmont plant during the period. The price of the gas will be based on the local gas index
in effect at the first of the month of scheduled delivery plus an additional $0.0425 per Mmbtu. These normal purchase commitments are not marked to market or recorded in the consolidated balance
sheet.

Cargill
has agreed to market all ethanol and distillers grain produced at the Wood River and Fairmont plants through September 2016. Under the terms of the ethanol marketing agreements,
the Wood River and Fairmont plants will generally participate in a marketing pool where all parties receive the same net price. That price will be the average delivered price per gallon received by
the marketing pool less average transportation and storage charges and less a 1% commission. In certain circumstances, the plants may elect not to participate in the marketing pool. Minimum annual
commissions are payable to Cargill and represent 1% of Cargill's average selling price for 82.5 million gallons of ethanol from each plant. Under the distillers grain marketing agreements, the
Wood River and Fairmont plants will receive the market value at time of sale less a commission. Minimum annual commissions are payable to Cargill and range from $500,000 to $700,000 depending upon
certain factors as specified in the agreement. The marketing agreements contain events of default that include failure to pay, willful misconduct and insolvency.

Cargill
has made an equity investment in the Company. Under the terms of an agreement with Cargill, Cargill has the right to terminate any or all of its arrangements with the Company for
any or

F-29

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

all
of the Company's facilities if any of five identified parties or their affiliates acquires 30% or more of the Company's common stock or the power to elect a majority of the Company's Board.
Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of designated parties, so
long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate &
Lyle PLC, The Scoular Company and Bunge Limited.

The
Company is not currently a party to any material legal, administrative or regulatory proceedings that have arisen in the ordinary course of business or otherwise that would result in
loss contingencies

14. Minority Interest

Minority interest consists of equity issued to members of the LLC. Under its original LLC agreement, the LLC was authorized to issue 9,357,500 Class A,
950,000 Class B, 425,000 Class M, 2,683,125 Class C and 894,375 Class D Units. Class M, C and D Units were considered "profits interests" for which no cash
consideration was received upon issuance. In accordance with the LLC agreement, all classes of the LLC's equity units were converted to one class of LLC equity upon the Company's initial
public offering in June 2007. As provided in the LLC agreement, the exchange ratio of the various existing classes of equity for the single class of equity was based on the Company's initial
public offering price of $10.50 per share and the resulting implied valuation of the Company. The exchange resulted in the issuance of 17,957,896 membership units and Class B common shares.
Each newly issued LLC unit combined with a share of Class B common stock is exchangeable at the holder's option into one share of Company common stock. The LLC may make
distributions to members as determined by the Company.

In
May 2006, a private placement of 9,175,000 Class A Units in exchange for cash and commitments of $91,750,000 was completed by the LLC. In June 2006, an additional
157,500 Class A Units were issued in exchange for cash and commitments of $1,575,000 by the LLC. In August 2006, 25,000 Class A Units were issued by the LLC and 75,000
Class A Units were transferred by a founder in connection with the purchase of 30% of the predecessor company. With the exception of the 25,000 newly issued units in connection with the
predecessor company acquisition, all Class A Units were fully-paid for in cash. In September 2006, 950,000 Class B Units were issued by the LLC to Cargill for
$8,799,000 of cash plus an in-kind contribution of $701,000, representing actual expenses incurred by Cargill through that date related to the Wood River and Fairmont plants. Of this
amount, $544,000 was recorded as land, $106,000 as debt issuance costs and $51,000 as general and administrative expense.

Exchange of LLC Units

LLC units, when combined with the Class B shares, can be exchanged for newly issued shares of common stock of the Company on a
one-for-one basis. The following table summarizes the exchange activity since the Company's initial public offering:

Membership interests and Class B common shares outstanding at initial public offering, June 2007


17,957,896Membership interests and Class B common shares exchanged in 2007


(561,210
)Membership interests and Class B common shares exchanged in 2008


(7,314,438
)Remaining membership interests and Class B shares to be exchanged at December 31, 2008


10,082,248


F-30

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

14. Minority Interest (Continued)

Prior
to its initial public offering, the Company owned 28.9% of the Class A Units of the LLC. At December 31, 2008, the Company owned 69.1% of the LLC units.
The minority interest ownership will continue to be reported until all Class B common shares and LLC membership units have been exchanged into the Company's common stock.

The
exchange of LLC units for common stock has been accounted for as an acquisition of minority interests in accordance with SFAS No, 141,Business
Combinations. Under SFAS 141, the common stock was recorded based on the market value at the date of issuance while minority interest was eliminated based on its book
value at the date of the exchange. The difference between the fair value recorded for the common stock and the book value of the eliminated minority interest totaled $8.2 million for the year
ended December 31, 2008 and was recorded as a reduction of property, plant and equipment. The reduction was made to property, plant and equipment because the carrying values of other assets and
liabilities of the Company already approximate their fair values.

Tax Benefit Sharing Agreement

Membership interests in the LLC combined with the related Class B common shares held by the historical equity investors
may be exchanged in the future for shares of our common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and
reclassifications. The LLC will make an election under Section 754 of the IRS Code effective for each taxable year in which an exchange of membership interests and Class B shares
for common shares occurs, which may result in an adjustment to the tax basis of the assets owned by the LLC at the time of the exchange. Increases in tax basis, if any, would reduce the amount
of tax that the Company would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge. The Company
has entered into tax benefit sharing agreements with its historical LLC investors that will provide for a sharing of these tax benefits, if any, between the Company and the
historical LLC equity investors. Under these agreements, the Company will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state
and local income taxes the Company actually realizes as a result of this increase in tax basis. The Company and its common stockholders will benefit from the remaining 15% of cash savings, if any, in
income taxes realized. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing the Company's actual income tax liability to the amount of such taxes
the Company would have been required to pay had there been no increase in the tax basis in the assets of the LLC as a result of the exchanges. The term of the tax benefit sharing agreement
commenced on the Company's initial public offering in June 2007 and will continue until all such tax benefits have been utilized or expired, unless a change of control occurs and the Company exercises
its resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments remaining to be made under the agreement. The following table summarizes the exchange activity
since the Company's initial public offering:

True Up Agreement

At the time of formation of the LLC, the founders agreed with certain of our principal stockholders as to the relative ownership
interests in the Company of our management members and affiliates of Greenlight Capital, Inc. ("Greenlight") and Third Point LLC ("Third Point"). Certain management members and
affiliates of Greenlight and Third Point agreed to exchange LLC membership interests, shares of common stock or cash at a future date, referred to as the "true-up

F-31

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

14. Minority Interest (Continued)

date",
depending on the Company's performance. This provision functions by providing management with additional value if the Company's value improves and by reducing management's interest in the
Company if its value decreases, subject to a predetermined rate of return accruing to Greenlight and Third Point. In particular, if the value of the Company increases from the time of the initial
public offering to the "true-up date", the management members will be entitled to receive LLC membership interests, shares of common stock or cash from the affiliates of Greenlight and
Third Point. On the other hand, if the value of the Company decreases from the time of the initial public offering to the "true-up date" or if a predetermined rate of return is not met,
the affiliates of Greenlight and Third Point will be entitled to receive LLC membership interests or shares of common stock from the management members.

The
"true-up date" will be the earlier of (1) the date on which the Greenlight and Third Point affiliates sell a number of shares of our common stock equal to or
greater than the number of shares of common stock or Class B common stock received by them at the time of our initial public offering in respect of their original investment in the LLC,
and (2) five years from the date of the initial public offering. On the "true-up date", the LLC's value will be determined, based on the prices at which the Greenlight and
Third Point affiliates sold shares of our common stock prior to that date, with any remaining shares (or LLC membership interests exchangeable for shares) held by them deemed to have been sold at the
then-current trading price. If the number of LLC membership interests held by the management members at the time of the offering is greater than the number of membership interests the
management members would have been entitled to in connection with the "true-up" valuation, the management members will be obligated to deliver to the Greenlight and Third Point affiliates
a portion of their LLC membership interests or an equivalent number of shares of common stock. Conversely, if the number of LLC membership interests the management members held at the time of the
offering is less than the number of membership interests the management members would have been entitled to in connection with the "true-up" valuation, the Greenlight and Third Point
affiliates will be obligated to deliver, at their option, to the management members a portion of their LLC membership interests or an equivalent amount of cash or shares of common stock. In no event
will any management member be required to deliver more than 50% of the membership interests in the LLC, or an equivalent number of shares of common stock, held on the date of the initial public
offering, provided that Mr. Thomas J. Edelman, may be required to deliver up to 100% of his membership interests, or an equivalent amount of cash or number of shares of common stock. No
new shares will be issued as a result of the true-up. As a result there will be no impact on our public shareholders, but rather a redistribution of shares among certain members of our
management group and our two largest investors, Greenlight and Third Point. This
agreement was considered a modification of the awards granted to the participating management members; however, no incremental fair value was created as a result of the modification.

15. Quarterly Financial Data (unaudited)

The following table sets forth certain unaudited financial data for each of the quarters within fiscal 2008 and 2007. This information has been derived from our consolidated financial
statements and in management's opinion, reflects all adjustments necessary for a fair presentation of the information for

F-32

---



BioFuel Energy Corp.

Notes to Consolidated Financial Statements (Continued)

15. Quarterly Financial Data (unaudited) (Continued)

the
quarters presented. The operating results of any quarter are not necessarily indicative of results for any future period.

Year Ended December 31, 2008

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter(in thousands, except per share data)Net sales

$


$
292

$
90,549

$
89,026Cost of goods sold





255


103,765


95,143Gross profit (loss)





37


(13,216
)

(6,117
)General and administrative expenses:Compensation expense


2,457


2,988


1,115


1,503Other


1,645


5,409


1,353


574Other operating expense








1,345


5Operating loss


(4,102
)

(8,360
)

(17,029
)

(8,199
)Other income (expense):Interest income


526


325


135


101Interest expense








(1,632
)

(4,199
)Other non-operating income (expense)





338


(2,123
)

4Gain (loss) on derivative financial instruments





10,080


(49,992
)

Income (loss) before income taxes


(3,576
)

2,383


(70,641
)

(12,293
)Income tax provision (benefit)











Income (loss) before minority interest


(3,576
)

2,383


(70,641
)

(12,293
)Minority interest


1,798


(1,435
)

37,493


5,406Net income (loss)

$
(1,778
)
$
948

$
(33,148
)
$
(6,887
)Income (loss) per sharebasic

$
(0.12
)
$
0.06

$
(2.18
)
$
(0.43
)Income (loss) per sharediluted

$
(0.12
)
$
0.03

$
(2.18
)
$
(0.43
)




Year Ended December 31, 2007

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
QuarterGeneral and administrative expensesCompensation expense

$
(1,295
)
$
(1,321
)
$
(1,395
)
$
(1,368
)Other expense


(605
)

(704
)

(1,249
)

(1,278
)Interest income


13


200


855


744Minority interest


1,733


1,537


822


890Net loss


(154
)

(288
)

(967
)

(1,012
)Beneficial conversion charge





(1,327
)




Net loss to common shareholders

$
(154
)
$
(1,615
)
$
(967
)
$
(1,012
)Loss per sharebasic and diluted

$
(0.03
)
$
(0.24
)
$
(0.06
)
$
(0.07
)


F-33

---





Schedule I

BioFuel Energy Corp.
Condensed Financial Information of Registrant

(Parent company informationSee notes to consolidated financial statements)
(in thousands, except share and per share data)

Condensed Balance Sheet

December 31, 2008

December 31, 2007AssetsIncome tax receivable

$
305

$
Investment in BioFuel Energy, LLC


83,126


122,621Total assets

$
83,431

$
122,621Stockholders' equityCommon stock, $0.01 par value; 100.0 million shares authorized and 23,318,636 shares outstanding at December 31, 2008 and 15,994,124 shares
outstanding at December 31, 2007


233


160Class B common stock, $0.01 par value; 50.0 million shares authorized and 10,082,248 shares outstanding at December 31, 2008; and
17,396,686 shares authorized or outstanding at December 31, 2007


101


174Less Common stock held in treasury, at cost, 809,606 shares at December 31, 2008 and 394,046 shares at December 31, 2007


(4,316
)

(2,040
)Additional paid-in capital


134,360


130,409Accumulated deficit


(46,947
)

(6,082
)Total stockholders' equity

$
83,431

$
122,621


Condensed Statement of Loss

Year Ended,
December 31, 2008

Year Ended,
December 31, 2007Equity in loss of BioFuel Energy, LLC

$
(40,181
)
$
(1,906
)Stock based compensation


(682
)

(515
)Other expenses


(2
)

Net loss

$
(40,865
)
$
(2,421
)


F-34

---



Condensed Statement of Cash Flows

Year Ended,
December 31,
December 31, 2008

Year Ended,
December 31,
December 31, 2007Cash flow from operating activitiesNet loss

$
(40,865
)
$
(2,421
)Adjustment to reconcile net loss to net cash used in operating activitiesShare based compensation expense


682


515Equity in loss of BioFuel Energy, LLC


40,181


1,906Net cash used in operating activities


(2
)

Cash flows from investing activitiesDistributions from (investment in) BioFuel Energy, LLC


2,278


(99,028
)Net cash provided by (used in) investing activities


2,278


(99,028
)Cash flows from financing activitiesProceeds from issuance of common stock





103,581Payment of offering costs





(2,513
)Purchase of treasury stock


(2,276
)

(2,040
)Net cash provided by (used in) financing activities


(2,276
)

99,028Net increase (decrease) in cash and equivalents





Cash and equivalents at beginning of period





Cash and equivalents at end of period

$


$



F-35

---





ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the
Company in the reports it files or furnishes to the Securities and Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms, and that information is accumulated and communicated to management, including its principal executive officer and principal
financial officer, as appropriate, to
allow timely decisions regarding required disclosure. The Company's principal executive officer and principal financial officer have evaluated the effectiveness of the Company's "disclosure controls
and procedures," as such term is defined in Rule 13a-15(e) and 15d-15(c) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this
Annual Report on Form 10-K. Based upon their evaluation, they have concluded that the Company's disclosure controls and procedures are effective.

In
designing and evaluating the Company's disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the control system will be met. In addition, the design of any control system is based in part upon certain assumptions
about the likelihood of future events and the application of judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of these and other inherent
limitations of control systems, there is only reasonable assurance that the Company's controls will succeed in achieving their goals under all potential future conditions.

Internal Control over Financial Reporting

The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 were effective for our fiscal year ending December 31,
2008. In order to comply with the Act, we conducted a comprehensive effort to document and test internal controls. During the course of these activities, we have identified certain internal control
issues which management believes should be improved. However, we did not identify any material weaknesses in our internal control as defined by the Public Company Accounting Oversight Board. We are
nonetheless making improvements to our internal controls over financial reporting as a result of our review efforts. These planned improvements include further formalization of policies and
procedures, improved segregation of duties and additional monitoring controls over key spreadsheets. Any further internal control issues identified by our continued compliance efforts will be
addressed accordingly.

Section 404 Compliance

Our management is responsible for establishing and maintaining a system of internal control over financial reporting as defined in
Rule 13a-15(f) and 15(d)-15(e) under the Exchange Act. Our system of internal control is designed to provide reasonable assurance that the reported financial information
is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statement are reasonable. There are inherent limitations in the effectiveness of any
system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance,
with respect to

61

---



reporting
financial information. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

A
material weakness (within the meaning of the PCAOB Auditing Standard No. 5) is a control deficiency or combination of control deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Our
management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in, Internal Control-Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway Commission. This assessment identified no material weaknesses in our internal control over financial reporting. Based on this assessment,
management concluded that our internal control over financial reporting was effective as December 31, 2008.

This
Annual Report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's
report in this annual report.

ITEM 9B.    OTHER INFORMATION

None.

62

---





PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to directors of the Company is incorporated herein by reference to the section entitled "Election of
Directors" in our proxy statement for our 2009 Annual Meeting of Shareholders, or the 2009 Proxy Statement, to be filed no later than 120 days after the end of the fiscal year ended
December 31, 2008.

Information
with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to our 2009 Proxy Statement.

ITEM 11.    EXECUTIVE COMPENSATION

Information regarding Executive Compensation and our Compensation Committee are incorporated herein by reference to our 2009 Proxy
Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The section of our 2009 Proxy Statement entitled "Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information with respect to certain relationships and related transactions and director independence is incorporated herein by
reference to our 2009 Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to principal accounting fees and services is incorporated herein by reference to our 2009 Proxy Statement.

63

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) and (a) (2) Financial statements.The Financial Statements of the Company filed as part of this Annual Report on
Form 10-K are included in Item 8 of this Annual Report on Form 10-K.

(a)(3)Exhibits

(b)The following are filed as Exhibits to this Annual Report on Form 10-K or incorporated herein by reference.

EXHIBIT INDEX

Number

Description1.1

Form of Underwriting Agreement of BioFuel Energy Corp. (incorporated by reference to Exhibit 1.1 to the Company's Amendment #9 to Registration Statement to Form S-1 (file no. 333-139203) filed
June 13, 2007).3.1

Amended and Restated Certificate of Incorporation of BioFuel Energy Corp. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed June 19, 2007).3.2

Amended and Restate Bylaws of BioFuel Energy Corp dated March 20, 2009, (incorporated by reference to Exhibit 3.2 to the Company's Form 8-K filed March 23, 2009).4.1

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Amendment #3 to Registration Statement to Form S-1 (file no. 333-139203) filed April 23,
2007).10.1

Second Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed August 14,
 2007).10.2

Credit Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC and Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers'
agent, various financial institutions from time to time, as lenders, Deutsche Bank Trust Company Americas, as collateral agent, and BNP Paribas, as administrative agent and arranger (incorporated by reference to Exhibit 10.2 to the Company's
Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.3

Collateral Account Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC, Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as
borrowers' agent, Deutsche Bank Trust Company Americas, as collateral agent and Deutsche Bank Trust Company Americas, as depositary agent and securities intermediary (incorporated by reference to Exhibit 10.3 to the Company's Amendment #1 to
Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.4

Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q
filed August 14, 2007).


64

---



Number

Description10.5

Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.5 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.6

Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.6 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.7

Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.7 to the Company's Amendment #1 to
Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.8

Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.8 to the Company's Amendment #1
to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.9

Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.9 to the Company's Amendment #5 to Registration
Statement to Form S-1 (file no. 333-139203) filed May 15, 2007).10.10

Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.10 to the Company's Amendment #5 to Registration
Statement to Form S-1 (file no. 333-139203) filed May 15, 2007).10.11
*
Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Scott H. Pearce (incorporated by reference to Exhibit 10.11 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.12
*
Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Daniel J. Simon (incorporated by reference to Exhibit 10.12 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.13

Engineering, Procurement and Construction Agreement dated April 28, 2006, between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.13
to the Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.13.1

First Amendment to the Engineering, Procurement and Construction Agreement between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc., dated August 28, 2006 (incorporated by
reference to Exhibit 10.13.1 to the Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.14

Engineering, Procurement and Construction Agreement dated June 9, 2006, between Buffalo Lake Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.14 to
the Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).


65

---



Number

Description10.15

Master Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.15 to the Company's Amendment #1 to Registration Statement
to Form S-1 (file no. 333-139203) filed January 24, 2007).10.16

Master Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.16 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.17

Grain Facility Lease dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.17 to the Company's Amendment #1 to Registration
Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.18

Grain Facility Lease and Sublease dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.18 to the Company's Amendment #1 to
Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.19

Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.19 to the Company's
Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.20

Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.20 to the
Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.21

Loan Agreement dated September 25, 2006, between BioFuel Energy, LLC, the lenders party thereto and Greenlight APE, LLC, as administrative agent (incorporated by reference to Exhibit 10.21 to the
Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007).10.22
*
BioFuel Energy, LLC Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).10.22.1
*
BioFuel Energy Amended and Restated Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22.1 to the Company's Annual Report on Form 10-K filed March 12,
2008).10.23
*
BioFuel Energy, LLC Change of Control Plan (incorporated by reference to Exhibit 10.23 to the Company's Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed
January 24, 2007).10.24
*
BioFuel Energy Corp 2007 Equity Incentive Compensation Plan (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K filed March 12, 2008).10.25
*
BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).


66

---



Number

Description10.25.1
*
Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.1 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).10.25.2
*
Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.2 to the Company's Amendment #1 to Registration Statement to Form S-1
(file no. 333-139203) filed January 24, 2007).10.25.3
*
Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.3 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).10.26
*
BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).10.26.1
*
Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26.1 to the Company's Amendment #1 to Registration Statement to Form S-1 (file
no. 333-139203) filed January 24, 2007).10.27

Tax Benefit Sharing Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q
filed August 14, 2007).10.28

License Agreement dated June 9, 2006 between Delta-T Corporation and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.28 to the Company's Amendment #1 to Registration Statement to
Form S-1 (file no. 333-139203) filed January 24, 2007).10.29

License Agreement dated April 28, 2006 between Delta-T Corporation and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.29 to the Company's Amendment #1 to Registration Statement
to Form S-1 (file no. 333-139203) filed January 24, 2007).10.30

Letter Agreement dated July 18, 2006 between Irik P. Sevin and BioFuel Energy, LLC (incorporated by reference to Exhibit 10.30 to the Company's Amendment #1 to Registration Statement to
Form S-1 (file no. 333-139203) filed January 24, 2007).10.31

Stockholders Agreement between BioFuel Energy Corp. and Cargill Biofuel Investments, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed
August 14, 2007).10.32

Form of Purchase Agreement between BioFuel Energy Corp. and the parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.34 to the Company's Amendment #10 to Registration
Statement to Form S-1 (file no. 333-139203) filed June 13, 2007).10.33
*
Separation, Consulting and Mutual Release Agreement between BioFuel Energy Corp. and Eric D. Streisand dated August 9, 2007 (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
filed August 14, 2007).10.34
*
Separation, Consulting and Mutual Release Agreement by and between BioFuel Energy Corp. and Michael N. Stefanoudakis (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
April 11, 2008).21.1

List of Subsidiaries of BioFuel Energy Corp.23.1

Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm


67

---



Number

Description31.1

Certification of the Company's Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).31.2

Certification of the Company's Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).32.1

Certification of the Company's Chief Executive Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).32.2

Certification of the Company's Chief Financial Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).99.1

Press release of year end results


---

68

---





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.

BIOFUEL ENERGY CORP.
(Registrant)Date: March 27, 2009

By:

/s/ SCOTT H. PEARCE Scott H. Pearce President, Chief Executive Officer and DirectorDate: March 27, 2009

By:

/s/ KELLY G. MAGUIRE Kelly G. Maguire Vice PresidentFinance and Chief Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature

Capacity in which signed

Date/s/ MARK WONG Mark Wong

Chairman of the Board

March 27, 2009/s/ SCOTT H. PEARCE Scott H. Pearce

Chief Executive Officer, President and Director (Principal Executive Officer)

March 27, 2009/s/ KELLY G. MAGUIRE Kelly G. Maguire

Vice PresidentFinance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

March 27, 2009/s/ DAVID EINHORN David Einhorn

Director

March 27, 2009/s/ ALEXANDER P. LYNCH Alexander P. Lynch

Director

March 27, 2009/s/ ELIZABETH K. BLAKE Elizabeth K. Blake

Director

March 27, 2009/s/ JOHN D. MARCH John D. March

Director

March 27, 2009/s/ RICHARD JAFFEE Richard Jaffee

Director

March 27, 2009


69

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