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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended: March 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 000-50282



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PANDA ETHANOL, INC.

(Exact name of
registrant as specified in its charter)



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|                                |  |                    
|------------------------------- |  | -------------------
|Nevada                          |  | 33-0986282         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

4100 Spring Valley, Suite 1002

Dallas, Texas

75244

(Address of principal executive offices)

(Zip Code)

(972) 361-1200

(Registrants telephone number, including area code)



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

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  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 number of shares of registrants common stock outstanding as of May 9, 2007: 31,066,659.



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PART 1 - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

PANDA ETHANOL, INC.

AND SUBSIDIARIES

(A Development Stage Enterprise)

CONDENSED CONSOLIDATED BALANCE SHEETS



(UNAUDITED)



|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | -------------- | - | ----------- | -
|                                                                                                                                                                            |  | December 31,2006 |             |   | March 31, 2007 |  
|ASSETS                                                                                                                                                                      |  |                  |             |   |                |   |             |  
|                                                                                                                                                                            |  |                 
|Current assets:                                                                                                                                                             |  |                  |             |   |                |   |             |  
|Cash and cash equivalents                                                                                                                                                   |  | $                | 15,413,529  |   |                | $ | 12,364,230  |  
|Restricted cash and cash equivalents                                                                                                                                        |  |                  | 135,607,427 |   |                |   | 130,082,537 |  
|Accounts receivable from former parent                                                                                                                                      |  |                  | 32,265      |   |                |   |            |  
|Restricted short-term investments                                                                                                                                           |  |                  | 12,495,335  |   |                |   |            |  
|Prepaid expenses and other current assets                                                                                                                                   |  |                  | 932,214     |   |                |   | 641,224     |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total current assets                                                                                                                                                        |  |                  | 164,480,770 |   |                |   | 143,087,991 |  
|                                                                                                                                                                            |  |                 
|Property, plant and equipment:                                                                                                                                              |  |                  |             |   |                |   |             |  
|Construction in progress                                                                                                                                                    |  |                  | 66,087,367  |   |                |   | 90,995,701  |  
|Development costs                                                                                                                                                           |  |                  | 2,084,463   |   |                |   | 2,570,291   |  
|Furniture and fixtures                                                                                                                                                      |  |                  | 76,693      |   |                |   | 236,518     |  
|Accumulated depreciation                                                                                                                                                    |  |                  | (3,079      | ) |                |   | (15,632     | )
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total property, plant and equipment, net                                                                                                                                    |  |                  | 68,245,444  |   |                |   | 93,786,878  |  
|                                                                                                                                                                            |  |                 
|Debt issuance costs, net of accumulated amortization of $520,393 and $831,472 at December 31, 2006 and March 31, 2007,
respectively                                         |  |                  | 8,902,699   |   |                |   | 8,591,620   |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total assets                                                                                                                                                                |  | $                | 241,628,913 |   |                | $ | 245,466,489 |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|                                                                                                                                                                            |  |                 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                        |  |                  |             |   |                |   |             |  
|                                                                                                                                                                            |  |                 
|Current liabilities:                                                                                                                                                        |  |                  |             |   |                |   |             |  
|Accounts payable and accrued liabilitiesproperty, plant and equipment                                                                                                      |  | $                | 6,309,361   |   |                | $ | 12,081,014  |  
|Accounts payable and accrued liabilitiesoperating expenses                                                                                                                 |  |                  | 1,051,919   |   |                |   | 1,120,291   |  
|Accounts payable to former parentoperating expenses                                                                                                                        |  |                  |            |   |                |   | 11,131      |  
|Accrued interest                                                                                                                                                            |  |                  | 491,497     |   |                |   | 491,130     |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total current liabilities                                                                                                                                                   |  |                  | 7,852,777   |   |                |   | 13,703,566  |  
|                                                                                                                                                                            |  |                 
|Financial derivatives                                                                                                                                                       |  |                  | 7,659,400   |   |                |   | 12,227,240  |  
|                                                                                                                                                                            |  |                 
|Long-term debt, net                                                                                                                                                         |  |                  | 136,369,890 |   |                |   | 137,562,462 |  
|                                                                                                                                                                            |  |                 
|Commitments and contingencies (Notes 3 and 5)                                                                                                                               |  |                  |             |   |                |   |             |  
|                                                                                                                                                                            |  |                 
|Temporary equitypayable to former parent                                                                                                                                   |  |                  | 4,301,558   |   |                |   | 4,301,558   |  
|                                                                                                                                                                            |  |                 
|Shareholders equity:                                                                                                                                                       |  |                  |             |   |                |   |             |  
|Preferred stock, par value $.001; 100,000,000 shares authorized; none issued and outstanding                                                                                |  |                  |            |   |                |   |            |  
|Common stock, par value $.001; 250,000,000 shares authorized; 31,066,667 and 31,066,659 shares issued and outstanding at December 31, 2006 and
March 31, 2007, respectively |  |                  | 31,067      |   |                |   | 31,067      |  
|Additional contributed capital                                                                                                                                              |  |                  | 104,405,191 |   |                |   | 104,673,413 |  
|Accumulated other comprehensive losses                                                                                                                                      |  |                  | (513,400    | ) |                |   | (705,240    | )
|Deficit accumulated during the development stage                                                                                                                            |  |                  | (18,477,570 | ) |                |   | (26,327,577 | )
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total shareholders equity                                                                                                                                                  |  |                  | 85,445,288  |   |                |   | 77,671,663  |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  
|Total liabilities and shareholders equity                                                                                                                                  |  | $                | 241,628,913 |   |                | $ | 245,466,489 |  
|                                                                                                                                                                            |  |                  |             |   |                |   |             |  

See notes to unaudited condensed consolidated financial statements.



1



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PANDA ETHANOL, INC.

AND SUBSIDIARIES

(A Development Stage Enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2007,

AND FOR THE PERIOD FROM INCEPTION THROUGH MARCH 31, 2007

(UNAUDITED)



|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- | ------------------------------ | ---------- | - |  | - | ---------- | -
|                                                                     |  | Three Months Ended March 31, |            |      | InceptionThroughMarch 31, 2007 |           
|                                                                     |  | 2006                         |            | 2007 |                                |           
|Development and administrative expenses:                             |  |                              |            |      |                                |            |   |  |   |            |  
|Development and administrative expenses allocated from former parent |  | $                            | 1,847,552  |      | $                              | 134,019    |   |  | $ | 12,303,762 |  
|Other development and administrative expenses                        |  |                              | 597,935    |      |                                | 3,534,988  |   |  |   | 11,682,688 |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|Total development and administrative expenses                        |  |                              | 2,445,487  |      |                                | 3,669,007  |   |  |   | 23,986,450 |  
|                                                                     |  |                              |           
|Other expense (income):                                              |  |                              |            |      |                                |            |   |  |   |            |  
|Interest income                                                      |  |                              |           |      |                                | (1,760,259 | ) |  |   | (5,491,092 | )
|Interest expense and letter of credit fees                           |  |                              |           |      |                                | 1,429,904  |   |  |   | 4,567,793  |  
|Amortization of debt issuance costs                                  |  |                              |           |      |                                | 122,802    |   |  |   | 394,794    |  
|Depreciation                                                         |  |                              |           |      |                                | 12,553     |   |  |   | 15,632     |  
|Increase in fair value of financial derivative                       |  |                              |           |      |                                | 4,376,000  |   |  |   | 2,854,000  |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|Total other expense (income)                                         |  |                              |           |      |                                | 4,181,000  |   |  |   | 2,341,127  |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|                                                                     |  |                              |           
|Net loss                                                             |  | $                            | 2,445,487  |      | $                              | 7,850,007  |   |  | $ | 26,327,577 |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|                                                                     |  |                              |           
|Net loss per common sharebasic and dilutive:                        |  |                              |            |      |                                |            |   |  |   |            |  
|                                                                     |  |                              |           
|Net loss per common share                                            |  | $                            | 0.18       |      | $                              | 0.25       |   |  |   |            |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  
|                                                                     |  |                              |           
|Weighted average common shares outstandingbasic and dilutive        |  |                              | 13,817,341 |      |                                | 31,066,659 |   |  |   |            |  
|                                                                     |  |                              |            |      |                                |            |   |  |   |            |  

See notes to unaudited condensed consolidated financial statements.



2



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PANDA ETHANOL, INC.

AND SUBSIDIARIES

(A Development Stage Enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2007,

AND FOR THE PERIOD FROM INCEPTION THROUGH MARCH 31, 2007

(UNAUDITED)



|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ------------------------------- | - | ----------- | - |  | - | ------------ | -
|                                                                            |  | Three Months Ended March 31, |            |   | Inception ThroughMarch 31,
2007 |  
|                                                                            |  | 2006                         |            |   | 2007                            |   |            
|Operating activities:                                                       |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Net loss                                                                    |  | $                            | (2,445,487 | ) |                                 | $ | (7,850,007  | ) |  | $ | (26,327,577  | )
|Adjustments to reconcile net loss to net cash used by operating activities: |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Interest expense added to debt principal                                    |  |                              |           |   |                                 |   | 1,192,573   |   |  |   | 3,130,463    |  
|Amortization of debt issuance costs                                         |  |                              |           |   |                                 |   | 122,802     |   |  |   | 394,794      |  
|Depreciation                                                                |  |                              |           |   |                                 |   | 12,553      |   |  |   | 12,553       |  
|Increase in fair value of financial derivative                              |  |                              |           |   |                                 |   | 4,376,000   |   |  |   | 2,854,000    |  
|Decrease in accounts receivable from former parent                          |  |                              |           |   |                                 |   | 32,265      |   |  |   |             |  
|(Increase) decrease in prepaid expenses                                     |  |                              |           |   |                                 |   | 290,990     |   |  |   | (641,224     | )
|Increase in accounts payable and accrued liabilitiesoperating expenses     |  |                              | 329,869    |   |                                 |   | 68,372      |   |  |   | 1,120,291    |  
|Increase in accounts payable to former parent operating expenses           |  |                              |           |   |                                 |   | 279,353     |   |  |   | 279,353      |  
|Increase (decrease) in accrued interest                                     |  |                              |           |   |                                 |   | (367        | ) |  |   | 491,130      |  
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Net cash used in operating activities                                       |  |                              | (2,115,618 | ) |                                 |   | (1,475,466  | ) |  |   | (18,686,217  | )
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Investing activities:                                                       |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|(Increase) decrease in restricted cash and cash equivalents                 |  |                              |           |   |                                 |   | 5,524,890   |   |  |   | (130,082,537 | )
|Decrease in restricted short-term investments, net                          |  |                              |           |   |                                 |   | 12,495,335  |   |  |   |             |  
|Additions to property, plant and equipment                                  |  |                              | (3,092,378 | ) |                                 |   | (19,594,058 | ) |  |   | (81,281,740  | )
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Net cash used in investing activities                                       |  |                              | (3,092,378 | ) |                                 |   | (1,573,833  | ) |  |   | (211,364,277 | )
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Financing activities:                                                       |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Capital contributions from former parent                                    |  |                              | 3,291,508  |   |                                 |   |            |   |  |   | 16,133,464   |  
|Capital distributions to former parent                                      |  |                              |           |   |                                 |   |            |   |  |   | (5,480,712   | )
|Temporary equity advanced from former parent                                |  |                              | 1,891,445  |   |                                 |   |            |   |  |   | 4,301,558    |  
|Issuance of common stock to former parent                                   |  |                              |           |   |                                 |   |            |   |  |   | 2,859,354    |  
|Issuance of common stock to non-affiliates                                  |  |                              |           |   |                                 |   |            |   |  |   | 90,924,152   |  
|Issuance of long-term debt and financial derivative                         |  |                              |           |   |                                 |   |            |   |  |   | 143,100,000  |  
|Debt issuance costs                                                         |  |                              |           |   |                                 |   |            |   |  |   | (9,423,092   | )
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Net cash provided by financing activities                                   |  |                              | 5,182,953  |   |                                 |   |            |   |  |   | 242,414,724  |  
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Increase (decrease) in cash and cash equivalents                            |  |                              | (25,043    | ) |                                 |   | (3,049,299  | ) |  |   | 12,364,230   |  
|                                                                            |  |                              |           
|Cash and cash equivalents, beginning of period                              |  |                              | 25,043     |   |                                 |   | 15,413,529  |   |  |   |             |  
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Cash and cash equivalents, end of period                                    |  | $                            |           |   |                                 | $ | 12,364,230  |   |  | $ | 12,364,230   |  
|                                                                            |  |                              |            |   |                                 |   |             |   |  |   |              |  
|                                                                            |  |                              |           
|Noncash investing and financing activities                                  |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Property, plant and equipment costs accrued                                 |  | $                            | 660,415    |   |                                 | $ | 5,771,653   |   |  | $ | 12,081,014   |  
|Interest cost accrued to long-term debt principal                           |  | $                            |           |   |                                 | $ | 1,192,573   |   |  | $ | 3,130,463    |  
|Capital contribution from former parent by reduction of accounts payable    |  | $                            |           |   |                                 | $ | 268,222     |   |  | $ | 268,222      |  
|                                                                            |  |                              |           
|Supplemental cash flow information:                                         |  |                              |            |   |                                 |   |             |   |  |   |              |  
|Interest paid, net of amounts capitalized                                   |  | $                            |           |   |                                 | $ | 237,698     |   |  | $ | 946,200      |  

See notes to unaudited condensed consolidated financial statements.



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PANDA ETHANOL, INC. AND SUBSIDIARIES

(A Development Stage Enterprise)

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2006 and 2007

And For the Period from Inception (November 1, 2004) through
March 31, 2007

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Panda Ethanol, Inc. (Panda Ethanol or collectively with its
subsidiaries, the Company) (a Nevada corporation), through various subsidiaries, holds a 100% interest in an ethanol manufacturing facility currently under construction in Hereford, Texas (Hereford Facility) and also holds
100% interests in ethanol projects under development in various states (see Note 3).

Until June 7, 2006, the Company was a wholly
owned subsidiary of Panda Energy International, Inc. (PEII). PEII currently holds a 45.8% interest in the Company. PEII commenced development activities with respect to ethanol manufacturing facilities on November 1, 2004, which is
the inception date of the accompanying financial statements. The financial statements are presented on a carved out basis and reflect the ethanol project development activities as if Panda Ethanol had been incorporated, with 13,817,341
common shares (par value $.001) initially outstanding and held by PEII, for all periods presented, until June 7, 2006, when additional shares were issued in a private equity transaction. The retrospective presentation under the current capital
structure had no impact on net loss, any asset or liability, or net shareholders equity.

Development Stage Enterprise and
Liquidity The Company is in the development stage and has no operating revenues. The Company does not currently produce ethanol, as its projects are under construction or development as discussed in Note 3. Financial support initially had
been provided in the form of equity contributions and temporary equity advances from PEII; however, PEII does not currently intend to provide financial support in the future. Additionally, the Company completed private equity transactions in June
and December 2006, and debt financing for the Hereford Facility in July 2006. Management believes, but can offer no assurance, that confirmed capital resources, including proceeds from the completed equity and debt financing transactions, will be
adequate to meet the Companys anticipated working capital and capital expenditure requirements for the next twelve months. Management plans to seek additional equity and debt financing to fund the Companys continued operation and
expansion. There can be no assurance that the Company will be successful in obtaining additional financing.

The consolidated financial
statements include the accounts of all subsidiaries in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany accounts and transactions are eliminated in consolidation.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of
Estimates  The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and reflect all adjustments, consisting solely of normal
recurring adjustments, needed to present fairly the financial results for the interim periods. These financial statements include some amounts that are based on managements best estimates and judgments. These estimates may be adjusted as more
information becomes available, and any adjustment could be significant. The impact of any change in estimates is included in the determination of earnings in the period in



4



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which the change in estimate is identified. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2007.

Condensed Footnote Disclosures The Company has
omitted certain footnote disclosures that would substantially duplicate the disclosures contained in the Companys audited financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the
audited financial statements contained in the Companys annual report on Form 10-K for the year ended December 31, 2006.

Adoption of New Accounting Pronouncement  On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48). FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition issues.

The Company was incorporated in 2006 and has not yet filed its initial federal or
state income tax returns. Accordingly, the Companys net deferred tax assets consist of items it anticipates being included in its initial federal and state income tax returns, based on tax accounting methods anticipated to be adopted in the
initial income tax returns. In addition, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, which principally consist of net operating losses and other costs incurred that are required to be
capitalized for tax purposes. At the adoption date and as of March 31, 2007, the Company had unrecognized tax benefits of approximately $1.6 million and $2.3 million, respectively, although such amounts may vary upon final determination of
filing positions to be taken on the initial income tax returns. The Company has concluded that any unrecognized tax benefits would also only result in a reclassification of the specific items within its deferred tax asset balance, all of which is
subject to a valuation allowance. Accordingly, no adjustments to liabilities, operations or retained earnings was required and there was no cumulative effect on the Companys financial condition or results of operations as a result of
implementing FIN 48. The change in unrecognized tax benefits from the date of adoption to March 31, 2007, resulted from the Companys operations during the first quarter of 2007 and not from any revision of its unrecognized tax benefits at
the date of adoption.

The Company will file income tax returns in the U.S. federal jurisdiction and various state jurisdictions.
Management does not believe there will be any material changes in the Companys unrecognized tax positions over the next 12 months, subject to final determination of filing positions to be taken on the initial income tax returns, other than
changes resulting from the Companys operations during the period. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. As of the date of adoption of FIN
48 and as of March 31, 2007, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any related expense recognized during the quarter.

3. ETHANOL PROJECTS

The Hereford Facility is an
ethanol manufacturing facility with an expected annual capacity of 105 million gallons of denatured ethanol which is currently under construction in Hereford, Texas. The Hereford Facility is being constructed under a fixed-price, turnkey
engineering, procurement, and construction (EPC) contract with Lurgi PSI, Inc. (Lurgi). Lurgi will install a biomass conversion system to be manufactured by Energy Products of Idaho, Inc. (EPI), which will use
cattle manure and cotton gin waste to generate process steam used in the production of ethanol. The total commitments under the Lurgi and EPI contracts, which became effective upon completion of financing for the Hereford Facility on July 28,
2006 as discussed in Note 5, are approximately $187.0 million. Total commitments under ancillary construction-related contracts are approximately $2.3 million. The total cost of the Hereford Facility, including interest during construction, initial
inventories, working capital and debt service reserves, is currently expected to be approximately $269 million. The Hereford Facility, which commenced construction in August 2006, is currently estimated to begin producing ethanol in the fourth
quarter of 2007 and to be running at full nameplate capacity during the first quarter of 2008. These estimates are based on a recent notification from Lurgi that it intends to make a claim for relief under the force majeure provisions of the EPC
contract due to inclement weather over the last few months and labor shortages.

Under the terms of the debt financing for the Hereford
Facility (see Note 5), the assets related to the Hereford Facility are restricted for use in connection with the construction of that facility and are not available for general corporate purposes. Restricted net assets related to the Hereford
Facility amounted to approximately $70 million and $68 million at December 31, 2006 and March 31, 2007, respectively.



5



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The Company has other ethanol manufacturing facilities under development. Projects to be located in Yuma
County, Colorado; Haskell County, Kansas; Sherman County, Texas; Muleshoe, Texas; and Lincoln County, Nebraska have been announced, and additional projects are also under development in various states.

The Yuma and Haskell facilities are also designed to each produce approximately 105 million gallons of denatured ethanol per year. The Company has
received an air permit for the Yuma facility and is seeking debt and equity financing required to construct that facility. On March 1, 2007, the Company entered into an EPC contract with Lurgi for construction of the Yuma facility (the
Yuma EPC Contract). The Yuma EPC Contract will become fully effective upon issuance of a notice to proceed following completion of financing. The Company has also entered into an ancillary construction-related contract of approximately
$9 million for the Yuma project. The Company has received an air permit and a waste water discharge permit for the Haskell facility. The Company has filed applications for air permits for all of its other announced projects.

4. RELATED PARTY TRANSACTIONS

Until October 1,
2006, the Company had no employees or offices. Prior to that date, its activities were conducted by PEII employees in the offices of PEII. Effective October 1, 2006, all of the PEII employees dedicated to ethanol-related activities on a
full-time basis became employees of the Company, and the Company began paying substantially all of its own overhead costs. Accordingly, development and administrative expenses allocated from the former parent decreased substantially to $134,000 in
the first quarter of 2007 in comparison to $1,848,000 in the first quarter of 2006. Costs allocated from the former parent in the 2007 period include net charges of $26,000 for services provided under the Transition Services Agreement and $108,000
for office rent. As of March 31, 2007, the Company owed approximately $11,000 to PEII, which is included in accounts payable to former parent in the Companys consolidated balance sheet. Such balance reflects a reduction of $268,000
resulting from a capital contribution to the Company by PEII.

5. LONG-TERM DEBT

On July 28, 2006, the Company closed three debt financing transactions, the proceeds of which are being used to finance the construction of the
Hereford Facility and provide certain working capital for the project. The debt transactions include a $158.1 million senior secured credit facility (Senior Debt), a $30.0 million subordinated secured credit facility (Subordinated
Debt), and $50.0 million of tax-exempt bonds (Tax-Exempt Bonds). The Senior Debt includes a letter of credit facility which supports the Tax-Exempt Bonds; accordingly, the total borrowing capacity under the three debt transactions
is $188.1 million. The debt transactions are discussed in Note 5 to the audited financial statements included in the Companys annual report on Form 10-K for the year ended December 31, 2006.

At December 31, 2006 and March 31, 2007, the Company had $63.1 million outstanding under the Senior Debt, which bore interest at a rate of
9.1% per annum before impact of the interest rate swap agreement. The Companys interest rate on the Senior Debt is effectively fixed at approximately 9.0% during construction via the interest rate swap agreement. At December 31, 2006
and March 31, 2007, the notional amount of the swap agreement was $63.1 million. The fair value of the swap agreement at December 31, 2006 and March 31, 2007 was a liability of approximately $513,000 and $705,000, respectively, which
is included in financial derivatives on the balance sheet with a corresponding charge to accumulated other comprehensive losses.

At
December 31, 2006 and March 31, 2007, the Company had $30.0 million original principal amount outstanding under the Subordinated Debt, plus approximately $1,580,000 and $2,527,000, respectively, in accrued pay-in-kind interest which was
added to the principal balance, which bore interest at a rate of 12% per annum. The unamortized discount related to the royalty interest discussed below amounted to approximately $8,310,000 and $8,065,000, resulting in a net carrying value of
approximately $23,270,000 and $24,462,000 for the Subordinated Debt at December 31, 2006 and March 31, 2007, respectively.



6



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The Subordinated Debt lender is entitled to a royalty of 8.5% of distributable cash flows, as defined.
The royalty interest is considered to be an embedded derivative financial instrument.The fair value of the royalty interest at December 31, 2006 and March 31, 2007 was estimated to be a liability of approximately $7,146,000 and
$11,522,000, respectively, which is included in financial derivatives on the balance sheet. The increases in fair value of $4,376,000 for the three months ended March 31, 2007 and $2,854,000 for the period from inception through March 31,
2007 have been recognized in the statement of operations. Approximately $2 million of the $4.4 million increase in the fair value of the financial derivative for the three months ended March 31, 2007 was attributable to differences in commodity
price curve data from the Companys previous market consultants to data provided by another consulting firm. This change has been accounted for as a change in accounting estimate. The change in accounting estimate increased the net loss by $2
million and the net loss per share by $.06.

At December 31, 2006 and March 31, 2007, the Company had $50.0 million outstanding
under the Tax-Exempt Bonds, which bore interest at a rate of 4.0% and 3.72% per annum, respectively.

For the three months ended
March 31, 2007, the net amount of capitalized interest (including amortization of debt issuance costs) was approximately $2.1 million.

6.
COMMODITY PURCHASE COMMITMENTS

During the three months ended March 31, 2007, the Company entered into purchase contracts to
acquire certain quantities of corn in the future. As of March 31, 2007, the Company had purchase contracts for 2,580,000 bushels of corn in which the purchase price will be determined by the market price at the transaction date. The Company has
not entered into any hedging transactions with respect to these purchase commitments.



7



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements
and the related notes to those statements included elsewhere in this quarterly report on Form 10-Q. In this quarterly report on Form 10-Q, the words Panda Ethanol refer to Panda Ethanol, Inc. and its subsidiaries, unless otherwise stated
or the context otherwise requires. Panda Ethanol is a Nevada corporation. On November 6, 2006, Panda Ethanol, Inc. (a Delaware corporation), which is referred to in this quarterly report as Panda Ethanol-Delaware, merged with and into Cirracor,
Inc., which we refer to as Cirracor, a Nevada corporation. The surviving Nevada corporation after the merger changed its name to Panda Ethanol, Inc. In this quarterly report on Form 10-Q, the words Company, we,
our, ours and us refer to the surviving company after the merger and its subsidiaries, unless otherwise stated or the context otherwise requires.

Forward-Looking Statements

This quarterly report contains forward-looking statements, as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on our current expectations, assumptions, beliefs, estimates and projections about the Company and the ethanol and other
related industries. The forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Generally, these forward-looking
statements can be identified by the use of forward-looking terminology such as anticipate, believe, continue, estimate, expect, intend, may, plan,
project, should and variations of such words or similar expressions.

We caution you that reliance on any
forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result,
the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in
any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances. Some of the factors that may cause actual results, developments and
business decisions to differ materially from those contemplated by such forward-looking statements include the risk factors discussed under Part IIItem 1ARisk Factors and the following:



| |  |  | the time, cost and ability to construct or complete construction of our ethanol plants;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | issues arising in connection with the development and construction of our projects, including those relating to permits, easements, site conditions, workmanship,
process engineering, and conflicts of interest;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the projected growth or contraction of the ethanol market in which we will operate;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | fluctuations in the market price of ethanol;
| | - |  | --------------------------------------------



8



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| |  |  | our business strategy for expanding, maintaining or contracting our presence in this market and related markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | our ability to obtain the necessary capital to finance our initiatives;
| | - |  | -----------------------------------------------------------------------



| |  |  | the sale of interests in, or entry into, partnerships or joint ventures with respect to specific projects;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | anticipated trends in our financial condition and results of operations;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to distinguish ourselves from our current and future competitors;
| | - |  | -----------------------------------------------------------------------------



| |  |  | changes in or elimination of laws, tariffs, trade or other controls or enforcement practices such as:
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | national, state or local energy policy;
| | - |  | ---------------------------------------



| |  |  | federal ethanol tax incentives;
| | - |  | -------------------------------



| |  |  | regulation currently under consideration pursuant to the passage of the Energy Policy Act of 2005, or Energy Policy Act, which contains a renewable fuel standard
and other legislation mandating the usage of ethanol or other oxygenate additives;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | state and federal regulation restricting or banning the use of methyl tertiary butyl ether, or MTBE;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | environmental laws and regulations applicable to our operations and the enforcement thereof; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | regulations related to homeland security;
| | - |  | -----------------------------------------



| |  |  | changes in weather and general economic conditions;
| | - |  | ---------------------------------------------------



| |  |  | overcapacity within the ethanol and petroleum production and refining industries;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | total United States consumption of gasoline;
| | - |  | --------------------------------------------



| |  |  | availability and costs of products and raw materials, particularly corn, natural gas, stainless steel and carbon steel;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | labor costs;
| | - |  | ------------



| |  |  | labor relations;
| | - |  | ----------------



| |  |  | fluctuations in petroleum prices;
| | - |  | ---------------------------------



| |  |  | our or our employees failure to comply with applicable laws and regulations;
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to generate free cash flow to invest in our business and service our indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | limitations and restrictions contained in the instruments and agreements governing our and our subsidiaries indebtedness;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



9



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| |  |  | our ability to raise additional capital and secure additional financing;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in interest rates;
| | - |  | --------------------------



| |  |  | our ability to retain key employees;
| | - |  | ------------------------------------



| |  |  | liability resulting from actual or potential future litigation;
| | - |  | ---------------------------------------------------------------



| |  |  | competition with respect to any of our products;
| | - |  | ------------------------------------------------



| |  |  | consolidation in the industry;
| | - |  | ------------------------------



| |  |  | plant shutdowns or disruptions at our planned plant;
| | - |  | ----------------------------------------------------



| |  |  | availability of shuttle trains, rail cars, trucks and barges;
| | - |  | -------------------------------------------------------------



| |  |  | risks regarding a loss of or substantial decrease in purchases by our major ethanol customers or any customer of our by-products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to hedging decisions, including whether or not to enter into hedging arrangements and the possibility of financial losses related to hedging
arrangements; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to diverting managements attention from ongoing business operations.
| | - |  | -----------------------------------------------------------------------------------

Overview

The following discussion should be read in
conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2006 and 2007, and for the period from inception (November 1, 2004) through March 31, 2007, and the related notes included in
this quarterly report on Form 10-Q. Such unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended
December 31, 2006.

We are in the development stage and were formed to develop ethanol production plants and other related assets. We
do not expect to operate at a profit before our first ethanol plant is completely constructed and operational. Until June 7, 2006, Panda EthanolDelaware was a wholly-owned subsidiary of Panda Energy International, Inc., a privately-held
company. On June 7, 2006, Panda EthanolDelaware closed a private placement of approximately 14.9 million shares of its common stock for total gross proceeds of approximately $90 million. On July 28, 2006, a wholly-owned
subsidiary of Panda EthanolDelaware, Panda Hereford Ethanol, L.P., entered into project level debt facilities aggregating approximately $188.1 million. On December 1, 2006, we closed a private placement of 1,066,667 shares of our common
stock for gross proceeds of $8 million.

On November 6, 2006, Panda Ethanol-Delaware merged with and into Cirracor pursuant to a
merger agreement dated May 18, 2006. The surviving company of the merger changed its name to Panda Ethanol, Inc. Pursuant to the merger, each outstanding share of common stock of Panda EthanolDelaware was converted into the
right to receive one share of Cirracor common stock with a total of 28,800,000 shares of Cirracor common stock issued for 28,800,000 shares of Panda EthanolDelaware common stock. The merger was accounted for as a reverse acquisition whereby
Panda Ethanol was deemed to be the acquirer for accounting purposes.



10



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We began construction of our 105 million gallon, manure-fueled ethanol production facility in
Hereford, Texas in August 2006. While we currently do not produce ethanol, we currently estimate that the Hereford facility will begin producing ethanol in the fourth quarter of 2007 and will be running at full nameplate capacity during the first
quarter of 2008. These estimates are based on a recent notification from the EPC contractor that it intends to make a claim for relief under the force majeure provisions of the EPC contract due to inclement weather over the last few months and labor
shortages.

Through our wholly-owned subsidiaries, Panda Yuma Ethanol, L.P. and Panda Haskell Ethanol, L.P., we are also currently
developing additional ethanol production facilities in Yuma, Colorado and Haskell, Kansas. We have received an air permit and entered into an engineering, procurement, and construction, or EPC contract for the Yuma project, which will become fully
effective upon issuance of a notice to proceed following the completion of financing, and we have begun to seek the debt and equity financing required to commence construction of the Yuma facility. We have also entered into an ancillary
construction-related contract of approximately $9 million for the Yuma project. We have received both an air permit and waste water discharge permit for the Haskell facility. We are currently engaged in discussions with various EPC contractors and
plan to proceed with seeking the debt and additional equity financing required to commence construction of the Haskell facility once an EPC agreement is executed.

To finance our ongoing development and capital needs, we will need to incur additional indebtedness, issue additional securities and/or sell interests in or form partnerships or joint ventures to develop our specific
projects. Any such transactions may be consummated by Panda Ethanol or by the particular subsidiaries of Panda Ethanol that own and are developing the specific ethanol projects. Any such dispositions of interests in the specific projects may result
in a deconsolidation of these project subsidiaries from our consolidated financial results and may result in a material decrease of our interest in, and control over, such projects.

From the date of our inception (November 1, 2004) through March 31, 2007, we incurred an accumulated net loss of $26.3 million. We believe we will
incur significant losses primarily related to development and administrative expenses and interest expense on debt until we are able to successfully complete construction and commence operations of our initial ethanol production facility. There is
no assurance that existing financing will be adequate for completion of the Hereford facility, that we will be able to secure additional financing for other projects, or that we will be successful in our efforts to develop, construct and operate one
or more ethanol plants. Even if we successfully meet all of these objectives and begin operations, there is no assurance that we will be able to operate profitably.

Summary of Critical Accounting Policies and Estimates

This discussion and analysis of financial
condition and results of operations are based on the financial statements of Panda Ethanol, which have been prepared in accordance with accounting principles generally accepted in the United States. Note 2 to our audited consolidated financial
statements included in our annual report on Form 10-K for the year ended December 31, 2006, and Note 2 to our unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q contain summaries of our
significant accounting policies, many of which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include allocation of
expenses from the parent (discussed below), estimates as to the appropriate carrying value of certain assets which are not readily apparent from other sources (primarily development costs), and valuation of financial derivatives. The



11



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valuation of financial derivatives is based upon discounted estimated future payments under these derivative instruments, which in turn are based upon
forward market data obtained from independent sources.

Allocation of Expenses from the Former Parent

We are in the development stage and were a wholly-owned subsidiary of Panda Energy International, Inc., or Panda Energy, until June 7, 2006. Until
October 1, 2006, we had no employees nor offices. Prior to that date, our activities were conducted by Panda Energy employees in the offices of Panda Energy. Accordingly, our financial statements include development and administrative expenses
allocated from Panda Energy, our former parent. Such allocated expenses include both salary and nonsalary costs. Allocation of salary costs from the former parent is performed on an individual employee basis and is based upon the proportionate share
of each employees time dedicated to ethanol projects. Nonsalary costs which are not specifically identifiable to projects (such as employee benefits, office rent, information technology and other office expenses) are allocated from the former
parent in proportion to allocated salary costs. Our management believes the allocation methodology is reasonable and represents managements best available estimate of actual costs incurred for the ethanol development activities; however, such
allocations may not necessarily be representative of the actual costs that would have been incurred by us as a stand-alone company.

Effective October 1, 2006, all of the Panda Energy employees dedicated to ethanol-related activities on a full-time basis became employees of the Company, and the Company began paying substantially all of its own overhead costs. Under
a transition services agreement, which we refer to as the transition services agreement, employees of both the Company and Panda Energy continue to provide services on a limited basis to each other.

Results of Operations

For the three months ended
March 31, 2006 as compared to the three months ended March 31, 2007

We are in the development stage and had no operating
revenues for the three months ended March 31, 2006 and 2007. Our activities consist solely of developing and constructing ethanol manufacturing facilities.

Development and administrative expenses allocated from the former parent decreased from $1,847,552 for the three months ended March 31, 2006 to $134,019 for the three months ended March 31, 2007. The
decrease was caused by the change in the Companys administrative structure, which was effective October 1, 2006 as discussed above under Allocation of Expenses from the Former Parent. In the 2006 period, expenses allocated
from the former parent included allocated salary costs of $1.2 million and allocated non-salary costs of $0.6 million. In the 2007 period, expenses allocated from the former parent included net charges of $26,000 for services provided under the
transition services agreement and $108,000 for office rent.

Other development and administrative expenses increased from $597,935 for the
three months ended March 31, 2006 to $3,534,988 for the three months ended March 31, 2007. The increase was primarily attributable to the change in the Companys administrative structure, which was effective October 1, 2006 as
discussed above under Allocation of Expenses from the Former Parent, in addition to a higher level of development and administrative activity in the 2007 period. As a result of the change in administrative structure, salary costs of $1.7
million and non-salary overhead costs of $0.9 million incurred in the 2007 period, which would previously have been reflected in expenses allocated from the former parent, were instead reflected in other development and administrative expenses. In
addition to



12



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salaries and general overhead costs, this expense category included legal and accounting fees of $0.4 million and other development expenses of $0.5 million.

Other income and expenses for the three months ended March 31, 2007 included interest income of $1.8 million, interest expense of
$1.4 million, depreciation and amortization of debt issuance costs of $0.1 million, and expense from the increase in fair value of financial derivative of $4.4 million. Approximately $2 million of the $4.4 million increase in the fair value of the
financial derivatives was attributable to differences in commodity price curve data from the Companys previous market consultants to data provided by another consulting firm. This change has been accounted for as a change in accounting
estimates. The other income and expense items in the 2007 period resulted from our equity and debt financing transactions and investment of the related cash balances. There were no other income or expense items for the three months ended
March 31, 2006.

Liquidity and Capital Resources

We are in the development stage and do not expect to operate at a profit before our first ethanol plant is completely constructed and operational. We currently estimate that our first ethanol plant, the Hereford
facility, will begin producing ethanol in the fourth quarter of 2007 and that it will be running at full nameplate capacity during the first quarter of 2008.

We had cash of $15.4 million, restricted cash of $135.6 million, restricted short-term investments of $12.5 million and total current liabilities of $7.9 million at December 31, 2006, and cash of $12.4 million,
restricted cash of $130.1 million, and total current liabilities of $13.7 million at March 31, 2007. The restricted cash and short-term investments were restricted for use in connection with the construction of the Hereford facility.

From the date of our inception (November 1, 2004) through March 31, 2007, we incurred an accumulated net loss of $26.3 million. We
believe we will incur significant losses primarily related to development and administrative expenses, and interest expense on debt, until we are able to successfully complete construction and commence operations of our initial ethanol production
facility.

Management believes that our current available working capital will be adequate for our operations through the completion of the
Hereford facility.

Our Hereford facility commenced site preparation in February 2006 and construction in August 2006. Lurgi, Inc.
(Lurgi) designed, engineered and is constructing the Hereford facility. The total commitment under the contract with Lurgi is approximately $161.4 million. Energy Products of Idaho, Inc. (EPI) has agreed to design and supply
the biomass handling and conversion equipment for the Hereford facility. The total commitment under the contract with EPI is approximately $25.6 million. The total estimated cost of the Hereford facility, including interest during construction,
initial inventories, working capital and debt service reserves, has been estimated at approximately $269 million. We believe the existing financing is adequate but offer no assurance that existing financing will be adequate for completion of the
Hereford facility.

To finance our ongoing development and capital needs, we will need to incur additional indebtedness, issue additional
securities and/or sell interests in or form partnerships or joint ventures to develop its specific projects. Any such transactions may be consummated by Panda Ethanol or by the particular subsidiaries of Panda Ethanol that own and are developing the
specific ethanol projects. Any such dispositions of interests in the specific projects may result in a deconsolidation of these project subsidiaries from our consolidated financial results and may result in a material decrease in our interest in,
and control over, such projects.

We need to secure additional financing, including project level debt financing, to fund the development
and construction of additional ethanol production facilities in Haskell, Kansas and Yuma,



13



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Colorado. Management estimates that we will need approximately $583 million in additional financing, of which approximately $319 million would be
raised to finance the estimated development and construction costs of the Haskell facility and approximately $264 million would be raised to finance the estimated development and construction costs of the Yuma facility. It is currently
anticipated that approximately $307 million of this amount will be funded through the incurrence of additional debt by the subsidiaries of Panda Ethanol that are developing the particular projects, consisting of approximately $160 million for
the Haskell project and $147 million for the Yuma project. We believe that the incurrence of project level debt would be non-recourse to Panda Ethanol.

In addition to funds raised through the issuance of additional securities of Panda Ethanol, amounts necessary to finance the Yuma, Haskell and other projects may be obtained through other transactions such as the sale
of interests in the particular projects or the formation of partnerships or joint ventures to finance any remaining development costs for these projects. It is currently contemplated that these co-investors, partners or venture partners would
generally be industry participants that have an interest in developing ethanol or have had prior involvement in the production and development of ethanol-related projects. As currently contemplated, none of these co-investors, partners or venture
partners would own more than 50 percent of the total ownership interests in any particular project. Any sale of ownership interests in a project could have an adverse effect on our consolidated financial results and on our ability to control the
operations relating to these projects.

Additional amounts may be necessary to fund our on-going operations and the development of these
and other projects. It is currently anticipated that we may issue additional securities, pursuant to public offerings and/or private placements, in order to finance these capital requirements.

No assurance can be given that any such financings, sales of interests or securities, or formations of strategic partnerships may be consummated or that
we will be able to obtain the necessary amounts to fund these development costs and capital needs. Additionally, these transactions may have an adverse impact on our ongoing business operations and consolidated financial results. There is no
assurance that we will be successful in our efforts to develop, construct and operate one or more ethanol plants. Even if we successfully meet all of these objectives and begin operations, there is no assurance that we will be able to operate
profitably.

Hereford Facility Project Financing

On July 28, 2006, Panda Hereford Ethanol, L.P. closed three debt financing transactions, the proceeds of which are being used to finance the construction of the Hereford facility and provide certain working
capital for the project. The debt transactions include a $158.1 million senior secured credit facility, or senior debt, a $30.0 million subordinated secured credit facility, or subordinated debt, and $50.0 million of tax-exempt bonds. The
senior debt includes a letter of credit facility which supports the tax-exempt bonds; accordingly, the total borrowing capacity under the three debt transactions is $188.1 million. The debt financing transactions are more fully discussed in
Note 5 to the audited financial statements contained in our annual report on Form 10-K for the year ended December 31, 2006. Additional information as of March 31, 2007 is provided in Note 5 to the unaudited condensed consolidated
financial statements contained in this quarterly report on Form 10-Q.

Contractual Commitments

There have been no material changes as of March 31, 2007 to our contractual commitments as disclosed in our annual report on Form 10-K for the year
ended December 31, 2006, other than in the normal course of business.



14



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Off-balance sheet arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are material to investors.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Some of the information below contains forward-looking statements. The primary objective of the following information is to provide forward-looking quantitative and qualitative information about the Companys potential exposure to
market risks. The term market risk refers to the risk of loss arising from adverse changes in commodity prices and interest rates charged on borrowings. The disclosure is not meant to be a precise indicator of expected future losses, but
rather a reasonable indicator of possible losses. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures.

We are a development stage company and are not presently conducting operations as an ethanol producer. We are currently only subject to interest rate risk based on the interest rates charged on the borrowings of our
wholly-owned subsidiary, Panda Hereford Ethanol, L.P. If and when we begin operations, we will also be exposed to the impact of market fluctuations associated with commodity prices as discussed below. We currently do not have exposure to foreign
currency risk.

Interest Rate Risk

Our
exposure to interest rates primarily relates to borrowings by Panda Hereford Ethanol, L.P. under the senior debt and the tax-exempt bonds. The interest rate is fixed on the subordinated debt.

Interest on the senior debt is payable at a variable rate based upon LIBOR as more fully described in Note 5 to our audited financial statements
contained in our annual report on Form 10-K for the year ended December 31, 2006. On August 28, 2006, Panda Hereford Ethanol, L.P. entered into an interest rate swap agreement to hedge its interest rate exposure on approximately 100% of
the projected term loan balance outstanding during the construction period and lesser amounts after commercial operations commence. Under the swap agreement, on a quarterly basis we pay a fixed rate of approximately 5.2% and receive a variable rate
based upon LIBOR. Including the pre-completion margin of 3.75%, the Companys total interest rate on the term loan is effectively fixed at approximately 9.0% during construction via the swap agreement.

Interest on the tax-exempt bonds is payable at a variable rate which is reset periodically based upon market rates. A 1% change in interest rates would
affect interest cost on the tax-exempt bonds by approximately $0.5 million per year based on the $50.0 million outstanding balance of the tax-exempt bonds.

Commodity Price Risk

We expect to produce ethanol from corn, and our business will be sensitive to changes in the price of
corn. The price of corn is subject to fluctuations due to unpredictable factors such as weather, total corn planted and harvested acreage, changes in national and global supply and demand, and government programs and policies. We also expect to use
natural gas in the ethanol production process at some of our facilities, and our business will be sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer
and winter, in addition to the threat of hurricanes in the spring, summer and fall. Other natural gas price factors include the U.S.



15



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domestic onshore and offshore rig count and the amount of U.S. natural gas in underground storage during both the injection and withdrawal seasons.

We anticipate that we will attempt to reduce the market risk associated with fluctuations in the price of corn and natural gas in addition
to the price of ethanol by employing a variety of risk management strategies.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of
achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, together with our disclosure committee, evaluated, under the supervision and with the participation of our Chief Executive Officer (CEO),
Chief Financial Officer (CFO) and Chief Accounting Officer, together with our disclosure committee, the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007.

Based upon this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2007 at the
reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting during the fiscal quarter ended March 31, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.

At the end of fiscal 2007, Section 404
of the Sarbanes-Oxley Act will require our management to provide an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accountants will be required to audit the effectiveness of
our internal control over financial reporting. We are in the process of performing the system and process documentation, evaluation and testing required for management to make this assessment and for our independent registered public accountants to
provide their attestation report. We have not completed this process or our assessment, and this process will require significant amounts of management time and resources. In the course of evaluation and testing, management may identify
deficiencies, including possible material weaknesses, that will need to be addressed and remediated.



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PART II - OTHER INFORMATION



|Item 1A. | Risk Factors.
|-------- | -------------

Risks Related to our Company as a
Development-Stage Company

We have no prior operating history of ethanol production, which could result in errors in management and operations,
causing a material adverse effect on our financial condition and results of operations.

While our management team has extensive
experience developing, constructing and operating large-scale power generation facilities and has been involved in the development of our ethanol facilities, and while we have begun the process of hiring individuals with expertise in the ethanol
industry, Panda Ethanol has no prior history of, or experience in operating an ethanol production facility.

We may be unable to manage the
start-up of our facilities in a timely and cost-effective manner, and any failure by us to do so would delay our ability to begin producing and selling ethanol. A delay in start-up operations is likely to further delay our ability to generate
revenue and satisfy our or our subsidiaries debt obligations and our financial condition and results of operations could be materially adversely affected.

We anticipate a period of significant growth, involving the construction and start-up of operations of one or more ethanol production facilities. This period of growth and the start-up of our facilities could be a
challenge to us.

We may never become profitable.

Our management believes that we will incur significant losses until we are able to successfully complete construction and commence operations of our facilities. We may not be successful in our efforts to build and
operate one or more ethanol production facilities. In addition, we may not be successful in securing additional financing that will be necessary to build and operate our ethanol production facilities or to fund our ongoing general and administrative
expenses. Even if we successfully meet all of these objectives and begin operations, we may be unable to operate profitably.

We may be unable to
implement our expansion strategy as planned or at all.

We plan to grow our business by investing in ethanol facilities, including
expansion, and to pursue other related business opportunities which may become available in the future. Development, construction and expansion of ethanol plants is subject to a number of risks, including zoning and permitting matters, water supply
and discharge issues, execution of construction contracts and ethanol marketing contracts, real estate procurement issues, natural gas pipeline development issues, adverse weather, defects in materials and workmanship, labor and material shortages,
rising construction costs, transportation constraints, construction change orders, site changes, labor issues and other unforeseen difficulties. Any of these risks could prevent us from commencing operations at a particular plant as expected or at
all.

In addition, we believe that there is increasing competition for suitable ethanol plant sites. We may be unable to find suitable
additional sites for construction of new facilities or other suitable expansion opportunities.



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We anticipate that we will need additional financing to implement our expansion strategy and we may not
have access to the funding required for the expansion of our business or such funding may not be available to us on acceptable terms. We may finance the expansion of our business with additional indebtedness, by issuing additional equity securities
or by selling interests in or forming partnerships or joint ventures to develop specific projects. We could face financial risks associated with incurring additional indebtedness, such as reducing our liquidity and access to financial markets and
increasing the amount of cash flow required to service such indebtedness, or associated with issuing additional stock, such as dilution of ownership and earnings.

All of our planned facilities will operate under various environmental and regulatory permits. Certain of these permits are subject to specific volume output limitations. If expansion of any of our facilities would
result in a facilitys volume output limitation being exceeded, we would be required to either apply for amendments to our existing permits or apply for entirely new permits. We face the risk that the applicable governmental agencies
responsible for issuing permits could either deny our applications or impose significant constraints which could make our expansion strategy not economically feasible.

We may be unable to meet the administrative and operational needs of our growth strategy effectively, which could result in our inability to adequately increase our sales or to efficiently operate our business.

Our strategy envisions a period of rapid growth that may impose a significant burden on our administrative and operational
resources. The growth of our business, and in particular, the completion of construction of our ethanol facilities currently under development, will require significant investments of capital and managements close attention. Our ability to
effectively manage our growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage and retain qualified management, technicians and other personnel. We may be unable
to retain and hire the number of qualified persons necessary to operate our facilities effectively. Our failure to successfully meet the administrative and operational needs of our growth strategy could result in our inability to operate our
business effectively.

Certain of our managers, officers and employees may have other business and management responsibilities which may cause
conflicts of interest in the allocation of their time and services to our Company.

Our managers and officers may have other
management responsibilities and business interests apart from our ethanol projects for an interim or extended period of time. Until approximately October 1, 2006, most of our managers, officers and individuals who perform services related to
our operations, management, marketing, project management, logistics and administration were employed by Panda Energy and its affiliates and were subject to a transition services agreement between Panda Ethanol and Panda Energy. After
October 1, 2006, all of these managers, officers and individuals became employees of Panda Ethanol but some key personnel continue to provide services to Panda Energy under the same transition services agreement, which has been amended to
extend the term until June 30, 2007. Accordingly, certain of our managers, officers and employees may experience conflicts of interest in allocating their time and services between us, Panda Energy and its affiliates. In addition, most of our
management owns stock or options in Panda Energy and certain members of management have outstanding loans to Panda Energy. Such conflicts may compromise such managers, officers and individuals performance and efficacy in performing
the necessary tasks and functions to our start-up business and ultimately have a material adverse effect on our business.



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

We are dependent upon our officers and directors for implementation of our proposed expansion strategy and
execution of our business plan. The loss of any of our officers or directors could have a material adverse effect upon our results of operations and financial position. We do not maintain key person life insurance for any of our officers
or directors. The loss of any of our officers or directors could delay or prevent the achievement of our business objectives.

Conflicts of interest
may arise because Mr. Robert Carter, our Chairman, is also the Chairman and Chief Executive Officer and a significant stockholder of Panda Energy, our founder and largest stockholder.

Mr. Robert Carter, our Chairman, is also the Chairman and Chief Executive Officer and a significant stockholder of Panda Energy, our founder and
approximately 45.8% stockholder. Mr. Carter has fiduciary duties to Panda Energy which may conflict with our interests. Mr. Carter, Panda Energy and its subsidiaries may also have pre-existing fiduciary and contractual obligations to other
parties which may conflict with our interests. For example, in the course of his duties for Panda Energy, Mr. Carter may identify a business opportunity which could be appropriate for us, but he might be required to present that opportunity to
Panda Energy as a result of his fiduciary obligations to Panda Energy and its subsidiaries. Panda Energy operates in the energy sector and could become involved in non-ethanol projects, ventures or investments that are competitive with us. In
addition, there can be no assurance that Mr. Carter, Panda Energy or its subsidiaries will not invest or participate in other ethanol companies or ventures that compete with us or do business with any of our clients, customers, contractors or
suppliers.

Panda Energy, our largest stockholder, may have the ability to exert significant influence over us and their interests may not coincide
with the interest of other stockholders.

Panda Energy owns approximately 45.8% of our outstanding common stock. As a result, Panda
Energy can exert significant influence on matters requiring stockholder approval, including the election of directors and approval of mergers, acquisitions, asset sales and other significant corporate transactions. This concentration of ownership
may delay or prevent a change in control of us and make some transactions more difficult or impossible without the support of Panda Energy. The interests of Panda Energy may not always coincide with our interests as a company or the interest of
other stockholders and any conflict of interest may be resolved in a manner that does not favor our other stockholders. In addition, this significant concentration of share ownership and voting power may adversely affect the trading price for our
common shares because investors may perceive disadvantages in owning stock in companies with a large or controlling stockholder.

Panda
Energy operates in the energy sector and could become involved in non-ethanol projects, ventures or investments that are competitive with us. In addition, there can be no assurance that Panda Energy or its subsidiaries will not invest or participate
in other ethanol companies or ventures that compete with us, or do business with any of our clients, customers, contractors or suppliers.

Our
managements time and attention will be divided among our ethanol plants and other related ethanol activities such as possible acquisitions and fund raising efforts, and each of our ethanol plants will be managed under a similar management
model, which may prevent us from achieving a maximum return from any one plant.

Our business model calls for us to form
wholly-owned business entities to own each of our ethanol plants, which will be managed by a centralized management team. The demands on our



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managements time from one ethanol plant or managements attention to other related activities such as possible acquisitions and fund raising
efforts may, from time to time, compete with the time and attention required for the operation of other ethanol plants. This division of our managements time and attention among our ethanol plants and other related activities may make it
difficult for us to realize the maximum return from any one plant. Further, to reduce expenses and create efficiencies, we intend to manage each of our ethanol plants under a similar management model. This common management strategy may also result
in difficulties in achieving the maximum return from any one plant. If our common management strategy is not successful or if we are unable to address the unique challenges of each ethanol plant, the impact of this arrangement likely will be spread
among all of our ethanol plants, resulting in greater potential harm to our business than if each ethanol plant were operated and managed independently.

If our principal agreements are terminated or become unfavorable, our projects may fail or be harmed in ways that significantly reduce our production and revenues and the value of our common stock.

We will be dependent on various contractors, suppliers, lenders and other third parties for the implementation and financing of each project. If
agreements with such parties are terminated or if the terms are amended unfavorably to us, our projects may be harmed or even fail. Because we will be dependent on the success of several large-scale projects, the impairment or failure of any of
these projects could significantly reduce our production and revenues.

Given that all of our revenue will be primarily derived from the production
and marketing of ethanol and its co-products, any disruption in our operations could have a material adverse effect on us.

Our
primary source of revenues will be from the sale of ethanol and related co-products that we will produce at our facilities. We do not have available an alternative line of business in the event that we are unable to operate our ethanol facilities
for any reason. Any delay or stoppage in our anticipated production would substantially reduce our revenues.

Our financial statements include costs
allocated from our former parent company, which may not be representative of the costs we would have incurred as a stand-alone company.

Until October 1, 2006, we had no employees or offices. Prior to that date, our activities were conducted by Panda Energy employees in the offices of Panda Energy. Accordingly, our financial statements include development and
administrative expenses allocated from Panda Energy, the former parent company of Panda EthanolDelaware. The allocation methodology is discussed in the section entitled Managements Discussion and Analysis of Financial Condition and
Results of OperationsAllocation of Expenses from the Former Parent. These allocations may not necessarily be representative of the actual costs that we would have incurred as a stand-alone company and, therefore, our financial statements
may not be representative of actual results in the future.

Risks Related to our Indebtedness

Through our project subsidiaries, we will have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our
business even though we anticipate that all of such debt will be non-recourse to Panda Ethanol.

Through our project subsidiaries,
we anticipate having a significant amount of indebtedness. The extent of the leverage of our project subsidiaries may have important consequences, including:



| |  |  | limiting our ability to obtain additional financing if necessary or desirable;
| | - |  | ------------------------------------------------------------------------------



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| |  |  | placing us at a competitive disadvantage because we may be substantially more leveraged than many of our competitors, thus reducing funds available for operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | making us vulnerable to increases in interest rates;
| | - |  | ----------------------------------------------------



| |  |  | reducing funds available for operations because a substantial portion of our project subsidiaries cash flow will be used to pay interest and principal on
their respective debt;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subjecting all or substantially all of our project subsidiaries assets to liens, potentially leaving no assets for stockholders in the event of a liquidation;
and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting our ability to adjust to changing market conditions, which could make us more vulnerable to a downturn in the economy, the ethanol industry or our
business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our project subsidiaries may be unable to service, repay or refinance their debt and remain in compliance with their
debt covenants, which would have a material adverse effect on our business.

Each project subsidiarys ability to repay its
debt will depend on its financial and operating performance and on our ability to successfully implement our business strategy with respect to each such subsidiary. The financial and operational performance of our subsidiaries will depend on
numerous factors, many of which are beyond our control, such as economic conditions and governmental regulation. We cannot be certain that our earnings with respect to individual facilities will be sufficient to allow the respective project
subsidiary to pay the principal and interest on its debt and meet its other obligations. If a project subsidiary does not have enough money to service its debt, we may be unable to refinance all or part of the existing debt, sell assets, borrow more
money or raise equity on terms acceptable to us, if at all. Further, failing to comply with the financial and other restrictive covenants in our project subsidiaries loan agreements could result in an event of default, which could adversely
affect our ability to successfully operate the related ethanol production facility and our financial condition and results of operations.

Our
inability to obtain the equity and debt financing necessary to construct and operate our planned ethanol production facilities and other acquisition and/or business development opportunities, could result in the failure of those projects and perhaps
our Company.

Our financing plan requires a significant amount of equity and debt financing. In addition to financing our
operations through multiple equity capitalization offerings, we plan to employ significant leverage by borrowing funds from various commercial banks and financial companies, the obligations of which will be repaid from the operating cash flow of
each subsidiary project and secured by the assets of each associated facility or business. The amount and nature of the debt financing that may be available to us is subject to fluctuating interest rates and an ever-evolving credit environment as
well as general economic factors and other factors over which we have no control. The construction and start-up of each facility or any strategic acquisition is contingent on our ability to arrange debt financing from third party financing sources
and our ability to raise additional equity. If the debt or equity financing we need is not available for any reason, we could be forced to abandon one or more of our projects which singularly or in the aggregate could adversely impact our business
and could force us to abandon our business plan.

None of our planned ethanol production facilities have committed financing, other than
our Hereford facility. While we have executed loan agreements for the funding of the Hereford facility, additional draws under the senior credit facility for the Hereford facility are subject to various conditions, including no knowledge of any
events that could cause the Hereford facility not to be completed on or before the date contemplated by the construction and draw schedule.



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Restrictive loan covenants in our current and future debt and/or equity financing agreements may hinder our ability
to operate our business and delay or prohibit us from paying cash dividends to our stockholders.

Our debt load and service
requirements necessary to implement our business plan will result in substantial debt service requirements at each of our project subsidiaries, which could have important adverse consequences that could hinder our ability to conduct our operations,
including our ability to:



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | make capital expenditures or enter into lease arrangements in excess of prescribed thresholds;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | make distributions to stockholders, or redeem or repurchase shares;
| | - |  | -------------------------------------------------------------------



| |  |  | make certain types of investments or acquisitions;
| | - |  | --------------------------------------------------



| |  |  | create liens on our assets;
| | - |  | ---------------------------



| |  |  | utilize the proceeds of asset sales; and
| | - |  | ----------------------------------------



| |  |  | merge or consolidate or dispose of assets.
| | - |  | ------------------------------------------

If a project subsidiary defaults on any covenant, a lender could make the entire respective debt immediately due and payable. If this occurs, we might not be able to repay our debt or borrow sufficient funds to refinance it. Even if new
financing becomes available, it may not be on terms that are acceptable to us. These events could cause us to cease construction of one or more of our planned facilities or to cease operations entirely.

In addition, to the extent that we raise equity capital through the issuance of preferred stock, we may be subject to certain additional covenants,
restrictions or obligations pursuant to the terms of such preferred stock.

Risks Related to the Development and Construction of our Ethanol Plants

Our dependency on key suppliers to design and build our facilities and supply necessary equipment may have a material adverse effect on our
business.

We will be highly dependent upon our general contractors and key vendors to design, engineer and build our facilities.
If one of our contracted suppliers or vendors were to terminate its relationship with us or cease to conduct business after construction was initiated, there is no assurance that we would be able to obtain a replacement supplier or vendor or that a
replacement would be able to complete construction within the originally contracted time frame and at the same or lower price. In the event that any of our suppliers or vendors fails to deliver for any reason the equipment or the intellectual
property rights associated with such equipment, such as the rights to our innovative biomass conversion process, we may be unable to replace this equipment or technology quickly. Any delay in the construction of our facilities or commencement of
operations or a problem in the design or engineering of our facilities could have a material adverse effect on our production of ethanol.



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Our general contractors, suppliers and vendors may have conflicting interests that could cause them to put their
financial interests ahead of ours, which may have a material adverse effect on our business.

Our contractors, suppliers and
vendors may experience conflicts of interest that cause them to put their financial interests ahead of our best interests. Our contractors, suppliers and vendors may also have conflicts of interest due to the fact that they are involved in the
design and construction of other ethanol plants. Although schedule and performance guarantees may motivate our contractors, suppliers and vendors to perform their agreements with respect to our facilities, we cannot ultimately require them to devote
their full time or attention to our activities. As a result, they may have, or may come to have, a conflict of interest in allocating personnel, materials and other resources to our facilities which could result in inefficiencies and delays in our
ethanol production, which could materially adversely affect our business. Such conflicts of interest may reduce our profitability and the value of our common stock and could result in reduced distributions to investors.

The parent company of Lurgi, Inc., or Lurgi, our EPC contractor for both our Hereford facility and our Yuma facility, has announced a sale of Lurgi.

Lurgi, the EPC contractor for both our Hereford facility and our Yuma facility is currently owned by a German parent company;
however Lurgis parent company has announced a sale of Lurgi and its operations to Air Liquide S.A. We do not know if the consummation of such sale of Lurgi would materially affect the construction of our Hereford facility, the planned
construction of our Yuma facility, our ability to engage an EPC contractor for the construction of our other planned facilities or our ability to obtain financing for any of these facilities.

We may experience shortages of materials and labor and adverse weather conditions during the construction of our facilities, which could increase construction
costs or extend the construction schedule of such facilities.

The construction of our facilities is subject to risks inherent in
any large construction project over which we have limited or no control. We may experience shortages of steel or other raw material supplies, adverse weather conditions, natural disasters, labor force shortages, work stoppages or other labor
difficulties, or a variety of other factors, any of which, individually or in the aggregate, could cause significant delays or cost overruns. Any significant increase in the estimated construction cost of and in the estimated length of time for, one
or more of our facilities could hinder our ability to complete construction and delay our ability to generate revenues and as a result could have a material adverse effect on our business and results of operations or even force us to abandon our
business plan. For example, we recently extended our current estimates for completion of the Hereford facility due to a recent notification from Lurgi that it intends to make a claim for relief under the force majeure provisions of the EPC contract
for the Hereford facility due to inclement weather over the last few months and labor force shortages.

According to the Renewable Fuels
Association, or RFA, approximately 6.4 billion gallons per year of production capacity was under construction as of May 8, 2007. This unprecedented level of activity has resulted in higher costs and shortages of contractors, engineering firms,
construction firms and equipment suppliers. We may not be able to secure their services or products on a timely basis or on acceptable financial or commercial terms, or at all, which could prevent us from commencing operations as expected at our
facilities.

We may sell interests in or form partnerships or joint ventures to develop specific projects, which could result in a material decrease
in our interest in, and control over, such projects, may affect the consolidation of these projects in our financial statements, and will subject us to risks related to attracting and maintaining relationships with co-partners and co-venturers.

To finance and develop specific projects, we may sell interests in or form partnerships or joint ventures. Any dispositions of
interests in the specific projects may result in a deconsolidation of these



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project subsidiaries from our consolidated financial results and may result in a material decrease in our interest in, and control over, such projects. In
addition, these partnerships or joint ventures may involve the following risks:



| |  |  | we may be unable to maintain productive relationships with our co-partners or co-venturers;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | we may be unable to locate appropriate parties willing to buy interests or participate in partnerships or joint ventures on a timely and economic basis, if at all;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our co-partner or co-venturer in a project might become bankrupt;
| | - |  | -----------------------------------------------------------------



| |  |  | our co-partner or co-venturer may have economic or business interests or goals that are, or that become, inconsistent with our business interests or goals;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may incur liabilities as the result of the action taken by our co-partner or co-investor;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | our co-partner or co-venturer may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may have a right of first refusal to buy out other co-partners or co-venturers, but may be unable to finance such buy-out at the appropriate time; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to sell our interest in a partnership or joint venture if we desire to exit the venture for any reason or if our interest is likewise subject to a
right of first refusal of our co-partner or co-venturer.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may encounter defective material and workmanship or process
engineering that could cause significant delays in the commencement of our operations.

Any defects in material or workmanship may
cause substantial delays in the commencement of operations of our facilities. If defects are discovered after commencement of operations, or if our facilities fail to meet the performance criteria, substantial delays in the commencement of
operations could occur which may have a material adverse effect on our business and results of operations.

The condition or availability of our
construction sites may differ from what we expect.

If we encounter concealed or unknown conditions at our facility sites, then our
general contractors may be entitled to an adjustment in the contract price and time for performance if the conditions affect its costs and performance time. Such adjustments could increase the cost of construction of our facilities and result in
time delays. Concealed or unknown conditions include any concealed physical conditions at each site that materially differ from the conditions contemplated in the proposed project plans or from the geotechnical study performed on the property for
each facility, or any unknown conditions that differ materially from the conditions ordinarily encountered in similar work. Although the site has been inspected, concealed or unknown conditions are often difficult to detect and there can be no
assurance that we will not encounter them. In addition, all of our sites, other than for the Hereford facility, are not currently owned. Although the land related to these sites are under options to purchase, these options have specified expiration
dates. For example, the option on the Yuma facility site is set to expire in July 2007. To the extent we are unable to extend the expiration dates, or exercise the option to purchase such sites by the expiration date, we will have to seek another
suitable location, which we may be unable to find on terms acceptable to us.

We are subject to environmental laws and permitting rules that may
delay or prevent construction or operation or increase our costs.

Issues regarding compliance with applicable environmental
standards could arise at any time during the construction and operation of our facilities, which could have a material adverse effect on our business. Environmental laws and regulations require permits prior to beginning construction and prior to



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engaging in our operations, and may require the installation of expensive pollution control equipment or otherwise place restrictions upon operations. We may
also incur substantial liability for a failure to comply with those laws or permits or for any pollution arising from our operations. While we have been granted air permits authorizing construction of the Hereford facility and our planned facilities
in Haskell County, Kansas and Yuma, Colorado, we may have difficulty obtaining or complying with these or other necessary environmental permits required in connection with the construction and on-going operation of one or more of our facilities. As
a condition of granting necessary permits, regulators may impose conditions that could increase our construction or operating costs or delay our ability to commence operations within the time period we presently expect.

We may be required to obtain easements from third parties, and our inability to obtain certain easements could have a material adverse effect on our financial
condition and results of operations.

In connection with the construction of our facilities, we may need to obtain easements from
third parties for water or gas pipelines, the transmission of electricity or other purposes. To the extent we are unable to obtain certain easements, we may experience construction delays, higher construction costs or difficulty in obtaining
financing, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to Our Ethanol Production

The market price of ethanol is volatile and subject to significant fluctuations, which may cause our profitability to fluctuate significantly.

The market price of ethanol is influenced by many factors, including the price of gasoline and crude oil and the supply logistics
and infrastructure of ethanol in the market. Growth of ethanol usage may be limited by logistical bottlenecks and lack of infrastructure expansion. Oil prices are highly volatile and difficult to forecast due to frequent changes in global politics
and the world economy and the demand for petroleum-derived products. The supply and demand for oil throughout the world is affected by incidents in unstable political environments, the demand for oil from rapidly developing countries such as China
and India, weather conditions, drilling, extraction and refinery technology, success in exploration, decisions made by OPEC and its member countries, industrial output and many other factors. We cannot predict the future price of crude oil or
gasoline. Although the market price of ethanol has historically tracked the market price of gasoline we cannot provide any assurance that this will continue to occur. Low prices for crude oil and gasoline and the relationship between ethanol supply
and demand may reduce the price of ethanol to a level that makes it unprofitable to produce. In recent years, the prices of crude oil, gasoline and ethanol have all reached historically high levels. If the prices of crude oil or gasoline were to
decline, our revenues and ultimately our profitability may be adversely affected. Fluctuations in the market price of ethanol may cause our profitability to fluctuate significantly.

Our business is dependent upon the availability and price of corn. Significant disruptions in the supply of corn would materially affect our operating results. In addition, since we generally cannot pass on
increases in corn prices to our customers, continued periods of historically high corn prices may also materially adversely affect our operating results.

The principal raw material we use to produce ethanol and co-products, including dry and wet distillers grains, is corn. As a result, changes in the price of corn can significantly affect our business. In general,
rising corn prices produce lower profit margins. Because ethanol competes with non-corn-based fuels, we generally are unable to pass along increased corn costs to our customers. At certain levels, corn prices may make ethanol uneconomical to use in
fuel markets. The price 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



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agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of corn is
difficult to predict. Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and potentially harm our business. In addition, we may also have difficulty, from time to time,
in physically sourcing corn on economical terms due to supply shortages. Such a shortage could require us to suspend operations until corn is available at economical terms, which would have a material adverse effect on our business, results of
operations and financial position. If an additional ethanol production facility is built in the same general vicinity as ours, the price we pay for corn at a facility could increase and the local supply of corn be reduced, which could result in
increased costs and reduced profits. Moreover, increases in U.S. ethanol capacity under construction could outpace increases in corn production, which could increase corn prices and significantly impact our profitability.

The spread between ethanol and corn prices can vary significantly which could materially adversely impact our gross margins.

Our gross margins with respect to our ethanol plants are principally dependent on the spread between ethanol and corn prices. This spread fluctuates
widely and we cannot provide any assurance that fluctuations in this spread will not continue to occur. Any reduction in the spread between ethanol and corn prices, whether as a result of an increase in corn prices or a reduction in ethanol prices,
would adversely affect our results of operations and financial condition.

Our plan to use cattle manure and cotton gin waste as fuel to generate
steam for the ethanol production process at certain of our facilities, including our Hereford and Haskell facilities, is unique to the industry and has not been utilized to date in commercial quantities and may not be as successful as we expect.

In many of our facilities, we plan to primarily use a biomass conversion process involving the use of cattle manure and cotton gin
waste to generate steam for the ethanol production process. Most other ethanol producers currently use natural gas as their sole thermal energy source in the production process. We know of one company that is planning to use the gas from manure or
biogas to operate its facility; however, no other ethanol facility that we know of uses a cattle manure biomass conversion system. While the technology has been proven to work with different feed stocks and has been successfully tested
with manure, it has not been tested at or utilized in commercial quantities or to solely power an ethanol plant. At each of our manure-fueled facilities, we will also have a separate natural gas system in place that will allow us to operate such
facilities using natural gas in the event that we are unable to operate using the biomass conversion system. However, the use of natural gas would make our ethanol production dependent on natural gas prices, which could be substantially more
expensive for us than cattle manure and cotton gin waste. Use of natural gas as the primary fuel for our ethanol production instead of the biomass conversion process could materially impact the profitability of our manure-fueled facilities.

The availability of and cost of loading and transporting cattle manure may affect our business.

We expect that each of our manure-fueled facilities will annually consume approximately one billion pounds of cattle manure to produce an approximate
105 million gallons of denatured ethanol. Although we expect to be able to meet all of our cattle manure requirements locally, our business will depend on the continued availability of cattle manure. At our Hereford facility, for example, we
currently have contracts with approximately 18 local feedlots and dairies that we expect to collectively meet the estimated annual manure need at the Hereford facility. On the other hand, significant limitations in the availability and thermal
energy composition of cattle manure, along with loading and transportation costs, could increase overall costs at our manure-fueled facilities.



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We may engage in hedging transactions which involve risks that can harm our business.

In an attempt to partially offset the effects of the volatility of ethanol prices and corn and natural gas costs, we may take hedging positions in order
to limit our exposure to commodity price fluctuations. These may include (i) purchasing corn through spot cash, fixed-price forward and delayed pricing contracts, (ii) utilizing hedging positions in the corn futures and options markets on
the Chicago Board of Trade, or CBOT. to manage the risk of corn price fluctuations, (iii) entering into contracts to supply a portion of our ethanol production on a forward basis and, in connection with our corn hedging positions, to lock in
specific crush margins for a portion of our corn requirements, (iv) hedging a portion of our exposure to natural gas price risk from time to time, by using fixed price or indexed physical contracts, and (v) establishing from
time to time an unleaded gasoline hedge position using futures to reduce our exposure to unleaded gasoline price risk. The financial impact of these activities is dependent upon, among other things, the commodity futures prices involved and our
ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults
or, in the case of physical contracts, where there is a change in expected differential of an open position and the underlying price in the hedging agreement affecting the actual prices paid or received by us. Hedging activities can themselves
result in losses when a position is purchased in a declining market or a position is sold in a rising market. A hedge position often settled in the same time frame as the physical commodity, is either purchased, as in the case of corn and natural
gas, or sold as in the case of ethanol. Hedging losses may be offset by a decreased cash price for corn and natural gas and an increased cash price for ethanol. We may also vary the amount of hedging or other risk mitigation strategies we undertake,
and we may choose not to engage in hedging transactions at all. Our hedging activities may cause us to forego additional future profits or result in our making cash payments.

Increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial position.

It is currently contemplated that we will use natural gas as a backup energy source in our manure-fueled facilities and as the primary/sole energy source
in a select number of our facilities where biomass is not locally available in amounts that are either sufficient or economical to install and employ a biomass conversion system, such as our planned Yuma facility. The market for natural gas is
subject to market conditions that create uncertainty in the price and availability of the natural gas. We will rely upon third parties for our supply of natural gas. The prices for and availability of natural gas are subject to volatile market
conditions. These market conditions often are affected by factors beyond our control such as higher prices resulting from colder than average weather conditions and overall economic conditions. Significant disruptions in the supply of natural gas
could impair our ability to produce ethanol at our facilities that rely on natural gas as the primary thermal energy source.

Because the production
of ethanol requires a significant supply of water and electricity, our business will be materially harmed if we are unable to obtain an adequate quality and quantity of water and electricity.

Our facilities will require a significant and uninterrupted supply of water and electricity to operate. We have entered into agreements with local
electric companies to provide our supply of electricity. We anticipate that we will either enter into arrangements with local municipalities to provide our supply of water, as with the Hereford facility, procure water on-site or rely on a
combination of water sources. We anticipate that the Haskell facility will procure water on-site and the Yuma facility will rely on a combination of water sources. However, there can be no assurances that, with respect to water, we will be able to
reach definitive agreements for our water supply. In the event that we do not procure water



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on-site or reach definitive agreements for our water supply, we may be required to expend significant amounts to drill wells and to provide for the necessary
infrastructure for such well water to reach our planned facilities. In addition, there are no assurances that such water will be of an adequate quality. If the water quality from any of these sources is not adequate, we may, at greater cost to us,
need to treat the water or find other sources. Further, certain of our facilities, including our Hereford facility located in the panhandle of Texas and our Yuma facility, located in Colorado, are located in drought prone areas, and there is a
possibility we may be unable to meet our water requirements using these sources in the event of a significant prolonged drought. In addition, there can be no assurances that the water and electricity companies will be able to reliably supply the
water and electricity that we need at any of our facilities. If there is an interruption in the supply of water or electricity for any reason, we may be required to halt production. If production is halted for an extended period of time, or there is
any interruption in the quantity or quality of our water or electricity, it may have a material adverse effect on our operations, cash flows and financial performance.

The transportation of feedstock to us and of ethanol and distillers grains to our customers will be affected by business risks that are largely out of our control, any of which could significantly reduce our
revenues and operating margins.

The operation of our facilities will depend on our ability to receive adequate amounts of
feedstock (over and above our storage capability) in a timely manner and our failure to receive sufficient feedstock could have a material adverse effect on our production, revenues and results of operations. We anticipate purchasing corn and other
feedstock from states in the Midwest, including Illinois and Nebraska, to be delivered to us by shuttle trains, rail, and truck. We will rely on third parties to transport feedstock to us and our ethanol and DDG to our customers. The transportation
companies with whom we contract may be subject to risks that are largely out of their and our control, including weather, limitations on capacity in the transportation industry, security measures, fuel prices, taxes, license and registration fees,
and insurance premiums. In addition, to the extent we will rely upon delivery by truck of feedstock, and where applicable, manure, to us and ethanol and distillers grains to our customers, we may be affected by any overall shortage of truck drivers
caused by the Hazmat Threat Assessment Program implemented under the USA PATRIOT Act or any other security measures instituted as a result of the threat of terrorism. This shortage may result in increased shipping costs or delays in transport, which
could adversely affect our production and profits.

Our dependency on the marketing efforts of Aventine Renewable Energy, Inc., or Aventine, for
substantially all of the ethanol produced at our Hereford, Haskell and Yuma plants in accordance with certain marketing arrangements could have a material adverse effect on our business.

We do not currently have our own sales force or sales organization to support the sale of ethanol. However, we may develop and staff a sales force in the
future or enter into arrangements with other distributors similar to our arrangement with Aventine. Until that time, Aventine, a potential competitor of ours, will be the sole distributor of substantially all of the ethanol produced at our Hereford
plant, our only plant currently under construction, and both of our Haskell and Yuma plants. Accordingly, we will initially be dependent on one distributor and expect to rely heavily on its marketing efforts to successfully sell our product on
behalf of at least three of our planned facilities.

Because Aventine also sells ethanol for itself and a number of other producers, we
have limited control over its sales efforts. In addition, a significant portion of our Hereford, Haskell and Yuma facilities accounts receivable may be attributable to Aventine, whose credit is currently rated below investment grade. We or Aventine
may terminate these agreements upon the occurrence of an event of default by the other party. If Aventine were to default on payments to us, we could experience a material



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loss. If any of our agreements with Aventine terminate, we may seek other arrangements to sell our ethanol, including selling our product with our own sales
personnel, but we can give no assurance that our sales efforts would achieve results comparable to those that may be achieved by Aventine.

Limitations on our ability to sell wet distillers grains locally could have a material adverse effect on our business.

The production of ethanol produces distillers grains, which can be sold to feedyards as a supplement to cattle feed. Distillers grains can be sold wet or dried; however, the cost to dry the distillers grains can be significant. For this
reason, the majority of the distillers grains we intend to produce and market will be wet distillers grains with solubles, or WDGS, which have a shelf life of three days to one week. In the event of an unanticipated change in market demand, we may
be unable to sell our WDGS at a profit or at all. In addition, because of the short shelf life of the product, we will be limited in our ability to transport the WDGS to other markets for sale. Decreased local demand for WDGS or limitations on our
ability to sell WDGS in other markets could have a material adverse effect on our business.

We have based our business model on the presumption that
we will be able to produce WDGS in accordance with certain specifications and have represented to WDGS buyers in marketing our product that we will meet these specifications on an on-going and consistent basis. If we are unable to produce WDGS that
conforms to such specifications, it could have a material adverse effect on our business.

We have no history of producing WDGS and
we have represented to feed buyers that our product will meet certain quality specifications. We may be unable to produce WDGS that conforms to such specifications on a consistent basis or ever, which could have a material adverse affect on our
business. If we lost our local customer base, in order to market our distillers grains with solubles, or DGS, we would have to purchase and install dryers at certain of our ethanol facilities at a great expense and attempt to market dry distillers
grains with solubles, or DDGS, through marketing agreements with third parties.

Work stoppages and other labor relations issues could result in
decreased sales or increased costs, either of which would negatively impact our financial condition and results of operations.

Our
employees are currently not unionized. While we believe our relations with employees are satisfactory, any prolonged work stoppage or strike could have a negative impact on our business, financial condition or results of operations. In addition, our
suppliers, contractors or other third parties associated with the construction of our facilities or the operation of our business may have unionized work forces. A labor strike, work stoppage or slowdown by unionized employees could halt or slow the
construction of our facilities or the production, transportation or sale of our products, which could increase our costs and have a significant adverse impact on our operations.

Natural disasters, such as fires, hurricanes, floods, unusually heavy or prolonged rain, and droughts may cause fluctuations in the price, availability and quality of supplies, labor, and raw materials which
could result in production delays and increased costs causing a material adverse effect on our business.

Fluctuations in the
price, availability and quality of supplies, labor, and raw materials that we need in order to produce, transport and sell ethanol could have a material adverse effect on our construction, cost of sales or ability to meet our customers
demands. The price and availability of such supplies, labor, and raw materials may fluctuate significantly, depending on many factors, including natural disasters, such as fires, hurricanes, floods, unusually heavy or prolonged rain, and droughts of
natural resources. These events can also cause increased freight costs. Hurricane Katrina, in particular, caused severe devastation in New Orleans and the Mississippi Gulf Coast in August, which led to



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increased costs and shortages of construction labor and building supplies and raw material throughout the entire southeastern United States. In addition,
hurricane-related disruption of rail and pipeline traffic in the U.S. Gulf Coast area negatively affected shipments of raw materials and products.

Our business will be subject to seasonal fluctuations, which could adversely affect our results of operations and financial position.

Our operating results will 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. 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 opposite that of corn and tends to be lower in the spring and summer and
higher in the fall and winter. In addition, ethanol prices are substantially correlated with the price of unleaded gasoline. The price of unleaded gasoline tends to be highest in the spring and summer. Given our lack of operating history, we do not
know yet how these seasonal fluctuations will affect our results over time.

Risks Related to the Ethanol Industry

We operate in a highly competitive industry with low barriers to entry. In addition, if the expected increase in ethanol demand does not occur, or if the demand for
ethanol otherwise decreases, there may be excess capacity in our industry.

In the United States, we compete with other corn
processors and refiners, including A.E. Staley Manufacturing Company, a subsidiary of Tate & Lyle, PLC, Archer-Daniels-Midland Company, Aventine, Cargill, Inc., Hawkeye Holdings, Inc., Pacific Ethanol, U.S. BioEnergy Corporation and VeraSun
Energy Corporation. Some of our competitors are divisions of larger enterprises and have greater financial resources than we do. Although many of our competitors are larger than we are, we also have smaller competitors. Farm cooperatives comprised
of groups of individual farmers have been able to compete successfully in the ethanol industry. According to the RFA, as of March 13, 2007, the top ten domestic producers of ethanol accounted for approximately 45% of all production capacity.

We also face increasing competition from international suppliers. Although there is a tariff on foreign produced ethanol that is slightly
larger than the federal ethanol tax incentive, ethanol imports equivalent to up to 7% of total domestic production from certain countries were exempted from this tariff under the CBI, or The Caribbean Basin Initiative, to spur economic development
in Central America and the Caribbean.

Moreover, according to the RFA, domestic annual production has increased from 1.6 billion gallons
per year in 2000 to 4.9 billion gallons in 2006. In addition, there is a significant amount of capacity being added to our industry. According to the RFA, there was approximately 6.1 billion gallons per year of existing capacity and an additional
6.6 billion gallons per year of production capacity under construction as of May 8, 2007. This capacity is being added to address anticipated increases in demand. Demand for ethanol may not increase as quickly as expected or to a level that
exceeds supply, or may not increase at all. If the ethanol industry has excess capacity and such excess capacity results in a fall in ethanol prices, it would have an adverse impact on our results of operations, cash flows and financial condition.
Excess capacity may result from the increases in capacity coupled with insufficient demand. Demand could be impaired due to a number of factors, including regulatory developments and reduced U.S. gasoline consumption. Reduced gasoline consumption
could occur as a result of increased gasoline or oil prices. For example, price increases could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage. There is some evidence that this has occurred
in the recent past as U.S. gasoline prices have increased. Demand for ethanol can also fall if



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gasoline prices decrease because ethanol is used as a potential substitute for gasoline. Lastly, ethanol is not the only product that can be added to
gasoline to reduce emissions and increase octane levels. Oil companies have historically used MTBE as a fuel additive to reduce emissions, and although the use of MTBE has been limited or banned in 25 states due to potentially adverse environmental
effects from its production, it is still used by several major oil companies in some markets. Alternatives to ethanol and MTBE are continually under development and existing alternatives, such as alkylates, isooctane and ethyl tertiary butyl ether,
or ETBE, may become more cost effective. Our competitors may be able to successfully develop and market alternatives to ethanol which could adversely affect our business and results of operations.

The expansion of domestic ethanol production in combination with state bans on MTBE and/or state renewable fuels standards may burden rail and terminal
infrastructure, raising the cost of our shipment to blending terminals.

If the volume of ethanol shipments continues to increase
and blenders switch from MTBE to ethanol, there may be weaknesses in infrastructure such that our ethanol cannot reach its target markets. Many terminals may need to make infrastructure changes to blend ethanol instead of MTBE. If these blending
terminals do not have sufficient capacity or the necessary infrastructure to make the switch, there may be an oversupply of ethanol on the market, which could depress ethanol prices and negatively impact our financial performance. In addition, rail
infrastructure may be inadequate to meet the expanding volume of ethanol shipments, which could prevent us from shipping our ethanol to our target markets.

Substantial development of infrastructure will be required for our operations, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to:



| |  |  | additional rail capacity;
| | - |  | -------------------------



| |  |  | additional storage facilities for ethanol;
| | - |  | ------------------------------------------



| |  |  | increases in truck fleets capable of transporting ethanol within localized markets;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | expansion of refining and blending facilities to handle ethanol;
| | - |  | ----------------------------------------------------------------



| |  |  | growth in service stations equipped to handle ethanol fuels; and
| | - |  | ----------------------------------------------------------------



| |  |  | growth in the fleet of flexible fuel vehicles, or FFVs, capable of using E85 fuel.
| | - |  | ----------------------------------------------------------------------------------

There is no assurance that the substantial investments required for these infrastructure changes and expansions will be made or that they will be made on
a timely basis. Any delay or failure in making the changes to or expansion of infrastructure could hurt the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise have a material adverse effect
on our results of operations or financial position. Our business is dependent on the continuing availability of infrastructure and any infrastructure disruptions could have a material adverse effect on our business.

Ethanol can be imported duty free from certain countries into the United States, which may undermine the ethanol industry in the United States.

Ethanol can be imported into the United States duty-free from some countries, which may negatively affect the ethanol industry in the United States
and subsequently our operations. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.51 per gallon ethanol incentive available under the federal excise tax incentive program for refineries that blend
ethanol in their fuel. A special exemption from the tariff exists for ethanol imported from 24 countries in Central



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America and the Caribbean, which is limited to a total of 7% of the previous years U.S. production per year (with additional exemptions for ethanol
produced from feedstock in the Caribbean region over the 7% limit). Imports from the exempted countries may increase as a result of new plants under development there. In addition, reductions in the tariff currently applicable to ethanol imports
from countries other than those in Central American and the Caribbean that qualify for the exemption, or increases in the percentage of ethanol that may be imported from Central America and the Caribbean on a duty-free basis, may result in more
ethanol from countries having a lower cost of production than the United States being imported into this country. An increase in such imported ethanol could adversely affect the demand for domestically-produced ethanol and the price at which we will
be able to sell our ethanol.

In addition, at a certain price level, imported ethanol may become profitable for sale in the United States
despite the tariff. This occurred in the second half of 2006, due to a spike in the ethanol prices and insufficient supply. As a result, there may effectively be a ceiling on U.S. ethanol prices. This, combined with uncertainties surrounding U.S.
producers ability to meet domestic demand, resulted in significant imports of ethanol, especially from Brazil. Furthermore, East Coast facilities are better suited to bringing in products by water rather than rail (the preferred path for
ethanol from the Midwest). The combination made it more economic for some buyers to import ethanol with the full import duty than to bring supplies from the Midwest. Given the increase in ethanol demand from the elimination of MTBE and expected
transportation bottlenecks delivering material from the Midwest, imports of ethanol could rise.

Competition for qualified personnel in the ethanol
industry is intense and may prevent us from hiring and retaining qualified personnel to operate our ethanol plants and our home office.

Our success depends in part on our ability to attract and retain competent personnel. For each of our plants and our home office, we must hire qualified managers, engineers, operations and other personnel, which can be challenging in the
rural communities in which our facilities will be located. Competition for both managers and plant employees in the ethanol industry is intense, and we may be unable to attract and retain qualified personnel. If we are unable to hire and retain
productive and competent personnel, our expansion strategy may be adversely affected, the amount of ethanol we produce may decrease and we may not be able to efficiently operate our ethanol plants and execute our business strategy.

Consolidation or downturns in the ethanol industry may affect demand for our products and the pricing of our products, which could limit our growth and may harm
our business.

The ethanol industry faces the prospect of increased competition as a result of consolidation. Consolidation may be
driven by industry participants desire to achieve operating and marketing efficiency, increased production capacity, product and geographic reach, an expanded customer base, and general market power through merger and acquisition activities.
If the industry undergoes significant consolidation, the larger entities resulting from these mergers and acquisition activities may seek to use the benefits of consolidation, including improved efficiencies and economies of scale, to, among other
things, implement price reductions to increase their market shares. If competitive pressures compel us to reduce the price at which we will sell our ethanol, our operating margins may decrease and our operating results would be adversely affected if
we cannot achieve corresponding reductions in our expenses. In addition, continued industry consolidation may adversely impact customers perceptions of the viability of smaller and even medium-sized ethanol companies and, consequently,
customers willingness to purchase from companies like us. Ultimately, we could be a merger or acquisition target, or we could be forced to acquire or merge with another entity.



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Development of alternative fuels or alternative ethanol production systems could affect our results of operations.

Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive,
industrial and power generation manufacturers are developing more efficient engines, hybrid engines and alternative power systems using fuel cells or clean burning gaseous fuels. Vehicle manufacturers are working to develop vehicles that are more
fuel efficient and have reduced emissions using conventional gasoline. Vehicle manufacturers have developed and continue to work to improve hybrid technology, which powers vehicles by engines that utilize both electric and conventional gasoline fuel
sources. In the future, hydrogen-based fuels and fuel cells offer technological options to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential
alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to
decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, the
additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

In addition, many of our
competitors invest heavily in research and development of alternative ethanol production systems and alternative fuels. Our inability to meet the substantial capital investments required to remain technologically competitive could result in our
competitors being able to produce ethanol more cost effectively or produce less expensive alternative fuels, which could adversely affect the demand for our ethanol. These events could have a material adverse effect on our business.

Corn-based ethanol may compete with cellulose-based ethanol in the future, which could make it more difficult for us to produce ethanol on a cost-effective basis
and could reduce the value of your investment.

Most ethanol in the United States is currently produced from corn and other raw
grains, such as milo or sorghum (especially in the Midwest). The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue, municipal
solid waste, and other biomass material. This trend is driven by the fact that cellulose-based biomass is currently cheaper to obtain than corn and that the use of cellulose-based biomass to produce ethanol would create opportunities to locate
plants and produce ethanol in areas that are not suitable to grow corn in significant amounts. Although the current technology for converting cellulose-based biomass to ethanol is not sufficiently efficient to be competitive with ethanol produced
from corn, a report by the U.S. Department of Energy entitled Outlook for Biomass Ethanol Production and Demand indicates that new conversion technologies may be developed in the future. If an efficient method of producing ethanol from
cellulose-based biomass is developed, we may not be able to compete effectively. Our facilities are not equipped to convert cellulose-based biomass into ethanol, and to convert our facilities to be able to process cellulose-based ethanol would
require significant additional capital investment. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted.

Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to air pollution, harms engines or takes more energy to produce than
it contributes may affect the demand for ethanol.

Certain individuals believe that the use of ethanol as an additive to gasoline
will increase gasoline prices at the pump. Some also believe that the manufacturing of ethanol adds to air pollution and its use harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more
fossil energy, such as oil and natural gas, in relation to the amount of ethanol that is produced and its



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benefits. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol that we
produce and negatively affect our results of operations and financial condition.

Risks Related to Government Regulation

The U.S. ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation, and any changes in legislation or regulation could
materially adversely affect our results of operations and financial condition.

The elimination of or significant reduction in
federal ethanol tax incentives could have a material adverse effect on our results of operations and financial condition. The cost of production of ethanol is made significantly more competitive with regular gasoline by federal tax incentives.
Before January 1, 2005, the federal excise tax incentive program allowed gasoline distributors who 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 less tax, which equated to an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon incentive for ethanol was reduced to $0.51 per gallon in 2005 and, unless otherwise extended, will
expire at the end of 2010. We cannot provide you with any assurance that the federal ethanol tax incentives will be renewed in 2010 or if renewed, on what terms they will be renewed. The elimination or any significant reduction in the federal
ethanol tax incentive may have a material adverse effect on our results of operations and financial condition.

The effect of the renewable
fuel standard, or RFS, in the recent Energy Policy Act of 2005 is uncertain. The use of fuel oxygenates, including ethanol, was mandated through government regulations, 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 coming months as the remaining markets switch from MTBE to ethanol. The recently enacted Energy Policy Act of 2005, or the Energy Policy Act, however,
eliminated the mandated use of oxygenates and established the RFS, or minimum nationwide levels of renewable fuels (including ethanol, biodiesel or any other liquid fuel produced from biomass or biogas) to be included in gasoline. The Energy Policy
Act also included provisions for trading of credits for use of renewable fuels. Final rules were only recently adopted by the Environmental Protection Agency, or EPA, on April 10, 2007 and are not effective until September 1, 2007. It is
possible that the practical application of these rules will not result in as much demand for ethanol as anticipated.

Under the Energy
Policy Act, the Department of Energy, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the RFS mandate with respect to one or more states if the administrator determines that implementing the requirements
would severely harm the economy or the environment of a state, a region or the United States, or that there is inadequate supply to meet the requirement. Any waiver of the RFS with respect to one or more states would adversely offset demand for
ethanol and could have a material adverse effect on our results of operations and financial conditions.

The Energy Policy Act did not
include MTBE liability protection sought by refiners, and this has resulted in the accelerated removal of MTBE and a sudden increase in the demand for ethanol. No assurance can be given, however, that refineries will maintain using ethanol in favor
of other additives, such as iso-octane or alkylate. In addition, the federal oxygenate mandate that had originally prompted the use of MTBE was repealed by the Energy Policy Act. However, some oxygenate mandates remain at the state level.
Accordingly, the actual demand for ethanol may increase at a lower rate than production for estimated demand, resulting in excess production capacity in the ethanol industry, which would negatively affect our results of operations, financial
position and cash flows.



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The Texas Department of Agriculture has established an incentive program called the Fuel Ethanol
and Biodiesel Production Incentive Program effective as of 2006. Under the program, ethanol and biodiesel producers will contribute $0.032 per gallon into the program and receive a $0.20 per gallon incentive payment for the first 18 MMGY
of production during the first ten years of plant operations, or a net benefit up to $3,024,000 per producer per year. Our Hereford facility would not become eligible for this program until it begins producing ethanol. We intend to apply for
registration under this program, but the Texas Department of Agriculture may not register our Texas-based facilities, including our Hereford, Sherman and Muleshoe facilities, or it may terminate the program. Our inability to qualify for this
incentive program may make it more difficult to compete with other ethanol production facilities in Texas that are eligible to receive the incentive as well as with production facilities in other states with similar programs. These factors could
negatively impact our profitability.

Federal regulations concerning tax incentives could expire or change which could reduce our revenues.

The federal government presently encourages ethanol production by taxing it at a lower rate. This currently equates to a $0.51 per
gallon subsidy of ethanol. Some states and cities provide additional incentives. The Energy Policy Act effectively mandates increases in the amount of annual ethanol consumption in the United States. The result is that the ethanol industrys
economic structure is highly dependent on government policies. Although current policies are favorable factors, any major change in federal policy, including a decrease in ethanol production incentives, would have significant adverse effects on our
proposed plan of operations and cause us to discontinue our ethanol business.

There is disagreement in the scientific community about the
wisdom of policies encouraging ethanol production. Some past studies have challenged whether ethanol is an appropriate source of fuel and fuel additives because of concerns about energy efficiency, potential health effects, cost and impact on air
quality. At this time federal energy policy, as set forth in the Energy Policy Act, strongly supports ethanol production. However, if a consensus develops that there are energy efficiency concerns, adverse health effects or air quality issues with
ethanol, or if ethanol production does not enhance our overall energy policy, our ability to economically produce and market ethanol could be materially and adversely affected.

We are subject to extensive environmental laws and regulations and the cost of compliance and/or non-compliance with these laws and regulations could have a material adverse effect on our business.

We will be subject to various federal, state and local environmental laws and regulations, such as those relating to the discharge
of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees and other health and safety matters. We are required to obtain
permits that must be renewed from time to time to operate our business. Additionally, compliance with new or amended environmental laws, regulations and/or permits, or new interpretations of such laws, regulations and/or permits, could require us to
incur significant expense. Such changes in laws, regulations and/or permits, or increased enforcement by governmental authorities, may have a material adverse effect on our financial condition. These laws, regulations and/or permits may limit our
operations or require us to alter our production process or purchase pollution control equipment, any of which could negatively impact our business. We may not at all times be in complete compliance with these laws, regulations and/or permits, and
we cannot guarantee that we will be successful in obtaining all permits required to operate our business. A violation of these laws, regulations and/or permits can result in significant fines, claims for natural resource damages, criminal sanctions,
permit revocations, injunctions, damages and/or operational shutdowns.



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We may be subject to legal actions brought by third parties for property damage or personal injury or for the
remediation of contamination.

Our operations will expose us to liability for property damage, personal injury and the remediation
of environmental contamination, including potential legal actions from third parties. Ethanol production may produce an odor which may be objectionable to surrounding residents and may increase dust in the vicinity of the plant due to our operations
and the transportation of materials to and from our facilities. Such activities could subject us to nuisance, trespass or similar claims by our employees or property owners or residents in the vicinity of our facilities. The occurrence of events
which result in significant personal injury or damage to property or third parties that is not fully covered by insurance could have a material adverse impact on our results of operations and financial condition.

In addition, there is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we will own or
operate and at off-site locations where we have arranged or will arrange for the disposal of waste materials or hazardous substances. If these substances are disposed of or released at sites that undergo investigation and/or remediation by
regulatory agencies or by private parties, we may be responsible under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), analogous state statutes, or other environmental laws for all or part of the costs of
investigation and/or remediation and for damage to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at, on, under or from
these properties. As a result, our operations may require us to expend significant amounts of money for environmental investigations and/or cleanups or may result in our incurrence of other costs

Risks Relating to our Common Stock

There is no long-term
material active public trading market for our common stock and we do not know if one will develop.

There is no long-term material
active public trading market for our common stock. Our common stock is now quoted on the Over-the-Counter Bulletin Board, or OTCBB, but is not otherwise listed or traded on any regional, state, local, national or electronic stock exchange. There are
only a few companies with substantial ethanol operations that are currently traded on a public securities exchange. We cannot predict the extent to which investor interest in our Company will be sufficient to maintain a long-term material active
trading market, or how liquid that market may be, especially if few stock analysts follow our stock or issue research reports concerning our business or the ethanol industry in general.

Our common stock price may be volatile.

The market price of our common stock could fluctuate
significantly. Those fluctuations could be based on various factors, including:



| |  |  | our operating performance and the performance of our competitors;
| | - |  | -----------------------------------------------------------------



| |  |  | the publics reaction to our press releases, our other public announcements and our filings with the SEC;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | changes in earnings estimates or recommendations by research analysts who might follow us or other companies in our industry;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | variations in general economic conditions;
| | - |  | ------------------------------------------



36



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| |  |  | the number of shares available to be publicly traded;
| | - |  | -----------------------------------------------------



| |  |  | actions of our existing stockholders;
| | - |  | -------------------------------------



| |  |  | the arrival or departure of key personnel; and
| | - |  | ----------------------------------------------



| |  |  | other developments affecting us, our industry or our competitors.
| | - |  | -----------------------------------------------------------------

In addition, 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.

We consummated a merger on November 6, 2006, that will subject us to additional risks and cause us to incur
additional costs.

Pursuant to a merger agreement dated as of May 18, 2006, by and among Cirracor, Panda EthanolDelaware
and Grove Panda Investments, LLC, or Grove Panda, the controlling stockholder of Cirracor, Panda EthanolDelaware merged with and into Cirracor, the surviving company, and the stockholders of Panda EthanolDelaware received one share of
common stock of the surviving company per share of common stock of Panda EthanolDelaware. As part of the merger, Cirracor changed its name to Panda Ethanol, Inc. However, it should be noted that our Company is not the same company
as Panda EthanolDelaware prior to the merger.

Because of the merger, we are now subject to a number of risks that may adversely
affect our business, including:



| |  |  | exposure to unknown liabilities of Cirracor and Panda EthanolDelaware;
| | - |  | -----------------------------------------------------------------------



| |  |  | the consequences and significant costs of our managements attention having been diverted from our day-to-day business over an extended period of time;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the expenses that we have incurred relating to the merger; and
| | - |  | --------------------------------------------------------------



| |  |  | the cost associated with compliance with the Sarbanes-Oxley Act of 2002 and other regulatory compliance to which we are now subject.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

Our ability to issue additional shares may dilute or otherwise limit stockholders voting or economic rights.

We expect to seek additional equity financing in the future, which may cause dilution to the holders of our common stock, and a reduction in their equity
interest. Stockholders do not have any preemptive rights with regard to shares to be issued by us in the future in connection with any such additional equity financing. If we sell additional shares, the sale price of those shares could be higher or
lower than the current stock price per share. If we issue additional shares at a lower price, the value of our outstanding shares may decrease. Issuances of additional shares may also have the effect of diluting or otherwise limiting
stockholders voting or economic rights in our Company. Furthermore, we have a stock option pool representing up to 10% of the fully diluted stock of our Company to attract, retain and reward our key directors, managers and employees, which
program would be dilutive to all existing stockholders although no awards have been made at this time.



37



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Sales of our common stock may cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our
common stock to decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional common or preferred stock.

As of May 9, 2007, we had 31,066,659 shares of common stock outstanding. Of these shares, 1,199,992 shares are freely tradable, unless any of these shares are held by our affiliates and have therefore become
restricted.

In addition, we are subject to registration rights agreements that cover the registration of a total of 29,866,667 shares of
our common stock. The registration rights agreement required us to register for resale all of these shares by the 75th calendar day following the effective time of the merger. Under the registration rights agreement, 75% of the Panda Ethanol shares
held by Panda Energy will be subject to a six-month lockup period from the effective date of the registration statement. On January 10, 2007, we filed a resale registration statement on Form S-3 (No. 333-139911) with the SEC and filed Amendment
No. 1 to the registration statement on April 13, 2007. The document is currently undergoing the SEC review process and we are working to have the registration statement declared effective as soon as possible. The filing of this resale
registration statement and the sale of shares thereunder could have a material adverse effect on the market price of our common stock.

We have not
paid dividends in the past and do not expect to pay dividends in the future.

We have never paid cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends will depend on our earnings, capital requirements, financial condition, prospects and other factors our board of directors may deem
relevant. If we do not pay dividends, our stock may be less valuable because a return on investment will only occur if our stock price appreciates.

There can be no assurance that we are not or will not become a U.S. real property holding corporation, in which case non-U.S. holders may be subject to U.S. federal income tax (including withholding tax) in connection with the
disposition of our shares, and U.S. holders selling our shares may be required to certify as to their status in order to avoid withholding.

A non-U.S. holder of our common stock generally will be subject to U.S. federal income tax with respect to distributions made by us that are treated as dividends for U.S. federal income tax purposes. A non-U.S. holder of our common stock
generally will not be subject to U.S. federal income tax on gain from the sale or other disposition of our common stock. However, a non-U.S. holder of our common stock will be subject to U.S. federal income tax at regular U.S. tax rates with respect
to such sale or other disposition if we are, or have been, a U.S. real property holding corporation, within the meaning of the Code, at any time within the five-year period preceding the disposition (or the non-U.S. holders holding
period if shorter). Generally, we will be a U.S. real property holding corporation if the fair market value of our U.S. real property interests, equals or exceeds 50% of the sum of the fair market values of our worldwide real property interests and
other assets used or held for use in a trade or business, all as determined under applicable Treasury Regulations. Although we do not believe we are a U.S. real property holding corporation, there can be no assurance that we are not or will not
become a U.S. real property holding corporation.

Certain non-U.S. holders of our common stock may be eligible for an exception to the
foregoing rule relating to U.S. real property holding corporations if our common stock is regularly traded on an established securities market during the calendar year in which the sale or disposition occurs and the non-U.S. holder holds no more
than 5% of our outstanding common stock, directly or indirectly, during the



38



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relevant period (the 5% exception). If, however, we are a U.S. real property holding corporation during the relevant time period, and the 5%
exception does not apply, the buyer or other transferee of our common stock will generally be required to withhold tax at the rate of 10% on the sales price or other amount realized, unless the transferor furnishes an affidavit certifying that it is
not a foreign person in the manner and form specified in the applicable Treasury Regulations.



|Item 6. | Exhibits.
|------- | ---------



|               |  |                                                                                                                                                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                  
|2.1            |  | Agreement and Plan of Merger dated May 18, 2006, by and among Cirracor, Panda Ethanol, Inc., and Grove Panda Investments, LLC, filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on
November 13, 2006 and incorporated by reference herein.                                                      
|               | 
|2.2            |  | First Amendment to Agreement and Plan of Merger dated June 7, 2006, by and among Cirracor, Panda Ethanol, Inc., and Grove Panda Investments, LLC, filed as Exhibit 2.2 to our Current Report
on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                   
|               | 
|3.1            |  | Amended and Restated Articles of Incorporation, filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                     
|               | 
|3.2            |  | Amended and Restated Bylaws of Panda Ethanol, Inc., filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                 
|               | 
|4.1            |  | Amended and Restated Articles of Incorporation, filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                     
|               | 
|4.2            |  | Amended and Restated Bylaws of Panda Ethanol, Inc., filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                 
|               | 
|4.3            |  | Registration Rights Agreement, dated as of June 7, 2006, by and among Panda Ethanol, Inc., Panda Energy International, Inc. and the purchasers named therein, filed as Exhibit 4.3 to our
Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                       
|               | 
|4.4            |  | Registration Rights Agreement, dated as of November 6, 2006, by and among Panda Ethanol, Inc. and Grove Panda Investments, LLC, filed as Exhibit 4.4 to our Current Report on Form 8-K, filed
on November 13, 2006 and incorporated by reference herein.                                                     
|               | 
|4.5            |  | First Amendment to Registration Rights Agreement as of November 13, 2006, among Panda Ethanol, Inc., Panda Energy International, Inc. and the several purchasers signatory therein, filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed on November 17, 2006 and incorporated by reference herein.
|               | 
|4.6            |  | Registration Rights Agreement, dated as of December 1, 2006, by and among Panda Ethanol, Inc., Panda Energy International, Inc. and the several purchasers signatory thereto, filed as
Exhibit 4.1 to our Current Report on Form 8-K, filed on December 4, 2006 and incorporated by reference herein.        
|               | 
|31.1           |  | Certification of Principal Executive Officer.                                                                                                                                                                                                                                                                
|               | 
|31.2           |  | Certification of Principal Financial Officer.                                                                                                                                                                                                                                                                
|               | 
|32.1           |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|               | 
|32.2           |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   



39



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SIGNATURES

Pursuant to the requirements 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.



|                   |  |  |  |                                                        
|------------------ |  |  |  | -------------------------------------------------------
|                   |  |  |  | PANDA ETHANOL, INC.                                    
|                   |  | 
|Date: May 15, 2007 |  |  |  | /s/ MICHAEL TRENTEL                                    
|                   |  |  |  | Michael Trentel, Chief Financial Officer               
|                   |  |  |  | (Principal financial officer duly authorized to sign on
|                   |  |  |  | behalf of Registrant)                                  



40



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EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                  
|2.1            |  | Agreement and Plan of Merger dated May 18, 2006, by and among Cirracor, Panda Ethanol, Inc., and Grove Panda Investments, LLC, filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on
November 13, 2006 and incorporated by reference herein.                                                      
|               | 
|2.2            |  | First Amendment to Agreement and Plan of Merger dated June 7, 2006, by and among Cirracor, Panda Ethanol, Inc., and Grove Panda Investments, LLC, filed as Exhibit 2.2 to our Current Report
on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                   
|               | 
|3.1            |  | Amended and Restated Articles of Incorporation, filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                     
|               | 
|3.2            |  | Amended and Restated Bylaws of Panda Ethanol, Inc., filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                 
|               | 
|4.1            |  | Amended and Restated Articles of Incorporation, filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                     
|               | 
|4.2            |  | Amended and Restated Bylaws of Panda Ethanol, Inc., filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                                                                                                                                 
|               | 
|4.3            |  | Registration Rights Agreement, dated as of June 7, 2006, by and among Panda Ethanol, Inc., Panda Energy International, Inc. and the purchasers named therein, filed as Exhibit 4.3 to our
Current Report on Form 8-K, filed on November 13, 2006 and incorporated by reference herein.                       
|               | 
|4.4            |  | Registration Rights Agreement, dated as of November 6, 2006, by and among Panda Ethanol, Inc. and Grove Panda Investments, LLC, filed as Exhibit 4.4 to our Current Report on Form 8-K, filed
on November 13, 2006 and incorporated by reference herein.                                                     
|               | 
|4.5            |  | First Amendment to Registration Rights Agreement as of November 13, 2006, among Panda Ethanol, Inc., Panda Energy International, Inc. and the several purchasers signatory therein, filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed on November 17, 2006 and incorporated by reference herein.
|               | 
|4.6            |  | Registration Rights Agreement, dated as of December 1, 2006, by and among Panda Ethanol, Inc., Panda Energy International, Inc. and the several purchasers signatory thereto, filed as
Exhibit 4.1 to our Current Report on Form 8-K, filed on December 4, 2006 and incorporated by reference herein.        
|               | 
|31.1           |  | Certification of Principal Executive Officer.                                                                                                                                                                                                                                                                
|               | 
|31.2           |  | Certification of Principal Financial Officer.                                                                                                                                                                                                                                                                
|               | 
|32.1           |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|               | 
|32.2           |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.