You should read the following discussion in conjunction with the unaudited consolidated financial statements and the accompanying notes included in this Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed elsewhere in this Form 10-Q and those listed in other documents we have filed with the Securities and Exchange Commission.

Overview

We are a recently formed company whose ultimate goal is to become a leading ethanol producer in the United States. We are currently constructing two 115 Mmgy ethanol plants in the Midwestern corn belt. We had planned to begin construction of a third plant. However, plans to begin construction on a third plant have been delayed due to conditions within the ethanol industry, primarily high corn prices, low ethanol prices, and high construction costs. We will continue to evaluate the attractiveness of initiating construction of additional plants. We hold prospective sites in Alta, Iowa; Gilman, Illinois; and Atchison, Kansas on which we can build additional plants. At each, land has been optioned and permit filings have begun. In addition, Cargill has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities at each of the locations. All five sites, including the two on which we are building, were selected primarily based on access to favorably priced corn, the availability of rail transportation and natural gas and Cargill's competitive position in the area.

While our initial focus has been on plant construction, we ultimately expect to grow, at least in part, through acquisitions. We will continue to assess the trade-offs implicit in acquiring versus building plants as we consider whether and when to initiate building additional plants.

We are a holding company with no operations of our own, and are the sole managing member of BioFuel Energy, LLC, or the Operating Company, which is itself a holding company and indirectly owns all of our operating assets. The financial statements contained elsewhere in this annual report primarily reflect certain start-up costs, fees and expenses incurred by the Operating Company, the initial costs incurred in connection with the preparation for, and commencement of, construction of our Wood River and Fairmont ethanol facilities, senior and subordinated debt borrowings and the equity contributions received by the Operating Company.

We have engineering, procurement and construction, or EPC, contracts with TIC Wyoming for the construction of our Wood River and Fairmont ethanol plants pursuant to which the timely construction and performance of the two plants is guaranteed by TIC. Construction of both plants has begun, and as of March 31, 2008, we had invested approximately $145.3 million in the construction of the Wood River plant and approximately $162.3 million in the construction of the Fairmont plant. Spending on construction of the Wood River and Fairmont plants is expected to total approximately $320 million to $330 million. Based on these estimates, the per gallon of capacity costs of construction would be approximately $1.45. Additional expenditures may be necessary to cover changes that may arise during the construction and start-up of the two plants. We currently anticipate that both plants will begin commercial operations late in the second quarter of 2008. In January 2008, we announced that the start-up of the two plants was expected to be delayed roughly 90 days. If we encounter significant difficulties or further delays in constructing our plants, our results of operations and financial condition could be materially harmed. Please see "Risk Factors" in this Form 10-Q for a description of certain facts that could cause our projects to be delayed. We may also be required to borrow additional funds to replace lost revenues in conjunction with any such further delays. Furthermore, if provisional acceptance of a facility does not occur by December 31, 2009, Cargill may terminate, or seek to renegotiate the terms of, its commercial agreements with us with respect to the relevant facility.

Revenues

Our primary source of revenue will be the sale of ethanol. We will also receive revenue from the sale of distillers grain, which is a residual co-product of the processed corn and is sold as animal feed. The selling prices we realize for our ethanol will be largely determined by the market supply and demand for ethanol, which, in turn, is influenced by industry factors over which we have little if any control. Ethanol prices are extremely volatile. From April 1, 2005 to March 31, 2008, the ethanol Bloomberg rack prices have risen from a low of $1.18 per gallon in April 2005 to a high of $3.98 per gallon in July 2006 and averaged $2.21 per gallon during this three year period. As of May 6, 2008 the CBOT price of ethanol was $2.55 per gallon.

We will also receive revenue from the sale of distillers grain, which is a residual co-product of the processed corn and is sold as animal feed. The selling prices we realize for our distillers grain will be largely determined by the market supply and demand, primarily from livestock operators and marketing companies in the U.S. and internationally to be used as animal feed. The distillers grain is sold by the ton and can either be sold "wet" or "dry". From 2005 through 2007, dry distillers grain has sold for an average price of $82.00 per ton and is currently selling for approximately $155.00 per ton.

Cost of goods sold and gross profit

Our gross profit will be derived from our revenues less our cost of goods sold. Our cost of goods sold will be affected primarily by the cost of corn and natural gas. The prices of both corn and natural gas are volatile and can vary as a result of weather, market demand, regulation and general economic conditions.

Corn will be our most significant raw material cost. In general, rising corn prices result in lower profit margins because ethanol producers are unable to pass along increased corn costs to customers. 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 agriculture and international trade, and global and local demand and supply. Historically, the spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November. From April 1, 2005 to March 31, 2008, the spot price of corn has risen from a low of $1.64 per bushel in October 2005 to a high of $5.34 per bushel in March 2008 and averaged $2.84 per bushel during this three year period. As of May 6, 2008 the CBOT price of corn was $5.94 per bushel.

We will purchase natural gas to power steam generation in our ethanol production process and fuel for our dryers to dry our distillers grain. Natural gas will represent our second largest operating cost after corn, and natural gas prices are extremely volatile. Historically, the spot price of natural gas tends to be highest during the heating and cooling seasons and tends to decrease during the spring and fall. From April 1, 2005 to March 31, 2008, the spot price of natural gas has risen from a low of $3.63 per Mmbtu in September 2006 to a high of $15.39 per Mmbtu in December 2005 and averaged $7.67 per Mmbtu during this three year period. As of May 6, 2008 the NYMEX price of natural gas was $11.09 per Mmbtu.

We will include corn procurement fees that we pay to Cargill in our cost of goods sold. Other cost of goods sold will primarily consist of our cost of chemicals, depreciation, manufacturing overhead and rail car lease expenses.

Spread between ethanol and corn prices

Our gross profit will depend principally on our "crush spread", which is the difference between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol. Using our dry-mill technology, we expect each bushel of corn to produce approximately 2.7 gallons of fuel grade ethanol. Based on the price of a bushel of corn at May 6, 2008 of $5.94, the cost of corn per gallon of ethanol would be approximately $2.20 (.37 bushels per gallon × $5.94). As such, the "crush spread" would be $0.35 per gallon based on the May 6, 2008 ethanol price of $2.55 per gallon.

During the first half of 2006, the spread between ethanol and corn prices reached historically high levels, driven in large part by high oil prices and historically low corn prices resulting from continuing record corn yields and acreage. In early 2008, the spread has since fallen back to $0.35 as of May 6, 2008 due largely to the significant increase in corn prices, averaging over $5.75 per bushel. Any increase or decrease in the spread between ethanol and corn prices, whether as a result of changes in the price of ethanol or corn, will have an effect on our financial performance.

Selling, general and administrative expenses

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

Results of operations

The following discussion summarizes the significant factors affecting the consolidated operating results of the Company for the three months ended March 31, 2008. This discussion should be read in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements contained in this Form 10-Q. We are a new company with no material operating results to date.

At March 31, 2008, the Company owned 46.8% of the Operating Company and the remainder is owned by our founders and original equity investors. The Company is the primary beneficiary of the Operating Company and therefore consolidates the results of the Operating Company. The amount of income or loss allocable to the 53.2% holders is reported as minority interest in our Consolidated Statement of Loss. The Operating Company has been arranging financing for and initiating construction of our first two ethanol plants as well as development work on our additional plant sites.

From its inception on April 11, 2006 through March 31, 2008, after consideration of minority interest, the Company incurred a net loss of $6,533,000 and a net loss distributable to common shareholders of $7,860,000. This loss was primarily due to general and administrative expenses of $22,479,000, of which $15,548,000 was compensation. Compensation expense includes a non-cash charge of $7,670,000 related to share-based payments awarded to our founders and certain key employees. These share-based payments include issuance of membership interests (considered profits interests under the Operating Company agreement and for tax purposes) which were expensed under generally accepted accounting principles. Compensation expense also includes a $550,000 payment made to a founder in 2006, who has since left the Operating Company, for work performed in connection with the formation of the Operating Company and initial financing. Expenses were partially offset by $2,349,000 of interest income primarily earned on the investment of the proceeds from the initial public offering and the concurrent private placement and the $13,597,000 reduction due to the minority interest's portion of the loss. In determining the net loss distributable to common shareholders, the Company recorded a non-cash beneficial conversion charge of $1,327,000 immediately prior to the public offering.

For the three month period ended March 31, 2007, after consideration of minority interest, the Company incurred a net loss of $154,000. The loss was primarily due to general and administrative expenses of $1,900,000, of which $1,295,000 was compensation. Compensation expense includes a non-cash charge of $588,000 related to share-based payments awarded to two officers hired during the quarter. These share-based payments include issuance of membership interests (prior to our initial public offering) which were expensed under generally accepted accounting principles. Expenses were partially offset by $13,000 of interest income and the $1,733,000 reduction due to the minority interest in the loss.

For the three month period ended March 31, 2008, after consideration of minority interest, the Company incurred a net loss of $1,778,000. The loss was primarily due to general and administrative expenses of $4,102,000, of which $2,457,000 was compensation. Compensation expense includes a

non-cash charge of $205,000 related to share-based payments. These share-based payments were for stock options and restricted stock awarded to certain officers and employees. Expenses were partially offset by $526,000 of interest income primarily earned on the investment of the proceeds from the initial public offering and the concurrent private placement and the $1,798,000 reduction due to the minority interest in the loss.

Liquidity and capital resources

Our cash flows from operating, investing and financing activities during the three month periods ended March 31, 2008 and March 31, 2007 and the period from inception through March 31, 2008 are summarized below (in thousands):

                              For the                 For the             From Inception on
                        Three Months Ended,     Three Months Ended,     April 11, 2006 through
                          March 31, 2008          March 31, 2007            March 31, 2008
Cash provided by
(used in):
Operating activities   $              (2,181 ) $              (1,589 ) $                (11,012 )
Investing activities                 (42,486 )               (47,602 )                 (293,325 )
Financing activities                  40,015                  22,720                    355,672
Net increase
(decrease) in
cash and equivalents   $              (4,652 ) $             (26,471 ) $                 51,335

Cash used in operating activities consisted primarily of compensation paid to our employees and expenses incurred by our corporate office. Expenditures incurred under investing activities related primarily to the construction of our Wood River and Fairmont ethanol plants. Cash provided by financing activities consisted of proceeds of equity investments made by our historical equity investors in 2006, proceeds from our initial public offering and concurrent private placement in 2007, and borrowings under our bank facility and subordinated debt in 2007 and the first quarter of 2008, less equity and debt issuance costs and distributions to certain owners of our predecessor company. We expect to fund the completion of our Wood River and Fairmont plants and meet our operating needs with our available capital resources as summarized in the following table (in thousands):

                                 March 31,
                                   2008
Cash and equivalents            $    51,335
Available under bank facility        84,000

Our principal sources of liquidity at March 31, 2008 consist of cash and equivalents and available borrowings under our bank facility. Our balance of cash and equivalents at March 31, 2008 consisted of proceeds of subordinated debt borrowings and our initial public offering and concurrent private placement.

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

Our principal liquidity needs are expected to be the construction of our planned production facilities, debt service requirements of our indebtedness, funding our share repurchase program, margin deposits associated with hedging programs and general corporate purposes.

We believe that our cash and equivalents, including the retained net proceeds from the offering and the private placement, when combined with funds available under our bank facility, will be sufficient to meet our cash requirements for the next twelve months, including the costs to complete our Wood River and Fairmont plants.

Stock repurchase plan

On October 15, 2007, the Company announced the adoption of a stock repurchase plan. The repurchase of up to $7.5 million of the Company's common stock was authorized. Purchases will be funded out of cash on hand and made from time to time in the open market. As of March 31, 2008, the Company had repurchased 714,582 shares at an average price of $5.50 per share. From the inception of the buyback program through May 9, 2008, the Company had repurchased 726,441 shares at an average price of $5.47 per share, leaving $3,504,000 available under the repurchase basket. The shares repurchased are being held as treasury stock.

The share repurchases made during the three month period ended March 31, 2008 were as follows:

                                                                            Approximate
                                                         Total Number
                      Total Number                            of          Value of Shares
                                                            Shares
                           of          Average Price     Purchased as     that May Yet be
                                                            Part of
                         Shares           Paid per         Publicly       Purchased Under
                                                           Announced
Period                  Purchased          Share           Plans(1)          the Plans
01/01/08 - 01/31/08          58,477   $           6.48          58,477   $       5,079,000
02/01/08 - 02/29/08         215,359               6.14         215,359           3,750,000
03/01/08 - 03/31/08          46,700               4.24          46,700           3,551,000
Total                       320,536   $           5.92         320,536   $       3,551,000

Construction

We currently have two ethanol plants under construction. We also have three additional sites available for the possible construction of plants. We estimate that the total project costs, exclusive of corporate overhead and financing charges, to complete Wood River and Fairmont will be approximately $320 million to $330 million. At March 31, 2008, the estimated remaining costs to complete Wood River and Fairmont, exclusive of corporate overhead and financing charges, approximated $12 million to $22 million, which is expected to be funded with borrowings under our existing bank facility.

In connection with the formation of the Company, we secured a $50.0 million subordinated debt facility. Subsequently, we entered into a $230.0 million bank facility in connection with the construction of our Wood River and Fairmont facilities. The full $50.0 million of available subordinated debt had been drawn by May 2007 when we made our initial bank borrowing. In July 2007, we repaid $30.0 million of the subordinated debt with a portion of the proceeds of our initial public offering. If we proceed with construction of a third plant or acquire existing plants or other assets, we will need to secure additional financing. There can be no assurance that such financing will be able to be obtained on acceptable terms, if at all.

We expect to complete the construction of our Wood River facility late in the second quarter of 2008. We have spent approximately $145.3 million on total project costs relating to the Wood River facility as of March 31, 2008. We expect to make additional capital expenditures in 2008 of approximately

$5 million to $10 million in connection with the total project costs relating to our Wood River facility. We expect to complete the construction of our Fairmont facility late in the second quarter of 2008. We have spent approximately $162.3 million on total project costs relating to the Fairmont facility as of March 31, 2008. We expect to make additional capital expenditures in 2008 of approximately $7 million to $12 million in connection with the total project costs relating to our Fairmont facility. To date, we have used the net proceeds of equity investments by the historical equity investors, the proceeds of the offering and the private placement, and borrowings under our bank facility and subordinated debt agreement to finance the construction of the Wood River and Fairmont facilities. As of March 31, 2008, $146.0 million was outstanding under our bank facility and $20.0 million was outstanding under our subordinated debt facility.

Tax and our tax benefit sharing agreement

We expect that, as a result of future exchanges of membership interests in the Operating Company for shares of our common stock, the tax basis of the Operating Company's assets attributable to our interest in the Operating Company will be increased. These increases in tax basis will result in a potential tax benefit to the Company that would not have been available but for the exchanges of the Operating Company membership interests for shares of our common stock. These increases in tax basis would reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge. There have been no assets recognized with respect to any exchanges made through March 31, 2008. The amount of any potential increases in tax basis and the resulting recording of tax assets is dependent upon the share price of our common stock at the time of the exchange of the membership interests in the Operating Company for shares of our common stock.

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

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

Bank facility

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

Our bank facility consists of $210.0 million of non-amortizing construction loans, which will convert into term loans amortizing in an amount equal to 6.0% of the outstanding principal amount thereof per annum and maturing in September 2014, if certain conditions precedent, including the completion of our Wood River and Fairmont plants, are satisfied prior to June 2009. The construction loans otherwise mature in June 2009. Once repaid, the construction loans may not be re-borrowed in whole or in part.

Our bank facility also includes working capital loans of up to $20.0 million, a portion of which may be available to us in the form of letters of credit. The working capital loans will be available to pay certain operating expenses of the Wood River and Fairmont plants, or alternative plants, as the case may be, with up to $5.0 million becoming available upon mechanical completion of a plant, up to $10.0 million becoming available upon provisional acceptance of a plant and the full $20.0 million becoming available upon conversion of the construction loans to term loans. The working capital loans will mature in September 2010 or, with consent from two-thirds of the lenders, in September 2011. No amounts have been borrowed as of March 31, 2008 under the working capital loans.

Although we have commenced borrowing under our bank facility, additional borrowings remain subject to the satisfaction of a number of additional conditions precedent, including continued compliance with debt covenants and . . .