**Washington,
      D.C. 20549**







**FORM
      10-QSB**







x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
              for
                the quarterly period ended October 31, 2007




o
              TRANSITION
                    REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                    OF 1934
                  for
                    the transition period from ______to
                    _________.


Commission
      file number: 00-51354




AE
      BIOFUELS, INC.


(Exact
      name of small business issuer as specified in its charter)




Nevada
            84-0925128(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer identification No.)




20400
      Stevens Creek Blvd., Suite 700


Cupertino,
      CA 95014


(Address
      of principal executive offices)




(408)
      213-0940


(Issuer's
      telephone number)




Marwich
      II, Ltd.


203
      N. La
      Salle Street, Suite 2100


Chicago,
      IL 60601





(former
      name or former address, if changed since last
      report)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes x No  ̈




Number
      of
      shares of common stock outstanding as of October 31, 2007:
      3,785,664




Transitional
      Small Business Disclosure Format: Yes  ̈ No x













**AE
      BIOFUELS, INC.**




**FORM
      10-QSB**




**INDEX**




**SPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS**
            **Page****PART
                I. FINANCIAL
                INFORMATION**
            3Item
                1.
            Financial
                StatementsBalance
                Sheets as of October 31, 2007 (unaudited) and January 31,
                2007
            4Unaudited
                Statements of Operations for Three and Nine Months ended October
                31, 2007
                and 2006
            56Unaudited
                Statements of Cash Flows for the Nine Months ended October 31, 2007
                and
                2006
            6Notes
                to the Unaudited Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            9Item
                3.
            Controls
                and Procedures
            10**PART
                II. OTHER INFORMATION**
            13Item
                6.
            Exhibits
            13**SIGNATURES**
            
            14










**SPECIAL
      NOTE REGARDING FORWARD—LOOKING STATEMENTS**




On
      one or
      more occasions, we may make forward-looking statements in this Quarterly Report
      on Form 10-QSB regarding our assumptions, projections, expectations, targets,
      intentions or beliefs about future events. Words or phrases such as
“anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,”
“intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,”
“will continue” or similar expressions identify forward-looking statements.
      These forward-looking statements are only our predictions and involve numerous
      assumptions, risks and uncertainties, including, but not limited to those listed
      below and those business risks and factors described elsewhere in this report
      and our other Securities and Exchange Commission filings.




Forward-looking
      statements involve risks and uncertainties which could cause actual results
      or
      outcomes to differ materially from those expressed. We caution that while
      we make
      such statements in good faith and believe such statements are based on
      reasonable assumptions, including without limitation, management’s examination
      of historical operating trends, data contained in records and other data
      available from third parties, we cannot assure you that our projections will
      be
      achieved.




We
      have
      attempted to identify, in context, certain of the factors that we believe may
      cause actual future experience and results to differ materially from our current
      expectation regarding the relevant matter or subject area. In addition to the
      items specifically discussed above, our business and results of operations
      are
      subject to the uncertainties described under the caption “Risk Factors” which is
      a part of the disclosure included in Item 2 of this Report entitled
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.”




From
      time
      to time, oral or written forward-looking statements are also included in our
      reports on Forms 10-KSB, 10-QSB and 8-K, Proxy Statements on Schedule 14A,
      press
      releases, analyst and investor conference calls, and other communications
      released to the public. Although we believe that at the time made, the
      expectations reflected in all of these forward-looking statements are and will
      be reasonable, any or all of the forward-looking statements in this quarterly
      report on Form 10-QSB, our reports on Forms 10-KSB and 8-K, our Proxy Statements
      on Schedule 14A and any other public statements that are made by us may prove
      to
      be incorrect. This may occur as a result of inaccurate assumptions or as a
      consequence of known or unknown risks and uncertainties. Many factors discussed
      in this Quarterly Report on Form 10-QSB, certain of which are beyond our
      control, will be important in determining our future performance. Consequently,
      actual results may differ materially from those that might be anticipated from
      forward-looking statements. In light of these and other uncertainties, you
      should not regard the inclusion of a forward-looking statement in this Quarterly
      Report on Form 10-QSB or other public communications that we might make as
      a
      representation by us that our plans and objectives will be achieved, and you
      should not place undue reliance on such forward-looking statements.




We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information, future events or otherwise.
      However, your attention is directed to any further disclosures made on related
      subjects in our subsequent annual and periodic reports filed with the SEC on
      Forms 10-KSB, 10-QSB and 8-K and Proxy Statements on Schedule 14A.




*Unless
      the context requires otherwise, references to “we,” “us,” “our, ” the “Company”
and “the Company” refer specifically to AE Biofuels, Inc., formerly Marwich II,
      Ltd.*




3




**PART
      I - FINANCIAL INFORMATION**




(1)  **Item
      1 - Financial Statements**





**AE
      BIOFUELS, INC.**


**formerly**


**Marwich
      II, Ltd.**


**BALANCE
      SHEETS**


as
      of
      October 31, 2007 and January 31, 2007


(unaudited)





**ASSETS**October
                  31,
                2007
              
              January
                  31,
                2007(unaudited)Current
                  Assets
              
              $
              -
              
              $
              -**Total
                  Assets**
              
              **$**
              **-**
              
              **$**
              **-****LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Accounts
                  payable, related parties
              
              $
              181,855
              
              $
              91,189Total
                  Current Liabilities
              
              
              181,855
              
              
              91,189Stockholders'
                  Equity:Preferred
                  stock, $.01 par value; 1,000,000 shares authorized, none issued
                  and
                  outstanding
              
              
              -
              
              
              -Common
                  stock, no par value, 100,000,000 shares authorized, 3,785,664 shares
                  issued and outstanding
              
              
              333,567
              
              
              333,567Additional
                  paid in capital
              
              
              3,000
              
              
              3,000Accumulated
                  deficit
              
              
              (518,422
              )
              
              (427,756
              )(181,855
              )
              
              (91,189
              )**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **-**
              
              **$**
              **-**




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


4





**AE
          BIOFUELS, INC.**
 **formerly**
 Marwich
      II, Ltd.


**STATEMENTS
      OF OPERATIONS**


For
      the
      three and nine months ended October 31, 2007 and 2006


(unaudited)





For
                the three months ended
            
            For
                the nine months endedOctober
                31,
              2007
            
            October
                31,
              2006
            
            October
                31,
              2007
            
            October
                31,
              2006Revenues
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Operating
                expenses:Professional
                fees
            
            
            15,875
            
            
            9,760
            
            
            45,320
            
            
            -Administrative
                and other
            
            
            44,076
            
            
            7,450
            
            
            45,346
            
            
            4,61659,951
            
            
            17,210
            
            
            90,666
            
            
            4,616Net
                loss
            
            $
            (59,951
            )
            $
            (17,210
            )
            $
            (90,666
            )
            $
            (4,616
            )Per
                share
            
            $
            (0.02
            )
            $
            (0.00
            )
            $
            (0.02
            )
            $
            (0.00
            )Weighted
                average number of shares outstanding
            
            
            3,785,664
            
            
            3,785,664
            
            
            3,785,664
            
            
            3,785,664





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


5





**AE
        BIOFUELS, INC.**
 **formerly**


Marwich
      II, Ltd.


**STATEMENTS
      OF CASH FLOWS**


For
      the
      nine months ended October 31, 2007 and 2006





(unaudited)





For
                the nine months endedOctober
                31,
              2007
            
            October
                31,
              2006**Cash
                flows from operating activities:**Net
                loss
            
            $
            (90,666
            )
            $
            (17,210
            )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Increase
                in accounts payable
            
            
            90,666
            
            
            3,416**Net
                cash used by operating activities**
            
            
            **-**
            
            
            **(13,794**
            **)****Cash
                flows from investing activities**
            
            
            **-**
            
            
            **-**Cash
                flows from financing activitiesContributions
                of capital
            
            
            -
            
            
            3,000**Net
                cash provided by financing activities**
            
            
            **-**
            
            
            **3,000**Increase
                (decrease) in cash
            
            
            -
            
            
            (10,794
            )Cash,
                Beginning of period
            
            
            -
            
            
            10,794**Cash,
                End of period**
            
            **$**
            **-**
            
            **$**
            **-**


6


**AE
        BIOFUELS, INC.**
 **formerly**


**MARWICH
      II, LTD.**


**NOTES
      TO UNAUDITED FINANCIAL STATEMENTS**




**(1)**
            **Unaudited
                Financial Statements**




The
      balance sheets as of October 31, 2007, the statements of operations and the
      statements of cash flows for the nine and three month periods ended October
      31,
      2007 and 2006, have been prepared by Marwich II, Ltd. (the “Company”) without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission. Certain information and footnote disclosures, normally included
      in
      the financial statements prepared in accordance with accounting principles
      generally accepted in the United States of America, have been condensed or
      omitted as allowed by such rules and regulations, and the Company believes
      that
      the disclosures are adequate to make the information presented not misleading.
      Certain reclassifications have been made to the 2006 figures to conform to
      the
      2007 presentation. In the opinion of management, all adjustments (which include
      only normal recurring adjustments) necessary to present fairly the financial
      position, results of operations and changes in financial position at October
      31,
      2007 and for all periods presented, have been made.




It
      is
      suggested that these statements be read in conjunction with the January 31,
      2007
      audited financial statements and the accompanying notes included in the
      Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange
      Commission on April 10, 2007.




**(2)**
            **Basis
                of Presentation - Ability to continue as a Going
                Concern**




Marwich
      II, Ltd. (the "registrant" or "Company") was incorporated under the laws of
      the
      state of Colorado on August 16, 1983.




The
      Company ceased active business operations and was administratively dissolved
      by
      the Colorado Secretary of State effective January 1, 1991. The Company was
      reinstated by the Colorado Secretary of State effective October 13,
      2004.




Marwich
      has an authorized capitalization of 100,000,000 shares of common stock, no
      par
      value per share and 1,000,000 shares of preferred stock, $.01 par
      value per share. On June 2, 2006, the Company effected a three-for-one common
      stock dividend on the Company's common stock. All references to share numbers
      reflect these splits.




In
      October 2004, the Company’s Board of Directors, appointed three new directors
      and three new officers, all of whom were shareholders of the firm Pride
      Equities, Inc. (Pride). Management then secured the services of Pride, a
      consulting firm to assist the Company in its efforts to salvage value for the
      benefit of its shareholders. Pride contributed $30,000 as paid in capital to
      the
      Company and the Company issued Pride 1,920,000 shares of its common
      stock. The paid-in capital was used to pay for professional services, including
      accounting services in order to enable the Company to make all necessary filings with the Securities and Exchange Commission.




The
      Company is a "shell" company, whose sole purpose, at this time, is to consummate
      the merger with American Ethanol, Inc. (“American Ethanol”) described
      below.




The
      accompanying financial statements have been prepared in conformity with
      generally accepted accounting principles in the United States of America, which
      contemplates continuation of the Company as a going concern.




The
      Company has limited working capital and no active business operations, which
      raises substantial doubt about its ability to continue as a going concern.
      Management resumed the filing of Securities and Exchange Commission reporting
      in
      2004 and in 2006 began to seek a business combination. Management believes that this plan provides an opportunity for the Company
      to
      continue as a going concern. As a result, the Company’s ability to continue as a
      going concern is dependent upon the Company's ability to successfully consummate
      a business combination.




On
      June
      23, 2006, American Ethanol acquired approximately 88.3% of the outstanding
      common stock of the Company from three principal shareholders and directors
      of
      the Company for $675,000. In connection with this transaction, the three
      directors of the Company resigned from the board and members of American
      Ethanol’s management were named to the Company’s Board of Directors and as
      officers of the Company.





Effective
      as of June 23, 2006, Marwich-Colorado and American Ethanol entered into an
      Agreement and Plan of Merger, pursuant to which American Ethanol agreed to
      merge
      with and into Marwich-Colorado, with Marwich-Colorado being the surviving
      company. On July 19, 2007, the Agreement and Plan of Merger was amended and
      restated to (i) amend Article II to provide that Merger Sub will merge with
      and
      into American Ethanol with American Ethanol being the surviving corporation;
      (ii) provide that the name of Marwich-Nevada be changed to AE Biofuels, Inc.
      effective upon the consummation of the merger; (iii) add a covenant that
      Marwich-Nevada will authorize a new series of Series B Convertible Preferred
      with rights, preferences and privileges substantially similar to the rights,
      preferences and privileges of the American Ethanol Series B Preferred (the
      “Marwich-Nevada Series B Preferred”); (iv) amend Article III to provide that (a)
      each issued and outstanding share of American Ethanol common stock (including
      shares of American Ethanol Series A Preferred Stock, which will automatically
      convert into common on the Effective Date of the merger) will be automatically
      canceled and converted into the right to receive one share of Marwich-Nevada
      common stock; (b) each issued and outstanding share of American Ethanol’s Series
      B Preferred will be automatically canceled and converted into the right to
      receive one share of Marwich-Nevada Series B Preferred; (c) and each issued
      and
      outstanding American Ethanol option and warrant will be assumed by
      Marwich-Nevada and become an option or warrant to purchase Marwich-Nevada’s
      common stock or Marwich-Nevada Series B Preferred as applicable on the same
      terms and conditions; (v) add as a condition to American Ethanol’s obligation to
      complete the Merger that the Reincorporation be completed. The Amended and
      Restated Agreement and Plan of Merger, is herein referred to as the “Merger
      Agreement”.




Based
      on
      the foregoing, assuming that American Ethanol does not issue any additional
      shares prior to the Merger, Marwich-Nevada would issue 84,114,998 shares of
      common stock in exchange for all the outstanding American Ethanol common stock
      and Series A Preferred stock, 6,487,491 shares of Series B Preferred Stock
      in
      exchange for the same number of shares of American Ethanol Series B Preferred
      Stock, and would assume option and warrants. The exercise prices and other
      terms
      of the outstanding options and warrants will remain unchanged. In addition,
      the
      shares of Marwich-Colorado common stock held by American Ethanol would be
      cancelled. If the Merger is completed, the directors and the officers of
      American Ethanol would become the directors and officers of Marwich-Nevada
      and
      Marwich-Nevada will change its name to AE Biofuels, Inc. Upon the closing of
      the
      Merger, shareholders of American Ethanol would own approximately 99.5% of the
      common stock of Marwich-Nevada and current shareholders of Marwich-Colorado
      will
      hold approximately 0.5% of Marwich-Nevada common stock.


7




Prior
      to
      the consummation of the Merger, the Company intends to adopt a new management
      and employee incentive equity/stock option plan pursuant to which the Company
      will be entitled to grant options to purchase shares of its common stock.




The
      Merger Agreement has been approved by the boards of directors of each of the
      Company and American and must be submitted to the shareholders of each of
      American and the
      Company for their approval. American currently owns 88.3% of the outstanding
      voting shares of the Company, a sufficient number to ensure approval of the Merger.
      However, the Merger closing is still subject to the satisfaction of the normal
      closing conditions in transactions of this kind, and the SEC must still approve
      the form and
      content of the proxy or information statement to be mailed by the Company to
      its
      shareholders. No assurance can be given that the Merger will be consummated,
      or
      if consummated, that the terms will not change from those currently contained
      in
      the Merger Agreement.




In
      addition, immediately prior to the Merger, the Company currently intends to
      reincorporate from the State of Colorado to the State of Nevada.




**Effective
      Date**




The
      Merger will become effective upon the satisfaction of various conditions,
      including the approval of the Merger by the shareholders of both the Company
      and
      American. It is currently anticipated that the merger will occur during the
      fourth quarter of 2007.




**Conditions
      to the Merger**




The
      Company and American have each agreed to continue to operate their respective
      businesses in the ordinary course prior to the Merger. Under the Merger
      Agreement, each of American and the Company agreed to do certain things, some
      of
      which are conditions to the Merger transaction. Each company is obligated to
      (a)
      obtain all necessary approvals for various aspects of the transaction, (b)
      give
      the other access to the records and personnel to complete due diligence review,
      and (c) proceed expeditiously to undertake all actions so as to be able to
      consummate the Merger. Consummation of the Merger is also contingent upon (i)
      preparation, filing and distribution to the Company’s shareholders of a proxy or
      information statement related to the approval of the Merger by the Company’s
      shareholders, and (ii) continued quotation of the Company’s common stock on the
      OTC Bulletin Board. The representations and warranties of the parties to the
      Merger Agreement generally do not survive the closing of the
      Merger.




**Regulatory
      Approval**




No
      specific federal or state regulatory approvals must be obtained by the Company
      or American in order to consummate the Merger, other than general compliance
      with applicable corporation laws and state and federal securities laws and
      obtaining the SEC’s approval of the proxy or information statement if the SEC
      elects to review the proxy or information statement.




**Termination**




At
      any
      time prior to the Merger closing, notwithstanding the approval of the Merger
      Agreement by the shareholders of both the Company and American, the Merger
      Agreement may be terminated and the Merger abandoned by (i) the mutual consent
      of the boards of directors of the Company and American, (ii) by either party
      if
      the Merger is prohibited by issuance of an order, decree or ruling, or (iii)
      by
      either party if the other is in material breach of any representation, warranty,
      covenant or agreement. Neither the Company nor American presently knows of
      any
      reason why the Merger might be abandoned.




**Change
      of Domicile/Corporate Name**




Immediately
      prior to the Merger, the Company currently intends to reincorporate from the
      State of Colorado to the State of Nevada and upon consummation of the Merger
      change its name to AE Biofuels, Inc.


8




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




The
      Company was incorporated under the laws of the state of Colorado on August
      16,
      1983 and was organized to engage in the acquisition of assets and properties
      which management
      believed had good business potential. On January 1, 1991, the Company was
      dissolved by administrative action of the Colorado Secretary of State as a
      result of the
      failure to file required documents with the State of Colorado and at that time
      became dormant.




Effective
      October 13, 2004, the Company filed article of reinstatement with the Colorado
      Secretary of State and over the next few months became current with respect
      to
      its  SEC
      reporting requirements as a publicly traded company. The Company’s stated
      purpose was to identify, evaluate and investigate various companies with the
      intent that, if such
      investigation warranted, a reverse merger transaction be negotiated and
      completed pursuant to which the Company would acquire a target company with
      an
      operating business with the intent of continuing the acquired company's business
      as a publicly held entity.




The
      Company generated no revenues during the nine and three months ended October
      31,
      2007, and management does not anticipate that the Company will generate any
      revenues until the Merger
      is consummated.




Expenses
      reported in the Company’s financial statements included herewith are costs
      related to being a public entity. Since the time that American Ethanol acquired
      an 88% interest in the Company they have been advancing funds for such expenses
      to the Company. Such advances are reflected in Accounts Payable to related
      parties on the Balance Sheet at the reporting date. It is anticipated that
      American Ethanol will continue to advance funds until such time as the merger
      is
      completed.




The
      Company has no capital. The Company anticipates operational costs will be
      limited until such time as the Merger is consummated.




At
      October 31, 2007, the Company had no material commitments for capital
      expenditures.




**Merger
      with American Ethanol, Inc.**




On
      June
      23, 2006 American Ethanol, Inc. (“American”) acquired approximately 88.3% of the
      outstanding common stock of the Company from three principal shareholders and
      directors of the Company for $675,000. In connection with this transaction,
      the
      three directors of the Company resigned from the board and
      American’s Chief
      Executive Officer, and Chief Financial Officer, were named to the Company’s
      Board of Directors.




Effective
      as of June 23, 2006, Marwich-Colorado and American Ethanol entered into an
      Agreement and Plan of Merger, pursuant to which American Ethanol agreed to
      merge
      with and into Marwich-Colorado, with Marwich-Colorado being the surviving
      company. On July 19, 2007, the Agreement and Plan of Merger was amended and
      restated to (i) amend Article II to provide that Merger Sub will merge with
      and
      into American Ethanol with American Ethanol being the surviving corporation;
      (ii) provide that the name of Marwich-Nevada be changed to AE Biofuels, Inc.
      effective upon the consummation of the merger; (iii) add a covenant that
      Marwich-Nevada will authorize a new series of Series B Convertible Preferred
      with rights, preferences and privileges substantially similar to the rights,
      preferences and privileges of the American Ethanol Series B Preferred (the
      “Marwich-Nevada Series B Preferred”); (iv) amend Article III to provide that (a)
      each issued and outstanding share of American Ethanol common stock (including
      shares of American Ethanol Series A Preferred Stock, which will automatically
      convert into common on the Effective Date of the merger) will be automatically
      canceled and converted into the right to receive one share of Marwich-Nevada
      common stock; (b) each issued and outstanding share of American Ethanol’s Series
      B Preferred will be automatically canceled and converted into the right to
      receive one share of Marwich-Nevada Series B Preferred; (c) and each issued
      and
      outstanding American Ethanol option and warrant will be assumed by
      Marwich-Nevada and become an option or warrant to purchase Marwich-Nevada’s
      common stock or Marwich-Nevada Series B Preferred as applicable on the same
      terms and conditions; (v) add as a condition to American Ethanol’s obligation to
      complete the Merger that the Reincorporation be completed. The Amended and
      Restated Agreement and Plan of Merger, is herein referred to as the “Merger
      Agreement”.




The
      Company currently has 3,785,664 shares of common stock issued and outstanding,
      of which American owns 3,343,200 shares (or 88.3%). Assuming no shareholder
      of
      either American or the Company elects dissenters' rights and that the
      capitalization of either company does not change prior to the closing of the
      Merger, in the Merger based on the foregoing, assuming that American Ethanol
      does not issue any additional shares prior to the Merger, Marwich-Nevada would
      issue 84,114,998 shares of common stock in exchange for all the outstanding
      American Ethanol common stock and Series A Preferred stock, 6,487,491 shares
      of
      Series B Preferred Stock in exchange for the same number of shares of American
      Ethanol Series B Preferred Stock, and would assume option and warrants
      exercisable for an additional 2,957,000 shares of common stock and 747,911
      shares of Series B Preferred Stock. The exercise prices and other terms of
      the
      outstanding options and warrants will remain unchanged. In addition, the shares
      of Marwich-Colorado common stock held by American Ethanol would be cancelled.
      If
      the Merger is completed, the directors and the officers of American Ethanol
      would become the directors and officers of Marwich-Nevada and Marwich-Nevada
      will change its name to American Ethanol, Inc. Upon the closing of the Merger,
      shareholders of American Ethanol would own approximately 99.5% of the common
      stock of Marwich-Nevada and current shareholders of Marwich-Colorado will hold
      approximately 0.5% of Marwich-Nevada common stock.




The
      Reincorporation and the Merger were consummated on December 7,
      2007.


9




**ITEM
      3. CONTROLS AND PROCEDURES**




The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in its Exchange Act reports is
      recorded, processed, summarized and reported within the time periods specified
      in the Securities and Exchange Commission's rules and forms, and that such
      information is accumulated and communicated to its management, including its
      Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
      timely decisions regarding required disclosure based closely on the definition
      of "disclosure controls and procedures" in Rules 13(a)-15(e) under the
      Securities Exchange Act of 1934, as amended. In designing and evaluating the
      disclosure controls and procedures, management recognized that any controls
      and
      procedures, no matter how well designed and operated, can provide
      only reasonable assurance of achieving the desired control objectives, and
      management necessarily was required to apply its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures.




As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our Chief Executive Officer and
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures. Based on this evaluation, the Company's
      Chief Executive Officer and Chief Financial Officer concluded that as of the
      end
      of the period covered by this report the Company's disclosure controls and
      procedures are effective in timely alerting them to material information
      required to be included in the Company's periodic Securities and Exchange
      Commission reports.




There
      has
      been no change in our internal control over financial reporting during the
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial
      reporting.


10




**RISK
      FACTORS**




**Risks
      Related to the Merger with American**




*The
      Merger may fail to enhance shareholder value.*




While
      our
      goal is to maximize shareholder value, there can be no guarantees that the
      Merger will not impair shareholder value. If the Merger is effected, our
      business will be that of
      American. Moreover, the Merger may require us to incur non-recurring or other
      charges and may pose significant integration challenges and/or management and
      business disruptions, any of which could harm our results of operation and
      business prospects.




*There
      may be possible litigation in connection with the Merger.*




The
      Merger may also be challenged in court by various parties, including our
      existing shareholders. Our board did not seek or obtain an independent
      evaluation or opinion of the fairness of the Merger to our shareholders. Since
      American currently owns approximately 88.3% of our voting stock, and the
      officers and directors of the Company are affiliates of American, the Merger
      could be challenged on the grounds, among others, that the transaction is not
      being completed on arms’ length terms and conditions. Any
      such
      legal challenge to the Merger could delay the Merger or make the consummation
      of
      the Merger undesirable. Conversely, if the Merger is not consummated for
      any reason,
      including due to no fault of our own, lawsuits may be filed against us by third
      parties, for a variety of reasons, including, but not limited to, for failing
      to
      consummate the Merger. Such litigation, if it occurs, could harm our business,
      our prospects and our reputation.




*Our
      current and future shareholders will be diluted by the Merger.*




Our
      current and future shareholders will be diluted as a result of the issuance
      of
      our shares to the American shareholders in the Merger. In addition, our
      shareholders may be diluted
      by future issuances of shares to satisfy our working capital needs. We
      anticipate that our current shareholders will own less than 0.5% of the
      outstanding shares of the combined entity, if the Merger is consummated under
      the current terms.




*There
      can be no assurance that a liquid public market for our common stock will exist
      after the Merger.*




Although
      the Company’s shares of common stock are eligible for quotation on the OTC
      Bulletin Board electronic over-the-counter trading system, a very limited number
      of shares
      trade on a regular basis and there may not be a significant market in such
      stock
      after the Merger. In addition, there can be no assurance that a regular and
      established market will be developed and maintained for the securities upon
      completion of the Merger. There can also be no assurance as to the strength
      or
      liquidity of any market for the Company’s common stock or the prices at which
      holders may be able to sell the shares.




*It
      is
      likely that there will be significant volatility in the trading
      price.*




In
      the
      event that a public market for our common stock is created or maintained after
      the Merger, market prices for the common stock will be influenced by many
      factors and
      will
      be subject to significant fluctuations in response to variations in operating
      results of American and other factors. Factors that could affect our future
      stock price, and create
      volatility in our stock price, include the price and demand for ethanol, the
      price and availability of oil and gasoline, the political situation in the
      Middle East, U.S. energy
      policies, federal and state regulatory changes that affect the price of ethanol,
      the existence or discontinuation of legislative incentives for renewable fuels,
      the trading price of
      the stock of our competitors, investor perceptions of American, interest rates,
      general economic conditions and those specific to the industry, developments
      with regard to American’s operations and activities, our future financial
      condition, and changes in our management.


11




*Risks
      relating to low priced stocks.*




Although
      the Company’s common stock currently is quoted and traded on the OTC Bulletin
      Board, the price at which the stock will trade after the consummation of the
      Merger cannot currently be estimated. If the Company’s common stock trades below
      $5.00 per share, trading in the common stock may be subject to the requirements
      of certain
      rules promulgated under the Exchange Act of 1934, as amended (the “Exchange
      Act”), which require additional disclosure by broker-dealers in connection with
      any trades
      involving a stock defined as a penny stock (generally, any non-Nasdaq equity
      security that has a market price share of less than $5.00 per share, subject
      to
      certain exceptions)
      and a two business day “cooling off period” before broker and dealers can effect
      transactions in penny stocks. For these types of transactions, the
      broker-dealer  must
      make
      a special suitability determination for the purchaser and have received the
      purchaser’s written consent to the transaction prior to the sale. The
      broker-dealer also must
      disclose the commissions payable to the broker-dealer, current bid and offer
      quotations for the penny stock and, if the broker-dealer is the sole
      market-maker, the broker-dealer must disclose this fact and the broker-dealer’s
      presumed control over the market. These, and the other burdens imposed upon
      broker-dealers by the penny stock requirements, could discourage broker-dealers
      from effecting transactions in the common stock which could severely limit
      the
      market liquidity of the common stock and the ability of holders of the common
      stock to sell it.





*Our auditor's
      opinion expresses substantial doubt about our ability to continue as a "going
      concern.”*




Our independent
      auditor’s report on our January 31, 2007 financial statements states that the
      Company has suffered recurring losses from operations and has a net capital
      deficiency that raise substantial doubt about its ability to continue as a
      going
      concern. If we are unable to develop our business and to generate sufficient
      revenues, we may have to discontinue operations or cease to exist, which would
      be detrimental to the value of your investment. We can make no assurances
      that our business operations will develop and provide us with
      significant cash to continue operations.


12




**PART
      II - OTHER INFORMATION**




**Item
      6. Exhibits**


31.1
              Certifications
                  pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act
                  of 1934, as amended, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              Certifications
                  pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act
                  of 1934, as amended, as adopted pursuant to Section 302 of the
                  Sarbanes-
                  Oxley Act of 2002.32.1
              Certifications
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.32.2
              Certifications
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of
                  2002.


13




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      Report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto
      duly authorized.





**AE
                BIOFUELS, INC.**
              (Registrant)Date:
            December
                13, 2007By:
            /s/
                William J. MaenderChief Financial Officer
              (Principal Financial and Accounting
                Officer)


14