UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form 10-K




x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the fiscal year ended December 31, 2009or ̈
            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  ̈  No x




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  ̈  Nox




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 x  No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes  ̈  No  ̈




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.  ̈




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  ̈
            Accelerated filer  ̈
            Non-accelerated filer  ̈
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company x




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




The
aggregate market value of voting and non-voting stock held by non-affiliates of
the Registrant as of June 30, 2009 was $8,228,000,000.




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 25, 2010Common
      Stock, par value $0.01 per share
              Class B
      Common Stock, par value $0.01 per share
            
            25,459,735shares, net of 809,606 shares held in treasury
              7,111,985shares




DOCUMENTS
INCORPORATED BY REFERENCE




The
Registrant’s definitive Proxy Statement for its 2010 Annual Meeting of
Shareholders is incorporated by reference into Part III of this
Form 10-K.





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.




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. In 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
approximately 115 million gallons per year (“Mmgy”). In December 2008, we
achieved project completion of both of the plants and thereafter became fully
operational.  Our strategy is focused on optimizing production and
streamlining operations with the goal of producing at or above nameplate
capacity at the lowest cost per gallon.  We are currently seeking to
upgrade or replace certain systems at our facilities that we expect will enable
us to operate at full capacity on a more reliable basis.




2




Our
operations and cash flows are subject to wide and unpredictable fluctuations due
to changes in commodities prices, specifically, the price of our main commodity
input, corn, relative to the price of our main commodity product, ethanol, which
is known in the industry as the “crush spread.”  See “Risk Factors—Risks
relating to our business and industry—Narrow comodity margins present a
significant risk to our profitability.”Since we
commenced operations, we have from time to time entered into derivative
financial instruments such as futures contracts, swaps and option contracts with
the objective of limiting our exposure to changes in commodities prices, and we
may continue to enter into these instruments in the future.  However, our
experience with these financial instruments has been largely unsuccessful. 
For example, during the year ended December 31, 2008, we recorded $39.9 million
in losses from the liquidation of our hedging contracts.  See “Risk
Factors—Risks relating to our business and industry—Our results and liquidity
may be adversely affected by future hedging transactions and other
strategies.”  In addition, we are currently unable to engage in such
hedging activities due to our lack of financial resources, and we may not have
the financial resources to conduct hedging activities in the future.  See
“Risk Factors—Risks relating to our business and industry—We are currently
unable to hedge against fluctuations in commodity prices and may be unable to do
so in the future, which further exposes us to commodity price
risk.”




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.




Our
relationship with Cargill




From
inception, we have worked closely with Cargill, Inc., one of the world’s
leading agribusiness companies, with whom we have an extensive commercial
relationship.  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. Our 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. Pursuant to 10-year ethanol
marketing agreements and 10-year distillers grain marketing agreements, Cargill
purchases 100% of the ethanol and distillers grain produced at our facilities
and, under 20-year corn supply agreements, supplies 100% of our corn for these
facilities. We also have the opportunity to utilize Cargill’s risk management
services. In addition, Cargill owns approximately 5% of our company. We believe
that our relationship with Cargill provides us, and will continue to 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. In January 2009, the LLC and Cargill entered
into an agreement that 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. Cargill
supplies all of the corn to our facilities. Under the corn supply agreements,
Cargill has agreed to deliver U.S. No. 2 yellow dent corn with maximum
moisture of 15.0% and meeting other certain specifications. On a daily basis,
Cargill provides bid sheets reflecting the expected price levels required to
purchase corn for the 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 provide
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 100 cars has been constructed at each of the plants. A 100 car unit train
will hold approximately 3.0 million gallons of ethanol, roughly equivalent to 9
days of ethanol production at each of these plants. We also have storage
capacity to accommodate 9 days of ethanol production and 9 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.




3




Under our
ethanol marketing agreements and distillers grain marketing agreements, 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
our facilities, and under the distillers grain marketing agreements, we are
responsible for providing covered hopper railcars to service our facilities. As
a result, we have entered into 10 year leases for approximately 609 tank
railcars and 266 hopper railcars from Trinity Industries Leasing
Company.




Marketing
arrangements




Ethanol
marketing




All of
our ethanol is sold to Cargill as our third party marketer and distributor, for
which Cargill is paid a commission. 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,
which includes all ethanol produced by Cargill in the United States as well as
ours, whereby we receive the average price of the ethanol sold for both
producers in the marketing group. 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 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




Under our
distillers grain marketing agreements, all of the distillers grain produced at
our two facilities is sold to Cargill as our third party marketer and
distributor, for which Cargill is paid a commission. 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.




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 our agreements
with respect to any additional facilities. The master agreements also allow for
payments due and owing to each party under all of our agreements with Cargill to
be netted and offset by the parties, although we have not done so and do not
expect to do so in the future.




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 would 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.




4




Additional
agreements 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.




The
Operating Subsidiaries entered into Omnibus Agreements with Cargill, which
became effective on September 1, 2009.  Pursuant to these agreements,
Cargill has agreed, for a period of one year, to extend payment terms for our
corn purchases and defer a portion of certain fees payable to Cargill.  The
deferred fees will be payable to Cargill by the Operating Subsidiaries over a
two-year period, and the payment terms for corn will revert to the original
terms beginning on September 1, 2010.  At the time we entered into these
agreements, we anticipated that they would provide up to approximately $10
million in additional working capital available to us over the twelve month
period ending on September 1, 2010.  Due to improved operating conditions
in the second half of 2009, we did not utilize the extended corn payment terms
offered by Cargill under these agreements, although we expect to defer up to
approximately $3.0 million in other fees during the one-year term of these
agreements.




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 partner 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. In addition, the Renewable Fuel
Standard, or RFS, mandates that renewable biofuels comprise a certain minimum
amount of the U.S. fuel supply. 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 also comprises up to 85% of E85 fuel, although flexible
fuel vehicles, or FFV’s, capable of using E85 fuel currently comprise a
relatively small portion of the U.S. motor vehicles on the road.




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




5




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 2008, petroleum refining capacity in the United
States increased by approximately 29%, while gasoline consumption increased
approximately 36%. We believe that increased pressure on domestic fuel refining
capacity will result in greater demand for ethanol.




Legislative
and government policy support




As
mandated by The Energy Independence and Security Act of 2007, or the 2007 Act,
the RFS requires that 12.0 billion gallons of conventional biofuels, which
includes corn-based ethanol, be blended into the U.S. fuel supply in 2010,
increasing to 15.0 billion gallons per year by 2015.  The 2007 Act
also mandated an increasing overall use of renewable fuels for the years 2009
through 2022.  The new targets are 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 RFS for alternative fuels began in 2009 with 600 million gallons per
year, and increases 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 13.0 billion gallons per
year (“Bgpy”) as of January 2010, with an additional 1.4 Bgpy of capacity under
construction. The ethanol industry in the United States consisted of
approximately 189 production facilities as of January 2010 with 11 facilities
under construction or expansion, and is 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
                        Biofuels2009
                    
                    
                    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.




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. Although the federal oxygenate requirement
was eliminated in May 2006, oxygenated gasoline continues to be used in order to
help meet separate federal and state air emission standards. The refining
industry has generally abandoned the use of methyl tertiary butyl ether (MTBE),
making ethanol the primary clean air oxygenate currently used.




6




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, 2010, unless it is
extended by Congress. The benefit of the blenders’ tax credit can be captured by
refiners or passed on to consumers.




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. 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. 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.  According to the Renewable
Fuels Association, or RFA, the 10.7 billion gallons of ethanol produced in the
U.S. in 2009 reduced demand for imported oil by 364 million
barrels.




Ethanol
as a gasoline substitute




Automakers
in the United States now offer a wide variety of Flexible Fuel Vehicles, or
FFVs, which are vehicles capable of running on blends up to 85% ethanol. 
Management believes that motorists may increasingly choose FFVs due to their
lower greenhouse gas emissions, flexibility and performance
characteristics. Changes in corporate average fuel economy, or CAFE,
standards may also benefit the ethanol industry by encouraging use of E85 fuel
products.  Though E85 is not in widespread use today, auto manufacturers
may find it attractive to build more flexible-fuel trucks and sport utility
vehicles that are otherwise unlikely to meet CAFE standards.  Future
widespread adoption of FFVs could significantly boost ethanol demand and reduce
the consumption of 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, domestic ethanol production was
10.7 billion gallons in 2009, produced at 189 bio-refineries
nationwide.  The top ten producers (including the Company) accounted for
approximately 51% of the industry’s total estimated production capacity as of
December 2009.  Smaller producers and farmer-owned cooperatives, all of
which have production capacities less than ours, generate the 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 2010, the RFA estimates that approximately 1.4 Bgpy of additional
production capacity was under construction at 11 new or existing ethanol
facilities. Archer Daniels Midland Company, the second largest domestic ethanol
producer, has announced that it is in the process of starting up two new plants,
and will increase its production capacity by 300 Mmgy by the end of 2010. 
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, including
the Company’s, 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 expected to provide economies of
scale in both construction and operating costs per gallon.




7




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




Various
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.




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.




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 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 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
200oF, 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 up to approximately 5% unleaded
gasoline to prepare it for sale.




8




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 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 is also a by-product of our dry-mill ethanol production process. We do
not currently market our carbon dioxide. Currently, we scrub the carbon dioxide
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 carbon dioxide into the atmosphere may be limited by laws or
regulations in the future and any controls on carbon dioxide emissions could
result in additional costs. In the future, we also may explore the possibility
of collecting and disposing of or marketing the carbon dioxide.




Competition




The
markets where our ethanol is sold are highly competitive. According to the RFA,
industry capacity in the United States was approximately 13.0 billion
gallons per year as of January 2010, with an additional 1.4 Bgpy of capacity
under construction. The ethanol industry in the United States consisted of
approximately 189 production facilities as of January 2010 with 11 new
facilities under construction, and is primarily corn-based.




Over the
past 18 months, the U.S. ethanol industry has witnessed significant acquisition
activity by gasoline and oil refiners that has resulted in a number of
relatively large companies competing in the production of ethanol.  As a
result, we compete with both a small number of large, integrated companies that
produce ethanol, as well as with a larger number of smaller, dedicated ethanol
producers.




The three
largest ethanol producers (Archer Daniels Midland Company, Poet, and Valero
Energy) together controlled approximately 31% of the ethanol produced in the
United States as of the end of 2009.




Company
                    
                    Producing
                        Capacity
                        MmgyArcher
      Daniels
                    
                    
                    1,420Poet
                    
                    
                    1,470Valero(1)
                    
                    
                    1,100Total
                    
                    
                    3,990Market
      share of U.S. production capacity
                    
                    
                    31
                    %





Source:
Renewable Fuels Association, 2010 Ethanol Industry Outlook




(1)
              In
      January 2010, Valero Energy announced it had completed the purchase of a
      110 mgy plant located near Jefferson, WI, which plant was not operational
      at the time, but which capacity has been
  included.




9




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 would be 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, two of which were subsequently sold to
Valero.  In October 2009, Murphy Oil acquired a 110 mgy ethanol plant
formerly owned by VeraSun, located in Hankinson, ND, and subsequently restarted
operations.  In June 2009, Sunoco Oil, another producer and retailer of
gasoline, acquired a 100 mgy ethanol refinery in Volney, New York, and in
January 2010 announced it was restarting operations at that plant.  In
addition, during 2008 and 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, the impact of these large oil refiners and retailers
vertically integrating into ethanol production, and the possibility that one or
more of our other competitors may emerge from bankruptcy with improved capital
structures, or without significant debt service obligations, could have the
potential effect of placing us at a competitive disadvantage.  See “Risk
Factors—Risks relating to our business and industry—We may not be able to
compete effectively.”




We also
compete with other large ethanol producers such as Abengoa Bioenergy
Corporation, Green Plains Renewable Energy and Pacific Ethanol Products. A
number of our competitors have substantially greater financial and other
resources than we do. The remainder of the industry is highly fragmented,
consisting of many small, independent firms and farmer-owned cooperatives.
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.




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.  During the
start-up and initial operation of our two plants, we have occasionally failed to
meet all of the parameters of our air and water discharge permits.  We have
addressed these issues primarily through adjustments to our equipment and
operations, including significant upgrades to our water treatment system in
Fairmont, Minnesota, and subsequent re-tests have indicated that we are
operating within our permitted limits.  We have received Notices of
Violations with respect to both sites from environmental regulators relating to
these issues.  In Minnesota, we are in the process of resolving all of our
outstanding enforcement issues through a Stipulated Agreement with the state,
which we expect will require payment of a fine.  We do not anticipate a
material adverse impact on our business or financial condition as a result of
these prior violations.




10




Ethanol
production involves the emission of various airborne pollutants, including
particulate, carbon dioxide, oxides of nitrogen, hazardous air pollutants and
volatile organic compounds. In 2007, the U.S. Supreme Court classified carbon
dioxide as an air pollutant under the Clean Air Act in a case seeking to require
the EPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010,
the EPA released its proposed final regulations on the Renewable Fuels Standard,
or RFS 2. We believe these final regulations grandfather our plants at their
current operating capacity, though any expansion of our plants would need to
meet a threshold of a 20% reduction in GHG emissions from a 2005 baseline
measurement to produce ethanol eligible for the RFS 2 mandate. Although we have
no current intention to expand either of our plants, if we were to do so in the
future, we may be required to obtain additional permits, install advanced
technology such as corn oil extraction, or reduce drying of certain amounts of
distillers grains.





Separately,
the California Air Resources Board has adopted a Low Carbon Fuel Standard
requiring a 10% reduction in GHG emissions from transportation fuels by 2020. An
Indirect Land Use Change component is included in this lifecycle GHG emissions
calculation, though this standard is being challenged by numerous
lawsuits.  If this standard is implemented, our products may become
ineligible for sale in California and, if adopted in other jurisdictions, could
have the effect of further limiting the markets in which we could sell
ethanol.





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.




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.




11




Employees




As of
March 12, 2010, we had 148 full-time employees and 2 part-time employees,
who are responsible for the management and operation of the Wood River and
Fairmont plants. None of these employees is subject to a collective bargaining
agreement.




Organizational
structure




Company
history




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 BioFuel Energy,
LLC.  Between January 2005 and its incorporation, various predecessor
companies were engaged in the financing, development and construction of our
plants.




The
certificate of incorporation of BioFuel Energy Corp.:




•
            authorizes
      two classes of common stock, common stock and Class B common stock.
      The Class B common stock, shares of which are held only by historical
      equity investors of the LLC (other than BioFuel Energy Corp.), provides
      its holders with no economic rights but entitles each holder to one vote
      with respect to all matters voted upon by holders of our common stock for
      each share of Class B common stock held;
  and




•
            entitles
      the historical equity investors of the LLC (other than BioFuel Energy
      Corp.) to exchange their Class B common stock along with their LLC
      membership units for shares of common stock on a one-for-one basis,
      subject to customary rate adjustments for stock splits, stock dividends
      and reclassifications. If a holder of Class B common stock exchanges
      any LLC membership units for shares of common stock, the shares of
      Class B common stock held by such holder and attributable to the
      exchanged LLC membership units will automatically be transferred to
      BioFuel Energy Corp. and be
retired.




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.




At December 31, 2009, we owned
77.1% of the LLC units with the remaining 22.9% owned by the historical equity
investors of the LLC. There were 25,932,741 shares of our common stock and
7,448,585 shares of our Class B common stock issued and outstanding as of
December 31, 2009. The Class B common shares are held by the
historical equity investors of the LLC, who also hold 7,448,585 membership units
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 units held by historical equity investors of the LLC are recorded as
noncontrolling interest on the consolidated balance sheets.




Holding
company structure




BioFuel
Energy Corp. is a holding company and its sole asset is its 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 noncontrolling 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 units 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
units.




12




The
holders of membership units 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 units. Because BioFuel Energy Corp. owns approximately 77.1% of the
total membership units in the LLC, BioFuel Energy Corp. will generally be
allocated approximately 77.1% 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 units 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 units 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 units 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 our estimate of the net taxable income
of the LLC allocable to such holders of membership units 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 units 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




Narrow
commodity margins present a significant risk to our profitability.





Our
results of operations and financial condition depend substantially on the price
of our main commodity input, corn, relative to the price of our main commodity
product, ethanol, which is known in the industry as the “crush spread.” The
prices of these commodities are volatile and beyond our control.   For
example, from 2008 through 2009, spot corn prices on the Chicago Board of Trade
(CBOT) ranged from $3.01 to $7.55 per bushel, with an average price of $4.53 per
bushel, while CBOT ethanol prices ranged from $1.40 to $2.94 per gallon, with an
average price of $1.97 per gallon.  However, the volatility in corn prices
and the volatility in ethanol prices are not correlated, and as a result, the
crush spread has fluctuated widely throughout 2009, ranging from $0.06 per
gallon to $0.68 per gallon, with an average crush spread during the year of
$0.28 per gallon.  As a result of the volatility of the prices for these
and other items, our results fluctuate substantially and in ways that are
largely beyond our control.  For example, we were profitable in the fourth
quarter of 2009, when crush spreads averaged $0.51 per gallon.  However,
crush spreads have since contracted and, during January and February 2010, have
averaged $0.37 per gallon.  At these margins, we will not be able to
generate sufficient cash flow from operations to both service our debt and
operate our plants.





Narrow
commodity margins present a significant risk to our cash flows and
liquidity.  We cannot predict when or if crush spreads will narrow further
or if the current narrow margins will improve or continue. In the event crush
spreads narrow further, or remain at current levels for an extended period of
time, we may choose to curtail operations at our plants or cancel some of our
planned capital improvement projects.  In addition, in the event that we
fully utilize our debt service reserve availability under our Senior Debt
facility, we may not be able to pay principal or interest on our debt, which
would 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 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 in
addition to causing the consequences described above.




13


We
are currently unable to hedge against fluctuations in commodity prices and may
be unable to do so in the future, which further exposes us to commodity price
risk.





Since we have commenced operations, we
have from time to time entered into derivative financial instruments such as
futures contracts, swaps and option contracts with the objective of limiting our
exposure to changes in commodities prices.  However, we are currently
unable to engage in such hedging activities due to our lack of financial
resources, and we may not have the financial resources to conduct hedging
activities in the future.   In addition, ethanol futures have
historically traded with an inverted price progression, or “strip,” whereby
outer month contracts are priced at lower prices than spot or near-month
contracts. In contrast, corn futures historically have traded such that outer
months have higher prices than near or spot months. As a result, even under
market conditions in which we realize positive margins at current (spot) prices
we may not be able to lock in such margins for future production. Furthermore,
because of the lack of an established futures market or established markets for
future physical delivery of ethanol, we may not be able to price a material
amount of our future production so as to permit us to hedge a material portion
of our commodities price risks.




Our
auditor has 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 has expressed substantial doubt about our ability to
continue as a going concern.  As of December 31, 2009, the Company's
subsidiaries had $16.5 million of outstanding working capital loans, which
mature in September 2010, and, if current operating conditions do not
improve, the Company is unlikely to have sufficient liquidity to both repay
these loans when they become due and maintain its operations.  Our failure
to repay the outstanding amounts under our working capital loans would result in
an event of default under our Senior Debt facility and a cross-default under our
subordinated debt agreement, and would allow both the senior lenders and the
subordinated lenders to accelerate repayment of amounts outstanding. 
Although we intend to seek the consent of our lenders to extend the maturity of
the working capital loans, we have no assurance that they will do so. If we
are unable to generate sufficient cash flow from operations to repay the working
capital loans, we may seek new capital from other sources.  We cannot
assure you that we will be successful in achieving any of these initiatives or,
even if successful, that these initiatives will be sufficient to address our
limited liquidity.  If we are unable to obtain the requisite consent from
our lenders, raise additional capital or generate sufficient cash flow from our
operations to repay the working capital loans, we may be unable to continue as a
going concern, which could potentially force us to seek relief through a filing
under the U.S. Bankruptcy Code.





We
have encountered unanticipated difficulties in operating our plants, which may
recur and cause us to incur substantial losses.




We are
aware of certain plant design and construction defects that may impede the
reliable and continuous operation of our plants, and as a result, our plants
have not consistently operated at full capacity. We are in the process of
addressing these and a variety of other reliability issues at our plants. 
For example, we are currently seeking to upgrade or replace our conveyor and
dryer systems.  However, our limited liquidity may prevent us from
financing all of these initiatives and, even if completed, we cannot assure you
that our initiatives will be successful or can be implemented in a timely
fashion or without an extended period of interruption to operations. As a
result, the operation of our plants has been more costly or inefficient than we
anticipated, and this may recur in the future.  Although we have received
payments from our general contractor for warranty claims under our engineering,
procurement and construction contracts for some of the unanticipated
difficulties we have encountered, these payments will not fully compensate us
for the cost of remedying such defects. In any event, we will not be able to
recover lost sales or lost profits that have resulted, or might result in the
future, from any defect in the design or construction of our plants. Any
inability to operate our plants at full capacity on a consistent basis could
have a negative impact on our cash flows and liquidity.




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.




14




We
have a significant amount of indebtedness and limited liquidity, and virtually
all of our assets are pledged to secure our senior debt.




As of
December 31, 2009, we had $211.9 million of indebtedness outstanding under our
Senior Debt facility, including $195.4 million of term loans and $16.5 million
of working capital loans.  The term loans mature in September 2014 and the
working capital loans mature in September 2010.  During our limited
period of operations, we have been unable to consistently generate positive cash
flow, mostly due to the narrow crush spread.  In addition, we have had, and
continue to have, severely limited liquidity, with $6.1 million in cash on hand
as of December 31, 2009.  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 raise additional capital, any or all of which we
may not be able to do on commercially reasonable terms or at all. If we are
unable to do so, we may be required to curtail operations or cease operating
altogether, and could be forced to seek relief from creditors through a filing
under the U.S. Bankruptcy Code.  Because the debt under our Senior Debt
facility subjects substantially all of our assets to liens, there may be no
assets left for stockholders in the event of a liquidation.





Certain
conditions in our Senior Debt facility, some of which are subjective, may
prevent us from making additional borrowings.





Despite
our significant amount of indebtedness, additional borrowings are available
under our Senior Debt facility, including, as of December 31, 2009, a debt
service reserve of $6.6 million and additional working capital loans of $2.5
million.  The availability of these borrowings is subject to the
satisfaction of a number of conditions precedent, including compliance with
various debt covenants and the absence of any event of default.  If we are
not able to comply with these requirements in the Senior Debt facility, we will
not be able to make additional borrowings without obtaining a waiver or consent
from the lenders, which could prevent or delay our borrowing.  In
particular, one of the conditions relates to the absence of a ‘‘material adverse
effect,’’ which is defined very broadly and the interpretation of which can be
subjective.  For example, in May 2009 the lenders asserted that a “material
adverse effect” had occurred due to the our lack of liquidity.  We
disagreed with the lenders’ assertion, and in September 2009 we entered into a
Waiver and Amendment to the Senior Debt facility.  If our lenders assert in
the future that a ‘‘material adverse effect’’ has occurred, they could prevent
us from borrowing additional funds under the Senior Debt facility or declare us
in default and accelerate payment of all principal and interest
due.





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




Our
substantial indebtedness could:




•
            require
      us to dedicate all of our cash flow from operations (after the payment of
      operating expenses) to payments with respect to our indebtedness, thereby
      reducing the availability of our cash flow for working capital, capital
      expenditures and other general corporate
  expenditures;




•
            restrict
      our ability to take advantage of strategic
  opportunities;




•
            limit
      our flexibility in planning for, or reacting to, competition or changes in
      our business or industry;




•
            limit
      our ability to borrow additional
funds;




•
            increase
      our vulnerability to adverse general economic or industry
      conditions;




•
            restrict
      us from expanding our current facilities, building new facilities or
      exploring business opportunities;
and




•
            place
      us at a competitive disadvantage relative to competitors that have less
      debt or greater financial
resources.




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.




15




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.




We
are subject to additional 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 borrowings 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 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
an individual 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.




16




A default
under our Senior Debt facility would also constitute a default under our
subordinated debt and would entitle both the senior lenders and the subordinated
lenders to accelerate the repayment of amounts outstanding.




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.




Our
results and liquidity may be adversely affected by future hedging transactions
and other strategies.




Although
we are currently unable to do so due to limited financial resources, we may in
the future 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 will 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.   In addition, our significant indebtedness and debt
service requirements increase the effect of changes in commodities prices on our
cash flow, and may limit our ability to sustain our operations in the
future.




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—Cargill debt agreement” 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 2008, the
remaining balance due to Cargill totaled $14.4 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 limit the Company’s
use of certain future cash flows that would otherwise have been available for
other purposes, including pursuit of business opportunities, plant expansion or
acquisitions.




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.  We cannot assure you, however, that
this policy will prevent or mitigate future hedging losses.




17


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.




The
growth of the ethanol industry has led 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 Association (RFA), a trade group, domestic ethanol
production capacity has increased from approximately 1.8 billion gallons
per year (Bgpy) in 2001, to an estimated 13.0 Bgpy at the end of 2009. The RFA
estimates that, as of January 1, 2010, approximately 1.4 Bgpy of additional
production capacity, an increase of approximately 11% over current production
levels, is under construction at 11 new and existing facilities. Archer Daniels
Midland Company, the second largest domestic ethanol producer, has announced
plans to increase its production capacity by 300 Mmgy, or approximately 21% by
the end of 2010.  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, could have an adverse effect on our
results of operations, cash flows and financial condition, and which could
render us unable to make debt service payments and cause us to cease operating
altogether.




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.




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 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 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.




18




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 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.




19




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
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 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 73% of our total operating
expenses, assuming a corn price of $3.50 per bushel. Changes in the price of
corn therefore 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 are
unable to pass along increased corn costs to our customer. At certain levels,
corn prices would make ethanol uneconomical to use in fuel markets. Over the
period from January 2008 through December 2009, corn prices, based on the
Chicago Board of Trade, or CBOT, daily futures data, have ranged from a low of
$3.01 per bushel in September 2009 to a high of $7.55 per bushel in June 2008,
with prices averaging $4.53 per bushel during this two year period. As of
February 26, 2010, the CBOT spot price of corn was $3.79 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.




20




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 2008 through December 2009, based on the New York Mercantile
Exchange, or NYMEX, daily futures data, have ranged from a low of $2.51 per
Mmbtu in September 2009 to a high of $13.58 per Mmbtu in July 2008, averaging
$6.59 per Mmbtu during this two year period. As of February 26, 2010 the
NYMEX spot price of natural gas was $4.81 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 6,740,000
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, Valero Energy Corporation, Abengoa
Bioenergy Corporation, Poet, and Pacific Ethanol, 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 Valero Energy Corporation)
together control 31% of the ethanol market as of the end of 2009.




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 would be 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, two of which were subsequently sold to
Valero.  In October 2009, Murphy Oil acquired a 110 mgy ethanol plant
formerly owned by VeraSun, located in Hankinson, ND, and subsequently restarted
operations.  In June 2009, Sunoco Oil, another producer and retailer of
gasoline, acquired a 100 mgy ethanol refinery in Volney, New York, and in
January 2010 announced it was restarting operations at that plant.  In
addition, during 2008 and 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, the impact of these large oil refiners and retailers
vertically integrating into ethanol production, and the possibility that one or
more of our other competitors may emerge from bankruptcy with improved capital
structures, or without significant debt service obligations, 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.




21




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:




•
            additional
      rail car capacity;




•
            additional
      storage facilities for ethanol;




•
            increases
      in truck fleets capable of transporting ethanol within localized
      markets;




•
            investment
      in refining and blending infrastructure to handle
  ethanol;




•
            growth
      in service stations equipped to handle ethanol fuels;
  and




•
            growth
      in the fleet of flexible fuel vehicles capable of using E85
      fuels.




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.




22




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
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 that 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, 2010. It is possible that the blenders’ credit will not be
renewed beyond 2010 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 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.




23




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 believes that this lack of protection led to the virtual elimination
of MTBE as a blending agent, 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 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.




During
the start-up and initial operation of our two plants, we have occasionally
failed to meet all of the parameters of our air and water discharge
permits.  We have addressed these issues primarily through adjustments to
our equipment and operations, including significant upgrades to our water
treatment system in Fairmont, Minnesota, and subsequent re-tests have indicated
that we are operating within our permitted limits.  We have received
Notices of Violations with respect to both sites from environmental regulators
relating to these issues.  In Nebraska, we have not been subject to any
enforcement action. In Minnesota, we are in the process of resolving all of our
outstanding enforcement issues through a Stipulated Agreement with the state,
which we expect will require payment of a fine. We do not anticipate a material
adverse impact on our business or financial condition as a result of these prior
violations.




Our water
permits are issued under the federal National Pollutant Discharge Elimination
System (NPDES), as administered by the states.  Our Minnesota NPDES permit
contains certain discharge variances from the water quality standards adopted by
the U.S. EPA, which variances expire on July 31, 2011.  We are in the
process of completing an upgrade to our water treatment system in Fairmont, and
have begun exploring additional operational and equipment changes and
alternative technologies to allow us to meet the water quality standards prior
to expiration of these permit variances.  However, we have no assurances at
this time that we will be able to do so or, if we are able to identify a
solution, that the necessary equipment or technology will not be prohibitively
expensive or economically feasible.  Failure to meet the water quality
standards by the July 31, 2011 expiration date may result in additional
enforcement actions, including substantial fines, and may result in legal
actions by private parties, any one or combination of which could have a
material adverse affect on our financial condition.




24




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.




We
may be adversely affected by pending climate change regulations.





Ethanol
production involves the emission of various airborne pollutants, including
particulate, carbon dioxide, oxides of nitrogen, hazardous air pollutants and
volatile organic compounds. In 2007, the U.S. Supreme Court classified carbon
dioxide as an air pollutant under the Clean Air Act in a case seeking to require
the EPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010,
the EPA released its proposed final regulations on the Renewable Fuels Standard,
or RFS 2. We believe these final regulations grandfather our plants at their
current operating capacity, though expansion of our plants will need to meet a
threshold of a 20% reduction in “greenhouse gas,” or GHG, emissions from a 2005
baseline measurement to produce ethanol eligible for the RFS 2 mandate. In order
to expand capacity at our plants, we may be required to obtain additional
permits, install advanced technology such as corn oil extraction, or reduce
drying of certain amounts of distillers grains.





Separately,
the California Air Resources Board has adopted a Low Carbon Fuel Standard
requiring a 10% reduction in GHG emissions from transportation fuels by 2020. An
Indirect Land Use Change component is included in this lifecycle GHG emissions
calculation, though this standard is being challenged by numerous
lawsuits.  This proposed standard could have the effect in the future
of rendering our ethanol unsaleable in the state of California and, if adopted
in other states, elsewhere.




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.




Although
our common stock is listed on Nasdaq, the trading market is relatively illiquid
as there are only approximately 11 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.




25




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 be delisted if the bid price of its stock drops below
$1.00 for a period of 30 consecutive business days. On September 15, 2009, we
received a Nasdaq Staff Deficiency Letter, indicating that the Company had
failed to comply with the minimum bid price requirement for continued listing.
The listing rules also provide a grace period of 180 calendar days during which,
should the closing price of the Company’s stock reach $1.00 or higher for ten or
more consecutive trading days, the Company would once again be in compliance
with the Rule. On October 28, 2009, we received another letter from the Nasdaq
staff, indicating that the closing bid price of the Company’s common stock had
been at $1.00 per share or greater for at least the previous 10 consecutive
business days and that, accordingly, the Company had regained compliance in
accordance with the listing rules. Although we are once again in compliance with
the listing rules of the Nasdaq Global Market, trading in our stock remains
volatile and we cannot assure you that our stock price will not fall below $1.00
again or, if it does, that it will not trade below $1.00 for 30 consecutive
business days.





If we
were to receive another Nasdaq Staff Determination Letter, we will have 180 days
in which to satisfy the minimum bid price requirements. 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. 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 continue to be volatile.




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




•
            our
      results of operations and the performance of our
    competitors;




•
            the
      public’s reaction to our press releases, our other public announcements
      and our filings with the Securities and Exchange Commission, or
      SEC;




•
            changes
      in earnings estimates or recommendations by research analysts who follow
      us or other companies in our
industry;




•
            changes
      in general economic conditions;




•
            changes
      in market prices for our products (ethanol and distillers grains) or for
      our raw materials (primarily corn and natural
  gas);




•
            actions
      of the historical equity investors, including sales of common stock by our
      Directors and executive officers;




•
            actions
      by institutional investors trading in our
stock;




•
            disruption
      of our operations;




•
            any
      major change in our management
team;




•
            other
      developments affecting us, our industry or our competitors;
      and




•
            U.S.
      and international economic, legal and regulatory factors unrelated to our
      performance.




26




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
historical stockholders’ shares may be sold into the market in the near future,
which could cause the market price of our common stock to decrease
significantly.




As of
December 31, 2009 we had outstanding approximately 25.9 million shares of
common stock and 7.4 million shares of Class B common stock. All of
the shares of common stock outstanding, other than the 6.0 million shares sold
in the initial public offering were, when issued, “restricted securities” within
the meaning of Rule 144 under the Securities Act of 1933.  These
shares, including those owned by our “affiliates,” have become eligible for sale
in the public market under Rule 144, subject, in the case of shares held by
“affiliates,” to volume limitations and other restrictions contained in
Rule 144.  In addition, certain of these “affiliates” 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 percentage of our shares and 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, with respect to the Class B
common stock and common stock held by them, and Third Point LLC and its
affiliates and Cargill, with respect to the common stock held by them,
respectively control approximately 36.4%, 17.8% and 5.1% of the voting power in
BioFuel Energy Corp., and our officers and directors, with respect to the Class
B common stock and common stock collectively held by them, together control
approximately 42.6% 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., which are controlled or represented on our board by one of
our directors, is included in the calculation of voting power attributable to
our officers and directors. The historical equity investors, 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 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.




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 units 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.




27




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 units for shares of our
common stock.




The
membership units in the LLC held by the historical LLC equity investors may 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 $2.95as of March 25, 2010, 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
units 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.




ITEM
1B.  UNRESOLVED STAFF COMMENTS




None.




28




ITEM
2.  PROPERTIES
  Facilities
  Headquarters
  Our
corporate headquarters are located at 1600 Broadway, Suite 2200, 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, denatured (1)
                
                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
  (1)
              Based
      on maximum permitted denaturant of 4.9%.  In 2009, we blended
      denaturant at a 2.5% rate, resulting in an annual denatured production
      capacity of 112.75 Mmgy per plant.
  Wood
River plant
  Our Wood
River production plant began operations late in the second quarter of 2008 with
a production capacity of 115 Mmgy, based on the maximum amount of permitted
denaturant, 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 Southern Power District. 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 a production capacity of 115 Mmgy, based on the maximum amount of permitted
denaturant, 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
provide water needed at the facility.
  29
  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
indicated. These prices do not include retail markups, markdowns or
commissions.
  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
 
 Year ended, December 31,
      2009
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    0.47
                    
                    
                    $
                    0.26Second
      Quarter
                    
                    $
                    1.45
                    
                    
                    $
                    0.25Third
      Quarter
                    
                    $
                    0.77
                    
                    
                    $
                    0.57Fourth
      Quarter
                    
                    $
                    3.77
                    
                    
                    $
                    0.84
  On March
25, 2010, the closing price of our common stock was $2.95. 
On March 25, 2010, there were approximately 36
shareholders of record of our common stock and 11
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 25, 2010, there were 25,459,735 common shares outstanding, net of
809,606 shares held in treasury, and 7,111,985
Class B common shares outstanding.
  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 units 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 distributions, the
historical LLC equity investors will be entitled to receive equivalent
distributions from the LLC on their membership units. 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.
  30
  ITEM
6.  SELECTED FINANCIAL DATA
  The
selected financial data of BioFuel Energy Corp. as of December 31, 2009 and
2008 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,
      2009
                  
                  
                  Year
      Ended
                      December 31,
      2008(in
      thousands, except
                    per
      share amounts)Statement
      of Operations DataNet
      sales
                  
                  $
                  415,514
                  
                  
                  $
                  179,867Cost
      of goods sold
                  
                  
                  404,750
                  
                  
                  
                  199,163Gross
      profit (loss)
                  
                  
                  10,764
                  
                  
                  
                  (19,296
                  )General
      and administrative expenses:Compensation
      expense
                  
                  
                  6,160
                  
                  
                  
                  8,063Other
      expense
                  
                  
                  9,327
                  
                  
                  
                  8,981Other
      operating expense
                  
                  
                  150
                  
                  
                  
                  1,350Operating
      loss
                  
                  
                  (4,873
                  )
                  
                  
                  (37,690
                  )Other
      income (expense):Interest
      income
                  
                  
                  78
                  
                  
                  
                  1,087Interest
      expense
                  
                  
                  (14,906
                  )
                  
                  
                  (5,831
                  )Other
      non-operating expense
                  
                  
                  (1
                  )
                  
                  
                  (1,781
                  )Loss
      on derivative financial instruments
                  
                  
                  —
                  
                  
                  
                  (39,912
                  )Loss
      before income taxes
                  
                  
                  (19,702
                  )
                  
                  
                  (84,127
                  )Less:
      Net loss attributable to the noncontrolling interest
                  
                  
                  6,072
                  
                  
                  
                  43,262Net
      loss attributable to BioFuel Energy Corp. common
    shareholders
                  
                  $
                  (13,630
                  )
                  
                  $
                  (40,865
                  )Loss
      per share—basic and diluted attributable to BioFuel Energy Corp. common
      shareholders
                  
                  $
                  (0.57
                  )
                  
                  $
                  (2.65
                  )Basic
      and diluted weighted average number of common shares
                  
                  
                  23,792
                  
                  
                  
                  15,419
 
 As of December 31,2009
                  
                  
                  2008(in
      thousands)Balance
      Sheet DataCash
      and equivalents
                  
                  $
                  6,109
                  
                  
                  $
                  12,299Current
      assets
                  
                  
                  53,593
                  
                  
                  
                  46,865Property,
      plant and equipment, net
                  
                  
                  284,362
                  
                  
                  
                  305,350Total
      assets
                  
                  
                  346,775
                  
                  
                  
                  365,724Current
      liabilities
                  
                  
                  40,830
                  
                  
                  
                  38,157Long-term
      debt, net of current portion
                  
                  
                  220,754
                  
                  
                  
                  226,351Total
      liabilities
                  
                  
                  268,880
                  
                  
                  
                  270,965Noncontrolling
      interest
                  
                  
                  5,660
                  
                  
                  
                  14,069BioFuel
      Energy Corp. stockholders’ equity
                  
                  
                  72,235
                  
                  
                  
                  80,690Total
      liabilities and equity
                  
                  
                  346,775
                  
                  
                  
                  365,724
  31
  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
of approximately 115 million gallons per year (“Mmgy”), based on the
maximum amount of permitted denaturant.  We completed construction of both
plants in December 2008 and thereafter began operating at full capacity. 
From inception, we have worked closely with Cargill, Inc., one of the
world’s leading agribusiness companies and a related party, with whom we have an
extensive commercial 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 and handling facilities, which we lease from them. 
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.
  Our
operations and cash flows are subject to wide and unpredictable fluctuations due
to changes in commodities prices, specifically, the price of our main commodity
input, corn, relative to the price of our main commodity product, ethanol, which
is known in the industry as the “crush spread.”  For example, we were
profitable in the fourth quarter of 2009, when crush spreads averaged $0.49 per
gallon.  However, crush spreads have since contracted and, during January
and February 2010, averaged $0.37 per gallon.  At these margins, we will
not be able to generate sufficient cash flow from operations to both service our
debt and operate our plants.  Since we commenced operations, we have from
time to time entered into derivative financial instruments such as futures
contracts, swaps and option contracts with the objective of limiting our
exposure to changes in commodities prices, and we may continue to enter into
these instruments in the future.  However, our experience with these
financial instruments has been largely unsuccessful.  For example, during
the year ended December 31, 2008, we recorded $39.9 million in losses from the
liquidation of our hedging contracts.  See “Risk Factors—Risks relating to
our business and industry—Our results and liquidity may be adversely affected by
future hedging transactions and other strategies.”  In addition, we are
currently unable to engage in such hedging activities due to our lack of
financial resources, and we may not have the financial resources to conduct
hedging activities in the future.  See “Risk Factors—Risks relating to our
business and industry—We are currently unable to hedge against fluctuations in
commodity prices and may be unable to do so in the future, which further exposes
us to commodity price risk.”
  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, or EPC, contracts with The Industrial Company — Wyoming, or TIC,
for the construction of the Wood River and Fairmont plants.  At
December 31, 2009, property, plant and equipment related to the EPC
contracts totaled $248.9 million, which was recorded 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 settlement agreements that the Operating Subsidiaries
entered into with TIC in December 2008.  In February 2010, the Operating
Subsidiaries of the LLC entered into warranty settlement agreements with TIC,
which settled all of our remaining warranty claims under the EPC
contracts.  In exchange for the Operating Subsidiaries of the LLC agreeing
to release TIC from any and all present and future warranty obligations, TIC
agreed to pay $600,000 for each plant to a vendor that is fabricating
replacement equipment for each plant.
  32
  Liquidity
Considerations
  Our
results of operations and financial condition depend substantially on the price
of our main commodity input, corn, relative to the price of our main commodity
product, ethanol, which is known in the industry as the “crush spread.” The
prices of these commodities are volatile and beyond our control.   For
example, from 2008 through 2009, spot corn prices on the Chicago Board of Trade
(CBOT) ranged from $3.01 to $7.55 per bushel, with an average price of $4.53 per
bushel, while CBOT ethanol prices ranged from $1.40 to $2.94 per gallon, with an
average price of $1.97 per gallon.  However, the volatility in corn prices
and the volatility in ethanol prices are not correlated, and as a result, the
crush spread has fluctuated widely from 2008 through 2009, ranging from $0.68
per gallon to a negative ($0.09) per gallon, with an average crush spread during
this period of $0.26 per gallon.   As a result of the volatility of
the prices for these and other items, our results fluctuate substantially and in
ways that are largely beyond our control.    For example, we were
profitable in the fourth quarter of 2009, when crush spreads averaged $0.49 per
gallon.  However, crush spreads have since contracted and, during January
and February, 2010, have averaged $0.37 per gallon.  At these margins, we
will not be able to generate sufficient cash flow from operations to both
service our debt and operate our plants.
 
 Narrow
commodity margins present a significant risk to our cash flows and
liquidity.  We cannot predict when or if crush spreads will narrow further
or if the current narrow margins will improve or continue. In the event crush
spreads narrow further, or remain at current levels for an extended period of
time, we may choose to curtail operations at our plants or cancel some of our
planned capital improvement projects.  In addition, in the event that we
fully utilize our debt service reserve availability under our Senior Debt
facility, we may not be able to pay principal or interest on our debt, which
would 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 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 in
addition to causing the consequences described above.
 
 As of
December 31, 2009, the Company's subsidiaries had $16.5 million of outstanding
working capital loans, which mature in September 2010, and, if current
operating conditions do not improve, the Company is unlikely to have sufficient
liquidity to both repay these loans when they become due and maintain its
operations.  Our failure to repay the outstanding amounts under our working
capital loans would result in an event of default under our Senior Debt facility
and a cross-default under our subordinated debt agreement, and would allow both
the senior lenders and the subordinated lenders to accelerate repayment of
amounts outstanding.  Although we intend to seek the consent of our lenders
to extend the maturity of the working capital loans, we have no assurance that
they will do so. If we are unable to generate sufficient cash flow from
operations to repay the working capital loans, we may seek new capital from
other sources.  We cannot assure you that we will be successful in
achieving any of these initiatives or, even if successful, that these
initiatives will be sufficient to address our limited liquidity.  If we are
unable to obtain the requisite consent from our lenders, raise additional
capital or generate sufficient cash flow from our operations to repay the
working capital loans, we may be unable to continue as a going concern, which
could potentially force us to seek relief through a filing under the U.S.
Bankruptcy Code.
 
 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 used in the production of ethanol 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 for corn and for
other agricultural commodities for which it may be substituted, such as
soybeans. 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.
  33
  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 expenses associated with being a public company, such 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.  During the year ended December 31, 2009, we incurred
significant legal and financial advisory expenses associated with the
negotiations with our lenders relating to loan restructuring and
conversion of construction loans to term loans.
 
 Results
of operations
  The
following discussion summarizes the significant factors affecting the
consolidated operating results of the Company for the years ended
December 31, 2009 and 2008. This discussion should be read in conjunction
with the consolidated financial statements and notes to the consolidated
financial statements contained in this Report on Form 10-K.
  At
December 31, 2009, the Company owned 77.1% 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 22.9% holders is reported as noncontrolling interest in
our Consolidated Statements of Operations.
  The
Company’s plants commenced start-up and began commercial operations in late June
2008. Because of this, we reported only six months of net sales, cost of goods
sold, or gross profit (loss) for the year ended December 31, 2008 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:
  Years
      Ended December 31,2009
                                              
                                              
                                              2008(dollars
      in thousands)Net
      sales
                                              
                                              $
                                              415,514
                                              
                                              
                                              
                                              100.0
                                              %
                                              
                                              $
                                              179,867
                                              
                                              
                                              
                                              100.0
                                              %Cost
      of goods sold
                                              
                                              
                                              404,750
                                              
                                              
                                              
                                              97.4
                                              
                                              
                                              
                                              199,163
                                              
                                              
                                              
                                              110.7Gross
      profit (loss)
                                              
                                              
                                              10,764
                                              
                                              
                                              
                                              2.6
                                              
                                              
                                              
                                              (19,296
                                              )
                                              
                                              
                                              (10.7
                                              )General
      and administrative expenses
                                              
                                              
                                              15,487
                                              
                                              
                                              
                                              3.8
                                              
                                              
                                              
                                              17,044
                                              
                                              
                                              
                                              9.5Other
      operating expense
                                              
                                              
                                              150
                                              
                                              
                                              
                                              0.0
                                              
                                              
                                              
                                              1,350
                                              
                                              
                                              
                                              0.8Operating
      loss
                                              
                                              
                                              (4,873
                                              )
                                              
                                              
                                              (1.2
                                              )
                                              
                                              
                                              (37,690
                                              )
                                              
                                              
                                              (21.0
                                              )Other
      expense
                                              
                                              
                                              (14,829
                                              )
                                              
                                              
                                              (3.6
                                              )
                                              
                                              
                                              (46,437
                                              )
                                              
                                              
                                              (25.8
                                              )Net
      loss
                                              
                                              
                                              (19,702
                                              )
                                              
                                              
                                              (4.8
                                              )
                                              
                                              
                                              (84,127
                                              )
                                              
                                              
                                              (46.8
                                              )Less:
      Net loss attributable to the noncontrolling interest
                                              
                                              
                                              6,072
                                              
                                              
                                              
                                              1.5
                                              
                                              
                                              
                                              43,262
                                              
                                              
                                              
                                              24.1Net
      loss attributable to BioFuel Energy Corp. common
    shareholders
                                              
                                              $
                                              (13,630
                                              )
                                              
                                              
                                              (3.3
                                              )%
                                              
                                              $
                                              (40,865
                                              )
                                              
                                              
                                              (22.7
                                              )%
  34
  The
following table sets forth key operational data for the years ended December 31,
2009 and 2008 that we believe are important indicators of our results of
operations:
  Years
      Ended December 31,2009
                      
                      
                      2008Ethanol
      sold (gallons, in thousands)
                      
                      
                      218,389
                      
                      
                      
                      82,582Dry
      distillers grains sold (tons, in thousands)
                      
                      
                      484.6
                      
                      
                      
                      170.9Wet
      distillers grains sold (tons, in thousands)
                      
                      
                      370.8
                      
                      
                      
                      185.8Average
      price of ethanol sold (per gallon)
                      
                      $
                      1.64
                      
                      
                      $
                      1.85Average
      price of dry distillers grains sold (per ton)
                      
                      $
                      106.45
                      
                      
                      $
                      133.68Average
      price of wet distillers grains sold (per ton)
                      
                      $
                      33.18
                      
                      
                      $
                      37.21Average
      corn cost (per bushel)
                      
                      $
                      3.61
                      
                      
                      $
                      4.54
  Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
  Both of
the Company’s plants commenced start-up and began commercial operations in late
June 2008.  Because of this, we reported only six months of net sales,
cost of goods sold, or gross profit (loss) for the year ended December 31,
2008 for comparison purposes.
 
 Net Sales:   Net
Sales were $415,514,000 for the year ended December 31, 2009 compared to
$179,867,000 for the year ended December 31, 2008, an increase of
$235,647,000.   This increase was primarily due to having only six
months of operations in the year ended December 31, 2008, compared to a full
year of operations in the year ended December 31, 2009.  During the initial
six months of operations in 2008, the plants did not run at capacity and
therefore sales represented only 72% of production capacity, while in 2009,
sales represented 97% of production capacity.  Our average sales prices for
all products declined in 2009 as compared to 2008.
 
 Cost of goods sold and gross profit
(loss):  The following table sets forth the components of cost of
goods sold for the years ended December 31, 2009 and 2008:
  Years
      Ended December 31,2009
                                
                                
                                2008Amount
                                
                                
                                Per Gallon of
                                  Ethanol
                                
                                
                                Amount
                                
                                
                                Per Gallon
                                  of Ethanol(amounts
      in thousands)Corn
                                
                                $
                                284,883
                                
                                
                                $
                                1.30
                                
                                
                                $
                                140,454
                                
                                
                                $
                                1.70Natural
      gas
                                
                                
                                26,526
                                
                                
                                $
                                0.12
                                
                                
                                
                                19,767
                                
                                
                                $
                                0.24Denaturant
                                
                                
                                7,037
                                
                                
                                $
                                0.03
                                
                                
                                
                                3,071
                                
                                
                                $
                                0.04Electricity
                                
                                
                                12,125
                                
                                
                                $
                                0.06
                                
                                
                                
                                5,137
                                
                                
                                $
                                0.06Chemicals
      and enzymes
                                
                                
                                16,707
                                
                                
                                $
                                0.08
                                
                                
                                
                                10,416
                                
                                
                                $
                                0.13General
      operating expenses
                                
                                
                                32,194
                                
                                
                                $
                                0.15
                                
                                
                                
                                11,729
                                
                                
                                $
                                0.14Depreciation
                                
                                
                                25,278
                                
                                
                                $
                                0.12
                                
                                
                                
                                8,589
                                
                                
                                $
                                0.10Cost
      of goods sold
                                
                                $
                                404,750
                                
                                
                                
                                
                                
                                
                                $
                                199,163
  Cost of
goods sold was $404,750,000 for the year ended December 31, 2009 which
resulted in gross profit of $10,764,000.  Our cost of goods sold was high
in relation to revenues primarily because the cost of corn per gallon of ethanol
was greater than it historically had been in the industry, resulting in a
narrowed crush spread.
  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.  The cost of corn per gallon of
ethanol increased at a rate greater than the price of ethanol and was at
historically high levels, resulting in narrowed crush spreads in 2008. 
Natural gas was also at very high cost levels in the second half of 2008. 
Our chemical and enzyme costs were also higher than expected in 2008 due to the
delays in our plants’ completion and the resulting inability to operate at
capacity, which resulted in inefficient usage of chemicals and enzymes . Our
plants ran at 64% and 84% of capacity for the quarters ended September 30,
2008 and December 31, 2008, respectively.
  35
  General and administrative
expenses:  General and administrative expenses decreased $1,557,000,
or 9.1%, to $15,487,000 for the year ended December 31, 2009, compared to
$17,044,000 for the year ended December 31, 2008. The decrease was
primarily due to a decrease in compensation expense of $1,903,000, partially
offset by an increase in other expense of $346,000.  Of the $1,903,000
decrease in compensation expense, $1,178,000 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 2008, the plant employees’
compensation costs were included in selling, general and administrative expenses
until that time, while the plant employees’ compensation costs were included in
cost of goods sold for the remainder of that year and for all of 2009.  The
$346,000 increase in other expense was attributable to an increase of $4,854,000
in third party legal and financial advisory expenses, primarily related to
negotiations with the lenders under our Senior Debt facility concerning
restructuring and loan conversion, which was partially offset by a decrease in
other general and administrative expenses of $4,508,000.  Of the $4,508,000
decrease in other expenses, $3,878,000 was attributable to expenses related to
the plants.  As the plants did not begin commercial operation until
June 2008, all start-up costs were included in general and administrative
expenses until that time.  Subsequent to June 2008, plant costs were
included in cost of goods sold. The most significant start-up costs related to
rail car leases for $2,048,000 and grain elevator leases for
$450,000.
 
 Other operating expense:
  Other operating expense decreased $1,200,000 or 88.9%, to $150,000 for
the year ended December 31, 2009, compared to $1,350,000 for the year ended
December 31, 2008.  The expense for 2009 consisted of a $150,000 insurance
claim deductible expense, while the expense for the prior year 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 $1,009,000 or 92.8%, to $78,000 for the year ended
December 31, 2009, compared to $1,087,000 for the year ended
December 31, 2008.  The decrease was primarily attributable to a
decrease in the amount of funds 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 $14,906,000 for the year ended December 31, 2009, compared to
$5,831,000 for the year ended December 31, 2008, 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 2008
amount represents four months of interest expense on such loans, compared to an
entire year of interest expense during the year ended December 31, 2009. 
Interest expense was approximately $1,400,000 higher than expected in 2009, as a
result of the Notice of Default issued by the lenders under the Senior Debt
facility, following which the lenders caused the construction loans and working
capital loans to revert to base rate loans effective June 1, 2009, bearing a
higher interest rate.  Effective October 1, 2009, the term loans and
working capital loans under the Senior Debt facility were converted back to
LIBOR-based loans bearing a lower interest rate.
 
 Other
non-operating expense was $1,000 for the year ended December 31, 2009
compared to $1,781,000 for the year ended December 31, 2008.  The expense
in 2008 consisted of a $1,879,000 loss on the sale of corn which was partially
offset by $98,000 of other miscellaneous income.
 
 Loss
on derivative financial instruments was zero for the year ended
December 31, 2009, compared to $39,912,000 for the year ended
December 31, 2008.  The loss in 2008 resulted from the Company
incurring losses associated with commodities hedging contracts during that
period.  The Company was not a party to any such hedging contracts during
the year ended December 31, 2009.
 
 Noncontrolling interest.
  The net loss attributable to the noncontrolling interest decreased
$37,190,000 to $6,072,000 for the year ended December 31, 2009, compared to
$43,262,000 for the year ended December 31, 2008.  The decrease was
attributable to the Company’s net loss decreasing from $84,127,000 for the year
ended December 31, 2008 to $19,702,000 for the year ended December 31, 2009, as
well as the decrease in the percentage ownership of the noncontrolling interest
from 30.9% at December 31, 2008 to 22.9% at December 31,
2009.
 
 Liquidity
and capital resources
  Our cash
flows from operating, investing and financing activities during the years ended
December 31, 2009 and 2008 are summarized below (in
thousands):
  36
  For
      the
                        Year
      Ended,
                        December 31, 2009
                    
                    
                    For
      the
                        Year
      Ended,
                        December 31, 2008Cash
      provided by (used in):Operating
      activities
                    
                    $
                    (9,381
                    )
                    
                    $
                    (91,063
                    )Investing
      activities
                    
                    
                    (9,967
                    )
                    
                    
                    (41,763
                    )Financing
      activities
                    
                    
                    13,158
                    
                    
                    
                    89,138Net
      decrease in cash and equivalents
                    
                    $
                    (6,190
                    )
                    
                    $
                    (43,688
                    )
 
 Cash used in operating
activities.  Net cash used in operating activities was $9,381,000
for the year ended December 31, 2009, compared to $91,063,000 for the year
ended December 31, 2008.  For the year ended December 31, 2009,
the amount was primarily comprised of a net loss of $19,702,000 and working
capital uses of $18,229,000 which were offset by non-cash charges of
$28,550,000, which were primarily depreciation and amortization. Working capital
uses primarily related to increases in accounts receivable of $7,076,000 and
inventory of $5,956,000 and decreases in accounts payable of $3,322,000 and
other current liabilities of $2,092,000.  Accounts receivable balances were
higher at December 31, 2009 due to increased shipments in the second half of
December, for which collections had not yet been received while inventory
balances were high at year end as a result of the Company increasing its corn
inventory in the fourth quarter as we sought to take advantage of more favorable
corn pricing during harvest season.  Accounts payable was lower primarily
due to lower outstanding payables related to corn purchases.  The Company
had five days of outstanding corn payables at December 31, 2008 while at
December 31, 2009 it only had two days of outstanding corn payables.  Other
current liabilities decreased primarily as a result of the Company paying down
its interest rate swaps during the year and therefore only having two months
left to pay on the last swap as of December 31, 2009.
 
 For the
year ended December 31, 2008, the amount was primarily comprised of a net
loss of $84,127,000 and working capital uses of $18,509,000, which were
partially offset by non-cash charges of $11,573,000, which were primarily
depreciation and amortization and loss on disposal of assets.
 
 Cash used in investing
activities.   Net cash used in investing activities was $9,967,000
for the year ended December 31, 2009, compared to $41,763,000 for the year
ended December 31, 2008.  The net cash used in investing activities
during the year ended December 31, 2009 was primarily comprised of the
payment of the construction retainage on the completed ethanol plants, which
totaled $9,407,000, and capital expenditures totaling $4,903,000, which was
partially offset by the Company redeeming four certificates of deposit totaling
$4,043,000.  The net cash used in investing activities during the year
ended December 31, 2008 was primarily comprised of capital expenditures
related to the construction of the ethanol plants.  The decrease between
the year ended December 31, 2008 and December 31, 2009 was a result of the
construction being largely completed by the end of 2008, with only minor
construction projects being completed in 2009.
 
 Cash provided by financing
activities.   Net cash provided by financing activities was
$13,158,000 for the year ended December 31, 2009, compared to $89,138,000
for the year ended December 31, 2008.  For the year ended
December 31, 2009 the amount was primarily comprised of $3,000,000 of
borrowings under our working capital facility and $20,537,000 of proceeds under
our term (formerly construction) loan facility, which were partially offset by
$1,233,000 in payments on the Subordinated Debt, $6,300,000 in payments under
our term loan facility, and $3,500,000 in payments under our working capital
facility.  For the year ended December 31, 2008 the amount was
primarily comprised of $17,000,000 of borrowings under the working capital
facility and $77,150,000 in borrowings under the construction facilities,
partially offset by $2,276,000 in payments for treasury stock
purchases.
 
 Our
principal sources of liquidity at December 31, 2009 consisted of cash and
equivalents, working capital, and available borrowings under our bank facilities
as summarized in the following table (in thousands).
  December 31,2009Cash
      and equivalents
                    
                    $
                    6,109Working
      capital
                    
                    
                    12,763Working
      capital loan commitment availability
                    
                    
                    2,460Debt
      Service Reserve loan commitment availability
                    
                    
                    6,593
  37
  As noted
elsewhere in this report, crush spreads have narrowed subsequent to December 31,
2009 resulting in lower margins and decreased liquidity.   Our
principal liquidity needs are expected to be funding our plant operations,
funding capital expenditures, debt service requirements of our indebtedness, and
general corporate purposes. Our Debt Service Reserve availability can only be
utilized to fund principal and interest payments under our Senior Debt facility,
and we expect to use this availability to meet our debt service requirements in
the first half of 2010 unless operating margins improve.    We cannot
predict when or if crush spreads will fluctuate again or if the current margins
will improve or worsen.  In the event crush spreads narrow further, or
remain at current levels for an extended period of time, we may choose to
curtail operations at our plants or elect not to fund some of our planned
capital expenditures.  In addition, in the event that we fully utilize our
Debt Service Reserve availability, we may not be able to pay principal or
interest on our debt.  This would 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 cease operating
altogether.
 
 Going
concern
  As of
December 31, 2009, the Company's subsidiaries had $16.5 million of outstanding
working capital loans, which mature in September 2010, and, if current operating
conditions do not improve, the Company is unlikely to have sufficient liquidity
to both repay these loans when they become due and maintain its
operations.  Our failure to repay the outstanding amounts under our working
capital loans would result in an event of default under our Senior Debt facility
and a cross-default under our subordinated debt agreement, and would allow both
the senior lenders and the subordinated lenders to accelerate repayment of
amounts outstanding.  Although we intend to seek the consent of our lenders
to extend the maturity of the working capital loans, we have no assurance that
they will do so. If we are unable to generate sufficient cash flow from
operations to repay the working capital loans, we may seek new capital from
other sources.  We cannot assure you that we will be successful in
achieving any of these initiatives or, even if successful, that these
initiatives will be sufficient to address our limited liquidity.  If we are
unable to obtain the requisite consent from our lenders, raise additional
capital or generate sufficient cash flow from our operations to repay the
working capital loans, we may be unable to continue as a going concern, which
could potentially force us to seek relief through a filing under the U.S.
Bankruptcy Code.
  Plant
Construction and Capital Expenditures
  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.  In February 2010, the subsidiaries of the LLC
entered into warranty settlement agreements with TIC that settled all of our
remaining warranty claims under the EPC contracts.  In exchange for the
subsidiaries of the LLC releasing TIC from any and all present and future
warranty obligations, TIC agreed to pay $600,000 for each plant to a vendor that
is fabricating replacement equipment for each plant.  The Company estimates
that in 2010 it will spend approximately $5 million, net of the $1.2
million received from TIC in connection with the warranty settlement agreements,
on plant capital projects to permit the plants to operate more safely and
reliably at their nameplate capacities.  These capital project costs will
need to be funded with cash on hand or cash flow from operations.
 
 Senior
Debt facility
 
 In
September 2006, our Operating Subsidiaries entered into a
$230.0 million senior secured bank facility with BNP Paribas and a
syndicate of lenders to finance the construction of our ethanol plants. Neither
the Company nor the LLC is a borrower under the Senior Debt facility, although
the equity interests and assets of our subsidiaries are pledged as collateral to
secure the debt under the facility.
 
 The
Senior Debt facility initially consisted of two construction loans, which
together totaled $210.0 million of available borrowings, and working capital
loans of up to $20.0 million.  No principal payments were required until
the construction loans were converted to term loans.  Thereafter, principal
payments are payable quarterly at a minimum amount of $3,150,000, with
additional pre-payments to be made out of available cash flow.
  38
  The
Operating Subsidiaries received a Notice of Default from the lenders, dated May
22, 2009, asserting that a “material adverse effect” had occurred due to the
Company’s lack of liquidity.  The Company disagreed with the lenders’
assertion that a material adverse effect had occurred and, effective September
29, 2009, the Operating Subsidiaries entered into a Waiver and Amendment to the
Senior Debt facility which converted the two construction loans to two term
loans and waived all defaults previously asserted by the lenders.  At
conversion, the Waiver and Amendment to the Senior Debt facility provided for
$198.6 million of total funded debt under the term loans.  The Operating
Subsidiaries began making quarterly principal payments on September 30,
2009.  The Waiver and Amendment to the Senior Debt facility also provided
for up to $9.7 million in additional loans (the “DSRA Loan Commitment”) to make
future principal and interest payments under the Senior Debt facility.  As
of December 31, 2009, there remained $6.6 million of availability under the DSRA
Loan Commitment.   These term loans mature in
September 2014.
 
 The
Senior Debt facility also includes a working capital facility of up to
$20.0 million, of which $16.5 million was outstanding as of December 31,
2009.  A portion of the working capital facility 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, and may be drawn on and repaid at any
time until maturity.  The working capital loans mature in
September 2010, and as a result the entire outstanding amount of such loans
was classified as current as of December 31, 2009.  However, with consent
from two-thirds of the lenders, the maturity date of the working capital loans
may be extended to September 2011.
 
 While the
Operating Subsidiaries 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 the various covenants described below.  The Senior Debt facility is
secured by a first priority lien on all right, title and interest in and to the
Wood River and Fairmont plants and any accounts receivable or property
associated with those plants, and a pledge of all of our equity interests in the
Operating Subsidiaries.  The Operating Subsidiaries have established
collateral deposit accounts maintained by an agent of the banks, into which our
revenues are deposited, subject to security interests to secure any outstanding
obligations under the Senior Debt facility.  These funds are then allocated
into various sweep accounts held by the collateral agent, including accounts
that provide funds for the operating expenses of the Operating
Subsidiaries.  The collateral accounts have various provisions, including
historical and prospective debt service coverage ratios and debt service reserve
requirements, which determine whether, and the amount of, cash that can be made
available to the LLC from the collateral accounts each month.  The terms of
the Senior Debt facility also include covenants that impose certain limitations
on, among other things, the ability of the Operating Subsidiaries to incur
additional debt, grant liens or encumbrances, declare or pay dividends or
distributions, conduct asset sales or other dispositions, merge or consolidate,
and conduct transactions with affiliates.  The terms of the Senior Debt
facility also include customary events of default including failure to meet
payment obligations, failure to pay financial obligations, failure of the
Operating Subsidiaries of the LLC to remain solvent and failure to obtain or
maintain required governmental approvals.  Under the terms of separate
Management Services Agreements between our Operating Subsidiaries and the LLC,
the Operating Subsidiaries pay a monthly management fee of $834,000 to the LLC
to cover salaries, rent, and other operating expenses of the LLC, which payments
are unaffected by the terms of the Senior Debt facility or the collateral
accounts.
 
 Interest
rates on each of the loans under the Senior Debt 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 borrowings at December
31, 2009 was 3.3%. As a result of the Notice of Default, the lenders caused the
construction loans and working capital loans to revert to base rate, effective
June 1, 2009, which resulted in additional interest expense of approximately
$350,000 per month for the period of June through September 2009. This resulted
in incremental interest expense of approximately $1,400,000 for the year ended
December 31, 2009.  Effective October 1, 2009, the term loans and working
capital loans under the Senior Debt facility were converted back to LIBOR-based
loans.
 
 We are
required to pay certain fees in connection with our Senior Debt facility,
including a commitment fee equal to 0.50% per annum on the daily average unused
portion of the term loans and working capital loans and letter of credit
fees.
  39
  Debt
issuance fees and expenses of approximately $8.5 million ($5.0 million, net of
accumulated amortization) have been incurred in connection with the Senior Debt
facility through December 31, 2009. These costs have been deferred and are being
amortized over the term of the Senior Debt 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, 2009, the Operating Subsidiaries had $211.9 million
outstanding under the Senior Debt facility, which included $195.4 million of
outstanding term loans and $16.5 million of outstanding working capital
loans.  In addition, the Operating Subsidiaries had $1.0 million in letters
of credit outstanding that are secured by borrowing availability under the
working capital facility.  The remaining availability on both loans is
subject to the restrictions and covenants described above.
  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, both of which are related parties. The subordinated debt 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 up until December 1,
2008 on the subordinated debt was 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 Senior Debt facility. A default under our Senior
Debt 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. 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 that were due on
September 30, 2008 and December 31, 2008. Under the terms of the subordinated
debt agreement, the failure to pay interest when due is an event of default. In
January 2009, the LLC and the subordinated debt lenders entered into a waiver
and amendment agreement to the subordinated debt 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 principal by $1,233,000. As of December 31, 2009, the
LLC had $20.3 million outstanding under its subordinated debt facility.
Effective upon the $2.0 million initial payment, the subordinated debt lenders
waived the defaults and any associated penalty interest relating to our failure
to make 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 ($1.4 million, net of
accumulated amortization) have been incurred in connection with the subordinated
debt through December 31, 2009. 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
 
 During
the second quarter of 2008, the LLC entered into various derivative financial
instruments with Cargill such as futures contracts, swaps and option contracts,
with the objective of limiting our exposure to changes in commodities prices for
corn and ethanol. During August 2008, the market price of corn declined sharply,
exposing the LLC to large losses and significant unmet margin calls under these
contracts. Cargill began liquidating the hedging contracts in August 2008 and by
September 30, 2008 the LLC was no longer a party to any hedging 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 hedging
contracts. 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 these hedging losses. 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 as a troubled debt
restructuring.  As the future cash payments specified by the terms of the
Cargill Agreement exceed the carrying amount of the debt before the $3.0 million
was 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 should be recorded.
  40
  Tax
and our tax benefit sharing agreement
 
 As a
result of future exchanges of membership units 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 units for shares of our common stock. 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, 2009. 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 units in the LLC for
shares of our common stock.  In the event any exchanges were made at the
current trading price, which was $2.95
as of March 25, 2010, we would 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 units in the LLC.
 
 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 that also began
in the first quarter of 2008.
  41
  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 fixed
interest rates (weighted average rate of approximately 5.6%) 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. In addition, the subsidiary of the LLC that constructed the
Wood River facility has entered in a note payable for $419,000 with the City of
Wood River for special assessments related to street, water, and sanitary
improvements at our Wood River facility. This note requires 10 annual payments
of $58,000, including interest at 6.5% per annum, and matures in
2018.
 
 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 subsidiary of 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 or the
subsidiary of the LLC fails to make the required payments to the holder of the
note.
 
 Semiannual
principal payments on the tax increment revenue note began in June 2008. 
Due to delays in the plant construction, property taxes on the plant in 2008 and
2009 were lower than anticipated and therefore, the subsidiary of the LLC was
required to pay $468,000 and $760,000 in 2009 and 2008, respectively as a
portion of the note payments.
 
 Letters
of credit
 
 As of
December 31, 2009 the Company has three letters of credit outstanding which
total $1,040,000.  These letters of credit have been provided as collateral
to 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
borrowing availability under the working capital facility.
 
 Off-balance
sheet arrangements
 
 Except
for our operating leases, 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 these 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.
  42


Recoverability
of property, plant and equipment
 
 The
Company has two asset groups, its ethanol facility in Fairmont and its ethanol
facility in Wood River, which are evaluated separately when considering whether
an impairment exists.  The Company continually monitors whether or not
events or circumstances exist that would warrant impairment testing of its
long-lived assets.  In evaluating whether impairment testing should be
performed, the Company considers several factors including projected production
volumes at its facilities, projected ethanol and distillers grain prices that we
expect to receive, and projected corn and natural gas costs we expect to
incur.  In the ethanol industry operating margins, and consequently
undiscounted future cash flows, are primarily driven by commodity prices, in
particular the price of corn, our principal production input, and the price of
ethanol, our principal production output.  The difference in pricing
between these two commodities is known as the “crush spread”.  In the event
that the crush spread is sufficiently depressed to result in negative operating
cash flow at its facilities, the Company will evaluate whether or not an
impairment has occurred. See “Risk
Factors – Risks relating to our business and industry – Narrow commodity
margins present a significant risk to our profitability.”
 
 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, 2009, no circumstances existed which would indicate the carrying
value of long-lived assets may not be fully recoverable.  Therefore, no
recoverability test was performed.
 
 Share-based
compensation
 
 Under the
fair value recognition provisions of this guidance, share-based compensation
cost for stock options granted 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, 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.
 
 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, we will provide a valuation allowance against
all deferred tax assets until the Company believes that such assets will be
realized. The Company includes interest on tax deficiencies and income tax
penalties in the provision for income taxes.
 
 Recent
accounting pronouncements
  From time
to time, new accounting pronouncements are issued by the FASB or other standards
setting bodies that are adopted by us as of the specified effective date. Unless
otherwise discussed, our management believes that the impact of recently issued
standards that are not yet effective will not have a material impact on our
consolidated financial statements upon adoption.
 
 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.
  43
  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, 2008 to December 31, 2009, the CBOT ethanol prices have fluctuated
from a low of $1.40 per gallon in December 2008 to a high of $2.94 per gallon in
June 2008 and averaged $1.97 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 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 recent  corn prices of
$3.50 per bushel, we estimate that corn will represent approximately 73% 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, 2008 to December 31, 2009 the
CBOT price of corn has fluctuated from a low of $3.01 per bushel in September
2009 to a high of $7.55 per bushel in June 2008 and averaged $4.53 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 recent corn prices of $3.50 per
bushel and recent natural gas  prices of $5.50 per Mmbtu, 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, 2008 to December 31, 2009, the Nymex price of natural gas has
fluctuated from a low of $2.51 per Mmbtu in September 2009 to a high of $13.58
per Mmbtu in July 2008 and averaged $6.59 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. 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, 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 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
is currently unable 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.  See “Risk
Factors—Risks relating to our business and industry—We are currently unable to
hedge against fluctuations in commodity prices and may be unable to do so in the
future, which further exposes us to commodity price risk.” elsewhere in this
report.
 
 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 and distillers grain sales for 2010.  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 cost of our corn and natural gas
requirements and the selling price of our ethanol and distillers grain sales
based on current prices as of December 31, 2009, excluding activity we may
undertake related to corn and natural gas forward 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 2010.
  44
 
 Volume
                        Requirements
                    
                    Units
                    
                    Price
      per Unit
                        at
      December 31,
                        2009
                    
                    
                    Hypothetical
                        Adverse
      Change
                        in
      Price
                    
                    
                    Change
      in
                        2010
      Pre-tax
                        Income(in
      millions)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (in
      millions)Ethanol
                    
                    
                    224.0
                    
                    Gallons
                    
                    $
                    1.95
                    
                    
                    
                    10
                    %
                    
                    $
                    (43.7
                    )Dry
      Distillers
                    
                    
                    0.5
                    
                    Tons
                    
                    $
                    105.61
                    
                    
                    
                    10
                    %
                    
                    $
                    (5.6
                    )Wet
      Distillers
                    
                    
                    0.4
                    
                    Tons
                    
                    $
                    29.56
                    
                    
                    
                    10
                    %
                    
                    $
                    (1.1
                    )Corn
                    
                    
                    81.8
                    
                    Bushels
                    
                    $
                    3.89
                    
                    
                    
                    10
                    %
                    
                    $
                    (31.8
                    )Natural
      Gas
                    
                    
                    6.7
                    
                    Mmbtu
                    
                    $
                    6.33
                    
                    
                    
                    10
                    %
                    
                    $
                    (4.2
                    )
 
 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 fell 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—Cargill debt agreement” elsewhere in
this report.
 
 We are
subject to interest rate risk in connection with our Senior Debt facility. Under
the facility, our bank borrowings bear interest at a floating rate based, at our
option, on LIBOR or an alternate base rate. In September 2007, the LLC, through
its subsidiaries, entered into an interest rate swap for a two-year period. The
contract was for $60.0 million principal with a fixed interest rate of 4.65%
payable by the subsidiary, and the variable interest rate, the one-month LIBOR,
payable by the third party. The difference between the subsidiary’s fixed rate
of 4.65% and the one-month LIBOR rate, which was reset every 30 days, was
received or paid every 30 days in arrears. This interest rate swap expired in
September 2009. In March 2008, the LLC, 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
subsidiary, and the variable interest rate, the one-month LIBOR, payable by the
third party. The difference between the subsidiary’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.  This interest rate swap expires in February
2010. As of December 31, 2009, we had borrowed $211.9 million under our Senior
Debt facility. Upon expiration in February 2010 of the $50.0 million interest
rate swap in place with respect to our bank borrowings, a hypothetical 100 basis
points increase in interest rates under our Senior Debt facility would result in
an increase of $2,119,000 on our annual interest expense.  See
“Management’s Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and capital resources–Senior Debt facility” elsewhere in
this report.
 
 At
December 31, 2009, we had $6.1 million of cash and equivalents invested in both
standard cash accounts and money market mutual funds held at three financial
institutions, which is in excess of FDIC insurance limits.  The money
market mutual funds are not invested in any auction rate
securities.
  45
  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, 2009 and 2008
                F-2Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
                F-3Consolidated
      Statement of Changes in Equity for the years ended December 31,
      2009 and 2008
                F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                F-5Notes
      to Consolidated Financial Statements
                F-6Schedule I
                F-28
  46
  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, 2009 and 2008, and the related consolidated statements of
operations, changes in equity, 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, 2009 and 2008, 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.
  As
discussed in Note 2, the Company retrospectively adopted a new accounting
pronouncement on January 1, 2009 related to the accounting for noncontrolling
interests in the consolidated financial statements.
  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 has experienced declining liquidity and has $16.5 million of outstanding
working capital loans that mature in September 2010. 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 30,
2010
  F-1
  BioFuel
Energy Corp.
 Consolidated
Balance Sheets
 (in
thousands, except share and per share data)
 
 December 31,
                              
                              
                              December 31,2009
                              
                              
                              2008AssetsCurrent
      assetsCash
      and equivalents
                              
                              $
                              6,109
                              
                              
                              $
                              12,299Accounts
      receivable
                              
                              
                              23,745
                              
                              
                              
                              16,669Inventories
                              
                              
                              20,885
                              
                              
                              
                              14,929Prepaid
      expenses
                              
                              
                              2,529
                              
                              
                              
                              2,153Restricted
      cash
                              
                              
                              —
                              
                              
                              
                              612Other
      current assets
                              
                              
                              325
                              
                              
                              
                              203Total
      current assets
                              
                              
                              53,593
                              
                              
                              
                              46,865Property,
      plant and equipment, net
                              
                              
                              284,362
                              
                              
                              
                              305,350Certificates
      of deposit
                              
                              
                              —
                              
                              
                              
                              4,015Debt
      issuance costs, net
                              
                              
                              6,472
                              
                              
                              
                              7,917Restricted
      cash
                              
                              
                              —
                              
                              
                              
                              1,003Other
      assets
                              
                              
                              2,348
                              
                              
                              
                              574Total
      assets
                              
                              $
                              346,775
                              
                              
                              $
                              365,724Liabilities
      and equityCurrent
      liabilitiesAccounts
      payable
                              
                              $
                              8,066
                              
                              
                              $
                              11,274Construction
      retainage
                              
                              
                              —
                              
                              
                              
                              9,407Current
      portion of long-term debt
                              
                              
                              30,174
                              
                              
                              
                              11,588Current
      portion of derivative financial instrument
                              
                              
                              315
                              
                              
                              
                              2,658Current
      portion of tax increment financing
                              
                              
                              318
                              
                              
                              
                              298Other
      current liabilities
                              
                              
                              1,957
                              
                              
                              
                              2,932Total
      current liabilities
                              
                              
                              40,830
                              
                              
                              
                              38,157Long-term
      debt, net of current portion
                              
                              
                              220,754
                              
                              
                              
                              226,351Tax
      increment financing, net of current portion
                              
                              
                              5,591
                              
                              
                              
                              5,887Derivative
      financial instrument, net of current portion
                              
                              
                              —
                              
                              
                              
                              83Other
      non-current liabilities
                              
                              
                              1,705
                              
                              
                              
                              487Total
      liabilities
                              
                              
                              268,880
                              
                              
                              
                              270,965Commitments
      and contingenciesEquityBioFuel
      Energy Corp. stockholders’ equityPreferred
      stock, $0.01 par value; 5.0 million shares authorized and no shares
      outstanding December 31, 2009 and December 31, 2008
                              
                              
                              —
                              
                              
                              
                              —Common
      stock, $0.01 par value; 100.0 million shares authorized and 25,932,741
      shares outstanding at December 31, 2009 and 23,318,636 shares outstanding
      at December 31, 2008
                              
                              
                              259
                              
                              
                              
                              233Class B
      common stock, $0.01 par value; 50.0 million shares authorized and
      7,448,585 shares outstanding at December 31, 2009 and 10,082,248
      shares outstanding at December 31, 2008
                              
                              
                              74
                              
                              
                              
                              101Less
      common stock held in treasury, at cost, 809,606 shares at December 31,
      2009 and December 31, 2008
                              
                              
                              (4,316
                              )
                              
                              
                              (4,316
                              )Additional
      paid-in capital
                              
                              
                              137,037
                              
                              
                              
                              134,360Accumulated
      other comprehensive loss
                              
                              
                              (242
                              )
                              
                              
                              (2,741
                              )Accumulated
      deficit
                              
                              
                              (60,577
                              )
                              
                              
                              (46,947
                              )Total
      BioFuel Energy Corp. stockholders’ equity
                              
                              
                              72,235
                              
                              
                              
                              80,690Noncontrolling
      interest
                              
                              
                              5,660
                              
                              
                              
                              14,069Total
      equity
                              
                              
                              77,895
                              
                              
                              
                              94,759Total
      liabilities and equity
                              
                              $
                              346,775
                              
                              
                              $
                              365,724
 
 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 31,2009
                    
                    
                    2008Net
      sales
                    
                    $
                    415,514
                    
                    
                    $
                    179,867Cost
      of goods sold
                    
                    
                    404,750
                    
                    
                    
                    199,163Gross
      profit (loss)
                    
                    
                    10,764
                    
                    
                    
                    (19,296
                    )General
      and administrative expenses:Compensation
      expense
                    
                    
                    6,160
                    
                    
                    
                    8,063Other
                    
                    
                    9,327
                    
                    
                    
                    8,981Other
      operating expense
                    
                    
                    150
                    
                    
                    
                    1,350Operating
      loss
                    
                    
                    (4,873
                    )
                    
                    
                    (37,690
                    )Other
      income (expense):Interest
      income
                    
                    
                    78
                    
                    
                    
                    1,087Interest
      expense
                    
                    
                    (14,906
                    )
                    
                    
                    (5,831
                    )Other
      non-operating expense
                    
                    
                    (1
                    )
                    
                    
                    (1,781
                    )Loss
      on derivative financial instruments
                    
                    
                    -
                    
                    
                    
                    (39,912
                    )Loss
      before income taxes
                    
                    
                    (19,702
                    )
                    
                    
                    (84,127
                    )Income
      tax provision (benefit)
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    
                    (19,702
                    )
                    
                    
                    (84,127
                    )Less:
      Net loss attributable to the noncontrolling interest
                    
                    
                    6,072
                    
                    
                    
                    43,262Net
      loss attributable to BioFuel Energy Corp. common
    shareholders
                    
                    $
                    (13,630
                    )
                    
                    $
                    (40,865
                    )Loss
      per share - basic and diluted attributable to BioFul Energy Corp. common
      shareholders
                    
                    $
                    (0.57
                    )
                    
                    $
                    (2.65
                    )Weighted
      average shares outstanding-basic and diluted
                    
                    
                    23,792
                    
                    
                    
                    15,419
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
 BioFuel
Energy Corp.
 Consolidated
Statement of Changes in Equity
 Years
Ended December 31, 2009 and December 31, 2008
 
 Common
      Stock
                        
                        
                        Class
      B
                          Common
      Stock
                        
                        
                        Treasury
                        
                        
                        Additional
                          Paid-in
                        
                        
                        Accumulated
                        
                        
                        Accumulated
                          Other
                          Comprehensive
                        
                        
                        Noncontrolling
                        
                        
                        TotalShares
                        
                        
                        Amount
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        Stock
                        
                        
                        Capital
                        
                        
                        Deficit
                        
                        
                        Loss
                        
                        
                        Interest
                        
                        
                        EquityBalance
      at December 31, 2007
                        
                        
                        15,994,124
                        
                        
                        $
                        160
                        
                        
                        
                        17,396,686
                        
                        
                        $
                        174
                        
                        
                        $
                        (2,040
                        )
                        
                        $
                        130,409
                        
                        
                        $
                        (6,082
                        )
                        
                        $
                        (950
                        )
                        
                        $
                        68,799
                        
                        
                        $
                        190,470Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        682
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        682Exchange
      of Class B shares to common
                        
                        
                        7,314,438
                        
                        
                        
                        73
                        
                        
                        
                        (7,314,438
                        )
                        
                        
                        (73
                        )
                        
                        
                        -
                        
                        
                        
                        3,269
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (11,468
                        )
                        
                        
                        (8,199
                        )Issuance
      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 derivative financial instrument fair value
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,889
                        )
                        
                        
                        -
                        
                        
                        
                        (2,889
                        )Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (40,865
                        )
                        
                        
                        -
                        
                        
                        
                        (43,262
                        )
                        
                        
                        (84,127
                        )Total
      comprehensive loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (85,918
                        )Balance
      at December 31, 2008
                        
                        
                        23,318,636
                        
                        
                        
                        233
                        
                        
                        
                        10,082,248
                        
                        
                        
                        101
                        
                        
                        
                        (4,316
                        )
                        
                        
                        134,360
                        
                        
                        
                        (46,947
                        )
                        
                        
                        (2,741
                        )
                        
                        
                        14,069
                        
                        
                        
                        94,759Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        413
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        413Exchange
      of Class B shares to common
                        
                        
                        2,633,663
                        
                        
                        
                        27
                        
                        
                        
                        (2,633,663
                        )
                        
                        
                        (27
                        )
                        
                        
                        -
                        
                        
                        
                        2,263
                        
                        
                        
                        -
                        
                        
                        
                        (121
                        )
                        
                        
                        (2,142
                        )
                        
                        
                        -Issuance
      of restricted stock, (net of forfeitures)
                        
                        
                        (19,558
                        )
                        
                        
                        (1
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Comprehensive
      loss:Hedging
      settlements
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,321
                        
                        
                        
                        853
                        
                        
                        
                        3,174Change
      in derivative financial instrument fair value
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        299
                        
                        
                        
                        (1,048
                        )
                        
                        
                        (749
                        )Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (13,630
                        )
                        
                        
                        -
                        
                        
                        
                        (6,072
                        )
                        
                        
                        (19,702
                        )Total
      comprehensive loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (17,277
                        )Balance
      at December 31, 2009
                        
                        
                        25,932,741
                        
                        
                        $
                        259
                        
                        
                        
                        7,448,585
                        
                        
                        $
                        74
                        
                        
                        $
                        (4,316
                        )
                        
                        $
                        137,037
                        
                        
                        $
                        (60,577
                        )
                        
                        $
                        (242
                        )
                        
                        $
                        5,660
                        
                        
                        $
                        77,895
 
 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 31,2009
                  
                  
                  2008Cash
      flows from operating activitiesNet
      loss
                  
                  $
                  (19,702
                  )
                  
                  $
                  (84,127
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock
      based compensation expense
                  
                  
                  413
                  
                  
                  
                  682Depreciation
      and amortization
                  
                  
                  28,137
                  
                  
                  
                  9,791Loss
      on disposal of assets
                  
                  
                  -
                  
                  
                  
                  1,100Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (7,076
                  )
                  
                  
                  (16,669
                  )Inventories
                  
                  
                  (5,956
                  )
                  
                  
                  (14,929
                  )Prepaid
      expenses
                  
                  
                  (376
                  )
                  
                  
                  (1,959
                  )Accounts
      payable
                  
                  
                  (3,322
                  )
                  
                  
                  845Other
      current liabilities
                  
                  
                  (2,092
                  )
                  
                  
                  1,524Hedging
      loss liability
                  
                  
                  -
                  
                  
                  
                  14,402Other
      assets and liabilities
                  
                  
                  593
                  
                  
                  
                  (1,723
                  )Net
      cash used in operating activities
                  
                  
                  (9,381
                  )
                  
                  
                  (91,063
                  )Cash
      flows from investing activitiesCapital
      expenditures (including payment of construction retainage)
                  
                  
                  (14,310
                  )
                  
                  
                  (40,674
                  )Proceeds
      from insurance claim
                  
                  
                  300
                  
                  
                  
                  771Purchase
      of certificates of deposit
                  
                  
                  -
                  
                  
                  
                  (1,860
                  )Redemption
      of certificates of deposit
                  
                  
                  4,043
                  
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (9,967
                  )
                  
                  
                  (41,763
                  )Cash
      flows from financing activitiesProceeds
      from issuance of debt
                  
                  
                  23,537
                  
                  
                  
                  94,150Repayment
      of debt
                  
                  
                  (11,033
                  )
                  
                  
                  -Funding
      of debt service reserve
                  
                  
                  -
                  
                  
                  
                  (1,615
                  )Withdrawal
      from debt service reserve
                  
                  
                  1,615
                  
                  
                  
                  -Repayment
      of notes payable and capital leases
                  
                  
                  (961
                  )
                  
                  
                  (664
                  )Payment
      of debt issuance costs
                  
                  
                  -
                  
                  
                  
                  (457
                  )Purchase
      of treasury stock
                  
                  
                  -
                  
                  
                  
                  (2,276
                  )Net
      cash provided by financing activities
                  
                  
                  13,158
                  
                  
                  
                  89,138Net
      decrease in cash and equivalents
                  
                  
                  (6,190
                  )
                  
                  
                  (43,688
                  )Cash
      and equivalents, beginning of period
                  
                  
                  12,299
                  
                  
                  
                  55,987Cash
      and equivalents, end of period
                  
                  $
                  6,109
                  
                  
                  $
                  12,299Cash
      paid for taxes
                  
                  $
                  8
                  
                  
                  $
                  307Cash
      paid for interest
                  
                  $
                  13,260
                  
                  
                  $
                  13,187Non-cash
      investing and financing activities:Additions
      to property, plant and equipment unpaid during period
                  
                  $
                  347
                  
                  
                  $
                  232Additions
      to property, plant and equipment financed with notes payable and capital
      lease
                  
                  $
                  493
                  
                  
                  $
                  5,457
 
 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 of
approximately 230 Mmgy, based on the maximum amount of permitted denaturant,
commenced start-up and began commercial operations in late June 2008. At each
location, Cargill, Incorporated, (“Cargill”), with whom we have an extensive
commercial relationship, has a strong local presence and owns adjacent grain
storage and handling facilities. From inception, we have worked closely with
Cargill, one of the world’s leading agribusiness companies. Cargill provides
corn procurement services, purchases 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 wide fluctuations due
to changes in commodity prices, specifically, the price of our main commodity
input, corn, relative to the price of our main commodity product, ethanol, which
is known in the industry as the “crush spread”.  Since we have commenced
operations, we have from time to time entered into derivative financial
instruments such as futures contracts, swaps and option contracts with the
objective of limiting our exposure to changes in commodities prices, and we may
continue to enter into these instruments in the future.  However, our
experience with these financial instruments has been largely unsuccessful. 
For example, during the year ended December 31, 2008, we recorded $39.9 million
in losses from the liquidation of our hedging contracts.  In addition, we
are currently unable to engage in such hedging activities due to our lack of
financial resources, and we may not have the financial resources to conduct
hedging activities in the future.  See Note 8 for further discussion of
derivative financial instruments.
  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 ethanol production facilities in
the Midwestern United States. The Company’s headquarters are located in Denver,
Colorado.
  At
December 31, 2009, the Company owned 77.1% of the LLC membership units with
the remaining 22.9% owned by the historical equity investors of the LLC. 
The Class B common shares of the Company are held by the historical equity
investors of the LLC, who held 7,448,585 membership units in the LLC as of
December 31, 2009 that, together with the corresponding Class B shares, can
be exchanged for newly issued shares of common stock of the Company on a
one-for-one basis.  During the year ended December 31, 2009, unit holders
exchanged 2,633,663 membership units in the LLC for common stock of the
Company.  LLC membership units held by the historical equity investors are
recorded as noncontrolling 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.  Shares of Class B common
stock are retired upon exchange of the related membership units in the
LLC.
 
 The
aggregate book value of the assets of the LLC at December 31, 2009 and
2008 was $354.3 million and $373.6 million, respectively, and such
assets are collateral for the LLC’s obligations. Our bank facility imposes
restrictions on the ability of the LLC’s subsidiaries that own and operate
our Wood River and Fairmont plants to pay dividends or make other distributions
to us, which restricts 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.
  F-6
  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 has experienced
declining liquidity and as of December 31, 2009 has $16.5 million of outstanding
working capital loans that mature in September 2010.  If current
operating conditions do not improve, the Company is unlikely to have sufficient
liquidity to both repay these loans when they become due and maintain its
operations.  Our failure to repay the outstanding amounts under our working
capital loans would result in an event of default under our Senior Debt facility
and a cross-default under our subordinated debt agreement, and would allow both
the senior lenders and the subordinated lenders to accelerate repayment of
amounts outstanding.  Although we intend to seek the consent of our lenders
to extend the maturity of the working capital loans, we have no assurances that
they will do so.  If we are unable to generate sufficient cash flow from
operations to repay the working capital loans, we may have to seek new capital
from other sources.  However, there can be no assurance that we will be
successful in achieving any of these initiatives or, even if successful, that
these initiatives will be sufficient to address our limited liquidity.  If
we are unable to obtain the requisite consents from our lenders, raise
additional capital or are unable to generate sufficient cash flow from our
operations to repay the working capital loans, 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 condition raises 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, including possible impairment of our fixed assets, or
the amounts and classifications of liabilities that may result should the
Company be unable to continue as a going concern.
  2.
Summary of Significant Accounting Policies
  Principles
of Consolidation and Noncontrolling 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.
  We have
retrospectively applied the presentation requirements for noncontrolling
interests in our consolidated financial statements.  The exchanges of LLC
membership units for common stock prior to January 1, 2009 were accounted
for as business combinations, therefore the common stock issued in these
exchanges was recorded based on the market value at the date of issuance while
noncontrolling interest was eliminated based on its book value at the date of
the exchange, with any difference between these two amounts recorded as an
adjustment of the capitalized cost of  long-lived assets.  Beginning
on January 1, 2009, the Company treats all exchanges of LLC membership
units for Company common stock 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.
  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 sells 100% of its ethanol and distillers grain products to Cargill under
the terms of marketing agreements whereby Cargill has agreed to purchase all
ethanol and distillers grain produced at our ethanol plants through September
2016.   Revenue is recognized when risk of loss and title transfers
upon delivery of ethanol and distillers grain to Cargill.  In accordance
with our agreements with Cargill, the Company records its revenues based on the
amounts payable by Cargill to us at the time of our sales of ethanol and
distillers grain to them.  The amount payable by Cargill for ethanol is
equal to the average delivered price per gallon received by the marketing pool
from Cargill’s customers, less average transportation and storage charges
incurred by Cargill, and less a commission.  The amount payable by Cargill
for distillers grain is equal to the market price of distillers grain at the
time of sale less a commission.
  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.
  F-7
  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 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.  During the year ended December 31, 2009, we
incurred significant legal and financial advisory expenses associated with the
negotiations with our lenders relating to loan restructuring and
conversion of construction loans to term loans.
 
 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, 2009, we had $6.1 million held at three
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, 2009 and 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.
  During
the years ended December 31, 2009 and 2008, the Company recorded sales to
Cargill representing 100% of total net sales.  As of December 31, 2009
and 2008, the LLC, through its subsidiaries, had receivables from Cargill of
approximately $23.7 million and $16.7 million, respectively, representing 100%
of total accounts receivable.
 
 The LLC,
through its subsidiaries, purchases corn, its largest cost component in
producing ethanol, from Cargill.  During the years ended December 31,
2009 and 2008, corn purchases from Cargill totaled $287.1 million and $170.7
million, respectively.  As of December 31, 2009 and 2008, the LLC,
through its subsidiaries, had payables to Cargill of $2.1 million and $6.7
million, respectively, related to corn purchases.
 
 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.
  A summary
of inventories is as follows (in thousands):
  December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    12,292
                    
                    
                    $
                    8,687Work
      in process
                    
                    
                    2,883
                    
                    
                    
                    2,052Finished
      goods
                    
                    
                    5,710
                    
                    
                    
                    4,190$
                    20,885
                    
                    
                    $
                    14,929
  F-8
  Due to a
decline in commodities prices, the LLC recorded a lower of cost or market
inventory write-down at December 31, 2009 and 2008 of $256,000 and
$450,000, respectively.
  Derivative
Instruments and Hedging Activities
  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 operations.  The
Company has designated its interest rate swaps as cash flow hedges.  The
value of these instruments is recorded on the balance sheet as a liability under
derivative financial instruments, while the unrealized gain/loss on the change
in the fair value has been recorded in other comprehensive income (loss). 
The statement of operations impact of these hedges is included in interest
expense.  See Note 8 for additional required disclosure.
 
 Accounting
guidance for derivatives 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 for corn and natural gas that meet these requirements and
are designated as normal purchases are exempted from the derivative accounting
and reporting requirements.
 
 Certificates
of Deposit
 
 At
December 31, 2008, certificates of deposit were comprised of approximately
$4.0 million held in four certificates of deposit with original maturities
greater than one year.  These certificates of deposit were pledged as
collateral supporting four letters of credit and automatically renewed each year
as long as the letters of credit were outstanding. All four of these
certificates of deposit were redeemed during 2009 and therefore there is no
certificate of deposit balance at December 31, 2009.
  Restricted
Cash
  At
December 31, 2009, there were no amounts held as restricted cash.  At
December 31, 2008, restricted cash was comprised of $1.6 million, held in
debt service reserve accounts in accordance with our Senior Debt facility. 
The balance outstanding as of December 31, 2008 was utilized to pay interest
amounts due under the Senior Debt facility during the year ended December 31,
2009.
 
 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.  Maintenance, repairs and minor replacements are charged to
operating expenses while major replacements and improvements 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 of its production facilities 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
  F-9
  Capitalized
Interest
  The
Company capitalized interest costs and the amortization of debt issuance costs
related to its ethanol plant development and construction expenditures through
August 2008 as part of the cost of constructed assets.  There were no
interest or debt issuance costs capitalized for the year ended December 31,
2009.  Interest and debt issuance costs capitalized for the year ended
December 31, 2008 totaled $10.2 million.
 
 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 amortization was
capitalized as part of the value of construction in progress during the
construction period.  After the Wood River and Fairmont plants reached
provisional acceptance in August 2008, the amortization of debt issuance
costs has been recorded as interest expense.  Estimated future debt
issuance cost amortization as of December 31, 2009 is as follows (in
thousands):
 
 2010
                    
                    $
                    1,4932011
                    
                    
                    1,3392012
                    
                    
                    1,2942013
                    
                    
                    1,2482014
                    
                    
                    973Thereafter
                    
                    
                    125Total
                    
                    $
                    6,472
 
 Impairment
of Long-Lived Assets
  The
Company has two asset groups, its ethanol facility in Fairmont and its ethanol
facility in Wood River, which are evaluated separately when considering whether
an impairment exists.  The Company continually monitors whether or not
events or circumstances exist that would warrant impairment testing of its
long-lived assets.  In evaluating whether impairment testing should be
performed, the Company considers several factors including projected production
volumes at its facilities, projected ethanol and distillers grain prices that we
expect to receive, and projected corn and natural gas costs we expect to
incur.  In the ethanol industry, operating margins, and consequently
undiscounted future cash flows, are primarily driven by commodity prices, in
particular the price of corn, our principal production input, and the price of
ethanol, our principal production output.  The difference in pricing
between these two commodities is known as the “crush spread”.  In the event
that the crush spread is sufficiently depressed to result in negative operating
cash flow at its facilities, the Company will evaluate whether or not an
impairment has occurred.
 
 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, March 31, 2009, and June 30, 2009, the Company performed
impairment evaluations of the recoverability of its long-lived assets due to
depressed crush spreads.  As a result of these impairment evaluations, 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.  During the third and fourth quarters of 2009, no
circumstances existed that would indicate the carrying value of long-lived
assets may not be fully recoverable.  Therefore, no recoverability test was
performed.
 
 Stock-Based
Compensation
  Expense
associated with stock-based awards and other forms of equity compensation 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 the expected term for stock-based grants during
2008.  During 2009, the Company used historical data to calculate the
expected term for new stock-based grants.
  F-10
  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.  Changes to the
asset retirement obligation resulting from revisions to the timing or the amount
of the original undiscounted cash flow estimates shall be recognized as an
increase or decrease to both the carrying amount of the asset retirement
obligation and the related asset retirement cost capitalized as part of the
related property, plant, and equipment.  At December 31, 2009, the
Company had accrued asset retirement obligation liabilities of $134,000 and
$168,000 for its plants at Wood River and Fairmont, respectively.  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.
 
 The asset
retirement obligations accrued for Wood River relate to the obligations in our
contracts with Cargill and Union Pacific Railroad (“Union Pacific”). 
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 issued by 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, we will provide a valuation allowance against
all deferred tax assets until the Company believes that such assets will be
realized. The Company includes interest on tax deficiencies and income tax
penalties in the provision for income taxes.
 
 Fair
Value of Financial Instruments
  The
Company’s financial instruments, including cash and equivalents, accounts
receivable, certificates of deposit, and accounts payable are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.  The fair value of the Company’s senior debt and notes payable
(excluding the Cargill note payable) approximates their carrying amounts based
on anticipated interest rates that 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.
  F-11
  Comprehensive
Income (Loss)
  Comprehensive
income (loss) consists of the unrealized changes in the fair value on the
Company’s financial instruments designated as cash flow hedges.  The
financial instrument liabilities are recorded at fair value.  The effective
portion of any changes in the fair value is recorded as other comprehensive
income (loss) while the ineffective portion of any changes in the fair
value is recorded as interest expense.
 
 Year ended
                      December 31,2009Net
      loss
                    
                    $
                    (19,702
                    )Hedging
      settlements
                    
                    
                    3,174Change
      in derivative financial instrument fair value
                    
                    
                    (749
                    )Comprehensive
      loss
                    
                    
                    (17,277
                    )Comprehensive
      loss attributable to noncontrolling interest
                    
                    
                    6,267Comprehensive
      loss attributable to BioFuel Energy Corp. common
    shareholders
                    
                    $
                    (11,010
                    )
 
 Segment
Reporting
  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, accounting guidance 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 and
accordingly, the Company presents a single reportable segment, the manufacture
of fuel-grade ethanol and the co-products of the ethanol production
process.
 
 Recent
Accounting Pronouncements
 
 From time
to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board (“FASB”) or other standards setting bodies that are adopted by
us as of the specified effective date. Unless otherwise discussed, our
management believes that the impact of recently issued standards that are not
yet effective will not have a material impact on our consolidated financial
statements upon adoption.
 
 3.
Property, Plant and Equipment
  Property,
plant and equipment, stated at cost, consist of the following at
December 31, 2009 and 2008, respectively (in thousands):
  December
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Land
      and land improvements
                    
                    $
                    19,639
                    
                    
                    $
                    18,887Construction
      in progress
                    
                    
                    2,449
                    
                    
                    
                    1,690Buildings
      and improvements
                    
                    
                    49,771
                    
                    
                    
                    49,138Machinery
      and equipment
                    
                    
                    242,191
                    
                    
                    
                    238,918Office
      furniture and equipment
                    
                    
                    6,075
                    
                    
                    
                    5,982320,125
                    
                    
                    
                    314,615Accumulated
      depreciation
                    
                    
                    (35,763
                    )
                    
                    
                    (9,265
                    )Property,
      plant and equipment, net
                    
                    $
                    284,362
                    
                    
                    $
                    305,350
  F-12
  Depreciation
expense related to property, plant and equipment was $26,498,000 and $9,181,000
for the years ended December 31, 2009 and 2008, respectively.
  The
Company began depreciating land improvements and its plant assets in
September 2008 as construction of the Wood River and Fairmont plants 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.  The construction retainage amounts
included in property, plant and equipment at December 31, 2008 were
$5,218,000 related to the Fairmont facility and $4,189,000 related to the Wood
River facility. 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.
 
 4.
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 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, 2009 and 2008, 1,196,900 shares and 577,700
shares, respectively, issuable upon the exercise of stock options 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 31,2009
                    
                    
                    2008Weighted
      average common shares outstanding - basic
                    
                    
                    23,792,355
                    
                    
                    
                    15,418,624Potentially
      dilutive common stock equivalentsClass
      B common shares
                    
                    
                    8,744,973
                    
                    
                    
                    17,152,818Restricted
      stock
                    
                    
                    39,341
                    
                    
                    
                    96,2298,784,314
                    
                    
                    
                    17,249,04732,576,669
                    
                    
                    
                    32,667,671Less
      anti-dilutive common stock equivalents
                    
                    
                    (8,784,314
                    )
                    
                    
                    (17,249,047
                    )Weighted
      average common shares outstanding - diluted
                    
                    
                    23,792,355
                    
                    
                    
                    15,418,624
  F-13
  5.
Long-Term Debt
  The
following table summarizes long-term debt (in thousands):
  December
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Term
      (formerly construction) loans
                    
                    $
                    195,387
                    
                    
                    $
                    181,150Subordinated
      debt
                    
                    
                    20,315
                    
                    
                    
                    20,595Working
      capital loans
                    
                    
                    16,500
                    
                    
                    
                    17,000Notes
      payable
                    
                    
                    16,196
                    
                    
                    
                    16,709Capital
      leases
                    
                    
                    2,530
                    
                    
                    
                    2,485250,928
                    
                    
                    
                    237,939Less
      current portion
                    
                    
                    (30,174
                    )
                    
                    
                    (11,588
                    )Long
      term portion
                    
                    $
                    220,754
                    
                    
                    $
                    226,351
 
 In
September 2006, the Operating Subsidiaries entered into a Senior Secured
Credit Facility providing for the availability of $230.0 million of borrowings
(“Senior Debt facility”) with BNP Paribas and a syndicate of lenders to finance
construction and operation of our ethanol plants.  The Senior Debt facility
initially consisted of two construction loans, which together totaled $210.0
million of available borrowings, and working capital loans of up to $20.0
million.  No principal payments were required until the construction loans
were converted to term loans.  Thereafter, principal payments are payable
quarterly at a minimum amount of $3,150,000, with additional pre-payments to be
made out of available cash flow.
 
 The
Operating Subsidiaries received a Notice of Default from the lenders, dated May
22, 2009, asserting that a “material adverse effect” had occurred due to the
Company’s lack of liquidity.  The Company disagreed with the lenders’
assertion that a material adverse effect had occurred and, effective September
29, 2009, the Operating Subsidiaries entered into a Waiver and Amendment to the
Senior Debt facility which converted the two construction loans to two term
loans and waived all defaults previously asserted by the lenders.  At
conversion, the Waiver and Amendment to the Senior Debt facility provided for
$198.6 million of total funded debt under the term loans.  The Operating
Subsidiaries began making quarterly principal payments on September 30,
2009.  The Waiver and Amendment to the Senior Debt facility also provided
for up to $9.7 million in additional loans (the “DSRA Loan Commitment”) to make
future principal and interest payments under the Senior Debt facility.  On
December 31, 2009 the Operating Subsidiaries drew $3.1 million of the DSRA Loan
Commitment and therefore at December 31, 2009 there remained $6.6 million of
availability under the DSRA Loan Commitment   These term loans mature in
September 2014.
 
 The
Senior Debt facility also includes a working capital facility of up to $20.0
million, of which $16.5 million was outstanding as of December 31, 2009.  A
portion of the working capital facility is available to us in the form of
letters of credit. The working capital facility matures on September 26,
2010, and as a result the entire outstanding amount of the working capital
facility was classified as current as of December 31, 2009.  However, with
consent from two-thirds of the lenders, the maturity date of the working capital
facility may be extended to September 26, 2011.
 
 Interest
rates on the Senior Debt facility (term 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 on base rate loans is
payable quarterly and, depending on the LIBOR rate elected, as frequently as
monthly on LIBOR loans, but no less frequently than quarterly.  The
weighted average interest rate in effect on the borrowings at December 31, 2009
was 3.3%.  Neither the Company nor the LLC is a borrower under the Senior
Debt facility, although the equity interests and assets of our subsidiaries are
pledged as collateral to secure the debt under the facility.
 
 While the
Operating Subsidiaries 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 the various covenants described below, and payment of principal and
interest when due.  The Senior Debt facility is secured by a first priority
lien on all right, title and interest in and to the Wood River and Fairmont
plants and any accounts receivable or property associated with those plants and
a pledge of all of our equity interests in our subsidiaries.  The Operating
Subsidiaries have established collateral deposit accounts maintained by an agent
of the banks, into which our revenues are deposited subject to security
interests to secure any outstanding obligations under the Senior Debt
facility.  These funds are then allocated into various sweep accounts held
by the collateral agent, including accounts that provide funds for the operating
expenses of the Operating Subsidiaries.  The collateral accounts have
various provisions, including historical and prospective debt service coverage
ratios and debt service reserve requirements, which determine whether, and the
amount of, cash that can be made available to the LLC from the collateral
accounts each month.  The terms of the Senior Debt facility also include
covenants that impose certain limitations on, among other things, the ability of
the Operating Subsidiaries to incur additional debt, grant liens or
encumbrances, declare or pay dividends or distributions, conduct asset sales or
other dispositions, merge or consolidate, and conduct transactions with
affiliates.  The terms of the Senior Debt facility also include customary
events of default including failure to meet payment obligations, failure to pay
financial obligations, failure of the Operating Subsidiaries of the LLC to
remain solvent and failure to obtain or maintain required governmental
approvals.  Under the terms of separate Management Services Agreements
between our Operating Subsidiaries and the LLC, the Operating Subsidiaries pay a
monthly management fee of $834,000 to the LLC to provide for salaries, rent, and
other operating expenses of the LLC, which payments are unaffected by the terms
of the Senior Debt facility or the collateral accounts.
  F-14
  As of
December 31, 2009, the Operating Subsidiaries had $211.9 million
outstanding under the Senior Debt facility, which included $195.4 million of
outstanding term loans and $16.5 million of outstanding working capital
loans.  In addition, the Operating Subsidiaries had $1.0 million in letters
of credit outstanding that are secured by borrowing availability under the
working capital facility.
 
 A
quarterly commitment fee of 0.50% per annum on the unused portion of available
Senior Debt facility is payable.  Debt issuance fees and expenses of
approximately $8.5 million ($5.0 million, net of accumulated amortization) have
been incurred in connection with the Senior Debt facility at December 31,
2009.  These costs have been deferred and are being amortized over the term
of the Senior Debt 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.
 
 In
September 2006, the LLC entered into a loan agreement with certain
Class A unitholders (the “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 LLC did not make the scheduled quarterly interest payments that
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 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 LLC’s failure to make 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, 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.  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 Senior
Debt facility would also constitute a default under our Subordinated Debt and
would entitle the lenders to accelerate the repayment of amounts
outstanding.
 
 Debt
issuance fees and expenses of approximately $5.5 million ($1.4 million, net of
accumulated amortization) have been incurred in connection with the Subordinated
Debt at December 31, 2009.  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.
 
 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. 
See Note 8 — Derivative Financial Instruments.  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 in
the Cargill 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 as a troubled debt
restructuring.  As the future cash payments specified by the terms of the
Cargill Agreement exceed the carrying amount of the debt before the $3.0 million
was 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 should be
recorded.
  F-15
  As of
December 31, 2009 the Company has three letters of credit outstanding which
total $1,040,000.  These letters of credit have been provided as collateral
to 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
borrowing availability under the working capital facility.
 
 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 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 fixed interest rates (weighted average rate of
approximately 5.6%) 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.  In
addition, the subsidiary of the LLC that constructed the Wood River facility has
entered in a note payable for $419,000 with the City of Wood River for special
assessments related to street, water, and sanitary improvements at our Wood
River facility.  This note requires 10 annual payments of $58,000,
including interest at 6.5% per annum, and matures in 2018.
 
 The
following table summarizes the aggregate maturities of our long term debt as of
December 31, 2009 (in thousands):
  2010
                    
                    $
                    30,1742011
                    
                    
                    12,9972012
                    
                    
                    12,7052013
                    
                    
                    12,6482014
                    
                    
                    145,038Thereafter
                    
                    
                    37,366Total
                    
                    $
                    250,928
  6.
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 subsidiary of 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 or the subsidiary of the LLC fails to
make the required payments to the holder of the note.  Semiannual principal
payments on the tax increment revenue note began in June 2008.  Due to
delays in the plant construction, property taxes on the plant in 2008 and 2009
were lower than anticipated and therefore, the subsidiary of the LLC was
required to pay $468,000 and $760,000 in 2009 and 2008, respectively as a
portion of the note payments.
 F-16
  The
following table summarizes the aggregate maturities of the tax increment
financing debt as of December 31, 2009 (in thousands):
  2010
                    
                    $
                    3182011
                    
                    
                    3432012
                    
                    
                    3702013
                    
                    
                    3992014
                    
                    
                    431Thereafter
                    
                    
                    4,048Total
                    
                    $
                    5,909
  7.
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, 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 being held as treasury stock.  As of
December 31, 2009, there were no plans to repurchase any additional
shares.
 
 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 facility 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.
 
 8.
Derivative Financial Instruments
  On
January 1, 2009, the Company adopted new disclosure requirements related to
its derivative financial instruments.  The adoption of these new
requirements had no financial impact on our consolidated financial statements
and only required additional financial statement disclosures.  We have
applied these requirements on a prospective basis.  Accordingly, disclosure
related to periods prior to the date of adoption have not been
presented.
 
 We use
interest rate swaps to manage the economic effect of variable interest
obligations associated with our floating rate Senior Debt facility so that the
interest payable on a portion of the principal value of the Senior Debt facility
effectively becomes fixed at a certain rate, thereby reducing the impact of
future interest rate changes on our future interest expense. The unrealized
losses on these interest rate swaps are included in accumulated other
comprehensive income (loss) and the corresponding fair value liabilities are
included in the current portion of derivative financial instrument liability in
our consolidated balance sheet.  The monthly interest settlements are
reclassified from other comprehensive income (loss) to interest expense as they
are settled each month.  The full amount of accumulated other comprehensive
income (loss) at December 31, 2009 relates to one interest rate swap and
will be reclassified to the statement of operations in the first two months of
2010 as it expires.  See Note 5 for further discussion of interest rates on
the Senior Debt facility.
 
 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 was for $60.0 million principal with a fixed interest rate of 4.65%,
payable by the subsidiary and the variable interest rate, the one-month LIBOR,
payable by the third party.  The difference between the subsidiary’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 interest rate swap expired
in September 2009, and therefore, there is no fair value for this swap on the
consolidated balance sheet at December 31, 2009.  The LLC made
payments under this swap arrangement for the years ended December 31, 2009
and 2008, totaling $1,941,000, and $1,071,000, respectively.  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.
 
 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 subsidiary and the variable interest rate, the one-month LIBOR,
payable by the third party.  The difference between the subsidiary’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
($315,000) has been recorded as a derivative financial instrument liability and
in accumulated other comprehensive income on the consolidated balance sheet at
December 31, 2009.  The LLC made net payments under this swap
arrangement for the years ended December 31, 2009 and 2008 totaling
$1,233,000, and $27,000, respectively.  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.
  F-17
  During
the second quarter of 2008, the LLC entered into various derivative financial
instruments with Cargill such as futures contracts, swaps and options contracts,
with the objective of limiting our exposure to changes in commodities prices for
corn and ethanol.  During August 2008, the market price of corn
declined sharply, exposing the LLC to large losses and significant unmet margin
calls under those contracts.  Cargill began liquidating the hedging
contracts in August 2008 and by September 30, 2008 the LLC was no
longer a party to any hedging 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 hedging contracts.  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 Debt in Note 5 — Long Term Debt.
 
 The
effects of derivative instruments on our consolidated financial statements were
as follows as of December 31, 2009 and for the year then ended (amounts
presented exclude any income tax effects and have not been adjusted for the
amount attributable to the noncontrolling interest):
 
 Fair
Value of Derivative Instruments in Consolidated Balance Sheet
 
 December 31, 2009(In thousands)
                          
                          Balance Sheet
                            Location
                          
                          Fair ValueCash
      flow hedges:Interest
      rate swap agreement designated as cash flow hedge
                          
                          Current
      portion of
                            derivative
      financial
                            instrument
      liability
                          
                          $
                          (315
                          )
 
 Effects
of Derivative Instruments on Income and Other Comprehensive Income
(Loss)
 Amount of Gain
                                                              (Loss) recognized in
                                                              Accumulated OCI
                                                              on Derivative
                                                              (effective Portion)
                                                            
                                                            
                                                            Amount and
                                                              Location of Gain
                                                              (Loss) Reclassified
                                                              from Accumulated
                                                              OCI into Income
                                                              (effective Portion)
                                                            
                                                            
                                                            
                                                            Amount and Location of Gain (Loss)
                                                              Recognized in Income on Derivative
                                                              (Ineffective Portion and Amount
                                                              Excluded from Effectiveness Testing)12 Months Ended
                                                            
                                                            
                                                            12 Months Ended
                                                            
                                                            
                                                            
                                                            Twelve Months Ended(In thousands)
                                                            
                                                            December 31, 2009
                                                            
                                                            
                                                            December 31, 2009
                                                            
                                                            
                                                            
                                                            December 31, 2009Cash
      flow hedges:Interest
      Rate Swap
                                                            
                                                            $
                                                            (749
                                                            )
                                                            
                                                            $
                                                            (3,174
                                                            )
                                                            Interest
                                                              expense
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            Interest expense
 
 Effective
January 1, 2008, the Company adopted the framework for measuring fair value
and the expanded disclosures about fair value measurements.  In accordance
with these provisions, 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 Company’s 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-18
  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:
 
 ·
              Quoted
      prices for identical or similar assets or liabilities in non-active
      markets (examples include corporate and municipal bonds which trade
      infrequently);
 
 ·
              Inputs
      other than quoted prices that are observable for substantially the full
      term of the asset or liability (examples include interest rate and
      currency swaps); and
 
 ·
              Inputs
      that are derived principally from or corroborated by observable market
      data for substantially the full term of the asset or liability (examples
      include certain securities and
derivatives).
 
 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.
 
 Level 2
                            
                            December
      31,
                            
                            
                            December 31,(in thousands)
                            
                            
                            2009
                            
                            
                            2008Financial
      Liabilities:Interest
      rate swaps
                            
                            $
                            (315
                            )
                            
                            $
                            (2,741
                            )Total
      liabilities
                            
                            $
                            (315
                            )
                            
                            $
                            (2,741
                            )Total
      net position
                            
                            $
                            (315
                            )
                            
                            $
                            (2,741
                            )
 
 The fair
value of our interest rate swaps are primarily derived from market data,
primarily market rates for Eurodollar futures and adjusted for credit
risk.
 
 9.
Stock-Based Compensation
  The
following table summarizes the stock based compensation incurred by the
Company:
  Years
      Ended,(In thousands)
                    
                    
                    December 31,
      2009
                    
                    
                    December 31,
      2008Stock
      options
                    
                    $
                    309
                    
                    
                    $
                    462Restricted
      stock
                    
                    
                    104
                    
                    
                    
                    220Total
                    
                    $
                    413
                    
                    
                    $
                    682
 
 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.
  F-19
  During
the years ended December 31, 2009 and December 31, 2008, the Company issued
920,000 and 299,025 stock options, respectively 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 years ended December 31, 2009 and
2008.   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 in 2008, the expected option term in 2008 was calculated
using the simplified method.
  The weighted average variables used in
calculating fair value and the resulting compensation expense in the years ended
December 31, 2009 and 2008 are as follows:
  Years
      Ended
                      December 31,2009
                  
                  
                  2008Expected
      stock price volatility
                  
                  
                  163
                  %
                  
                  
                  58
                  %Expected
      life (in years)
                  
                  
                  3.1
                  
                  
                  
                  3.6Risk-free
      interest rate
                  
                  
                  2.30
                  %
                  
                  
                  2.70
                  %Expected
      dividend yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %Expected
      forfeiture rate
                  
                  
                  34.00
                  %
                  
                  
                  35.00
                  %Weighted
      average grant date fair value
                  
                  $
                  2.65
                  
                  
                  $
                  2.32
 A summary
of the status of outstanding stock options at December 31, 2009 and the
changes during the year ended December 31, 2009 is as follows:
  Shares
                
                
                Weighted
                    Average
                    Exercise
                    Price
                
                
                Weighted
                    Average
                    Remaining
                    Life
      (years)
                
                
                Aggregate
                    Intrinsic
                    Value
                
                
                Unrecognized
                    Remaining
                    Compensation
                    ExpenseOptions
      outstanding, January 1, 2009
                
                
                557,700
                
                
                $
                7.75Granted
                
                
                920,000
                
                
                
                3.11Exercised
                
                
                —
                
                
                
                —Forfeited
                
                
                (280,800
                )
                
                
                8.54Options
      outstanding, December 31, 2009
                
                
                1,196,900
                
                
                $
                4.00
                
                
                
                4.5
                
                
                $
                59,400Options
      vested or expected to vest at December 31, 2009
                
                
                739,560
                
                
                $
                4.39
                
                
                
                4.3
                
                
                $
                50,359
                
                
                $
                1,344,585Options
      exercisable, December 31, 2009
                
                
                158,504
                
                
                $
                7.30
                
                
                
                2.9
                
                
                $
                —
 
 Restricted Stock—In
the year ended December 31, 2009, the Company granted 15,000 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, 2009 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, 2009
                
                
                76,307
                
                
                $
                8.32Granted
                
                
                15,000
                
                
                
                0.73Vested
                
                
                (31,787
                )
                
                
                5.82Cancelled
      or expired
                
                
                (34,558
                )
                
                
                10.00Restricted
      stock outstanding, December 31, 2009
                
                
                24,962
                
                
                $
                4.63
                
                
                
                3.6
                
                
                $
                67,647Restricted
      stock expected to vest at December 31, 2009
                
                
                19,451
                
                
                $
                4.11
                
                
                
                3.7
                
                
                $
                52,712
                
                $
                67,649
  F-20
  The
remaining unrecognized option and restricted stock expense will be recognized
over 2.4 and 1.4 years, respectively.  After considering the stock option
and restricted stock awards issued and outstanding, net of forfeitures, the
Company had 1,707,344 shares of common stock available for future grant under
our 2007 Plan at December 31, 2009.
 
 10.
Income Taxes
  The
Company has not recognized any income tax provision (benefit) for the years
ended December 31, 2009, and 2008.  At December 31, 2008, the
Company recognized a current tax receivable of $305,000, related to an expected
tax refund which was received in 2009.
  The U.S.
statutory federal income tax rate is reconciled to the Company’s effective
income tax rate as follows:
  Years
      Ended,December 31,
      2009
                  
                  
                  December 31,
      2008Statutory
      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,
                      2009
                  
                  
                  December 31,
                      2008Deferred
      tax assets:Capitalized
      start up costs
                  
                  $
                  4,216
                  
                  
                  $
                  4,528Net
      unrealized loss on derivatives
                  
                  
                  36
                  
                  
                  
                  712Stock
      options
                  
                  
                  179
                  
                  
                  
                  —Net
      operating loss carryover
                  
                  
                  48,879
                  
                  
                  
                  20,993Other
                  
                  
                  33
                  
                  
                  
                  779Deferred
      tax asset
                  
                  
                  53,343
                  
                  
                  
                  27,012Valuation
      allowance
                  
                  
                  (24,130
                  )
                  
                  
                  (18,412
                  )Deferred
      tax liabilities:Property,
      plant and equipment
                  
                  
                  (29,213
                  )
                  
                  
                  (8,600
                  )Deferred
      tax liabilities
                  
                  
                  (29,213
                  )
                  
                  
                  (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 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, 2009, the net operating loss carryforward is $130 million,
which will begin to expire if not used by December 31, 2028.  The
U.S. federal statute of limitations remains open for our 2006 and
subsequent tax years.
  F-21
  11.
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.  No funds were contributed to the plan in the year ended
December 31, 2009.  Approximately $28,000 of employee deferrals was
contributed to the plan in the year ended December 31, 2008.  These
funds incurred a gain in value of $11,000 in the year ended December 31,
2009 and a loss in value of $25,000 in the year ended December 31,
2008.  These deferrals, which totaled $41,000 and $30,000 at December 31,
2009 and 2008, respectively, have been recorded as other assets and other
non-current liabilities on the consolidated balance sheet at December 31, 2009
and 2008.
 
 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 totaled $347,000 and $179,000 for the years ended December 31, 2009
and 2008, respectively.
  12.
Commitments and Contingencies
  The LLC,
through its subsidiaries, entered into two operating lease agreements with
Cargill. 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 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. Effective September 1, 2009, the
subsidiaries and Cargill entered into Omnibus Agreements whereby the two
operating lease agreements were modified, for a period of one year, to defer a
portion of the monthly lease payments. The deferred lease payments will be
payable to Cargill over a two year period beginning September 1,
2010.
 
 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 an average of approximately $7.4 million per year
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 that 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.
  F-22
  Future
minimum operating lease payments at December 31, 2009 are as follows (in
thousands):
  2010
                    
                    $
                    9,4272011
                    
                    
                    10,4612012
                    
                    
                    10,0362013
                    
                    
                    9,4962014
                    
                    
                    9,276Thereafter
                    
                    
                    49,580Total
                    
                    $
                    98,276
 
 Rent
expense recorded for the years ended December 31, 2009, and 2008, totaled
$9,466,000 and $6,621,000, 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.
 
 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.  The subsidiaries of the LLC entered into
settlement agreements with TIC, effective December 11, 2008, that settled
certain outstanding issues between the parties under the terms of the EPC
contracts.  Among the items agreed to were that each plant 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 in the consolidated balance sheets 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.  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 totaled $248.9
million, which was recorded 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.  In March 2010, the subsidiaries of the LLC
entered into warranty settlement agreements with TIC which settled all remaining
warranty obligations of TIC.  In exchange for the subsidiaries of the LLC
agreeing to release TIC from any and all present and future warranty
obligations, TIC agreed to pay $600,000 for each plant to a vendor currently
doing equipment replacement fabrication for each plant.
 
 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.  Effective
September 1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements
whereby the two corn supply agreements were modified, for a period of one year,
extending payment terms for our corn purchases which payment terms will revert
back to the original terms on September 1, 2010.
 
 At
December 31, 2009, the LLC had committed, through its subsidiaries, to
purchase 7,144,000 bushels of corn to be delivered between January 2010 and
January 2011 at our Fairmont location, and 7,230,000 bushels of corn to be
delivered between January 2010 and March 2011 at our Wood River location. 
These purchase commitments represent 16% and 14% of the projected corn
requirements 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.
  F-23
  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.  Effective
September 1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements
whereby the two ethanol marketing agreements were modified, for a period of one
year, to defer a portion of the monthly ethanol commission payments.  The
deferred commission payments will be payable to Cargill over a two year period
beginning September 1, 2010.
 
 13.
Noncontrolling Interest
  Noncontrolling
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 LLC membership units and Class B common
shares.  Each LLC membership 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.
 
 Exchange
of LLC Units
 
 LLC
membership 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:
 
 LLC
      Membership Units and Class B common shares outstanding at initial
      public offering, June 2007
                        
                        
                        17,957,896LLC
      Membership Units and Class B common shares exchanged in
      2007
                        
                        
                        (561,210
                        )LLC
      Membership Units and Class B common shares exchanged in
      2008
                        
                        
                        (7,314,438
                        )LLC
      Membership Units and Class B common shares exchanged in
      2009
                        
                        
                        (2,633,663
                        )Remaining
      LLC Membership Units and Class B common shares at December 31,
      2009
                        
                        
                        7,448,585
 
 At the
time of its initial public offering, the Company owned 28.9% of the LLC
membership units of the LLC. At December 31, 2009, the Company owned 77.1%
of the LLC membership units. The noncontrolling interest will continue to be
reported until all Class B common shares and LLC membership units have been
exchanged for the Company’s common stock.
   F-24
    Net
Loss Attributable to BioFuel Energy Corp.’s common
shareholders and
 Transfers
(to) from the Noncontrolling Interest
 
 Years
      EndedDecember
      31,
                  
                  
                  December
      31,2009
                  
                  
                  2008Net loss
      attributable to BioFuel Energy Corp. common shareholders
                  
                  $
                  (13,630
                  )
                  
                  $
                  (40,865
                  )Transfers
      (to) from the noncontrolling interestIncrease
      in BioFuel Energy Corp. stockholders’ equity
      from issuance of common shares in exchange for Class B
      common shares and units of BioFuel Energy, LLC
                  
                  
                  2,142
                  
                  
                  
                  3,269Net
      transfers (to) from noncontrolling interest
                  
                  
                  2,142
                  
                  
                  
                  3,269Change
      from net income (loss) attributable to BioFuel Energy Corp.'s common
      shareholders and transfers (to) from noncontrolling
      interest
                  
                  $
                  (11,488
                  )
                  
                  $
                  (37,596
                  )
 
 Tax Benefit Sharing
Agreement
 
 Membership
units 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.
 
 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 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 units, 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 units or shares of common stock from the management
members.
  F-25
  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 which is June 2012.  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 units exchangeable for shares) held by
them deemed to have been sold at the then-current trading price. If the number
of LLC membership units held by the management members at the time of the
offering is greater than the number of LLC membership units 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 units or an equivalent number
of shares of common stock. Conversely, if the number of LLC membership units the
management members held at the time of the offering is less than the number of
LLC membership units 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 units 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 LLC membership units, 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.
 
 14.
Quarterly Financial Data (unaudited)
  The
following table sets forth certain unaudited financial data for each of the
quarters within fiscal 2009 and 2008. 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 the
quarters presented. The operating results of any quarter are not necessarily
indicative of results for any future period.
  Year
      Ended December 31, 2009
                          
                          1st
                              Quarter
                          
                          
                          2nd
                              Quarter
                          
                          
                          3rd
                              Quarter
                          
                          
                          4th
                              Quarter(in
      thousands, except per share data)Net
      sales
                          
                          $
                          97,494
                          
                          
                          $
                          106,464
                          
                          
                          $
                          91,138
                          
                          
                          $
                          120,418Cost
      of goods sold
                          
                          
                          102,565
                          
                          
                          
                          107,307
                          
                          
                          
                          89,039
                          
                          
                          
                          105,839Gross
      profit (loss)
                          
                          
                          (5,071
                          )
                          
                          
                          (843
                          )
                          
                          
                          2,099
                          
                          
                          
                          14,579General
      and administrative expenses:Compensation
      expense
                          
                          
                          1,504
                          
                          
                          
                          1,580
                          
                          
                          
                          1,467
                          
                          
                          
                          1,609Other
                          
                          
                          1,138
                          
                          
                          
                          2,652
                          
                          
                          
                          4,270
                          
                          
                          
                          1,267Other
      operating expense
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          150
                          
                          
                          
                          —Operating
      income (loss)
                          
                          
                          (7,713
                          )
                          
                          
                          (5,075
                          )
                          
                          
                          (3,788
                          )
                          
                          
                          11,703Other
      income (expense):Interest
      income
                          
                          
                          34
                          
                          
                          
                          27
                          
                          
                          
                          13
                          
                          
                          
                          4Interest
      expense
                          
                          
                          (3,501
                          )
                          
                          
                          (3,937
                          )
                          
                          
                          (4,598
                          )
                          
                          
                          (2,870
                          )Other
      non-operating income (expense)
                          
                          
                          2
                          
                          
                          
                          (3
                          )
                          
                          
                          —
                          
                          
                          
                          —Income
      (loss) before income taxes
                          
                          
                          (11,178
                          )
                          
                          
                          (8,988
                          )
                          
                          
                          (8,373
                          )
                          
                          
                          8,837Income
      tax provision (benefit)
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      income (loss)
                          
                          
                          (11,178
                          )
                          
                          
                          (8,988
                          )
                          
                          
                          (8,373
                          )
                          
                          
                          8,837Less:
      Net (income) loss attributable to the noncontrolling
    interest
                          
                          
                          3,468
                          
                          
                          
                          2,454
                          
                          
                          
                          2,139
                          
                          
                          
                          (1,989
                          )Net
      income (loss) attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (7,710
                          )
                          
                          $
                          (6,534
                          )
                          
                          $
                          (6,234
                          )
                          
                          $
                          6,848Income
      (loss) per share – basic attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (0.34
                          )
                          
                          $
                          (0.28
                          )
                          
                          $
                          (0.26
                          )
                          
                          $
                          0.27Income
      (loss) per share – diluted attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (0.34
                          )
                          
                          $
                          (0.28
                          )
                          
                          $
                          (0.26
                          )
                          
                          $
                          0.21
  F-26
 
 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)
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      income (loss)
                          
                          
                          (3,576
                          )
                          
                          
                          2,383
                          
                          
                          
                          (70,641
                          )
                          
                          
                          (12,293
                          )Less:
      Net (income) loss attributable to the noncontrolling
    interest
                          
                          
                          1,798
                          
                          
                          
                          (1,435
                          )
                          
                          
                          37,493
                          
                          
                          
                          5,406Net
      income (loss) attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (1,778
                          )
                          
                          $
                          948
                          
                          
                          $
                          (33,148
                          )
                          
                          $
                          (6,887
                          )Income
      (loss) per share – basic attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (0.12
                          )
                          
                          $
                          0.06
                          
                          
                          $
                          (2.18
                          )
                          
                          $
                          (0.43
                          )Income
      (loss) per share – diluted attributable to BioFuel Energy Corp. common
      shareholders
                          
                          $
                          (0.12
                          )
                          
                          $
                          0.03
                          
                          
                          $
                          (2.18
                          )
                          
                          $
                          (0.43
                          )
  F-27
 
 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,
                                                
                                                
                                                December
      31,2009
                                                
                                                
                                                2008AssetsIncome
      tax receivable
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                305Investment
      in BioFuel Energy, LLC
                                                
                                                
                                                72,477
                                                
                                                
                                                
                                                83,126Total
      assets
                                                
                                                $
                                                72,477
                                                
                                                
                                                $
                                                83,431Stockholders'
      equityCommon
      stock, $0.01 par value; 100.0 million shares authorized and
      25,932,741shares outstanding at December 31, 2009 and 23,318,636 shares
      outstanding at December 31, 2008
                                                
                                                $
                                                259
                                                
                                                
                                                $
                                                233Class
      B common stock, $0.01 par value; 50.0 million shares authorized and
      7,448,585 shares outstanding at December 31, 2009 and 10,082,248 shares
      outstanding at December 31, 2008
                                                
                                                
                                                74
                                                
                                                
                                                
                                                101Less
      Common stock held in treasury, at cost, 809,606 shares
                                                
                                                
                                                (4,316
                                                )
                                                
                                                
                                                (4,316
                                                )Additional
      paid-in capital
                                                
                                                
                                                137,037
                                                
                                                
                                                
                                                134,360Accumulated
      deficit
                                                
                                                
                                                (60,577
                                                )
                                                
                                                
                                                (46,947
                                                )Total
      stockholders' equity
                                                
                                                $
                                                72,477
                                                
                                                
                                                $
                                                83,431Condensed
      Statement of LossYear
      Ended,
                                                
                                                
                                                Year
      Ended,December 31, 2009
                                                
                                                
                                                December 31, 2008Equity
      in loss of BioFuel Energy, LLC
                                                
                                                $
                                                (13,598
                                                )
                                                
                                                $
                                                (40,181
                                                )Stock
      based compensation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (682
                                                )Other
      expenses
                                                
                                                
                                                (32
                                                )
                                                
                                                
                                                (2
                                                )Net
      loss
                                                
                                                $
                                                (13,630
                                                )
                                                
                                                $
                                                (40,865
                                                )Condensed
      Statement of Cash FlowsYear
      Ended,
                                                
                                                
                                                Year
      Ended,December 31, 2009
                                                
                                                
                                                December 31, 2008Cash
      flow from operating activitiesNet
      loss
                                                
                                                $
                                                (13,630
                                                )
                                                
                                                $
                                                (40,865
                                                )Adjustment
      to reconcile net loss to net cash used in operating
    activitiesStock
      based compensation expense
                                                
                                                
                                                -
                                                
                                                
                                                
                                                682Equity
      in loss of BioFuel Energy, LLC
                                                
                                                
                                                13,598
                                                
                                                
                                                
                                                40,181Net
      cash used in operating activities
                                                
                                                
                                                (32
                                                )
                                                
                                                
                                                (2
                                                )Cash
      flows from investing activitiesDistributions
      from BioFuel Energy, LLC
                                                
                                                
                                                32
                                                
                                                
                                                
                                                2,278Net
      cash provided by investing activities
                                                
                                                
                                                32
                                                
                                                
                                                
                                                2,278Cash
      flows from financing activitiesPurchase
      of treasury stock
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,276
                                                )Net
      cash used in financing activities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,276
                                                )Cash
      and equivalents at end of period
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
  F-28
  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 evaluation to document and test
internal controls. During the course of our evaluation, we concluded  that
no change in internal control over financial reporting occurred during the
quarter ended December 31, 2009, that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
  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 statements 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 reporting financial information. Further, because of
changes in conditions, effectiveness of internal control over financial
reporting may vary over time.
  A
material weakness 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. Based on this assessment, management concluded that our internal
control over financial reporting was effective as of December 31,
2009.
  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.
  47
  ITEM
9B.  OTHER INFORMATION
  None.
  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, 2009.
  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
sections of our 2009 Proxy Statement entitled “Security Ownership of Certain
Beneficial Owners and Management” and “Executive Compensation—Equity
Compensation Plan Information” are 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.
  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.
  48
  EXHIBIT
INDEX
  (a)
              Exhibits
  Number
                
                Description3.1
                
                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).10.2.1
                
                Waiver
      and Amendment dated September 29, 2009, to the Credit Agreement dated
      September 25, 2006 and Collateral Account Agreement dated September 25,
      2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K filed September 30, 2009).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).10.5
                
                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).
 49
  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).10.15
                
                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).10.25.1
                *
                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).
 50
  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
                
                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
                
                Agreement
      and Omnibus Amendment dated as of July 30, 2009, among Buffalo Lake
      Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc.
      (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
      Report on Form 10-Q filed August 14, 2009).10.33
                
                Agreement
      and Omnibus Amendment dated as of July 30, 2009, among Pioneer Trail
      Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc.
      (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
      Report on Form 10-Q filed August 14, 2009).21.1
                
                List
      of Subsidiaries of BioFuel Energy Corp.23.1
                
                Consent
      of Grant Thornton LLP, Independent Registered Public Accounting
      Firm31.1
                
                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
  
 *
              Denotes
      Management Contract or Compensatory Plan or
  Arrangement
  51
  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 30, 2010
                By:
                /s/
      Scott
      H. PearceScott
      H. PearcePresident,
      Chief Executive Officer and DirectorDate:
      March 30, 2010
                By:
                /s/
      Kelly
      G. MaguireKelly
      G. MaguireVice
      President—Finance and Chief FinancialOfficer
 
 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
                
                Chairman
      of the Board
                
                March 30,
      2010Mark
      Wong/s/
      Scott
      H. Pearce
                
                Chief
      Executive Officer, President and Director
                
                March 30,
      2010Scott
      H. Pearce
                
                (Principal
      Executive Officer)/s/
      Kelly
      G. Maguire
                
                Vice
      President—Finance and Chief Financial
                
                March 30,
      2010Kelly
      G. Maguire
                
                Officer
      (Principal Financial Officer and PrincipalAccounting
      Officer)/s/
      David
      Einhorn
                
                Director
                
                March 30,
      2010David
      Einhorn/s/
      Alexander
      P. Lynch
                
                Director
                
                March 30,
      2010Alexander
      P. Lynch/s/
      Elizabeth
      K. Blake
                
                Director
                
                March 30,
      2010Elizabeth
      K. Blake/s/
      John
      D. March
                
                Director
                
                March 30,
      2010John
      D. March/s/
      Richard
      Jaffee
                
                Director
                
                March 30,
      2010Richard
      Jaffee
  52
  (This
page has been left blank intentionally.)