U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K




(Mark
One)


x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
Fiscal Year Ended: December 31, 2008


OR


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:  000-52601




Flex
      Fuels Energy, Inc.(Exact
      name of registrant as specified in its charter)Nevada
                              
                              20-5242826(State
      or other jurisdiction of incorporation or organization)
                              
                              (IRS
      Employer Identification No.)Oceana
      House, 39-49 Commercial Road, Southampton, UK
                              
                              SO15
      1GA(Address
      of principal executive offices)
                              
                              (Postal
      Code)


Issuer's
telephone number:  +44 (0)
29 2050 4712
  Securities
registered under Section 12(b) of the Act:  None
  Securities
registered under Section 12(g) of the Act:  Common Stock, par value $0.001 par
value
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o   No x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.
 Yes o    No x
  Indicate
by check mark whether the registrant (1) has 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 o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  See the
definitions of the “large accelerated filer,” “accelerate filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   (Check
one):
  Large Accelerated
      Filer o
              Accelerated Filer
      oNon-Accelerated
      Filer o
              Smaller reporting
      company x
 
 (Do not
check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o   No x
  As of
June 30, 2008, there were 69,380,441 shares of the registrant's common stock,
par value $0.001, issued and outstanding.  Of these, 68,631,051 shares
were held by non-affiliates of the registrant.  The market value of
securities held by non-affiliates was approximately $48,041,735 based on the
closing price of $0.70 for the registrant’s common stock on June 30,
2008.
  DOCUMENTS
INCORPORATED BY REFERENCE
 If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated:  (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933,
as amended (“Securities Act”).
  Not
Applicable.









TABLE
OF CONTENTS







Item Number and
      Caption
            PageFORWARD-LOOKING
      STATEMENTS
            3PART I
            
            4ITEM 1.
            BUSINESS
            4





ITEM
      1A.
                        RISK
      FACTORS
                        17ITEM
      1B.
                        UNRESOLVED
      STAFF COMMENTS
                        29ITEM
      2.
                        PROPERTIES
                        29ITEM
      3.
                        LEGAL
      PROCEEDINGS
                        30


ITEM
      4.
                                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                    31PART
      II
                                    
                                    32ITEM
      5.
                                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                                    32ITEM
      6.
                                    SELECTED
      FINANCIAL DATA
                                    33ITEM
      7.
                                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF
    OPERATIONS
                                    33ITEM
      7A
                                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                                    43ITEM
      8.
                                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                    44ITEM
      9.
                                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL
DISCLOSURE
                                    44ITEM
      9A.[T]
                                    CONTROLS
      AND PROCEDURES
                                    45ITEM
      9B.
                                    OTHER
      INFORMATION
                                    46PART
      III
                                    46ITEM
      10.
                                    DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
                                    46ITEM
      11.
                                    EXECUTIVE
      COMPENSATION
                                    50ITEM
      12.
                                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS
                                    51ITEM
      13.
                                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                    52ITEM
      14.
                                    PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                    53PART
      IV
                                    54ITEM
      15.
                                    EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                    54








2




FORWARD-LOOKING
STATEMENTS




Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934.  Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses.  Such forward-looking statements include, among
others, those statements including the words “expects,” “anticipates,”
“intends,” “believes” and similar language.  Our actual results may
differ significantly from those projected in the forward-looking
statements.  You should carefully review the risks described in this
Annual Report and in other documents we file from time to time with the
Securities and Exchange Commission.  You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report.  We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.




Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.




Factors
that might cause or contribute to such differences include, but are not limited
to, those discussed below and in the sections “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”




Factors
that may cause actual results, our performance or achievements, or industry
results, to differ materially from those contemplated by such forward-looking
statements include without limitation:




1.
            Our
      ability to successfully attract and retain management and other key
      employees;


2.
            Our
      ability to successfully engage in mineral exploration
      activities;


3.
            The
      intensity of competition;


4.
            Fluctuations
      in the price of oilseed feedstocks, products thereof (including vegetable
      oil and meal), gold and other
minerals;


5.
            Regulation
      and changes in regulation by federal and provincial governments in
      territories where we operate;


6.
            Our
      ability to successfully integrate, if at all, our oilseed processing
      operations; and


7.
            General
      economic conditions that affect our industry or the global environment in
      which we operate.




3






PART
I




ITEM
1.BUSINESS




Organizational
History




Flex
Fuels Energy, Inc. (“Flex Fuels” “we”, “us”, “our”) (formerly Malibu Minerals,
Inc.) was incorporated in the State of Nevada on March 10, 2006, to engage in
the business of exploration and discovery of gold, minerals, mineral deposits
and reserves. Flex Fuels has staked two mineral claims containing 33 cell claim
units totaling approximately 683 hectares. Throughout this Annual Report, we
refer to these mining claims as the “Malibu Gold Mine Property” or the “Malibu
Gold Property”.  Flex Fuels purchased the Malibu Gold Property in
March of 2006. The Malibu Gold Property is located approximately 110 km
northwest of Vancouver, British Columbia, and 75 km north of Sechelt, BC. The
property is situated on the south side of Queen’s Reach on upper Jervis Inlet,
at the entrance to Princess Louisa Inlet. Access to the property is available
via plane from Vancouver or Sechelt, or by boat from Egmont or Pender Harbor on
the Sechelt Peninsula.




During
the fourth quarter of our 2006 fiscal year, for the purpose of diversifying our
business, acquiring capital, gaining greater access to the capital markets and
with the assistance of newly acquired capital promotion of Flex Fuels business
of exploration and discovery of gold, minerals, mineral deposits and reserves,
Flex Fuels entered into the Agreement with Flex Fuels Energy Limited (“FFE Ltd”)
and the stockholders of FFE Ltd as more fully described below, under which FFE
Ltd became our wholly-owned subsidiary effective on May 29, 2007.




Flex
Fuels is currently engaged in two sectors:




·
            developing
      our business of manufacturing and distributing Oil Seed Rape (“OSR”)
      products through our wholly owned subsidiary, FFE
  Ltd.




·
            the
      exploration and discovery of gold, minerals, mineral deposits and reserves
      through our Malibu Gold operation.




FFE Ltd.
has the following subsidiaries, each of which was formed under the laws of
England and Wales:


·
                Flex Fuel Biomass Ltd.;
  ·
                Flex Fuel Crush Ltd.;
 ·
                  Flex Fuel Farming Ltd.;
  ·
                  Flex Fuel Refineries Ltd.;
and
 ·
                    Flex Fuel Trading
Ltd.
  These
subsidiaries are hereinafter collectively referred to as the "FFE Ltd.
Subsidiaries." The FFE Ltd. Subsidiaries have conducted no activities since
their respective formations and remain inactive at this time.




In May of
2007, Flex Fuels authorized and affected a dividend in the form of Common Stock,
whereby each stockholder of record of Flex Fuels as of the end of the business
day on May 21, 2007, received five shares of common stock, in exchange for one
share of existing common stock held.




In
November of 2006, Flex Fuels filed a Form 211 application with the NASD in order
to obtain its approval for the listing and quotation of Flex Fuels common stock
on the Over-The-Counter Bulletin Board (the “OTCBB”). In May of 2007, the NASD
assigned a symbol of “MLBU.OB” to Flex Fuels (formerly named Malibu Minerals,
Inc) common stock. Following the renaming of the Company as Flex Fuels Energy,
Inc. and since July 16, 2007, Flex Fuels shares have been quoted on the OTCBB
under the symbol “FXFL.OB”.




Our
fiscal year end is December 31.




All
references in this Form 10-K to the “Company,” “Flex Fuels,” “we,” “us” or “our”
are to Flex Fuels Energy, Inc. and, unless otherwise differentiated, its
wholly owned subsidiary, Flex Fuels Energy Limited (“FFE Ltd”), including the
FFE Ltd. Subsidiaries.




4




Acquisition
of FFE Ltd




On May
29, 2007 (the “Closing Date”) Flex Fuels, pursuant to the terms of the
acquisition agreement (the “Agreement”), and as amended via the terms of the
addendum to the agreement dated May 29, 2007 (the “Addendum”), entered into by
the Company and FFE Ltd, a development stage company formed under the laws of
England and Wales, the stockholders of FFE Ltd (collectively the “Stockholders”)
and the individuals signatories thereto, as previously reported by the Company
in its May 29, 2007 Current Report on Form 8-K filed with the United States
Securities and Exchange Commission (the “SEC”), for the purpose of diversifying
the Company’s business, the Company acquired the remaining 85% of the entire
authorized share capital (the “Shares”) of FFE Ltd (the “Acquisition”). As
consideration for the acquisition of the Shares, we issued an aggregate of
24,854,477 shares (the “Consideration Shares”) of our common stock, $0.001 par
value, to the stockholders of FFE Ltd (the “Stockholders”). Furthermore, as part
of the Acquisition, the Company completed a Financing (as defined below) and
provided funds in the amount of $11,800,000 to FFE Ltd out of the Proceeds (as
defined below) obtained from the Financing. As a result of the Acquisition,
there were 64,443,403 shares of the Company’s common stock issued and
outstanding post Acquisition and FFE Ltd became a wholly-owned subsidiary of the
Company.




Pursuant
to the Agreements, each of the Stockholders agreed not to dispose of any of the
Consideration Shares received by them for a period of two years from the Closing
Date.




In
addition, the Agreement provides that on Completion and for a twenty four month
period thereafter shareholders of the Company (excluding the FFE Ltd
shareholders) holding in the aggregate not less than 25% of the total issued
share capital of the Company shall have the right to nominate, appoint and
remove two directors to the board of directors of the Company.




The
acquisition of FFE Ltd (a development stage company) has been accounted for not
as part of a business combination but the purchase of assets and assumption of
liabilities not qualifying as a business in accordance with EITF 98-3,
“Determining Whether a Nonmonetary Transaction Involves Receipt or Production
Assets or of a Business” (‘EITF No. 98-3”).  Management determined
that FFE Ltd was not a business (under EITF No. 98-3) as it did not have a
self-sustaining integrated set of activities and assets conducted and managed
for the purpose of providing a return to investors.  In addition, FFE
Ltd, the transferred set’s current activities are focused on the development of
a planned business rather than the operation of a business.  Because
the planned principal operations of FFE Ltd have not yet commenced, the set is
not a business in accordance with EITF No. 98-3.




The
assets acquired and liabilities assumed were recorded at fair
value.  Management undertook a review of intangible assets and
concluded that the only potential intangible asset was the value of the business
plan proposed by FFE Ltd and the ability of the FFE Ltd management to deliver
that plan. Management then made an assessment as to whether this qualifies as a
separately identifiable asset under the United States Generally Accepted
Accounting Principles.




For an
asset to be identifiable it must either be separable and thus be capable of
being sold, rented, licensed etc or the asset arises from contractual or legal
obligations.




The
management concluded that the FFE Ltd business plan was not separately
identifiable from FFE Ltd’s management and their ability to deliver the plan and
neither the business plan nor management were subject to contractual obligations
that could be capitalized. Additionally because FFE Ltd had to further raise
significant additional capital and secure numerous capital and operational
contracts to execute the business plan the value of any such asset could not be
measured reliably.




5




Therefore
management concludes that the cost of the purchasing the business plan and
management’s ability to deliver that plan cannot be capitalized and must
therefore be expensed in the consolidated statements of operations.




The
purchase price allocations for the transactions are as follows:




Acquisition
of the remaining 85% of FFE Ltd in May 2007:


Fixed
      assets
                      
                      $
                      221,442Cash
                      
                      
                      662,000Current
      assets
                      
                      
                      105,000Current
      liabilities
                      
                      
                      (214,000
                      )Purchase
      of business plan - expensed
                      
                      
                      21,594,587$
                      22,369,029
 The Company has expensed
the cost of the business plan acquired of $21,594,587 as transaction cost
in connection with the asset acquisition of FFE Ltd. at the completion date of
this transaction in
accordance with EITF No. 98-3.
 Acquisition
of 15% of FFE Ltd in December 2006:
 
 Cash
                                      
                                      $
                                      225,000Current
      liabilities
                                      
                                      
                                      (8,172
                                      )Purchase
      of business plan - expensed
                                      
                                      
                                      1,303,172$
                                      1,520,000
 
 The Company has expensed
the cost of the business plan acquired of $1,303,172 as transaction cost in
connection with the asset acquisition of FFE Ltd. at the completion date of this
transaction in
accordance with EITF No. 98-3.


With
regard to the acquisition of 15% of FFE Ltd in December 2006, the Company
determined that FFE Ltd was a Variable Interest Entity under FIN46R
(“Consolidation of Variable Interest Entities”) and therefore the balance sheet
and results of FFE Ltd were consolidated with the Company’s balance sheet and
results. The determination was based on the fact that although the Company
acquired a 15% holding in FFE Ltd, the Company provided all of the initial
capital for the operations of FFE Ltd and therefore took on risks in excess of
its percentage holding or voting rights.




The
Financial Accounting Standards Board (“FASB”) has provided guidelines as to
identifying a “development stage” enterprise:




“an
enterprise shall be considered to be in the development stage if it is devoting
substantially all of its efforts to establishing a new business and either of
the following conditions exists:




a)
Planned principal operations have not commenced.




b)
Planned principal operations have commenced, but there has been no significant
revenue there from.




A
development stage enterprise will typically be devoting most of its efforts to
activities such as financial planning; raising capital; exploring for natural
resources; developing natural resources; research and development; establishing
sources of supply; acquiring property, plant, equipment, or other operating
assets, such as mineral rights; recruiting and training personnel; developing
markets; and starting up production.”




6




The
Company has determined that FFE Ltd is a development stage company and therefore
the excess of purchase price over net assets acquired of $21,594,587 has been
expensed in the Fiscal year 2007 and $1,303,172 was expensed in the Fiscal year
2006 as transaction costs in connection with asset acquisition.




Business
Overview




Following
a change in the Company’s board of directors on December 12, 2008, the Company
announced it intended to commence a strategic review of its planned business
(“Review”), including the prospective of the FFE Ltd Oil Seed Rape (“OSR”)
processing facility (the “Cardiff Project”), and its “Malibu Gold Property”. The
Company maintains considerable cash balances.




As part
of the Review, the Company will consider strategic options not related to the
Cardiff Project or Malibu Gold Property as either additional and/or alternative
routes to build shareholder value.  The Review is expected to be
completed during the second quarter of 2009.




FFE Ltd
has incurred operating losses since inception and has generated no revenues from
continuing operations. As a result, FFE Ltd has generated negative cash flows
from operations and has an accumulated deficit at December 31, 2008. Flex Fuels
and FFE Ltd as its wholly owned subsidiary will require additional funding to
pursue its business as currently planned.




Flex
Fuels and FFE Ltd believe that although appropriate actions are being taken
there can be no assurance that management’s efforts will be successful or that
the planned products of Flex Fuels and/or FFE Ltd develops and markets will be
accepted by prospective consumers.




FFE
Ltd – Cardiff Project




FFE Ltd,
a development stage company, was formed on November 26, 2006 under the laws of
England and Wales.  FFE Ltd is headquartered Cardiff, Wales in the
United Kingdom. FFE Ltd plans to construct, own and manage an OSR processing
facility and associated power generation facilities if commercially desirable
and to engage in the business of supplying and distributing OSR oil and
meal.




FFE Ltd
Strategy




FFE Ltd’s
primary goal is to deliver a standalone OSR processing facility, most likely
with an associated Combined Heat and Power plant (“CHP”) to be operated by FFE
Ltd and/or a partner.  In addition, FFE Ltd management anticipate the
construction of an associated biodiesel production facility when market
conditions become more favorable to do so, if at all.




This
strategy, as envisaged by former management prior to December 12, 2008, is
currently under Review. Initial findings of this Review have identified
potential enhancements and have provided clearer definition to the OSR
processing facility. The OSR processing facility will require guaranteed
operational crush margins to achieve financial close. FFE Ltd is in discussions
with potential partners in this regard.




A
modified construction plan and scale has been submitted for study by FFE Ltd's
preferred engineering contractor; reversion to its original preferred and
permitted site and the construction of a co-located CHP to deliver lower energy
costs and to attract potential partners. FFE Ltd is negotiating with
international agricultural and trading businesses to develop all encompassing
OSR supply, oil and meal off-take arrangements which would, if successfully
concluded, give a guaranteed processing margin for the Company. Locally (UK)
sourced OSR is expected to form the base line supply for the OSR processing
facility with additional volumes being imported and processed where economically
viable to do so.




7




The full
findings of the Review of the Cardiff Project, including partner negotiations
and funding options, are expected to be available during the second quarter of
2009.  Given the difficult capital market environment in general, the
Company intends to extract value by partnered development or
divestment.  There can be no assurance that the Company will be
successful in finding partners for developing the project further, or that the
project can be divested to extract value.




Industry
Overview




Vegetable Oil
Markets




In
evolving an approach predicated on OSR processing, FFE Ltd has taken into
consideration the market for vegetable oils and discussions with potential
agricultural trading partners. OSR oil is a desirable feedstock for biodiesel
production and a key food oil in Europe.









Source:
Food and Agricultural Policy Research Institute (“FARPRI”)world agriculture
briefing book 2009




8













Source:
FAPRI world agriculture briefing book 2009




The use
of OSR oil in food products is expected to rise, displacing volumes of oils with
higher saturated fat content, particularly palm oil, due to health concerns over
saturated fat content according to AAK UK, a leading UK food producer largely as
a result of the UK Food Standards Agency “saturated fat” health warning
campaign. The UK market is currently dominated by two large agricultural and
trading businesses (see “UK competition”) that process around two thirds of the
domestic crop and distribute the oil. Discussions have been opened between FFE
Ltd and potential off-takers in both the UK food and biodiesel production
sectors to explore the off-take of OSR oil from the planned FFE Ltd OSR
processing facility.




9




Marketing
of OSR oil is expected to be mainly undertaken by FFE Ltd’s prospective
agricultural trading partners.











Source:
HGCA (UK cereals and oilseeds marketing agency) / HM Revenue and Customs
(“HMRC”) 2009




10




OSR Meal




The EU is
the largest importer of oilseed meals due to the very significant deficit of
such protein rich meals for animal feeding in the EU. The EU’s import dependency
is likely to fall as a growing proportion of EU oilseed meal consumption is
likely to be sourced from domestically produced and crushed oilseeds, in
particular OSR meal. In recent harvests increasing maize prices (driven in part
by new energy markets) relative to those for oilseeds have resulted in an
increased demand for oil meals, substituted for maize in livestock feed rations
as a source of energy. This combined with general agricultural commodity prices
has had a positive impact on oilseed meal prices which is expected to be
underpinned by a growing global demand for livestock feed rations.




At a
local level livestock enterprises are predominantly based in the western half of
the UK.   FFE Ltd’s Cardiff operations are well located to supply
this market.  Marketing of OSR meal is expected to be mainly
undertaken by FFE Ltd’s prospective agricultural trading partners.









UK
Vegetable Oil & meal markets




Sources:
Bunge UK (a leading agribusiness and food company), HGCA/HMRC 2009




2007-8
                
                
                UK
      Production Tonnes
                
                
                Net
      Import Tonnes
                
                
                Net
      UK Usage TonnesOSR Meal
                
                
                
                962,500
                
                
                
                74,963
                
                
                
                1,037,463Soymeal
                
                
                
                549,500
                
                
                
                2,182,525
                
                
                
                2,732,025OSR
      oil
                
                
                
                735,000
                
                
                
                -314,405
                
                
                
                420,595Soyoil
                
                
                
                129,500
                
                
                
                225,646
                
                
                
                355,146Palm
      Oil
                
                
                
                0
                
                
                
                38,704
                
                
                
                38,704






11




UK
Competition




The
following table shows the processing facilities currently processing OSR in the
United Kingdom:




Company
                Location
                
                Capacity
      (t/a)Cargill
                Liverpool*
                
                
                500,000Cargill
                Hull
                
                
                400,000Archer
      Daniels Midland Company
                Erith
                
                
                1,100,000




Source:  Bunge
UK 2009




* Cargill
have an additional plant in Liverpool that is capable of processing around
700,000 t/a of OSR but has historically been used for processing
soybeans.




t/a =
Metric input tonnes per annum maximum operating capacity.




Based on
current equipment capacity, the current UK supply of OSR and the future forecast
demand for OSR oil and meal, the Company and FFE Ltd believe, subject to the
outcome of the Review, that the market may justify the planned expenditure on an
OSR processing facility.




Governmental
Regulation




FFE Ltd
is, and will be upon completion of its production facilities, subject to various
government and local environmental laws and regulations, including those
relating to the discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of hazardous
materials, access to and use of water supply, and the health and safety of its
employees. These laws and regulations can require expensive pollution control
equipment or operational changes to limit actual or potential impacts to the
environment. A violation of these laws and regulations or permit conditions can
result in substantial fines, natural resource damage claims, criminal sanctions,
permit revocations and facility shutdowns. FFE Ltd does not anticipate a
material adverse impact on its planned business or financial condition as a
result of our efforts to comply with these requirements. FFE Ltd expects to
incur capital expenditures for equipment and construction works required to
prevent and control foreseeable pollution in this or the succeeding fiscal year.
These expenditures are part of the budget to procure and construct its
processing equipment which is considered as part of the ordinary course of
planned business.




There is
a risk of liability for the investigation and cleanup of environmental
contamination at each of the properties that FFE Ltd might lease or operate or
plans to lease or operate and at off-site locations where FFE Ltd will arrange
for the disposal of hazardous substances. If these substances have been or are
disposed of or released at sites that undergo investigation or remediation by
regulatory agencies, FFE Ltd may be responsible under the applicable
environmental laws for all or part of the costs of investigation or remediation
and for damage to natural resources. FFE Ltd also may be subject to related
claims by private parties alleging property damage and personal injury due to
exposure to hazardous or other materials at or from these properties. Some of
these matters may require us to expend significant amounts for investigation
and/or cleanup or other costs. FFE Ltd does not have material environmental
liabilities relating to contamination at or from its facilities or at off-site
locations where it has transported or arranged for the disposal of hazardous
substances.




12




In
addition, new laws, new interpretations of existing laws, increased governmental
enforcement of environmental laws or other developments could require FFE Ltd to
make additional significant expenditures. Continued government and public
emphasis on environmental issues can be expected to result in increased future
investments for environmental controls at its ongoing operations. Present and
future environmental laws and regulations and related interpretations applicable
to FFE Ltd’s operations, more vigorous enforcement policies and discovery of
currently unknown conditions may require substantial capital and other
expenditures. FFE Ltd’s air emissions are subject to the various national UK and
local laws and associated regulations. The UK government has promulgated
national emission standards for hazardous air pollutants that could apply to
facilities that FFE Ltd owns or operates or plans to own or operation if the
emissions of hazardous air pollutants exceed certain thresholds. If a facility
FFE Ltd operates or will operate is authorized to emit hazardous air pollutants
above the threshold level, then FFE Ltd would be required to comply with the
related environmental and emission laws and regulations applicable to its
manufacturing process and would be required to come into compliance with those
laws and regulations applicable to its facilities. Although estimated emissions
from its facilities are not expected to exceed the relevant threshold levels,
new or expanded facilities would be required to comply with both standards upon
startup if they exceed the hazardous air pollutant threshold. In addition to
costs for achieving and maintaining compliance with these laws, more stringent
standards also may limit its operating flexibility. Because other UK OSR
processors will have similar restrictions, however, FFE Ltd believes that
compliance with more stringent air emission control or other environmental laws
and regulations is not likely to materially affect its competitive
position.




The
hazards and risks associated with producing and transporting its products, such
as fires, natural disasters, explosions, abnormal pressures and pipeline
ruptures also may result in personal injury claims or damage to property and
third parties. As protection against operating hazards, FFE Ltd has obtained or
intends to obtain insurance coverage against some, but not all, potential losses
once its facility is operating. FFE Ltd coverage includes physical damage to
assets, employer’s liability, comprehensive general liability and business
interruption. FFE Ltd believes that its insurance is adequate and customary for
its industry, but losses could occur for uninsurable or uninsured risks or in
amounts in excess of existing insurance coverage. FFE Ltd does not currently
have pending material claims for damages or liability to third parties relating
to the hazards or risks of its business.




Occupational
Safety Regulations




FFE Ltd
is subject to various UK and European Union laws and regulations intended to
promote occupational health and safety. FFE Ltd is in the process of
implementing environmental and safety policies and procedures designed to
protect the safety of its own supervisory staff and to monitor all subcontracted
operations for compliance with applicable regulatory requirements and lease
conditions, including environmental and safety compliance. FFE Ltd considers the
cost of compliance a manageable and necessary part of its planned
business.




Malibu
Gold Property




Property Acquisition
Details




On March
27, 2006, the Company acquired a mineral license for the Malibu Gold Property
from Mr. James Laird, a former director and stockholder, for
$10,000.




Since
non-Canadian individuals or companies cannot directly hold mineral licenses in
British Columbia (“BC”), Mr. Laird (a consultant to the Company) holds the
license on behalf of the Company under a trust agreement entered into on
November 28, 2007.




13




The
claims are currently in good standing and are 100% beneficially owned by the
Company, subject to a carried 3% Net Smelter Return Royalty if mineral
production is commenced. Under BC Government Laws regarding Mineral Tenure, the
property can be held in perpetuity provided that all fees are paid in a timely
manner.  Annual work requirements can be fulfilled by performing
approved work or by payment of cash-in-lieu. Development of the property is
subject to obtaining a Work Permit for certain types of work beyond basic
exploration sampling and geological studies.  More advanced programs
may also require an environmental survey.




Local
First Nations groups are brought into consultation at the work permit
stage.  Additional government departments are also notified of the
application for a Work Permit.  In general, the Work Permit process
takes about 4 - 6 weeks, provided that it has been filed properly and
fully.  There are no fees to obtain a Work Permit. The duration of a
work program must be stated on the Permit application, and there are numerous
Regulations under the Mines Act which state how the work must be carried out.
Prior to major production (not bulk-sampling), the mineral deposit area proposed
for production must be surveyed and a Mining Lease obtained.




Circumstances
that may lead to relinquishing such rights include failure to determine
profitable deposits, sale of the license and a lack of funding.




Land Status, Topography,
Location, and Access




The
Malibu Gold Property is located approximately 110 km northwest of Vancouver, BC,
and 75 km north of Sechelt, BC. The property is situated on the south side of
Queen’s Reach on upper Jervis Inlet, due south of Malibu at the entrance to
Princess Louisa Inlet.




Access is
by float plane from Vancouver or Sechelt, or by boat from Egmont or Pender
Harbor on the Sechelt Peninsula. Several campsite locations with good water
supplies can be found within a few kilometers of the property. Supplies and
services are available in Egmont or Pender Harbor.




The
topography along Jervis Inlet extents from sea level to mountain tops in excess
of 2,000 meters elevation. In the vicinity of the old mining tunnels on the
Malibu Gold Property, short, steep cliffs extend to tidewater, but elsewhere on
the property slopes are more manageable.




The
climate is typical of the west coast of British Columbia, mild and wet overall
with some snowfall in the winter months. The summers are usually warm with less
rainfall, and year-round work is possible on the property. Vegetation is a dense
growth of coniferous forest, with cedar, fir, spruce, alder and maple trees.
Ground vegetation is usually Salal and various berry bushes.









14




Mining
Claims




The
Malibu Gold Property comprises of two MTO mineral claims containing 33 cell
claim units totaling 683.445 hectares.




BC
      Tenure #
              
              Work
      Due Date
              
              Staking
      Date
              
              Total
      Area (Ha.)525215
              
              Jan.
      12, 2014
              
              Jan.
      12, 2006
              
              165.685592273
              
              Sept.
      30, 2009
              
              Sept.
      30, 2008
              
              517.760




Both
properties are without known reserves and the proposed program is exploratory in
nature.




Geology of the Mineral
Claims




The
Malibu Gold Property hosts gold and base metal deposits within quartz veins and
quartz-filled shear zones.  Two short tunnels (“adits”) have been
driven on the mineralized areas; shear and vein-hosted gold, silver, copper,
lead and zinc in the #1 adit; and a gold-quartz vein in the #2
adit.  A small amount of visible gold was seen in the #2 adit vein,
which can be followed for at least 50 meters along the shoreline.  No
reserves or resources have been delineated at this time.




The Upper
Jervis Inlet area is underlain by a variety of Jurassic to Tertiary granitic
intrusives of the Coast Plutonic Complex. The granitic rocks intrude and
metamorphose Jurassic to Lower Cretaceous argillaceous sediments and andesitic
to felsic volcanics of the Gambier Group. The Gambier Group hosts the 60 MT
Britannia copper, zinc, lead, silver, gold deposit on Howe Sound about 80 km to
the southeast.




The
Malibu Gold Property is underlain by a relatively small stock of gabbro-diorite
that has intruded dark grey, partly limey argillaceous shale and slate of the
Gambier Group. Silicification and mineralization occurs on the contact and
within the stock in a number of areas.




Exploration History and
Previous Operations




The
Malibu Gold Property has at least one adit dating prior to 1907, when the first
and only mention of the working was made in a Geological Survey Report dated
1908.  GSC geologist O. E. LeRoy noted that pyrrhotite and
chalcopyrite occurred along a diorite–slate contact and a 9 meter long adit had
been driven on the zone.  A second 2 meter long adit nearby was not
mentioned, so it may post-date LeRoy’s visit. The 9 meter adit (#1) has had
significant unrecorded work since this time, and is now an estimated 25 meters
in length.




There are
physical work records of additional work being done on the property during the
1940’s, however  the prospector’s hand-drawn maps attached do not show
exactly where the development is in relation to recognizable land features. This
work apparently consisted of at least four shafts up to 6 meters deep and a 30
metre long trench.




Laird
Exploration Ltd. first explored the property in 1983 as part of the BC
Prospector’s Grant Program. Several assays were taken and the area was
geologically mapped. Two assays from the #1 adit gave moderate values in gold,
silver, copper, lead and zinc.




The #2
adit was driven 2 meters on a shallow-dipping 0.3 to 1.3 meter wide quartz vein
with arsenopyrite, minor pyrite, chalcopyrite and rarely native
gold.  The vein pinches and swells and can be followed for at least 50
meters along the shoreline cliffs.  The #2 adit gave a gold assay of
0.72 oz/t Au across 0.4 meters in a channel sample across the exposed quartz
vein, with minor values in cobalt, copper and bismuth.




15




The
claims were optioned by Laird Exploration Ltd. to Oriole Resources Ltd. in
1988.  A work program consisting of geological mapping, rock sampling,
and a small soil geochemical survey were completed in 1988.  The #2
adit gold values were confirmed by assay and additional gold-bearing areas were
located at the #1 adit.  The soil grid showed a 200 meter-long gold
anomaly extending west from the #1 adit.  Additional work was
recommended but no further work had been done on the property from 1988 through
20078




The
Company now expects to carry out Phase 2 of its planned exploration, at a
revised and reduced budget of less than $40,000, as soon as weather permits this
year. This will consist of detailed surface and underground geological mapping,
rock sampling and identification of drill and trenching targets for Phase 3
exploration, if justified.




Compliance with Government
Regulation




We will
be required to conduct all mineral exploration activities in accordance with the
state and federal regulations. Such operations are subject to various laws
governing land use, the protection of the environment, production, exports,
taxes, labor standards, occupational health, waste disposal, toxic substances,
mine safety and other matters. Unfavorable amendments to current laws,
regulations and permits governing operations and activities of resource
exploration companies, or more stringent implementation thereof, could have a
materially adverse impact and cause increases in capital expenditures which
could result in a cessation of operations. We have had no material costs related
to compliance and/or permits in recent years, and anticipate no material costs
in the next year. We will not be required to obtain a permit in order to conduct
Phases 2 of our proposed exploration program.




Employees




As of
December 31, 2008, we had 11 employees, 2 of which worked on a part-time
basis. 3 of the employees were the 3 executive officers of Flex Fuels and 8 of
the employees worked for FFE Ltd. The part-time employees were Messrs.
Galvin and Nangle. The 8 FFE Ltd. employees consisted of 4 persons
serving in administrative capacities and 4 persons serving in operational
capacities. We anticipate that we will be conducting most of our business
through agreements with consultants and third parties. To the extent that
we are successful in developing our businesses we would anticipate hiring
additional employees/contractors in the next year to handle anticipated
growth.




Management
Dispute




On May
16, 2008, Mr. Laird, a former director of the Company, submitted his written
resignation as a director to Mr. Brian Barrows and Mr. Tom
Barr.  Therein, Mr. Laird indicated that his resignation was effective
May 16, 2008.  Section 3.3 of the Company’s By-Laws provides that any
director of the Company may resign by giving written notice of his resignation
to the President or Secretary of the Company that such resignation will take
effect at the time specified therein, and that acceptance of such resignation is
not necessary to make it effective.  On May 22, 2008, at the request
of Mr. Barrows, Mr. Laird advised that he was rescinding his
resignation.  Brian Barrows unilaterally determined, over the
objections of Mr. Barr, that he had the authority to effect such rescission and
re-appoint Mr. Laird to the board.  From that time on until the
Company’s December 12, 2008 Annual Meeting of Stockholders in which the Barr
Nominees were appointed to serve as the Company’s directors (see “Item 4.
Submission of Matters to a Vote of Stockholders”), Messrs. Barrows and Laird
took the position that the re-appointment of Mr. Laird was valid and that the
board consisted of Messrs. Barrows, Laird and Barr.  On that basis,
Mr. Barrows effectively took control of the management of the Company and
excluded Mr. Barr from any decision making concerning the
Company.  Mr. Barrows proceeded to take actions without the consent or
approval of Mr. Barr including, but not limited to, (i) the October 10, 2008
removal of Robert Galvin as the Company’s Chief Financial Officer, (ii) the
November 2008 execution of Indemnity Agreements with certain directors,
consultants, and employees of the Company, (iii) the October 13, 2008
appointment of Mr. Paul Gothard as the Company’s Chief Financial Officer, (iv)
the institution of an October 7, 2008 lawsuit in federal court in Nevada
alleging claims against Mr. Barr not in the interest of the Company (v)
incurring large legal costs on behalf of the Company and (vi) in December 2008,
immediately prior to the Annual Meeting of Stockholders, causing the payment
of  Mr. Barrows’ personal legal bill from a Company
account.  The Company is presently looking into possible options for
the prospective recovery of costs incurred and payments made under (v) and (vi)
above.




16




Reports
to Security Holders




We file
annual, quarterly, current and special reports and other information with the
Securities and Exchange Commission. You may read and copy any reports, statement
or other information that we file with the Commission at the Commission's public
reference room at 100 F Street, N.E., Washington, D.C. 20549.  Please
call the Commission at (202) 551-8090 for further information on the public
reference room. These Commission filings are also available to the public from
commercial document retrieval services and at the Internet site maintained by
the Commission at http://www.sec.gov.




In
addition our filings can be viewed on the “investor” section of the Company’s
Internet site at www.flexfuelsenergy.com.




ITEM
1A. RISK FACTORS




You
should carefully consider the risks described below as well as other information
provided to you in this Annual Report, including information in the section of
this Annual Report entitled "Information Regarding Forward Looking
Statements."  The risks and uncertainties described below are not the
only ones we face.  Additional risks and uncertainties not presently
known to us or that we currently believe are immaterial may also impair our
business operations.  If any of the following risks actually occur,
our business, financial condition or results of operations could be materially
adversely affected, and you may lose all or part of your
investment.




RISKS
RELATED TO OUR FINANCIAL RESULTS




We
have incurred losses since our incorporation, have yet to achieve profitable
operations and anticipate that we will continue to incur losses for the
foreseeable future.




For our
2008 fiscal year, we incurred a net loss of $4,163,437.   We have
not generated any revenues to date.  We may, subject to the outcome of
the Review, plan to increase significantly our expenses associated with
exploitation of mineral claims and with the development of our planned OSR
processing business.  There is no assurance we will be able to derive
revenues from the exploitation of our mineral claims or prospective OSR
processing business to successfully achieve positive cash flow or that our
mineral exploitation business or prospective OSR processing business will be
successful.  If we achieve profitability, we may be unable to sustain
or increase profits on a quarterly or annual basis to generate revenues in the
future.




We
believe that long-term profitability and growth will depend on our ability
to:




·
            commercially
      exploit the mineral deposits or reserves located on the Malibu Gold
      Property;




·
            identify
      and commercially exploit gold and other mineralized deposits through
      development, mining, production or sale;
and




·
            develop
      and integrate our prospective OSR processing
  business;




or,
subject to the Review.




·
            engage
      in any alternative business.




Inability
to successfully execute on any of the above, among other factors, could have a
material adverse effect on our business, consolidated financial results or
operations.




17




Because
we have a limited operating history, have yet to commercialize our planned
business or to attain profitable operations and will need additional financing
to fund our businesses, there is doubt about our ability to continue as a going
concern.




The
consolidated financial statements for the year ended December 31, 2008 have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the liquidation of liabilities in the
normal course of business.  Although, the Company has accumulated a
loss to date and has relied on raising funds through private placements,
however, from March 31, 2006 (date of inception) through December 31, 2008, the
Company has raised approximately $18,977,000 and at December 31, 2008 held
approximately $8,703,000 in cash. The financial statements do not include any
adjustments that might result from this uncertainty.




As shown
in the accompanying consolidated financial statements, the Company has incurred
a net loss of $29,456,018 for the period from March 10, 2006 (date of inception)
through December 31, 2008 and has not yet generated any revenues. The future of
the Company is dependent upon its ability to obtain financing and upon future
profitable operations from the development of its planned business and future
acquisitions. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.




We expect
our mineral exploration activities and the planned development of our
prospective OSR processing business, together with anticipated general, legal,
accounting and administrative expenses, including those associated with our
filing reports with the Securities and Exchange Commission will require us to
spend approximately $1,500,000 to $3,000,000 in the year of 2009.




Therefore,
we will require additional financing to fund our planned
operations.  We will seek these additional funds via equity financing,
private placements of our securities or loans from financial institutions, our
directors or our stockholders.  Currently, we do not have definite
arrangements for additional funds.    There can be no
assurances we will be able to do so on terms acceptable to us. If we do not
obtain additional financing, our business will fail.




Obtaining
additional financing is subject to a number of factors, including investor
acceptance of the value of our mineral claims and our prospective OSR processing
business.  These factors may adversely affect the timing, amount,
terms, or conditions of any financing that we may obtain or make any additional
financing unavailable to us.




To date,
our sources of cash have been primarily limited to the sale of our equity
securities.  We cannot be certain that additional funding via this
means will be available on acceptable terms if at all.  To the extent
that we are able to raise additional funds by issuing equity securities, our
existing stockholders may experience significant dilution.  Any debt
financing that we may secure, if available, may involve restrictive covenants
that impact our ability to conduct our business.  If we are unable to
raise additional capital, when required, or on acceptable terms, we may have to
delay or scale back significantly or discontinue our planned exploration and
development projects.  Inability to obtain these or other sources of
capital could have a material adverse effect on our business, consolidated
financial results or operations.




18




Our
independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern, which may hinder our ability
to obtain future financing.





The
report of our independent auditors dated April 15, 2009 on our consolidated
financial statements for the two years ended December 31, 2008 and 2007 included
an explanatory paragraph indicating that there is substantial doubt about our
ability to continue as a going concern. Our auditors’ doubts are based on our
recurring losses, deficit accumulated during development stage, negative cash
flows from operations and still yet to generate any revenues. However, we have
substantial cash reserves which are sufficient to cover our operations for the
foreseeable future.  Our ability to continue as a going concern will be
determined by our ability to obtain additional funding or generate sufficient
future revenue to cover our operating expenses.  We currently have no
sources of financing available and we do not expect to earn any revenues from
our planned business in the near term. Our consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.




Our
operating results may be affected by foreign exchange rates.




Historically,
we have held our cash assets in U.S. dollars, British pounds sterling, or a
combination thereof. Accordingly, our planned business and operating results are
affected by exchange rates. We do not hedge this exposure. This may
significantly affect, positively or negatively, our reported operating
results.




RISKS
RELATED TO OUR MANAGEMENT AND CORPORATE GOVERNANCE




Our
management team consists of three members two of which are directors, which
poses a significant risk for us from a corporate governance
perspective.




We have
three executive officers, namely Mr. Thomas Barr, our chief executive officer;
Mr. Robert Galvin, our chief financial officer; and Mr. John Nangle, our
president and chairman.  Mr. Barr and Mr. Nangle also serve as two of
our three directors.  Our directors/executive officers are required to
make interested decisions, such as the approval of related party transactions,
their level of compensation, and oversight of our accounting
function.  Our directors/executive officers also exercise control over
all matters requiring stockholder approval, including the nomination of
directors and the approval of significant corporate transactions. We have chosen
not to implement various corporate governance measures, the absence of which may
cause stockholders to have more limited protections against transactions
implemented by our board of directors, conflicts of interest and similar
matters.




We also
do not have an audit committee, nor other independent committees and we
presently have only one independent director.  Stockholders should
bear in mind our current lack of corporate governance measures in formulating
their investment decisions.




In April
2007 we determined, after consultation with our former independent public
accounting firm, to restate our consolidated financial statements for the year
ended December 31, 2006, filed as part of our required disclosure obligations on
Form 10-KSB filed with the Securities and Exchange Commission on April 17, 2007
(the "Report").  We filed an amended report on Form 10-KSB/A on May
15, 2007 (the "Amended Report") solely to (i) amend and restate our financial
statements filed as part of the Report to correct (a) "Paid in Capital"
"Retained earnings (deficit)" and resulting changes in "Total stockholders’
equity" and "Total liabilities and stockholders’ equity" as at December 31,
2006, set forth in the Balance Sheet on page F-3 of the Amended Report, (b)
entries for "Deficit Accumulated During Development Stage" and "Total Equity" as
at December 31, 2006, set forth in the Statement of Shareholders Equity on page
F-5 of the Amended Report, (c) entries for "Cash Flow from Financing
Activities", "Cash at end of period" and "Shares issued in Lieu of Payment for
Service" for the fiscal year ended December 31, 2006, set forth in the Statement
of Cash Flows on page F-6 of the Amended Report, and (ii) correctly disclose
director compensation paid to a member of our board of directors during the
fiscal year ended December 31, 2006, set forth on page 33 of the Amended
Report.




On May
29, 2007, we completed the acquisition of Flex Fuels Energy Limited. In
connection with and following the completion of that transaction, our management
changed and, thereafter, we engaged the then new independent public accounting
firm, which became our former independent public accounting firm effective on
January 13, 2009 (see Item 9 disclosure thereof within this Form
10-K).  In July 2007, our executive officers concluded that our
consolidated financial statements covering the fiscal year ended December 31,
2006, and the quarterly period ended March 31, 2007 which had been filed by us
with the Securities and Exchange Commission on Form 10-KSB/A and Form 10-QSB on
April 26, 2007 and May 15, 2007, respectively, should no longer be relied upon
because of errors in such consolidated financial statements as further addressed
below.  During July 2007, management reviewed our internal controls
over financial reporting as of December 31, 2006 and identified the following
material weaknesses for the period in question:




·
            we
      did not maintain a proper in-house finance function and relied upon a
      third party to maintain the finance function and prepare the financial
      reports;




·
            we
      did not maintain a timely and accurate period-end financial statement
      closing process or effective procedures for reconciling and compiling our
      financial records in a timely fashion. With respect to these procedures,
      management determined that the material weakness arose due to the lack of
      training, experience or knowledge of persons preparing the financial
      records. We did not effectively monitor the third-party accounting
      function and our oversight of financial controls;
  and




·
            our
      knowledge of US GAAP was limited.




19




We
consequently prepared and filed in September 2007 a further amended Form 10-KSB
for the fiscal year ended December 31, 2006 (the "Further Amended Report"), as
well as an amended Form 10-QSB for the fiscal quarter ended March 31, 2007,
which reports included consolidated financial statements audited by our then new
independent public accounting firm, which became our former independent public
accounting firm, effective January 13, 2009 (see Item 9 disclosure thereof
within this Form 10-K) and restated unaudited consolidated financial statements
that corrected the prior errors contained in such consolidated financial
statements and filings. Specifically, we filed the Further Amended Report solely
to:




(i)
            reflect
      certain unrecorded liabilities incurred in the year ended December 31,
      2006 that were not reflected in the Amended
  Report;




(ii)
            to
      restate certain legal costs associated with the investment in Flex Fuels
      Energy Limited and the private placement that were expensed incorrectly in
      the Statement of Operations for the fiscal year ended December 31, 2006
      contained in the Amended Report;




(iii)
            to
      amend the fair value attributed in the Amended Report to the stock issued
      to Mr. Tom Barr;




(iv)
            to
      consolidate the balance sheet and results of Flex Fuels Energy Limited;
      and




(v)
            to
      correctly disclose related party
transactions.




In
addition, we filed an amended quarterly report on Form 10-QSB solely
to:




(i)
            reflect
      unrecorded liabilities of $42,000 and correct other errors in recording
      liabilities totaling $10,050 incurred in the quarter ended March 31,
      2007;




(ii)
            amend
      the balance sheets to reflect adjustments made in the statements for the
      period ended December 31, 2006, filed in the Further Amended
      Report;




(iii)
            include
      the periods missing from the previous filing (inception to March 31, 2006
      and from our inception to March 31, 2007) in the Statements of Operations
      and Statements of Cash Flows;




(iv)
            consolidate
      the balance sheet and results of Flex Fuels Energy Limited;
      and




(v)
            correctly
      disclose related party disclosures.




20




We
may find it difficult to attract senior management in the absence of Directors
and Officers Insurance, which may not be economically obtainable.




As
discussed in Item 3, hereof, the Company is involved in legal
proceedings.  These legal proceedings may make it difficult for us to
obtain Directors and Officers Insurance at commercially reasonable rates, if at
all. This may deter or preclude persons from joining our management, or cause
them to demand additional compensation to join our management.




If
we seek to recover costs incurred by previous management it may put a strain on
our limited human resources and may cause us to incur further
costs.




We may
seek to recover the considerable costs incurred by previous management in
resisting stockholder calls for board elections prior to the Annual Meeting of
Stockholders held on December 12, 2008. This may involve distraction of
management time and further legal expense prior to any prospective
recovery.




We
will need to increase our size, and may experience difficulties in managing
growth.




We are a
small company with 11 employees as of December 31, 2008. We hope to
experience a period of expansion in headcount, facilities, infrastructure and
overhead to develop our mining and prospective OSR processing businesses to
address potential growth and market opportunities.  Future growth will
impose significant added responsibilities on members of management, including
the need to identify, recruit, maintain and integrate additional independent
contractors and managers. Our future financial performance and our ability to
compete effectively will depend, in part, on our ability to manage any future
growth effectively.  Inability to manage future growth could have a
material adverse effect on our business, financial results or
operations.




Our
business is headquartered in the United Kingdom and none of our directors are
resident in the United States; accordingly, it may be difficult to enforce any
liabilities against them.




If an
event occurs that gives rise to any liability on the part of our officers and
directors who are not resident in the United States, including liabilities
arising under the US securities laws, stockholders would likely have difficulty
in enforcing such liabilities.  Stockholders may not be able to obtain
jurisdiction in the United States over such non-resident officers and directors,
and any judgment obtained against such persons in the United States may not be
recognized or enforceable in the foreign jurisdiction where such person's assets
are located.




RISKS
RELATING TO OUR MINING BUSINESS




If
we do not conduct mineral exploration on our mineral claims and keep the claims
in good standing, then our right to these mineral claims will lapse and we may
lose the entire value of our investment.




We must
complete mineral exploration work on our mineral claims and keep the claims in
good standing.  If we do not fulfill our work commitment requirements
on our claims or keep the claims in good standing, then our right to the claims
will lapse and we will lose all interest that we have in these mineral
claims.  Loss of these interests could have a material adverse effect
on our business, consolidated financial results or operations.




21




The
imprecision of mineral deposit estimates may cause any resource calculations
that we make to be unreliable.




Mineral
deposit estimates and related databases are expressions of judgment based on
knowledge, mining experience, and analysis of drilling results and industry
practices. Valid estimates made at a given time may significantly change when
new information becomes available. By their nature, mineral deposit estimates
are imprecise and depend upon statistical inferences, which may ultimately prove
unreliable. Mineral deposit estimates included here, if any, have not been
adjusted in consideration of these risks and, therefore, no assurances can be
given that any mineral deposit estimate will ultimately be reclassified as
reserves.




We
are sensitive to fluctuations and volatility in the price of gold and other
minerals, which are beyond our control.




The
prices for gold and other metals fluctuate and are affected by numerous factors
beyond our control. Factors that affect the price of gold and other metals
include consumer demand, economic conditions, over supply from secondary sources
and costs of production. Price volatility and downward price pressure, which can
lead to lower prices, could have a material adverse effect on the costs and
viability of our projects, which could in turn have a material adverse effect on
our business, consolidated financial condition or results of
operations.




Mineral
exploration and prospecting is a highly competitive and speculative business and
we may not be successful in seeking or executing on available
opportunities.




The
process of mineral exploration and prospecting is a highly competitive and
speculative business. In seeking available opportunities, we will compete with a
number of other companies, including established, multi-national companies that
have more experience and financial and human resources than us. Because we may
not have the financial and managerial resources to compete with other companies,
we may not be successful in our efforts to acquire new projects.




Compliance
with environmental considerations and permitting could have a material adverse
effect on the viability costs of our projects.  The historical trend
towards stricter environmental regulation may continue and, as such, represent
an unknown factor in our planning processes.




All
mining in Canada is regulated by government agencies at the federal and
provincial levels in that country. Compliance with such regulation could have a
material effect on the economics of our operations and the timing of project
development. Our primary regulatory costs will be related to obtaining licenses
and permits from government agencies before the commencement of mining
activities. An environmental impact study that must be obtained on each
property, in order to obtain governmental approval to mine on the properties, is
also a part of the overall operating costs of a milling company.




The gold
and mineral mining business is subject not only to worker health and safety, and
environmental risks associated with all mining businesses, but is also subject
to additional risks uniquely associated with gold and other minerals mining.
Although we believe that our operations will be in compliance, in all material
respects, with all relevant permits, licenses and regulations involving worker
health and safety, as well as the environment, the historical trend toward
stricter environmental regulation may continue. The possibility of more
stringent regulations exists in the areas of worker health and safety, the
dispositions of wastes, the decommissioning and reclamation of mining and
milling sites and other environmental matters, each of which could have an
adverse material effect on the viability costs of a particular
project.




22




Mining
and exploration activities are subject to extensive regulation by federal and
provincial governments in Canada.  Future changes in governments,
regulations and policies could adversely affect our results of operations for a
particular period and our long-term business prospects.




Mining
and exploration activities are subject to extensive regulation by federal and
provincial governments in Canada. Such regulation relates to production,
development, exploration, exports, taxes and royalties, labor standards,
occupational health, waste disposal, protection and remediation of the
environment, mine and mill reclamation, mine and mill safety, toxic substances
and other matters. Compliance with such laws and regulations has increased the
costs of exploring, drilling, developing, constructing, operating mines and
other facilities. Furthermore, future changes in governments, regulations and
policies, could adversely affect our results of operations in a particular
period and our long-term business prospects.




The
development of mines and related facilities is contingent upon governmental
approvals, which are complex and time consuming to obtain and which, depending
upon the location of the project, involve various governmental agencies. The
duration and success of such approvals are subject to many variables outside of
our control.




RISKS
RELATED TO OUR PROSPECTIVE OSR PROCESSING BUSINESS




Our prospective
OSR processing business may
suffer if we are unable to attract or retain talented
personnel.




Our
success will depend in large measure on the abilities, expertise, judgment,
discretion, integrity and good faith of our management, as well as other
personnel.  We have a small management team, and the loss of a key
individual or inability to attract suitably qualified replacements or additional
staff could adversely affect our business.  Our success also depends
on the ability of management and employees to interpret market and technical
data correctly, as well as respond to economic, market and other
conditions.  No assurance can be given that key personnel will
continue their association or employment with us or that replacement personnel
with comparable skills will be found.  If we are unable to attract and
retain key personnel and additional employees, our business may be adversely
affected.




We
may be unable to locate suitable properties and obtain the development rights
needed to build and expand our prospective OSR processing business.




Our long
term business plan focuses on designing, building and operating OSR processing
facilities for our own account.  Our ability to acquire quality
properties is uncertain and we may be required to delay construction of our
facilities, which may create unanticipated costs and delays.  In the
event that we are not successful in identifying and obtaining development rights
on suitable properties for building and operating OSR processing facilities, our
future prospects for profitability will likely be substantially limited, and our
financial condition and resulting operations may be adversely affected. We
currently hold options over two adjoining sites we have identified in Cardiff
which have received certain planning permissions.




As
a start up operation, the company will be dependent on the one proposed OSR
processing facility and any operational disruption could result in a reduction
of its planned sales volumes and could cause it to incur substantial
expenditures.




The
proposed OSR processing facility will be in one location.  Any
disruption to that facility will have an adverse effect on the implementation of
its business plan and, later, to its overall operations.  Disruptions
may be caused by any number of things.  Initially it may be
construction delays due to labor stoppages, inability to obtain materials,
permitting requirements and redesign requirements.  After commencement
of operations, they may be founded on other issues such as labor disruptions,
disruptions in supply, transportation difficulties, unscheduled downtime for
repair or modification, or hazards inherent in the industry. Some of those
hazards may cause personal injury and loss of life, severe damage to or
destruction of property and equipment and environmental damage, and may result
in suspension or termination of operations and the imposition of civil or
criminal penalties. As protection against these hazards, the company plans to
maintain property, business interruption and casualty insurance, but it cannot
provide any assurance that insurance will be adequate to fully cover the
potential hazards described above or that the company will be able to obtain or
renew insurance on commercially reasonable terms or at all.




23




The
planned production, sale and distribution of processed OSR products is dependent
on the existence of sufficient and necessary infrastructure, development of
which may not occur on a timely basis, if at all, and our operations could be
adversely affected by infrastructure disruptions.




Substantial
investments required for by relevant entities infrastructure changes and
expansion may not be made or may not 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 delivery of our products,
impose additional costs on us or otherwise have a material adverse effect on our
business, consolidated financial condition or results of
operations.




Unanticipated
problems or delays in building our prospective OSR processing facility to the
proper specifications may negatively affect our operations.




Our
current operating cash flow depends on our ability to timely and economically
build, complete and operate OSR processing facilities (and associated power
generation facilities if desirable).  If our construction plans are
threatened or delayed because we are unable to finance them or for other
reasons, our business may experience a substantial setback.  Prolonged
problems may fatally threaten the commercial viability of our planned
facilities.  Moreover, the occurrence of significant unforeseen
conditions or events in connection with this OSR processing facility may require
us to re-examine the thoroughness of our due diligence and planning
processes.  Any change to our business model or management's
evaluation of the viability of these projects could have a material adverse
effect on our business, consolidated financial condition or results of
operations.




Projected
construction and financing costs for OSR processing facilities may also increase
to a level that would make these facilities too expensive to build or
unprofitable to operate.  Contractors, engineering firms, construction
firms and equipment suppliers also receive requests and orders from other
companies and, therefore, we may not be able to secure their services or
products on a timely basis or on acceptable financial terms.  We may
suffer significant delays or cost overruns as a result of a variety of factors,
such as increases in the prices or raw materials, shortages of workers or
materials, transportation constraints, adverse weather, equipment failures,
fires, damage to or destruction of property and equipment, environmental damage,
unforeseen difficulties or labor issues, any of which could delay or prevent us
from commencing operations.  Any of these factors could have a
material adverse effect on our business, consolidated financial conditions or
results of operations.




Our
planned business, financial condition and results of operations and business
outlook will be highly dependent on commodity prices which are subject to
significant volatility and uncertainty, as well as the availability of supplies,
which could cause our results to fluctuate substantially.




Our
results will be dependent on many different commodity prices, especially prices
for vegetable oil, seed processing co-products, OSR and other feedstock and
materials used in the construction and operation of our planned OSR processing
facility.  As a result of the volatility of the prices for these items
our results, if and when we are able to produce OSR oil and meal, may fluctuate
substantially and we may experience periods of declining prices for our products
and increasing costs for our raw materials, which could result in operating
losses.  Declining prices for vegetable oil and seed processing
co-products and increased prices for required raw materials for a protracted
period while we develop our business plan may impede our ability to finance our
planned OSR processing facility and prevent us from commencing
operations.  If we are able to commence operations we may attempt to
offset some of the effects of fluctuations in prices by entering into forward
contracts to supply OSR oil and meal or purchase OSR feedstock or other items or
by engaging in transactions involving exchange-traded futures or options
contracts, the amount, cost and quantity of which will vary.




24




Duration
of these hedging and other risk mitigation activities may vary substantially
over time and these activities also involve substantial risks.




OSR oil
is a commodity whose price is determined based on local and global demand,
supply and other factors, all of which are beyond our control.  World
prices for OSR oil have fluctuated widely in recent years.  We expect
that prices will continue to fluctuate in the future.  Price
fluctuations will have a significant impact upon our revenue, the return on our
investment in OSR processing facilities and on our general financial
condition.  Price fluctuations for OSR oil may also affect the
investment market, and our ability to raise equity and debt
capital.  Future decreases in the prices of OSR oil could have a
material adverse effect on our business, consolidated financial condition or
results of operations.




The main
product from processing OSR, other than raw oil, is OSR oil meal cake, commonly
sold as animal feed. This significant co-product is a commodity whose price is
determined based on the price of alternative animal feeds, such as wheat, world
demand, supply and other factors, all of which are beyond our
control.  World prices for oil cake have fluctuated widely in recent
years.  We expect that prices will continue to fluctuate in the
future.  Price fluctuations will have a significant impact upon our
revenue, the return on our investment in our prospective OSR processing facility
and on our general financial condition.  Price fluctuations for oil
cake may also affect the investment market, and our ability to raise investor
capital. Future fluctuations in the price of oil cake or fluctuations in the
price of alternate animal feeds could have a material adverse effect on our
business, consolidated financial condition or results of
operations.




The price
of OSR is influenced by market demand, weather conditions, 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.  The significance and relative effect of
these factors on the price of OSR is difficult to project.  Any event
that tends to negatively affect the supply of OSR, such as increased demand,
adverse weather or crop disease, could increase OSR prices and potential harm
our business. Such a shortage or quality control issues could require us to
suspend operations until OSR of acceptable quality is available at economical
terms and this disruption could have a material adverse effect on our business,
consolidated financial condition or results of operations.




Strategic
relationships on which we may rely are subject to change.




Our
ability to identify and enter into commercial arrangements with OSR suppliers,
construction contractors, equipment fabricators, transportation, logistics and
marketing services providers and customers will depend on developing and
maintaining close working relationships with industry
participants.  Our success in this area will also depend on our
ability to select and evaluate suitable projects as well as to consummate
transactions in a highly competitive environment.  These realities are
subject to change and may impair our ability to grow.




To
develop our business, we may form strategic relationships.  These
relationships may take the form of joint ventures with other private parties or
local government bodies, contractual arrangements with other companies,
including those that supply OSR, or minority investments from third
parties.  There can be no assurances that we will be able to establish
these strategic relationships, or, if established, that the relationships will
be able to be maintained.  In addition, the dynamics of our
relationships with strategic partners may require us to incur expenses or
undertake activities we would not otherwise be inclined to incur or undertake in
order to fulfill our obligations to these partners or maintain these
relationships.  If we do not successfully establish or maintain
strategic relationships our business may be negatively affected.




25




Our
business is subject to local legal, political and economic factors which are
beyond our control.




We
believe that the current political environment for construction of OSR
processing facilities is sufficiently supportive to enable us to plan and
implement our operations. However, there are risks that conditions will change
in an adverse manner. These risks include, but are not limited to, laws or
policies affecting mandates or incentives to promote the use of our prospective
products, environmental issues, land use, air emissions, water use, planning
permissions, workplace safety, restrictions imposed on the OSR processing
industry such as restrictions on production, substantial changes in product
quality standards, restrictions on OSR supply, price controls and export
controls. Any changes in financial incentives, investment regulations, policies
or a shift in political attitudes are beyond our control and could have a
material adverse effect on our business, consolidated financial condition or
results of operations.




Environmental
risks and regulations may adversely affect our prospective OSR processing
business.




All
phases of designing, constructing and operating OSR processing facilities
present environmental risks and hazards. We are subject to environmental
regulation implemented or imposed by a variety of national and municipal laws
and regulations as well as international conventions. Among other things,
environmental legislation provides for restrictions and prohibitions on spills
and discharges, as well as emissions of various substances produced in
association with OSR processing operations. Legislation also requires that
facility sites be operated, maintained, abandoned and reclaimed in such a way
that would satisfy applicable regulatory authorities. Compliance with such
legislation can require significant expenditures and a breach in compliance may
result in the imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner we expect may result in
stricter standards and enforcement, larger fines and liability, as well as
potentially increased capital expenditures and operating costs.




The
presence or discharge of pollutants in or into the air, soil or water may give
rise to liabilities to governments and third parties and may require us to incur
costs to remedy such presence or discharge. If we are unable to remediate such
conditions economically or obtain reimbursement or indemnification from third
parties, this could have a material adverse effect on our business, consolidated
financial condition or results of operations.




Penalties
we may incur could impair our prospective OSR processing business.




Failure
to comply with government regulations could subject us to civil and criminal
penalties, require us to forfeit property rights and may affect the value of our
assets or our ability to conduct our business. We may also be required to take
corrective actions, including, but not limited to, installing additional
equipment, which could require us to make substantial capital expenditures. We
could also be required to indemnify our employees in connection with any
expenses or liabilities that they may incur individually in connection with
regulatory action against them. These could result in a material adverse effect
on our business, consolidated financial condition or results of
operations.




26




Our
prospective OSR processing business will suffer if we cannot obtain or maintain
necessary permits or licenses.




Our
operations will require licenses, permits and in some cases renewals of these
licenses and permits from various governmental authorities.  Our
ability to obtain, sustain, or renew such licenses and permits on acceptable,
commercially viable terms are subject to change, as, among other things, the
regulations and policies of applicable governmental authorities may change. Our
inability to obtain or extend a license or a loss of any of these licenses or
permits could have a material adverse effect on our business, consolidated
financial condition or results of operations.




Our
insurance may be inadequate to cover liabilities we may incur.




Our
involvement in the design, construction and operation of OSR processing
facilities may result in our becoming subject to liability for pollution,
property damage, personal injury, or other hazards. Although we will obtain
insurance in accordance with industry standards to address those risks,
insurance has limitations on liability that may not be sufficient to cover the
full extent of our liabilities. In addition, some risks may not be insurable or,
in certain circumstances, we may choose not to obtain insurance to manage
specific risks due to the high premiums associated with the insurance, or for
other reasons. The payment of uninsured liabilities could reduce the funds
available for operations or capital needs. If we suffer a significant event or
occurrence that is not fully covered by insurance, or if the insurer of a
particular incident is not solvent, this could result in a material adverse
effect on our business, consolidated financial condition or results of
operations.




Increases
in our energy costs will affect operating results and financial
condition.




Our OSR
processing production costs will be dependent on the costs of the energy sources
used to run our facilities. These costs are subject to fluctuations and
variations and we may not be able to predict or control these costs. If these
costs exceed our expectations, this could have a material adverse effect on our
business, consolidated financial condition or results of
operations.




We
will rely on technology to conduct our prospective OSR processing business and
our technology could become ineffective or obsolete.




We will
be required to enhance and update our technology to maintain its efficacy and to
avoid obsolescence.  The costs of doing so may be substantial and may
be higher than the costs that we anticipate for technology maintenance and
development. If we are unable to maintain the efficacy of our technology, our
ability to manage our business and to compete may be impaired. Even if we are
able to maintain technical effectiveness, our technology may not be the most
efficient means of reaching our objectives, in which case we may incur higher
operating costs than we would if our technology was more effective. The impact
of technical shortcomings could have a material adverse effect on our business,
consolidated financial condition or results of operations.




Decommissioning
costs are unknown and may be substantial.




We may
become responsible for costs associated with abandoning facilities that we use
for production of OSR oil and meal, which we anticipate will have a useful life
of twenty years under normal operational and maintenance regimes. Abandonment
and reclamation of these facilities and the associated costs are often referred
to as "decommissioning." We have not yet determined if we will establish a
reserve account for these potential costs for our prospective OSR processing
facility or if we will be able to pay for the costs of decommissioning from the
proceeds of future sales. The use of other funds to pay for decommissioning
costs could have a material adverse effect on our business, consolidated
financial condition or results of operations.




27




RISKS
RELATING TO OUR COMMON STOCK




We
are subject to compliance with securities law, which exposes us to potential
liabilities, including potential rescission rights.




We have
periodically offered and sold our Common Stock to investors pursuant to certain
exemptions from the registration requirements of the Securities Act, as well as
those of various state securities laws. The basis for relying on such exemptions
is factual; that is, the applicability of such exemptions depends upon our
conduct and that of those persons contacting prospective investors and making
the offering. While we believe that such exemptions were applicable to offers
and sales of our Common Stock, we have not received a legal opinion to the
effect that any of our prior offerings were exempt from registration under any
federal or state law. Instead, we have relied upon the operative facts as the
basis for such exemptions, including information provided by investors
themselves.




If any
prior offering did not qualify for such exemption, an investor would have the
right to rescind its purchase of the securities if it so desired. It is possible
that if an investor should seek rescission, such investor would succeed. A
similar situation prevails under state law in those states where the securities
may be offered without registration in reliance on the partial pre-emption from
the registration or qualification provisions of such state statutes under the
National Securities Markets Improvement Act of 1996.  If investors
were successful in seeking rescission, we would face severe financial demands
that could adversely affect our business and
operations.  Additionally, if we did not in fact qualify for the
exemptions upon which we have relied, we may become subject to significant fines
and penalties imposed by the SEC and state securities agencies.




We
will need additional capital that will dilute the ownership interest of
investors.




We
require substantial capital to fund our planned business. If we raise additional
funds through the issuance of equity, equity-related or convertible debt
securities, these securities may have rights, preferences or privileges senior
to those of the rights of holders of our Common Stock, who may experience
dilution of their ownership interest of our Common Stock. We cannot predict
whether additional financing will be available to us on favorable terms when
required, or at all. Since our inception, we have experienced negative cash flow
from operations and expect to experience significant negative cash flow from
operations in the future. The issuance of additional Common Stock by our
management may have the effect of further diluting the proportionate equity
interest and voting power of holders of our Common Stock.




Our
Common Stock is listed on the OTC-Bulletin Board (Ticker: FXFL.OB) and our
shares may qualify as penny stock and, as such, we are subject to the risks
associated with "penny stocks".  Regulations relating to "penny
stocks" limit the ability of our stockholders to sell their shares and, as a
result, our stockholders may have to hold their shares
indefinitely.




Our
Common Stock may be deemed to be "penny stock" as that term is defined in
Regulation Section 240.3a51-1 of the Securities and Exchange Commission. Penny
stocks are stocks: (a) with a price of less than U.S. $5.00 per share; (b) that
are not traded on a "recognized" national exchange; (c) whose prices are not
quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks
must still meet requirement (a) above); or (d) in issuers with net tangible
assets of less than U.S. $2,000,000 (if the issuer has been in continuous
operation for at least three years) or U.S. $5,000,000 (if in continuous
operation for less than three years), or with average revenues of less than U.S.
$6,000,000 for the last three years.




Section
15(g) of the United States Securities Exchange Act of 1934 and Regulation
240.15g(c)2 of the Securities and Exchange Commission require broker dealers
dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Potential investors in our Common Stock are
urged to obtain and read such disclosure carefully before purchasing any common
shares that are deemed to be "penny stock".




28




Moreover,
Regulation 240.15g-9 of the Securities and Exchange Commission requires broker
dealers in penny stocks to approve the account of any investor for transactions
in such stocks before selling any penny stock to that investor. This procedure
requires the broker dealer to: (a) obtain from the investor information
concerning his or her financial situation, investment experience and investment
objectives; (b) reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and that the investor
has sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (c) provide the investor with
a written statement setting forth the basis on which the broker dealer made the
determination in (ii) above; and (d) receive a signed and dated copy of such
statement from the investor confirming that it accurately reflects the
investor's financial situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for investors in
our Common Stock to resell their shares to third parties or to otherwise dispose
of them. Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, dated April 17, 1991, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:




(i)
            control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or
issuer;




(ii)
            manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;




(iii)
            boiler
      room practices involving high-pressure sales tactics and unrealistic price
      projections by inexperienced sales
persons;




(iv)
            excessive
      and undisclosed bid-ask differential and mark-ups by selling
      broker-dealers; and




(v)
            the
      wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, along with the
      resulting inevitable collapse of those prices and with consequent investor
      losses.




Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our
securities.




ITEM
1B. UNRESOLVED STAFF COMMENTS




Not
Applicable.




ITEM
2. PROPERTIES




Principal
Executive Offices




Our
principal executive offices are located at Oceana House, 39-49 Commercial Road,
Southampton SO15 1GA, UK. We utilize our principal executive offices pursuant to
a formal agreement with the landlord and we pay a minimal charge to use these
offices.




29




FFE Ltd
has temporary operational offices located at Regus House, Falcon Drive, Cardiff
Bay, Cardiff, CF10 4RU, United Kingdom. Its telephone number is +44 (0) 029
2050, which also serves as our principal executive offices telephone number. The
offices at Regus House initially covered approximately 500 square feet and cost
approximately $4,000 per month. Commencing March 1, 2009 however, this space was
reduced to approximately 250 square feet costing approximately $2,000 per month.
We utilize this space under a month to month arrangement.




We do not
own any real estate.




Malibu
Gold Property




For a
description of Malibu Gold Property and our mineral properties, see “Description
of Business.”




ITEM
3. LEGAL PROCEEDINGS




Legal
Proceedings




State Court
Action




On July
24, 2008, Mr. Thomas Barr commenced an action (Case no. A568118) in the District
Court of Clark County, Nevada (the “Court”) against our former Chief Executive
Officer (“CEO”) and Chairman of the Board, Mr. Brian Barrows, and a former
director, Mr. James Laird ("Laird"), seeking declaratory and injunctive relief
preventing Messrs. Barrows and Laird from taking actions Mr. Barr believed would
be detrimental to the Company, including their taking control of the management
of the Company. Mr. Barr's court action sought to preclude Mr. Laird, who had
resigned as a director on May 16, 2008 from participating in any future meetings
of the Board and to prevent Mr. Barr from being disciplined or otherwise
punished for his filing on July 15, 2008, with the SEC, a current report on Form
8-K on behalf of the Company.  On the same date, Mr. Barr filed a
motion for a Temporary Restraining Order and Preliminary Injunction seeking such
relief on a temporary and preliminary basis pending a trial on the merits of the
case.




On July
28, 2008, the Court issued a temporary restraining order granting the relief
sought by Mr. Barr and setting a non-evidentiary preliminary injunction hearing
on the matter for August 11, 2008.  On August 1, 2008, Mr. Barr filed
an amended complaint in this action to add the Company as a
defendant.  On August 11, 2008, the Court held the non-evidentiary
hearing, at which the Motion to Quash filed by Messrs. Barrows and Laird was
denied and a Preliminary Injunction Hearing date was set for August 19,
2008.  On August 25, 2008, the parties executed a Stipulation and
Order in which the parties stipulated to continue the Preliminary Injunction
Hearing and to hold a shareholders’ meeting as soon as possible with respect to
the election of directors.  A shareholders’ meeting was held on
December 12, 2008 at which a slate of directors consisting of Mr. Barr, Mr. John
Nangle and Mr. David Miller were elected. The suit is still active while the
Company reviews its options for the prospective recovery of costs incurred and
payments made during Mr. Barrows’ tenure.  The Company has not
determined whether it will pursue recovery costs incurred and payments made
during Mr. Barrow’s tenure, at this point in time but will make appropriate
disclosure including an estimate of the likely costs of pursuing such an action
in future filings, if it decides to proceed based on a thorough assessment of
its review.




30




Federal
Action




The
Company, along with Mr. Barrows, filed a complaint against Mr. Barr in federal
district court (“the Federal Case”) in Nevada on October 7, 2008 (Case No.
2:08-cv-01358-KLD-RJJ) seeking compensatory and punitive damages and injunctive
relief for, among other things, alleged breaches of his fiduciary duties as a
director to the Company and its shareholders.  On October 30, 2008 Mr.
Barr filed an answer to the complaint denying all of the material allegations
set forth in the complaint and asserting affirmative
defenses.  Subsequent to the shareholders’ meeting held on December
12, 2008 the Company’s directors, excluding Mr. Barr who recused himself
(hereinafter referred to as the “Unaffected Directors”), commenced a review of
the Federal Case and the facts and circumstances giving rise to its
filing.  Such review included meetings with the Company's legal advisers,
compiling and reviewing correspondence between the Company and its consultants,
legal advisers, accountants, proxy solicitors and other persons relating to the
litigation and the matters alleged therein, and discussions with Mr. Barr and
other officers and employees of the Company.  In the course of their
review, the Unaffected Directors examined such other records and matters as they
deemed appropriate.  The Unaffected Directors concluded, and advised
the Board, that the instigation and the continuation of the Federal Case was not
in the best interest of the Company or its stockholders and recommended that the
Company withdraw from the Federal Case which it did on February 11, 2009. The
Federal Case is still active however, as Mr. Barrows has not elected to withdraw
his claims against Mr. Barr.  Further, at the suggestion of the
Unaffected Directors, on February 24, 2009, Brian Barrows was terminated as an
employee of the Company’s subsidiary, Flex Fuels Energy Ltd.  However,
Brian Barrows remains as a director of Flex Fuels Energy as he has not tendered
his resignation.  He has not participated in any Flex Fuels Energy Ltd
board meetings since December 14, 2008.  If he does not resign, the
Company expects to go through the required statutory process to remove him, the
costs of which are expected to be minimal.




The
Company’s wholly-owned subsidiary, FFE Ltd, has received notice from Mr.
Barrows, former CEO, stating that he may have a claim against FFE Ltd for breach
of contract and UK employment law relating to his dismissal as an employee of
FFE Ltd for gross misconduct in February 2009. FFE Ltd does not believe there is
any merit to Mr. Barrows’ contention and it is expected that the Company
will vigorously defend any such claim and may counterclaim.  At this
point, the Company has not received a formal complaint containing actual damage
claims, and consequently we are unable to assess with any degree of precision
the estimated costs that may be incurred by the Company in defending such action
or for any damages that may potentially be awarded arising from any
action.  It is not possible at this time to determine whether an
adverse outcome would have a material adverse effect on the Company’s
consolidated financial position, results of operations or
liquidity.




From time
to time we may be a defendant and plaintiff in various other legal proceedings
arising in the normal course of our business. Except as disclosed above, we are
currently not a party to any material legal proceedings or government actions,
including any bankruptcy, receivership, or similar proceedings. In addition, we
are not aware of any known litigation or liabilities involving the operators of
our properties that could affect our operations. Furthermore, as of the date of
this Annual Report, our management is not aware of any proceedings to which any
of our directors, officers, or affiliates, or any associate of any such
director, officer, affiliate, or security holder is a party adverse to our
company or has a material interest adverse to us.




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




We held
an Annual Meeting of Stockholders on December 12, 2008, at our then principal
executive offices in London, to elect three directors to our board of
directors.  The Company, through Brian Barrows, nominated Brian
Barrows, Paul Gothard and James Laird (collectively the “Company
Nominees”).  Alternative nominees consisting of Thomas Barr, John
Nangle and David Miller (collectively the “Barr Nominees”) were proposed by
Thomas Barr and International Capital Partners, S.A.  At the meeting,
our stockholders elected the three Barr Nominees to serve until the 2009 Annual
Meeting of Stockholders or until their successors were duly appointed and
qualified.




31




A total
of 56,687,127 shares of our common stock was represented in person or by proxy
at the meeting, representing approximately 81.70% of our outstanding
shares.  The following is a breakdown of the voting
results:




Barr
      Nominees
                
                Votes
      For
                
                
                Votes
      WithheldThomas
      Barr
                
                
                55,235,986
                
                
                
                0John
      Nangle
                
                
                55,235,986
                
                
                
                0David
      Miller
                
                
                55,235,986
                
                
                
                0





Company
      Nominees
                
                Votes
      For
                
                
                Votes
      WithheldBrian
      Barrows
                
                
                1,451,141
                
                
                
                0Paul
      Gothard
                
                
                1,451,141
                
                
                
                0James
      Laird
                
                
                1,451,141
                
                
                
                0





The Barr
Nominees, accordingly, were elected as directors by the holders of 79.6% of our
outstanding shares representing 97.4% of the votes cast at the
meeting.




PART
II




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




Market
Information




“Bid” and
”ask” prices for our common stock have been quoted on the Over-The-Counter
Bulletin Board (the “OTCBB”) under the symbol “FXFL.OB” since June 2007. Prior
to June 2007 our common stock was not quoted.




The
following table sets forth, for the fiscal quarters indicated, the high and low
closing bid prices per share of our common stock on the OTCBB, reported by the
National Association of Securities Dealers Composite Feed or other qualified
interdealer quotation medium.  Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.




Quarter
      Ended
                        
                        
                        High
      Bid(1)
                        
                        
                        
                        Low
      Bid(1)December
      31, 2008
                        
                        $
                        0.25
                        
                        
                        $
                        0.11September
      30, 2008
                        
                        $
                        0.36
                        
                        
                        $
                        0.15June
      30, 2008
                        
                        $
                        0.65
                        
                        
                        $
                        0.18March
      31, 2008
                        
                        $
                        1.05
                        
                        
                        $
                        0.51December
      31, 2007
                        
                        $
                        1.85
                        
                        
                        $
                        0.71September
      30, 2007
                        
                        $
                        2.40
                        
                        
                        $
                        1.76June
      30, 2007
                        
                        $
                        2.23
                        
                        
                        $
                        1.90March
      31, 2007
                        
                        
                        N/A
                        
                        
                        
                        N/A





On May
21, 2007, our Board of Directors declared a stock split, distribution to be May
22, 2007, in the form of a dividend of five additional shares of our common
stock for each share owned by stockholders of record at the close of business on
May 21, 2007, in effect 6 for 1 stock split.  All high and low closing
bid prices reflect the stock split.  All references within this Form
10-K and in the accompanying consolidated financial statements and notes thereto
have been retroactively restated to reflect the stock split, unless explicitly
stated otherwise.




(1)
            As of December 31, 2008, we had 151 shareholders of
      record of our common stock, this figure includes corporations, and as such
      individual shareholder number is unknown




32


.


Dividends




We have
never declared any cash dividends with respect to our common
stock.  Future payment of dividends is within the discretion of our
Board of Directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors.  Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our common stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our common stock.




Recent
Sales of Unregistered Securities




In May
2008, we issued 65,000 shares of our common stock to Paul Gothard, our former
chief financial officer pursuant to the terms of his March 28, 2007 employment
agreement as compensation for services rendered.  The shares were
issued in reliance on Section 4(2) of the Securities Act of 1933, as amended,
since the foregoing issuance did not involve a public offering, the recipient
had access to information that would be included in a registration statement,
the recipient took the shares for investment and not for resale, and we took
appropriate measures to restrict resale.




Purchases
of Equity Securities by the Issuer and Affiliated Purchasers




None




Equity
Compensation Plan Information




We have
not adopted any stock option or other equity compensation plans since our
inception other than our March 28, 2007 Employment Agreement with Paul Gothard
under which we issued 65,000 shares of our common stock to Mr. Gothard in May
2008 as compensation for services rendered.  We have no further
obligations to Mr. Gothard thereunder.




ITEM
6. SELECTED FINANCIAL DATA




Not
applicable.




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




The
following discussion should be read in conjunction with our audited consolidated
financial statements and the accompanying notes included elsewhere in this Annual Reporton
Form 10-K.




The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of various factors, including
those discussed in “Risk Factors” and elsewhere in this annual report.




33




Results
of Operations




We have
incurred a net loss of $4,163,437 for the year ended December 31,
2008.  During the year ended December 31, 2007, we incurred a net loss
of $23,911,383 which included a charge of $21,594,587 representing the
transaction costs in connection with asset acquisition of FFE Ltd. in accordance
with EITF No. 98-3.  The comparable net loss for the year ended
December 31, 2007 was therefore amounted to $2,316,796, excluding the
transaction costs in connection with asset acquisition of FFE
Ltd.  The increase in comparable net loss is mainly due to 1) asset
impairment loss amounting to $458,730 as a result of management’s review of our
Cardiff Project and the associated capitalized plant under construction
costs,  2) increased legal fees amounting to $1,520,644 the majority
of which are due to charges associated with the contested Proxy and ongoing
litigation, 3) increased professional fees amounting to $130,199 are due to
audit fees incurred from additional reporting requirements, 4) increased
consulting expenses amounting to $230,136 as discussed below, 5) off set by the
decreased payroll and administrative expense amounting to $595,581 primarily due
to fair value of shares of common stock issued in lieu of payment for services
for the year ended December 31, 2007 as discussed below.  We have
incurred a net loss of $29,456,018 for the period from March 10, 2006 (date of
inception) through December 31, 2008 and have not yet generated any revenues
since inception that can support our operating expenses.  We
anticipate that we will not generate any revenues until such time as we have
entered into commercial production, of our planned Oilseed Crush business, if at all.




Revenues




We have
not generated any revenues for the period from March 10, 2006 (date of
inception) through December 31, 2008.




Operating
loss




The main
components of the recorded operating loss during the fiscal years ended December
31, 2008 and 2007, and for the period from
March 10, 2006 (date of inception) through December 31, 2008 were as
follows:




Years
      ended
                        December
      31,
                      
                      
                      For
      the Period from March 10, 2006
                        (date
      of inception) through
                        December
      31,2008
                      
                      
                      2007
                      
                      
                      2008Consulting
      expenses (note 1)
                      
                      $
                      500,415
                      
                      
                      $
                      270,279
                      
                      
                      $
                      770,694Payroll
      and administrative expenses (note 2)
                      
                      $
                      1,335,981
                      
                      
                      $
                      1,931,562
                      
                      
                      $
                      3,319,614Legal
      Fees (note 3)
                      
                      $
                      1,878,265
                      
                      
                      $
                      357,621
                      
                      
                      $
                      2,235,886Professional
      Fees (note 4)
                      
                      $
                      275,124
                      
                      
                      $
                      144,925
                      
                      
                      $
                      435,099Rent,
      Office related, Telecoms and Miscellaneous (note 5)
                      
                      $
                      191,260
                      
                      
                      $
                      205,921
                      
                      
                      $
                      397,181Travel
      expenses (note 6)
                      
                      $
                      88,514
                      
                      
                      $
                      121,537
                      
                      
                      $
                      210,051Transaction
      costs in connection with asset acquisition (note 7)
                      
                      $
                      -
                      
                      
                      $
                      21,594,587
                      
                      
                      $
                      22,897,759Asset
      impairment loss (note 8)
                      
                      $
                      458,730
                      
                      
                      $
                      -
                      
                      
                      $
                      458,730




(1)
            Consulting expenses included consultants
      who were engaged in the management and development of the business, which
      increased by $230,136 or 85% to $500,415 for the year ended December 31,
      2008 from $270,279 for the year ended December 31, 2007.  The
      increase is comprised mainly of the re-imbursement of costs incurred by
      Mr. Tom Barr in consideration of fees relating to the Litigation, proxy
      contest and Annual General Meeting held on December 12,
      2008.




(2)
            Payroll
      and administrative expenses decreased by $595,581 or 31% from $1,931,562
      for the year ended December 31, 2007 to $1,335,981 for the year ended
      December 31 2008.  The Company issued 137,444 shares of its
      common stock with a fair value of $123,519 to Mr. Thomas Barr in lieu of
      payment for services and the fair value of further shares held by Mr.
      Thomas Barr for those shares not retired and acquired at below market
      value was adjusted with additional value of $486,278 as compensation for
      services rendered during the year ended December 31,
  2007.




34




(3)
            Legal
      fees increased by $1,520,644 or 425% from $357,621 for the year ended
      December 31, 2007 to $1,878,265 for the year ended December 31, 2008,
      mainly due to increased legal activity caused by the actions described in
      Item 3 above within this Form 10-K.




(4)
            Professional
      fees increased by $130,199 or 90% from $144,925 for the year ended
      December 31, 2007 to $275,124 for the year ended December 31, 2008. This
      was due to increased audit fees charged by our former auditors in relation
      to additional reporting requirements incurred during the
    year.




(5)
            Rent,
      Office related, Telecoms and Miscellaneous expenses decreased by $14,661
      or 7% from $205,921 for the year ended December 31, 2007 to $191,260 for
      the year ended December 31, 2008.  This was partly due to the
      ceasation of a land option site that was held from August 2007 until
      January 2008.




(6)
            Travel
      expenses consisted of travel, accommodation and subsistence expenses,
      which decreased by $33,023 or 27% to $88,514 for the year ended December
      31, 2008 from $121,537 for the year ended December 31,
      2007.  These decreases were primarily due to costs being
      controlled during the year ended December 31,
  2008.




(7)
            The
      Company has completed the asset acquisition of FFE Ltd (a development
      stage company) on May 29, 2007 and accounted for the transaction in
      accordance with EITF No. 98-3 as such not qualifying as a
      business.  FFE Ltd is a newly formed development stage company
      to develop and exploit Oil Seed Rape (“OSR”) products and or OSR
      processing facility.  FFE Ltd is missing almost all of the
      elements necessary to conduct normal operations.  FFE Ltd has
      not yet commenced its planned principal operations.  The Company
      has concluded that FFE Ltd, the transferred set’s current activities are
      focused on the development of a business rather than the operation of a
      business; hence, the acquisition of FFE Ltd is presumed not to be a
      business instead an asset acquisition.  Accordingly, the Company
      has recognized $21,594,587 and $22,897,759 as the transaction cost in
      connection with asset acquisition of FFE Ltd for the year ended December
      31, 2007 and for the period from March 10, 2006 (date of inception)
      through December 31, 2008,
respectively.





(8)
            During
      the year ended December 31, 2008, the Company carried out a detailed
      review of its capitalized plant under construction costs of the Cardiff
      Project. The Company has made an impairment charge for the year ended
      December 2008 of $458,730 to reflect the true and fair carrying value of
      costs previously capitalized based on the shift in focus by the Cardiff
      Project from biodiesel production to oilseed
  crush.




The
operating loss for the period from March 10, 2006 (date of inception) through
December 31, 2008 amounted to $30,900,531 primarily due to the discussions as
per above and as a result of the transaction costs in connection with asset
acquisition of FFE Ltd. in December 2006 of $1,303,172 and $21,594,587 on May
29, 2007.
  The
operating loss was offset partially by the interest income of $541,117 for the
year ended December 31, 2008, as compared to $449,147 for the year ended
December 31, 2007, mainly due to higher average cash balances held in bank
deposit during the year ended December 31, 2008. Interest income for the period
from March 10, 2006 (date of inception) through December 31, 2008 amounted to
$990,264.


35




Minority
Interest





FFE Ltd
became the wholly-owned subsidiary of the Company effective May 29,
2007.  Accordingly, the minority interest charged to the operations
decreased from $454,249 for the year ended December 31, 2007 to $0 for the year
ended December 31, 2008.  Total minority interest charged to the
operations amounting to $454,249 for the period from March 10, 2006 (date of
inception) through December 31, 2008, which represented the minority interest
share of net loss in FFE Ltd. from December 2006 through May 29, 2007 for the
minority shareholders.





Net
loss





The
Company has incurred a net loss in the amount of $4,163,437 for the year ended
December 31, 2008 as compared to $23,911,383 for the year ended December 31,
2007 as discussed above.  The Company has incurred a net loss in the
amount of $29,456,018 for the period from March 10, 2006 (date of inception)
through December 31, 2008.




Liquidity
and Capital Resources




The
Company will need substantial amounts of capital to implement its planned
business strategies.  Given the currently unsettled state of the
capital markets and credit markets, there is no assurance that the Company will
be able to raise the amount of capital that it seeks for potential acquisitions
or for the proposedCardiff
Project.  Even if financing is available, it may not be on terms that
are acceptable to the Company.  In addition, the Company does not have
any determined sources for the full amount of funding required to implement its
entire strategy or for the design, procurement, construction and commissioning
of the proposed Cardiff Project and any needed working capital. There is no
assurance that any or all of the funding will be obtainable as desired or in
full to build the Cardiff
Plant.  If the Company is unable to raise the necessary capital
at the times it requires such funding, it may have to materially change its
business plan, including modifying the
proposed plant, delaying implementation of
aspects of the business plan or curtailing or abandoning its business
plan.  The Company is a speculative investment and investors may lose
all oftheir
investment.




Since inception, the
Company has financed itself primarily by private placements.  The
Company raised $10,000 for shares issued for founders in 2006, $1,635,000 on
December 29, 2006 (net of legal fees of $20,000), $13,391,879 on May 29, 2007
(net of legal fees of $1,492,000), and $3,940,189 on July 31, 2007 (net of legal
fees of $444,654) by way of three separate private placements of shares of
common stock.  The total net funds raised of $18,977,068 since
inception through December 31, 2008 have been used principally as follows: (a)
$3,304,978 in payroll and administrative expenses; (b) $2,140,537 in legal fees;
(c) $699,333 in consulting fees; (d)$405,099 in professional fees in connection
with our financial reporting requirements; (e) $918,419 in purchase of property
and equipment, which included the capitalized plant under construction costs and
intangible asset acquired; and (f) to fund the other operating
costs.  At December 31, 2008, the Company had available cash balances
of $8,702,680 which are held in the interest bearing bank
accounts.




At
December 31, 2008, cash and cash equivalents was $8,702,680 and we had other
current assets, which consist of prepaid expenses and value added tax and other
receivables of $85,374 and current liabilities of $699,412, which consist of
accounts payable and accrued expenses.  We attribute our net loss to
having no revenues to sustain our operating costs as we are a development stage
company.   At December 31, 2007, cash and cash equivalents was
$16,156,382 and we had other current assets of $155,324 and current liabilities
of $306,405.




36




Net Cash
Used in Operating Activities




Cash
utilized in operating activities was $3,191,773 for the year ended December 31,
2008, as compared to $2,045,169 for the year ended December 31, 2007. The
increase was primarily due to additional legal and consulting fees amounting to
approximately $1.5M incurred during the year ended December 31, 2008 for the
litigation and Proxy contest as described in Item 4.  During the period
from March 10, 2006 (date of inception) through December 31, 2008, the Company
used net cash in operating activities of $5,239,442 mainly for legal, consulting
fees, professional fees and payroll and administrative expense as discussed and
quantified above.




Net Cash
Used in Investing Activities




During
the year ended December 31, 2008, the Company used net cash in investing
activities of $131,442 mainly used to acquire property and equipment (including
capitalized plant under construction and office equipment) of $124,202 and
intangible assets of $7,240.  During the year ended December 31, 2007,
the Company used net cash in investing activities of $786,977 principally used
to acquire capitalized plant under construction costs of $747,780 and office
equipment of $39,197.  During the period from March 10, 2006 (date of
inception) through December 31, 2008, the Company used net cash in investing
activities of $948,419, principally used to acquire capitalized plant under
construction costs of $870,258, office equipment of
$40,921,  intangible assets of  $7,240 and other investing
activities of $30,000.  The majority of capitalized plant under
construction costs were acquired during the year ended December 31, 2007, with
limited ongoing expenditure related to capitalized plant under construction
costs during the year ended December 31, 2008.




Net Cash
Provided by Financing Activities




The
Company did not raise any additional funds during the year ended December 31,
2008.  During the year ended December 31, 2007, the Company received net cash provided by
financing activities of $17,332,068 as a result of two private placements
completed on May 29, 2007 and July 29, 2007.  During the period from
March 10, 2006 (date of inception) through December 31, 2008, the Company received net cash provided by
financing activities of $18,977,068 from private placements.




The
Company will only commit to capital expenditures for any of its planned projects
as and when adequate capital or new lines of finance are made available to it.
There is no assurance that the Company will be able to obtain any financing or
enter into any form of credit arrangement.  Although it may be offered
such financing, the terms may not be acceptable to the Company.  If
the Company is not able to secure financing or it is offered on unacceptable
terms, then its business plan may have to be modified or curtailed or
certainaspects
terminated.  There is no assurance that even with financing, the
Company will be able to achieve its goals.




The
accompanying consolidated financial statements have been prepared assuming that
we will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.  However, our ability to continue as a going
concern will be dependent upon our ability to generate sufficient cash flow
from our planned operations to meet our obligations on a timely basis, to obtain
additional financing, and ultimately attain profitability. The report of our
independent accountants on our December 31, 2008 and 2007 consolidated financial
statements included an explanatory paragraph indicating that there is
substantial doubt about our ability to continue as a going concern due to
recurring losses, we have yet to generate any revenue and incurred negative cash
flows from operations since date of inception. Our ability to continue as a
going concern will be determined by our ability to obtain additional funding or
commence our planned business to generate sufficient revenue to cover our
operating expenses. We currently have no sources of financing available and we
do not expect to earn any revenues in the near term. Our consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




The full
findings of the Review of the Cardiff Project, including partner negotiations
and funding options, are expected to be available during the second quarter of
2009.  Given the difficult capital market environment in general, the
Company intends to extract value by partnered development or
divestment.  There can be no assurance that the Company will be
successful in finding partners for developing the project further, or that the
project can be divested to extract value.




37




Critical
Accounting Policies and Estimates




Significant
Accounting Policies




Financial
Reporting Release No. 60, published by the SEC, recommends that all companies
include a discussion of critical accounting policies used in the preparation of
their financial statements. While all these significant accounting policies
impact our consolidated financial condition and results of operations, we view
certain of these policies as critical.  Policies determined to be
critical are those policies that have the most significant impact on our
consolidated financial statements and require management to use a greater degree
of judgment and estimates. Actual results may differ from those
estimates.




We
believe that given current facts and circumstances, it is unlikely that applying
any other reasonable judgments or estimate methodologies would cause a material
effect on our consolidated results of operations, financial position or
liquidity for the periods presented in this report.




General




The
Company’s Consolidated Financial Statements are prepared in accordance with U.S.
generally accepted accounting principles, which require management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, net revenue, if any, and expenses, and the disclosure of contingent
assets and liabilities.  Management bases its estimates on historical
experience and on various other assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.  Senior management has discussed
the development, selection and disclosure of these estimates with the Board of
Directors.  Management believes that the accounting estimates employed
and the resulting balances are reasonable; however, actual results may differ
from these estimates under different assumptions or conditions.




An
accounting policy is deemed to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are highly uncertain at the
time the estimate is made, if different estimates reasonably could have been
used, or if changes in the estimate that are reasonably possible could
materially impact the consolidated financial statements. Management believes the
following critical accounting policies reflect the significant estimates and
assumptions used in the preparation of the Consolidated Financial
Statements.




Development Stage
Company




The
Company is considered to be in the Development Stage as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by
Development Stage Enterprises”.




The
Company has generated no revenues to date and is utilizing the capital that were
raised by way of the private placements referred to above to commence initial
work on a proposed Cardiff Projects plant and to fund its current planned
operations.




38




Going
Concern




The
consolidated financial statements have been prepared on the going concern basis,
which assumes the realization of assets and liquidation of liabilities in the
normal course of operations. If we were not to continue as a going concern, we
would likely not be able to realize on our assets at values comparable to the
carrying value or the fair value estimates reflected in the balances set out in
the preparation of the consolidated financial statements. There can be no
assurances that we will be successful in generating additional cash from equity
or other sources to be used for operations. The consolidated financial
statements do not include any adjustments relating to the recoverability of
assets and classification of assets and liabilities that might be necessary
should the Company be unable to continue as a going concern.




Principles of
Consolidation




The
consolidated financial statements include the accounts of Flex Fuels Energy
Incorporated and Flex Fuels Energy Limited.  All significant
inter-company transactions and balances have been eliminated in
consolidation.




Revenue
recognition




The
Company has not yet generated any revenues to date.  It is the Company’s
policy that revenue from product sales or services will be recognized in
accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” ("SAB
No. 104"), which superseded Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements” ("SAB No. 101"). SAB No. 104 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgments
regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded. The Company will defer
any revenue for which the product was not delivered or is subject to refund
until such time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required.




Stock-Based
Compensation




The
Company has adopted the fair value provisions of SFAS No. 123(R) "Share-Based Payment" which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to a Employee Stock Purchase
Plan based on the estimated fair values.




During
the period from March 10, 2006 (date of inception) through December 31,
2008 the following stock-based compensations were issued.  On December
18, 2006 Mr. Thomas Barr received 412,038 shares, May 22, 2007 Mr. Thomas Barr
received 137,344 shares and on May 18, 2008 Mr. Paul Gothard received 65,000
shares.




We use
the fair value method for equity instruments granted to non-employees (if any)
and will use the Black- Scholes model for measuring the fair value of options,
if issued. The stock based fair value compensation is determined as of the date
of the grant or the date at which the performance of the services is completed
(measurement date) and is recognized over the vesting periods.




39




Impairment of Long-Lived
Assets




The
Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires that long-lived
assets and certain identifiable intangibles held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted discounted cash flows.
Should impairment in value be indicated, the carrying value of the long-lived
assets and certain identifiable intangibles will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition
of the asset.  SFAS No. 144 also requires assets to be disposed of be
reported at the lower of the carrying amount or the fair value less disposal
costs.




Income
Taxes




Income
taxes are provided for using the liability method of accounting in accordance
with SFAS No. 109, “Accounting for Income Taxes”. A deferred tax asset or
liability is recorded for all temporary differences between financial and tax
reporting. Deferred income taxes and tax benefits are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and for tax loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The Company provides for deferred tax assets for the
estimated future tax effects attributable to temporary differences and
carry-forwards when realization is more likely than not.




Foreign Currency
Translation




The
Company’s functional and reporting currency is the United States
Dollar.  The functional currency of the Company’s wholly owned
subsidiary, Flex Fuels Energy Limited is in its local currency (Great British
Pound – GBP).  In accordance with SFAS No. 52 "Foreign Currency
Translation," monetary assets and liabilities are translated into U.S. Dollars
at balance sheet date and revenue and expense accounts are translated at the
average exchange rate for the year.  The translation adjustments are
deferred as a separate component of stockholders’ equity, captioned accumulated
other comprehensive (loss) gain.  Transaction gains and losses arising
from exchange rate fluctuation on transactions denominated in a currency other
than the functional currency are included in the consolidated statements of
operations.




Recent
accounting pronouncements




In June
2006, the Financial Accounting Standards Board (the “FASB”) issued “Accounting
for Uncertain Tax Positions - an Interpretation of FASB Statement No. 109”,
(“FIN 48”), which prescribes a recognition and measurement model for uncertain
tax positions taken or expected to be taken in the Company’s tax returns. FIN 48
provides guidance on recognition, classification, presentation, and disclosure
of unrecognized tax benefits. The Company was required to adopt FIN 48 on
January 1, 2007.  The adoption of this statement did not have any
material impact on the Company's consolidated financial position, results of
operations or cash flows.




40




In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”.  The objective of SFAS No. 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements.  SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements.  SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements.  Effective January 1, 2008,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
157, "Fair Value Measurements" ("SFAS No. 157" ).  The adoption of
this statement did not have a material impact on the Company’s consolidated
financial position, results of operation or cash flows.  In February
2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB
Statement No. 157” (“FSP 157-2”), which delayed the effective date of SFAS No.
157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until the fiscal years beginning after November 15, 2008.  We
have not yet determined the impact that the implementation of FSP 157-2 will
have on our non-financial assets and liabilities which are not recognized on a
recurring basis; however, we do not anticipate the adoption of this standard
will have a material impact on our consolidated financial position, results of
operations or cash flows.




In
December 2006, the FASB issued FSP EITF 00-19-2, “Accounting for Registration
Payment Arrangements” ("FSP 00-19-2") which addresses accounting for
registration payment arrangements. FSP 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, “Accounting
for Contingencies”. FSP 00-19-2 further clarifies that a financial instrument
subject to a registration payment arrangement should be accounted for in
accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. For registration payment arrangements
and financial instruments subject to those arrangements that were entered into
prior to the issuance of EITF 00-19-2, this guidance shall be effective for
financial statements issued for fiscal years beginning after December 15, 2006
and interim periods within those fiscal years.  The adoption of this
standard did not have a material impact on the Company’s consolidated financial
position, results of operations or cash flows.




In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115" ("SFAS No. 159"). This statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. Effective January 1, 2008,
the Company adopted SFAS No. 159.  The adoption of this statement did
not have a material impact on the Company’s consolidated financial position,
results of operation or cash flows.





In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS
No. 141(R)"), which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141(R) is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited and the Management has not determined the effect that
adopting this statement would have on the Company's consolidated financial
position, results of operations or cash flows.




In June
2007, the Accounting Standards Executive Committee issued Statement of Position
07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment
Companies and Accounting by Parent Companies and Equity Method Investors for
Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance
for determining whether an entity is within the scope of the AICPA Audit and
Accounting Guide Investment Companies (the “Audit Guide”). SOP 07-1 was
originally determined to be effective for fiscal years beginning on or after
December 15, 2007, however, on February 6, 2008, FASB issued a final Staff
Position indefinitely deferring the effective date and prohibiting early
adoption of SOP 07-1 while addressing implementation issues.




41




In June
2007, the FASB ratified the consensus in EITF Issue No. 07-3,“Accounting for
Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities” (“EITF 07-3”), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred
and amortized over the period that the goods are delivered or the related
services are performed, subject to an assessment of
recoverability.  EITF 07-3 will be effective for fiscal years
beginning after December 15, 2007.  We do not expect that the adoption
of EITF 07-3 will have a material impact on our consolidated financial position,
results of operations or cash flows.




In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS No. 160"),
which will change the accounting and reporting for minority interests, which
will be re-characterized as non-controlling interests and classified as a
component of equity within the consolidated balance sheet.  SFAS No.
160 is effective as of the beginning of the first fiscal year beginning on or
after December 15, 2008.  Earlier adoption is prohibited and the
Management has not determined the effect that adopting this statement would have
on the Company's consolidated financial position, results of operations or cash
flows.




In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 defines
collaborative arrangements and requires collaborators to present the result of
activities for which they act as the principal on a gross basis and report any
payments received from (made to) the other collaborators based on other
applicable authoritative accounting literature, and in the absence of other
applicable authoritative literature, on a reasonable, rational and consistent
accounting policy is to be elected.  EITF 07-1 also provides for
disclosures regarding the nature and purpose of the arrangement, the entity’s
rights and obligations, the accounting policy for the arrangement and the income
statement classification and amounts arising from the agreement. EITF 07-1 will
be effective for fiscal years beginning after December 15, 2008, and will be
applied as a change in accounting principle retrospectively for all
collaborative arrangements existing as of the effective date.  We have
not yet evaluated the potential impact of adopting EITF 07-1 on our consolidated
financial position, results of operations or cash flows.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133” (“SFAS No.
161”).  SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance, and cash flows.  Entities are
required to provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations; and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  Management has not determined the
effect that adopting this statement would have on the Company's consolidated
financial position, results of operations or cash flows.




42




In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”.  We are required to adopt FSP 142-3 on January 1, 2009 and
early adoption is prohibited.  The guidance in FSP 142-3 for
determining the useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after adoption, and the disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, adoption.  Management has not determined the
effect that adopting this statement would have on the Company's consolidated
financial position, results of operations or cash flows.




In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162").  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy).  SFAS No. 162 will become effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles."  We do not expect the adoption of
SFAS No. 162 will have a material effect on our consolidated financial position,
results of operations or cash flows.




In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1").  FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate.  FSP
APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a
retroactive basis.  Management has not determined the effect that
adopting this statement would have on the Company's consolidated financial
position, results of operations or cash flows.




In June
2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5),
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock”.  EITF 07-5 requires entities to evaluate whether
an equity-linked financial instrument (or embedded feature)
is indexed to its own stock by assessing the instrument’s contingent exercise
provisions and settlement provisions. Instruments not indexed to their own stock
fail to meet the scope exception of Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and Hedging Activities”,
paragraph 11(a), and should be classified as a liability and marked-to-market.
The statement is effective for fiscal years beginning after December 15, 2008
and is to be applied to outstanding instruments upon adoption with the
cumulative effect of the change in accounting principle recognized as an
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the provisions of EITF 07-5.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future consolidated
financial statements.




Off
Balance Sheet Arrangements




None.




Contractual
Obligations





Not
applicable.




ITEM
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable




43




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




See the
Consolidated Financial Statements and Notes thereto commencing on Page
F-1.




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




We have
previously reported on Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure in our Current Report on Form 8-K dated
January 13,2009.
  
 44




ITEM
9A(T). CONTROLS AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed
under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and to ensure that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer as appropriate, to allow timely decisions regarding required
disclosure. During the quarter ended December 31, 2008 we carried out an
evaluation, under the supervision and with the participation of our management,
including the principal executive officer and the principal financial officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on
this evaluation, because of the Company’s limited resources and limited number
of employees, management concluded that, as of December 31, 2008, our internal
control over financial reporting is not effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of the financial statements of the
Company in accordance with U.S. generally accepted accounting principles, or
GAAP. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree or compliance with the policies or procedures may
deteriorate.
 
 With the
participation of our Chief Executive Officer and Chief Financial Officer
(principal financial officer), our management conducted an evaluation of
the effectiveness of our internal control over financial reporting as of
December 31, 2008 based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO"). Based on our evaluation and the material weaknesses
described below, management concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2008
based on the COSO framework criteria. Management has identified control
deficiencies regarding the lack of segregation of duties and the need for a
stronger internal control environment. Management of the Company believes that
these material weaknesses are due to the small size of the Company’s accounting
staff.  The small size of the Company’s accounting staff may prevent
adequate controls in the future, such as segregation of duties, due to the
cost/benefit of such remediation.
 To
mitigate the current limited resources and limited employees, we rely heavily on
direct management oversight of transactions, along with the use of legal and
accounting professionals. As we grow, we expect to increase our number of
employees, which will enable us to implement adequate segregation of duties
within the internal control framework.
 
 These
control deficiencies could result in a misstatement of account balances that
would result in a reasonable possibility that a material misstatement to our
consolidated financial statements may not be prevented or detected on a timely
basis. Accordingly, we have determined that these control deficiencies as
described above together constitute a material weakness.
 
 In light
of this material weakness, we performed additional analyses and procedures in
order to conclude that our consolidated financial statements for the year ended
December 31, 2008 included in this Annual Report on Form 10-K were fairly
stated in accordance with US GAAP. Accordingly, management believes that despite
our material weaknesses, our financial statements for the year ended December
31, 2008 are fairly stated, in all material respects, in accordance with US
GAAP.
  This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report on Form 10-K.
 
 Limitations
on Effectiveness of Controls and Procedures
  Our
management, including our Chief Executive Officer and Chief Financial Officer
(principal financial officer), does not expect that our disclosure controls
and procedures or our internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include, but are not limited to, the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
 Changes
in Internal Controls
 
 During
the fiscal quarter ended December 31, 2008, there have been no changes in our
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.





45




ITEM
9B.OTHER INFORMATION




Not
applicable.




PART
III




ITEM
10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE




Executive
Officers, Directors and Key Employees




Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal.  Officers serve for such terms as determined by our board of
directors.  Each officer holds office until such officer’s successor
is elected or appointed and qualified or until such officer’s earlier
resignation or removal.  No family relationships exist between any of
our present directors and officers.




The
following table sets forth certain information, as of December 31, 2008, with
respect to our directors and executive officers.




Name
              Positions
      Held
              Age
              Date
      of Election or Appointment as DirectorThomas
      Barr
              Chief
      Executive Officer and Director
              49
              December
      2006Robert
      Galvin
              Chief
      Financial Officer, Treasurer and Secretary
              40
              December
      2008John
      Nangle
              President,
      Chairman and Director
              54
              December
      2008David
      Miller
              Director
              49
              December
      2008




Certain
biographical information of our directors and officers is set forth
below.




Thomas Barr:  Mr.
Barr, age 49, has served as a director of the Company since December 2006. He
has served as Vice President of Alternative Fuels Operations of the Company
since April 2007.  From January 2005 to April 2007, Mr. Barr acted as
a consultant to small and medium sized private and public enterprises regarding
prospective funding, investor and public relations strategy, collateral
creation, website development and public market quotation, including Index Oil
and Gas, Inc. and Four Rivers BioEnergy Inc.  From December 2001 to
December 2004, Mr. Barr served as a consultant to EasyScreen PLC, a fully listed
London Stock Exchange company, at which Mr. Barr’s main duties were to draft and
implement corporate statements.  While serving as a consultant to
EasyScreen PLC, Mr. Barr was an integral part of the team involved in several
private placement funding rounds prior to the company’s
acquisition.  From January 1996 to November 2001 Mr. Barr was a
private analyst and investor in publicly quoted stocks. From 1981 to 1996, Mr.
Barr worked in the North Sea as a professional saturation diver involved in oil
and gas field sub-sea construction. Mr. Barr obtained a BSc from Stirling
University, Scotland, in 1981. Mr. Barr is a citizen of the United
Kingdom.




46




Robert Galvin: Mr. Galvin,
age 40, is a founding partner in the ARM Partnership, a corporate and financial
advisory firm that specializes in small cap, venture backed fast growth
businesses.  Prior to this, he was a Director within the Arthur
Andersen Corporate Finance Division, responsible for operations and supporting
the development of business units globally; previously, Mr. Galvin began his
career in the commercial banking division of Barclays Plc, advising and
arranging advances for small and medium sized companies in the UK
..  He sits on the Boards of a number of U.K. private
companies.  He has a first class honors degree BA (hons), and is an
Associate of the Chartered Institute of Bankers.  Mr. Galvin is a
citizen of the United Kingdom.




John Nangle:  Mr.
Nangle, age 54, is an energy consultant. In January 2006, he co-founded Green
Energy Partners Limited, a U.K. company engaged in the business of energy
consulting specializing in gas, power and renewable energy, and he has served as
a director of Green Energy Partners Limited since that time.  Since
January 2008, through Green Energy Partners Limited, he has primarily worked as
an advisor to Her Majesty’s Treasury, the United Kingdom’s economics and finance
ministry, regarding the procurement of energy by government.  From
December 2007 to date, Mr. Nangle, has served as director of Four Rivers
BioEnergy Inc.  From April 2004 to date, Mr. Nangle has served as a
director of The Green Renewable Energy Company, a company which he co-founded,
which is engaged in developing biomass fueled power generation
plants.  From December 1994 to date, Mr. Nangle has been a director of
Navan Consulting, a company providing consulting services primarily to energy
companies. From June 1996 to October 2002, Mr. Nangle was director of energy
trading at Amerada Hess Gas.  From March 1980 to September 1994, Mr.
Nangle held a variety of positions within the BP Group.  Mr. Nangle is
a citizen of the United Kingdom.




David S. Miller: Mr. Miller,
age 49, has been providing consultancy services to a venture capital provider
since January 2009. From January 2006 through December 2008 he was the Sales
Development Director for DX Group Ltd., which is a provider of specialized
business mail and delivery services. From September 1999 through September 2005,
Mr. Miller was the Sales and Marketing Director for MailSource UK Ltd. From 1978
through 1999, Mr. Miller was employed by Barclays Bank PLC, where his positions
included Head of Regional Sales, South East Region, and Regional Sales Manager,
Thames Valley Region. Mr. Miller is a citizen of
the United Kingdom.




Employment
Agreements




Pursuant
to a Letter Agreement dated August 8, 2007 (the “Letter Agreement”), we paid
Brian Barrows aggregate salary and fees during 2008 for services provided to us
in all capacities in the amount of $231,445.  Under the Letter
Agreement, Mr. Barrows was required to provide us with his services for 3.5 days
per week and was entitled to receive a base salary of approximately $12,500 per
month together with reimbursement of reasonable business expenses. Effective
July 1, 2008 the base monthly salary was retroactively  increased to
approximately $16,660 per month, to reflect an increase in time and service
requirements subsequent to the commencement of his engagement.  In May
2008, we paid Mr. Barrows approximately $60,000 in addition to his base monthly
salary in consideration of the increases in time and service requirements.  The
Letter Agreement also contained a confidentiality provision. The
Letter Agreement was terminated effective February 24, 2009.




47




Pursuant
to a March 28, 2007 Employment Agreement between Paul Gothard and our wholly
owned subsidiary, Flex Fuels Energy Limited (the “2007 Employment Agreement”),
and a September 12, 2008 Consulting Agreement between us and Mr. Gothard (the
“Consulting Agreement”), we paid Mr. Gothard aggregate salary, fees and stock
awards during 2008, for services provided in all capacities, in the
aggregate amount of $98,037 consisting of $73,662 in salary and $24,375 in stock
awards.  During 2008, Mr. Gothard served as our Chief Financial
Officer from January 17, 2008 until April 30, 2008 and from October 13, 2008
until December 12, 2008.  Pursuant to the 2007 Employment Agreement,
Mr. Gothard received a monthly base salary of approximately $15,000 for the
period January 1, 2008 through April 30, 2008 and received 65,000 shares of our
common stock in May 2008 valued at $58,500 in total (the Company charged $34,125
and $24,375 to its operations for the years ended December 31, 2007 and 2008
respectively).  The 2007 Employment Agreement was terminated effective
April 30, 2008.  Pursuant to the Consulting Agreement, we paid Mr.
Gothard a base monthly fee of approximately $5,000 for the period from October
1, 2008 until December 31, 2008. The Consulting Agreement was terminated
effective December 31, 2008 as per the terms of the contract.  The
2007 Employment Agreement provided for a base annual salary of $180,000, the
payment of 65,000 shares of our common stock, and expense
reimbursement.  It also contained confidentiality and non-compete
provisions.  The Consulting Agreement required Mr. Gothard to provide
us with his services for up to 5 days per month.  Additional days were
to be paid at the rate of approximately $1,000 per day.




Pursuant
to a January 1, 2007 Employment Agreement between us and Thomas Barr (the
“Employment Agreement”) and a December 12, 2008 Supply of Services Agreement
between us and Mr. Barr (the “Services Agreement”), we paid Mr. Barr an
aggregate of $232,815 in salary and fees during 2008 for services provided in
all capacities.  This included a one-time payment of $110,000 in
December 2008 for additional services provided by Mr. Barr during 2008 in
connection with our proxy fight and management dispute.  The
Employment Agreement was terminated effective December 12, 2008 (the
“Termination Date”). The Services Agreement is presently in
effect.  Pursuant to the Employment Agreement, we were required to pay
Mr. Barr a base monthly salary of $10,000, a one-time payment of 68,736 shares
of our common stock, and expense reimbursement in consideration of his providing
us with services during normal business hours.  The Employment
Agreement contained non-compete, non-solicitation and confidentiality
provisions.  The non-complete provision prohibits Mr. Barr for a
period of two years from the Termination Date, without our prior written
consent, from engaging in any business activities or having an interest in or
with any competing business in the United Stated, England, Italy and any other
foreign jurisdiction in which we have offices or own or manage seed processing
facilities, refineries producing bio diesel products, or engage in the business
of selling, supplying and distributing bio diesel products.




Under the
Services Agreement, Mr. Barr devotes his business time to the performance of the
services reasonably required by his positions.  The Agreement will
expire on May 1, 2009 but is subject to automatic extensions for additional one
month periods unless either party gives written notice of termination to the
other at least 3 months prior to the proposed expiration date.  We pay
Mr. Barr a base monthly fee under the Services Agreement of  £7,916
(approximately $11,500) and reimburse Mr. Barr for his reasonable business
expenses incurred in the performance of his duties.  The Agreement
also provides for the potential payment of additional compensation to Mr. Barr
in the form of warrants and incentive fees as determined by
us.  Notwithstanding the termination provisions above, we may
terminate the Agreement for “Cause” effective upon the giving of written
notice.  If we terminate the Agreement without “Cause” we must pay Mr.
Barr, in addition to all fees due him at the termination date, the base monthly
fees due to him through the expiration date in effect immediately prior to such
termination.  The Agreement contains standard confidentiality
provisions.  The Agreement also contains a non-compete provision which
prohibits Mr. Barr, without our written consent, during the term of the
Agreement and for a period of one year thereafter, from owning a material
interest in, managing, operating, joining, controlling, lending money or
rendering financial or other assistance to or participating in or being
connected with, as an employee, contractor, stockholder, consultant or
otherwise, any person or entity that competes with us in owning, operating or
managing an oilseed crush or biodiesel plant located in England or Wales, or any
other business actively being pursued by us or developed by us during the term
of the Agreement.




48




Effective
December 12, 2008 we entered into a Consulting Agreement (the “Consulting
Agreement”) with The ARM Partnership (the “Consultant”),
a  partnership in which Robert Galvin, our Chief Financial Officer,
Treasurer and Secretary is a partner.  Thereunder, we receive the
services of Mr. Galvin for not more than 3 days per month.  Mr.
Galvin’s responsibilities under the Consulting Agreement include oversight of
our finance and internal control functions, review of our SEC filings and
advising us on SEC regulatory matters.  The Consulting Agreement may
be terminated by us or the Consultant for cause or upon an event of default upon
15 days prior written notice or by either party without cause upon 3 months
prior written notice.  Under the Consulting Agreement, we pay the
Consultant $5,000 per month for services and reimburse the Consultant’s related
business expenses.  In the event we require the services of Consultant
for more than 3 days per month, we pay Consultant for the additional days at the
rate of $1,200 per day.  The Agreement also contains confidentiality
provisions.  Effective May 1, 2008 through October 10, 2008, we had a
similar consulting agreement with the Consultant.




John Nangle
presently serves as our President on a part-time basis. We do not presently have
an employement agreement with Mr. Nangle in connection with his serving as such.
Effective December 12, 2008 however, we entered into a Supply of Services
Agreement (the "Services Agreement") with Mr. Nangle under which Mr. Nangle
serves as our Chairman and provides us with his services, in all capacities, for
up to 3 days per month. We pay Mr. Nangle a base monthly fee under the Services
Agreement, which includes payment for attending board meetings, of $3,475. In
the event that the performance of his duties under the Services Agreement
requires Mr. Nangle to devote more than 3 days per month to such performance,
our board of directors may, in its sole discretion, pay Mr. Nangle additional
fees at the rate of approximately $1,200 per
day. The Services Agreement renews automatically for 1 month periods unless
either party gives written notice to the other at least 1 month prior to the
proposed expiration date. The Services Agreement provides for expense
reimbursement and the potential payment of additional compensation in the form
of warrant and incentive fees as determined by us. Notwithstanding the
termination provisions above, we may terminate the Services Agreement for
"Cause" effective upon the giving of written notice. If we terminate the
Services Agreement without "Cause" we must pay Mr. Nangle, in addition to all
fees due to him on the termination date, the base monthly fees due to him
through the expiration date in effect immediately prior to such termination. The
Agreement contains standard confidentiality provisions. The Agreement also
contains a non-compete provision which prohibits Mr. Nangle, without our written
consent, during the term of the Agreement and for a period of one year
thereafter, from owning a material interest in, managing, operating, joining,
controlling, lending money or rendering financial or other assistance to or
participating in or being connected with, as an employee, contractor,
stockholder, consultant or otherwise, any person or entity that competes with us
in owning, operating or managing an oilseed crush or biodiesel plant located in
England or Wales, or any other business actively being pursued by us or
developed by us during the term of the Services Agreement.


Term
of Office




Our
directors are appointed for a period of one year or until such time as their
replacements have been elected by our shareholders.  The officers of
the Company are appointed by our board of directors and hold office until their
resignation or removal.




Board
Committees




We do not
have a standing audit committee, an audit committee financial expert, or any
committee or person performing a similar function. We do not have any board
committees including a nominating, compensation, or executive
committee.  We currently have no operating
revenues.  Presently, we have only one independent
director.  Management does not believe that it would be in our best
interests at this time to retain additional independent directors to sit on an
audit committee or any other committee. If we are able to grow our business and
increase our operations in the future, then we will likely seek out and retain
additional independent directors and form audit, compensation, and other
applicable committees.  Further, we do not have a policy with regard
to the consideration of any director candidates recommended by security holders.
Our three directors perform all functions that would otherwise be performed by
committees.




Board
of Directors and Board Compensation




David
Miller is our only independent director.  Our other directors, Tom
Barr and John Nangle, also serve as executive officers. We pay our directors a
set monthly fee for attending board meetings of $3,475.  Mr. Barr also
receives compensation in his executive officer capacity and Messrs. Nangle and
Miller receive compensation for any services provided by them outside the scope
of their directorships.




Compliance
with Section 16(a) of the Exchange Act




Section
16(a) of the Exchange Act requires our directors, officers and persons who own
more than 10% of a registered class of our equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Directors, officers and greater than 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received during
the fiscal year ended December 31, 2008, we believe that each person who at any
time during the fiscal year was a director, officer or beneficial owner of more
than 10% of our Common Stock complied with all Section 16(a) filing requirements
during such fiscal year, except as follows:




·
            Brian
      Barrows failed to file a Form 4 in connection with his termination as an
      officer and director.




·
            Paul
      Gothard filed Forms 3 and 4 on a late
basis.




49




·
            John
      Nangle filed a Form 3 on a late
basis.




·
            David
      Miller filed a Form 3 on a late
basis.




·
            Robert
      Galvin filed a Form 3 on a late
basis




·
            James
      Laird filed a Form 4 on a late
basis.




Code
of Ethics




On
December 13, 2007 we adopted a Code of Ethics that applies to our executive
officers.  A copy of our Code of Ethics will be provided to any person
requesting same without charge.  To request a copy of our Code of
Ethics, please make written request to our President c/o Flex Fuels Energy, Inc.
at Oceana House, 39-49 Commercial Road, Southampton SO15 1GA, United
Kingdom.




ITEM
11. EXECUTIVE COMPENSATION




The
following table sets forth information concerning the total compensation paid or
accrued by us during the three fiscal years ended December 31, 2008, 2007 and
2006 to (i) all individuals that served as our principal executive officer or
acted in a similar capacity for us at any time during the fiscal year ended
December 31, 2008; (ii) all individuals that served as our principal financial
officer or acted in a similar capacity for us at any time during the fiscal year
ended December 31, 2008; and (iii) all individuals that served as executive
officers of ours at any time during the fiscal year ended December 31, 2008 that
received annual compensation during the fiscal year ended December 31, 2008 in
excess of $100,000.




Summary
Compensation Table




Name
      and Principal Position
                
                Year
                
                Salary
                  ($)
                
                Bonus
      ($)
                
                Stock
      Awards ($)
                
                Option
      Awards ($)
                
                Non-
                  Equity
      Incentive
                  Plan
      Compen-sation ($)
                
                Change
      in Pension Value
                  and
                  Non-
                  qualified
                  Deferred
                  Compen-sation
                  Earnings
      ($)
                
                All
                  Other
                  Compen-sation
      ($)
                
                Total
      ($)(a)
                
                (b)
                
                (c)
                
                (d)
                
                (e)
                
                (f)
                
                (g)
                
                (h)
                
                (i)
                
                (j)Thomas
      Barr – Chief Executive Officer
                
                2008
                  2007
                  2006
                
                232,815
                  106,148
                  0
                
                0
                  0
                  0
                
                0
                  609,798
                  48,000
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                232,815
                  715,946
                  48,000Brian
      Barrows – Former Chief Executive Officer
                
                2008
                  2007
                  2006
                
                231,445
                  75,218
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                231,445
                  75,218
                  0Robert
      Galvin – Chief Financial Officer
                
                2008
                  2007
                  2006
                
                32,112
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                32,112
                  0
                  0Paul
      Gothard –
                  Former
      Chief Financial Officer
                
                2008
                  2007
                  2006
                
                73,662
                  149,089
                  0
                
                0
                  0
                  0
                
                24,375
                  34,125
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                0
                  0
                  0
                
                98,037
                  183,214
                  0




Except
for our March 28, 2007 Employment Agreement with Paul Gothard pursuant to which
we issued 65,000 shares of our common stock to Mr. Gothard in May 2008, we have
not issued any stock options or maintained any stock option or other equity
incentive plans since our inception. We have no plans in place and have never
maintained any plans that provide for the payment of retirement benefits or
benefits that will be paid primarily following retirement including, but not
limited to, tax qualified deferred benefit plans, supplemental executive
retirement plans, tax-qualified deferred contribution plans and nonqualified
deferred contribution plans. Similarly, we have no contracts, agreements, plans
or arrangements, whether written or unwritten, that provide for payments to the
named executive officers or any other persons following, or in connection with
the resignation, retirement or other termination of a named executive officer,
or a change in control of us or a change in a named executive officer’s
responsibilities following a change in control.




50




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




The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of December 31, 2008 by:




·
            each
      person or entity known by us to be the beneficial owner of more than 5% of
      our common stock;




·
            each
      of our directors;




·
            each
      of our executive officers; and




·
            all
      of our directors and executive officers as a
  group.




The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options, warrants,  rights or
conversion privileges owned by such person at said date which are exercisable
within 60 days of December 31, 2008.  Each person’s address is c/o
Flex Fuels Energy, Inc., Oceana House, 39-49 Commercial Road, Southampton SO15
1GA, UK.  Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of our common stock
owned by them, except to the extent such power may be shared with a
spouse.




Name
      and Address of Beneficial Owner
              
              Title
      of Class
              
              Amount
      and Nature
                of
      Beneficial
                Ownership(1)
              
              Percentage
      of
                Class(2)Iestyn
      Morgan
              
              Common
      Stock, $0.001 par value
              
              6,606,887
              
              9.5%Gillian
      Penton
              
              Common
      Stock, $0.001 par value
              
              7,865,341
              
              11.3%JTC
      Trustees (3)
              
              Common
      Stock, $0.001 par value
              
              7,865,341
              
              11.3%Thomas
      Barr
              
              Common
      Stock, $0.001 par value
              
              749,382
              
              1.1%Robert
      Galvin
              
              Common
      Stock, $0.001 par value
              
              0
              
              0%John
      Nangle
              
              Common
      Stock, $0.001 par value
              
              0
              
              0%David
      Miller
              
              Common
      Stock, $0.001 par value
              
              0
              
              0%All
      officers and directors as a group (4 persons)
              
              Common
      Stock, $0.001 par value
              
              749,382
              
              1.1%




(1)
            As
      used herein, the term beneficial ownership with respect to a security is
      defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
      consisting of sole or shared voting power (including the power to vote or
      direct the vote) and/or sole or shared investment power (including the
      power to dispose or direct the disposition of) with respect to the
      security through any contract, arrangement, understanding, relationship or
      otherwise, including a right to acquire such power(s) during the next 60
      days.  Unless otherwise noted, beneficial ownership consists of
      sole ownership, voting and investment
rights.




(2)
            There
      were 69,380,441 shares of common stock issued and outstanding on December
      31, 2008.




(3)
            Gordon
      Ewart has voting and investment power over the shares owned by JTC
      Trustees.




51




Securities
Authorized for Issuance Under Equity Compensation Plans




We have
not adopted any Equity Compensation Plans since our inception other than our
March 28, 2007 Employment Agreement with Paul Gothard under which we issued
65,000 shares of our common stock to Mr. Gothard in May 2008.




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




During
2008, we paid Laird Exploration Ltd., a company in which James Laird is the
president and a director, $31,045 in connection with our mining
operations.  Of this $30,000 related to direct costs for Jim Laird and
$1,045 related to exploration costs.  On March 27, 2006, the Company
acquired the mineral license from Mr. Jim Laird, a former director and
stockholder, for $10,000.  As a non-Canadian individual or company
cannot directly hold a mineral license in British Columbia therefore it was
initially held on behalf of the Company by Jim Laird (a former director). It was
subsequently transferred to Esther Briner (a licensed prospecting agent and
stockholder) in June 2006 who then transferred it to Coalharbour Consulting, Inc
(“Coalharbour”), a licensed prospecting agent owned and controlled by Esther
Briner (a stockholder) in July 2007. In December 2007, the license was
transferred back to Jim Laird who holds the license on behalf of the
Company.





During
2008, we paid an aggregate of $231,445 to Brian Barrows for services provided to
us by Mr. Barrows in all capacities including approximately $60,000 in May 2008
for services rendered by Mr. Barrows beyond his contractual time
commitment.  We may have overestimated Mr. Barrows entitlements for
the additional work time and if it is determined that we overpaid Mr. Barrows,
we intend to seek appropriate reimbursement from Mr. Barrows (See Item 10.
Directors, Executive Officers, and Corporate Governance – Employment
Agreements).




During
2008, we paid an aggregate of $232,815 to Thomas Barr for services provided to
us by Mr. Barr in all capacities including a one-time payment of approximately
$110,000 in December 2008 for services rendered by Mr. Barr in connection with
our proxy fight and management dispute (See Item 1. Business – Management
Dispute) (See Item 10. Directors, Executive Officers, and Corporate Governance –
Employment Agreements).




During
2008, we paid an aggregate of $98,037 to Paul Gothard for services provided to
us by Mr. Gothard in all capacities (See Item 10. Directors, Executive Officers,
and Corporate Governance – Employment Agreements).




Director
Independence




None of
our three present directors other than David Miller are “independent” as that
term is defined by the National Association of Securities Dealers Automated
Quotations (“NASDAQ”) as our two other directors also serve as executive
officers.




52




ITEM
14.PRINCIPAL ACCOUNTANT FEES AND SERVICES




Audit
Fees.




RBSM LLP
provided audit services to Flex Fuels in connection with its annual report for
each of the two years in the period ended December 31, 2008 and the period from
March 10, 2006 (date of inception) through December 31, 2008.  The
aggregate fees billed by RBSM LLP for the audits, audit related, tax fees and
all other fees during the year ended December 31, 2008 was $0




The
aggregate fees billed to us by our former principal accountant BDO Stoy Hayward
LLP for services rendered during the fiscal years ended December 31, 2008 and
2007 are set forth in the table below:




Fee
      Category
                    
                    Fiscal
      year ended
                      December
      31, 2008
                    
                    
                    Fiscal
      year ended
                      December
      31, 2007Audit
      fees (1)
                    
                    $
                    202,000
                    
                    
                    $
                    123,000Audit-related
      fees (2)
                    
                    
                    31,000
                    
                    
                    
                    10,000Tax
      fees (3)
                    
                    
                    0
                    
                    
                    
                    0All
      other fees (4)
                    
                    
                    25,000
                    
                    
                    
                    0Total
      fees
                    
                    $
                    258.000
                    
                    
                    $
                    133,000




(1) Audit
fees consist of fees incurred for professional services rendered for the audit
of consolidated financial statements, for reviews of our interim consolidated
financial statements included in our quarterly reports on Form 10-Q and for
services that are normally provided in connection with statutory or regulatory
filings or engagements.




(2)
Audit-related fees consist of fees billed for professional services that are
reasonably related to the performance of the audit or review of our consolidated
financial statements, but are not reported under “Audit fees.”




(3) Tax
fees consist of fees billed for professional services relating to tax
compliance, tax planning, and tax advice.




(4) All
other fees consist of fees billed for all other services.




Audit Committee’s
Pre-Approval Practice.




Prior to
our engagement of our independent auditor, such engagement was approved by our
board of directors. The services provided under this engagement may include
audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. Pursuant our requirements, the independent
auditors and management are required to report to our board of directors at
least quarterly regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services
performed to date. Our board of directors may also pre-approve particular
services on a case-by-case basis. All audit-related fees, tax fees and other
fees incurred by us for the year ended December 31, 2008, were approved by our
board of directors.




53




PART
IV




ITEM
15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




Exhibits




In
reviewing the agreements included as exhibits to this Form 10-K, please remember
that they are included to provide you with information regarding their terms and
are not intended to provide any other factual or disclosure information about
the Company or the other parties to the agreements. The agreements may contain
representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:




•
            should
      not in all instances be treated as categorical statements of fact, but
      rather as a way of allocating the risk to one of the parties if those
      statements prove to be inaccurate;




•
            have
      been qualified by disclosures that were made to the other party in
      connection with the negotiation of the applicable agreement, which
      disclosures are not necessarily reflected in the
  agreement;




•
            may
      apply standards of materiality in a way that is different from what may be
      viewed as material to you or other investors;
  and




•
            were
      made only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments.




Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-K and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.




The
following exhibits are included as part of this report:




Exhibit
      No.
                  
                  SEC
      Report
                    Reference
      No.
                  
                  Description3.1
                  
                  3.1
                  
                  Articles
      of Incorporation of the Company dated March 10, 2006 (1)3.2
                  
                  3.2
                  
                  By-laws
      of the Company (1)10.1
                  
                  10.1
                  
                  Asset
      Purchase Agreement dated March 27, 2006, entered into by and between James
      Laird and the Company (1)10.2
                  
                  10.1
                  
                  Acquisition
      Agreement dated December 29, 2006 entered into by and among the Company,
      Flex Fuels Energy Limited, the stockholders of Flex Fuels Energy Limited
      and the individuals signatory thereto (2)10.3
                  
                  10.2
                  
                  Form
      of a Voting Trust Agreement entered into in connection with the
      Acquisition Agreement (2)10.4
                  
                  10.3
                  
                  Form
      of Lock-up Agreement entered into in connection with the Acquisition
      Agreement (2)10.5
                  
                  10.4
                  
                  Subscription
      Agreement dated December 29, 2006 entered into by and among the Company
      and the subscribers’ signatories thereto (2)10.6
                  
                  10.6
                  
                  Employment
      Agreement dated April 12, 2007 entered into by and between the Company and
      James Laird (3)10.7
                  
                  10.7
                  
                  Employment
      Agreement dated January 1, 2007 entered into by and between the Company
      and Thomas Barr (3)10.8
                  
                  *
                  
                  Supply
      of Services Agreement dated December 12, 2008 between the Company and
      Thomas Barr14.1
                  
                  *
                  
                  Code
      of Ethics21
                  
                  *
                  
                  List
      of Subsidiaries31.1
                  
                  *
                  
                  Rule
      13(a)-14(a)/15(d)-14(a) Certification of Principal Executive
      Officer31.2
                  
                  *
                  
                  Rule
      13(a)-14(a)/15(d)-14(a) Certification of Principal Financial
      Officer32.1
                  
                  *
                  
                  Rule
      1350 Certification of Chief Executive Officer32.2
                  
                  *
                  
                  Rule
      1350 Certification of Chief Financial
Officer







(1)
            Filed
      with the Securities and Exchange Commission on August 4, 2006 as an
      exhibit, numbered as indicated above, to the Registrant’s registration
      statement on the Registrant’s Registration Statement on Form SB-1 (file
      no. 333-136349), which exhibit is incorporated herein by
      reference.




(2)
            Filed
      with the Securities and Exchange Commission on January 5, 2007, as an
      exhibit, numbered as indicated above, to the Registrant’s Current Report
      on Form 8-K, which exhibit is incorporated herein by
      reference.




(3)
            Filed
      with the Securities and Exchange Commission on April 17, 2007 as an
      exhibit, numbered as indicated above, to the Registrant’s Annual Report on
      Form 10-KSB for the year ended December 31, 2006, which exhibit is
      incorporated herein by reference.




* Filed
herewith.




54







SIGNATURES









Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




FLEX FUELS ENERGY,
      INC.Dated:  April
      15, 2009
              By:
              /s/ Thomas
      BarrThomas
      BarrChief
      Executive Officer and Director




Dated:  April
      15, 2009
              By:
              /s/ Robert
      GalvinRobert
      GalvinChief
      Financial and Accounting Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 15 day of April,
2009.






/s/
      Thomas Barr
            
            April
      15, 2009Thomas
      Barr, Chief Executive Officer and Director/s/
      Robert Galvin
            
            April
      15, 2009Robert
      Galvin, Chief Financial and Accounting Officer/s/
      John Nangle
            
            April
      15, 2009John
      Nangle, President and Director/s/
      David Miller
            
            April
      15, 2009David
      Miller, Director







55







FINANCIAL
STATEMENTS





INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
              F-3Consolidated
      Statements of Operations  for the Years Ended December 31, 2008
      and 2007
                and
      for the period from March 10, 2006 (date of inception) through December
      31, 2008
              F-4Consolidated
      Statements of Stockholders’ Equity for the period from March 10,
      2006
                (date
      of inception) through December 31, 2008
              F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                and
      the for the period from March 10, 2006 (date of inception) through
      December 31, 2008
              F-6Notes
      to Consolidated Financial Statements
              F-7
      to F-24




F-1








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  Board of
Directors
 Flex
Fuels Energy, Inc.
 Las
Vegas, Nevada
 
 
 We have
audited the accompanying consolidated balance sheets of Flex Fuels Energy Inc.
and its wholly owned subsidiaries (the “Company”), a development stage company
as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of the two years in the
period ended December 31, 2008 and the period from March 10, 2006 (date of
inception) through December 31, 2008. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
  We have
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Flex Fuels
Energy, Inc. and its wholly owned subsidiaries as of December 31, 2008 and
2007, and the consolidated results of its operations and its cash flows for each
of the two years in the period ended December 31, 2008 and the period from March
10, 2006 (date of inception) through December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
accompanying consolidated financial statements, the Company is a development
stage company and has not commenced its planned principal operations, has
suffered recurring losses since inception and is experiencing difficulty in
generating sufficient cash flow to sustain its operations, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
  /s/ RBSM
      LLPRBSM
      LLPCertified
      Public Accountants
 New York,
New York
 April 15,
2009


F-2
   FLEX
FUELS ENERGY, INC. AND SUBSIDIARIES


(A
Development Stage Company)
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER 31, 2008 AND 2007


2008
                                                                
                                                                
                                                                2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                                                
                                                                $
                                                                8,702,680
                                                                
                                                                
                                                                $
                                                                16,156,382Prepaid
      expenses
                                                                
                                                                
                                                                49,138
                                                                
                                                                
                                                                
                                                                63,688Value
      added tax and other receivables
                                                                
                                                                
                                                                36,236
                                                                
                                                                
                                                                
                                                                91,636Total
      Current Assets
                                                                
                                                                
                                                                8,788,054
                                                                
                                                                
                                                                
                                                                16,311,706Property
      and equipment, at cost, net of accumulateddepreciation
      of $26,840 and $13,133, respectively
                                                                
                                                                
                                                                418,826
                                                                
                                                                
                                                                
                                                                775,568Intangible
      assets
                                                                
                                                                
                                                                7,240
                                                                
                                                                
                                                                
                                                                -Security
      deposits
                                                                
                                                                
                                                                5,212
                                                                
                                                                
                                                                
                                                                8,600Total
      Assets
                                                                
                                                                $
                                                                9,219,332
                                                                
                                                                
                                                                $
                                                                17,095,874LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                                                                
                                                                $
                                                                386,849
                                                                
                                                                
                                                                $
                                                                67,091Accrued
      expenses
                                                                
                                                                
                                                                273,327
                                                                
                                                                
                                                                
                                                                174,110Taxation
      and social security
                                                                
                                                                
                                                                39,236
                                                                
                                                                
                                                                
                                                                65,204Total
      Current Liabilities
                                                                
                                                                
                                                                699,412
                                                                
                                                                
                                                                
                                                                306,405Total
      Liabilities
                                                                
                                                                
                                                                699,412
                                                                
                                                                
                                                                
                                                                306,405Commitments
      and contingenciesMinority
      interest
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Stockholders'
      Equity:Common
      stock, $0.001 par value, 500,000,000 shares authorized,69,380,441
      and 69,315,441 shares issued and outstanding at December 31, 2008 and
      2007, respectively
                                                                
                                                                
                                                                69,380
                                                                
                                                                
                                                                
                                                                69,315Additional
      Paid-in Capital
                                                                
                                                                
                                                                41,993,085
                                                                
                                                                
                                                                
                                                                41,968,775Accumulated
      other comprehensive loss - foreign currency translation
      adjustment
                                                                
                                                                
                                                                (4,086,527
                                                                )
                                                                
                                                                
                                                                43,960Deficit
      accumulated during development stage
                                                                
                                                                
                                                                (29,456,018
                                                                )
                                                                
                                                                
                                                                (25,292,581
                                                                )Total
      Stockholders' Equity
                                                                
                                                                
                                                                8,519,920
                                                                
                                                                
                                                                
                                                                16,789,469Total
      Stockholders' Equity and Liabilities
                                                                
                                                                $
                                                                9,219,332
                                                                
                                                                
                                                                $
                                                                17,095,874




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




F-3




FLEX
FUELS ENERGY, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS




For
      the Periodfrom
      March 10, 2006For
      the Years
                                                    
                                                    
                                                    (date
      of inception) throughEnded
      December 31,
                                                    
                                                    
                                                    December
      31,2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2008Revenue
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -Operating
      expenses:Mining
      exploration costs
                                                    
                                                    
                                                    1,045
                                                    
                                                    
                                                    
                                                    7,678
                                                    
                                                    
                                                    
                                                    8,723Selling,
      general and administrative charges
                                                    
                                                    
                                                    4,244,779
                                                    
                                                    
                                                    
                                                    3,212,514
                                                    
                                                    
                                                    
                                                    7,525,319Impairment
      loss of long-lived assets
                                                    
                                                    
                                                    458,730
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    458,730Impairment
      loss - mineral claims
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    10,000Transaction
      costs in connection with asset acquisition
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    21,594,587
                                                    
                                                    
                                                    
                                                    22,897,759Total
      operating expense:
                                                    
                                                    
                                                    4,704,554
                                                    
                                                    
                                                    
                                                    24,814,779
                                                    
                                                    
                                                    
                                                    30,900,531Operating
      loss
                                                    
                                                    
                                                    (4,704,554
                                                    )
                                                    
                                                    
                                                    (24,814,779
                                                    )
                                                    
                                                    
                                                    (30,900,531
                                                    )Other
      income (expense):Interest
      and other income
                                                    
                                                    
                                                    541,117
                                                    
                                                    
                                                    
                                                    449,147
                                                    
                                                    
                                                    
                                                    990,264Loss
      before provision for income taxes and minority interest
                                                    
                                                    
                                                    (4,163,437
                                                    )
                                                    
                                                    
                                                    (24,365,632
                                                    )
                                                    
                                                    
                                                    (29,910,267
                                                    )Provision
      for income tax
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Loss
      before minority interest
                                                    
                                                    
                                                    (4,163,437
                                                    )
                                                    
                                                    
                                                    (24,365,632
                                                    )
                                                    
                                                    
                                                    (29,910,267
                                                    )Minority
      interest
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    454,249
                                                    
                                                    
                                                    
                                                    454,249Net
      loss
                                                    
                                                    $
                                                    (4,163,437
                                                    )
                                                    
                                                    $
                                                    (23,911,383
                                                    )
                                                    
                                                    $
                                                    (29,456,018
                                                    )Net
      loss per common share - basic and fully diluted
                                                    
                                                    $
                                                    (0.06
                                                    )
                                                    
                                                    $
                                                    (0.35
                                                    )
                                                    
                                                    $
                                                    (0.44
                                                    )Weighted
      average number of commonshares
      outstanding - basic and fully diluted
                                                    
                                                    
                                                    69,356,934
                                                    
                                                    
                                                    
                                                    68,052,784
                                                    
                                                    
                                                    
                                                    66,237,412Comprehensive
      Loss:Net
      Loss
                                                    
                                                    $
                                                    (4,163,437
                                                    )
                                                    
                                                    $
                                                    (23,911,383
                                                    )
                                                    
                                                    $
                                                    (29,456,018
                                                    )Foreign
      currency translation adjustment
                                                    
                                                    
                                                    (4,130,487
                                                    )
                                                    
                                                    
                                                    43,960
                                                    
                                                    
                                                    
                                                    (4,086,527
                                                    )Comprehensive
      Loss
                                                    
                                                    $
                                                    (8,293,924
                                                    )
                                                    
                                                    $
                                                    (23,867,423
                                                    )
                                                    
                                                    $
                                                    (33,542,545
                                                    )




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




F-4






FLEX
FUELS ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR
THE PERIOD FROM MARCH 10, 2006 (DATE OF INCEPTION) THROUGH DECEMBER
31,2008
 Additional
                                                                                  
                                                                                  
                                                                                  DeficitAccumulatedDuring
      Development
                                                                                  
                                                                                  
                                                                                  AccumulatedOtherComprehensive
                                                                                  
                                                                                  
                                                                                  Stockholders'Shares
                                                                                  
                                                                                  
                                                                                  Amount
                                                                                  
                                                                                  
                                                                                  Paid-in
      Capital
                                                                                  
                                                                                  
                                                                                  Stage
                                                                                  
                                                                                  
                                                                                  Income/(Loss)
                                                                                  
                                                                                  
                                                                                  EquityShares
      issued to founders at $0.001 per share, March 10, 2006
                                                                                  
                                                                                  
                                                                                  60,000,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  60,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (50,000
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  10,000Fair
      value of shares issued in lieu of payment for service on December 18,
      2006
                                                                                  
                                                                                  
                                                                                  412,038
                                                                                  
                                                                                  
                                                                                  
                                                                                  412
                                                                                  
                                                                                  
                                                                                  
                                                                                  47,659
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  48,071Shares
      issued at $0.1167 per share in private placement on December 29,
      2006
                                                                                  
                                                                                  
                                                                                  14,142,846
                                                                                  
                                                                                  
                                                                                  
                                                                                  14,143
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,620,857
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,635,000Net
      Loss
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,381,198
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,381,198
                                                                                  )Balance
      at December 31, 2006
                                                                                  
                                                                                  
                                                                                  74,554,884
                                                                                  
                                                                                  
                                                                                  
                                                                                  74,555
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,618,516
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,381,198
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  311,873Shares
      of common stock retired on May 11, 2007
                                                                                  
                                                                                  
                                                                                  (51,685,723
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (51,686
                                                                                  )
                                                                                  
                                                                                  
                                                                                  51,686
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Fair
      value of compensatory element of insider
                                                                                    stock
      not retired in May
      2007
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  307,978
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  307,978Fair
      value of shares issued in Lieu of payment for services at $0.90 per
      share on May 22, 2007
                                                                                  
                                                                                  
                                                                                  137,344
                                                                                  
                                                                                  
                                                                                  
                                                                                  137
                                                                                  
                                                                                  
                                                                                  
                                                                                  123,382
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  123,519Fair
      value of shares acquired at below market value on May 25,
    2007
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  178,300
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  178,300Shares
      of common stock issued at $0.90 per share in private placement on May 29,
      2007
                                                                                  
                                                                                  
                                                                                  16,582,621
                                                                                  
                                                                                  
                                                                                  
                                                                                  16,583
                                                                                  
                                                                                  
                                                                                  
                                                                                  13,375,296
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  13,391,879Fair
      value of shares issued on acquisition of Flex Fuels Energy Ltd on May 29,
      2007
                                                                                  
                                                                                  
                                                                                  24,854,477
                                                                                  
                                                                                  
                                                                                  
                                                                                  24,854
                                                                                  
                                                                                  
                                                                                  
                                                                                  22,344,175
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  22,369,029Shares
      of common stock issued at $0.90 per share in private placement on July
      29, 2007
                                                                                  
                                                                                  
                                                                                  4,871,838
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,872
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,935,317
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  3,940,189Reserve
      held for shares to be issued for compensation on December 31,
      2007
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  34,125
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  34,125Comprehensive
      income
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  43,960
                                                                                  
                                                                                  
                                                                                  
                                                                                  43,960Net
      Loss
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (23,911,383
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (23,911,383
                                                                                  )Balance
      at December 31, 2007
                                                                                  
                                                                                  
                                                                                  69,315,441
                                                                                  
                                                                                  
                                                                                  
                                                                                  69,315
                                                                                  
                                                                                  
                                                                                  
                                                                                  41,968,775
                                                                                  
                                                                                  
                                                                                  
                                                                                  (25,292,581
                                                                                  )
                                                                                  
                                                                                  
                                                                                  43,960
                                                                                  
                                                                                  
                                                                                  
                                                                                  16,789,469Common
      stock issued for compensation in
                                                                                    May
      13, 2008
                                                                                  
                                                                                  
                                                                                  65,000
                                                                                  
                                                                                  
                                                                                  
                                                                                  65
                                                                                  
                                                                                  
                                                                                  
                                                                                  24,310
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  24,375Comprehensive
      loss
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (4,130,487
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (4,130,487
                                                                                  )Net
      loss
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (4,163,437
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (4,163,437
                                                                                  )Balance
      at December 31, 2008
                                                                                  
                                                                                  $
                                                                                  69,380,441
                                                                                  
                                                                                  
                                                                                  $
                                                                                  69,380
                                                                                  
                                                                                  
                                                                                  $
                                                                                  41,993,085
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (29,456,018
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (4,086,527
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  8,519,920
   The
accompanying notes are an integral part of these consolidated financial
statements




F-5






FLEX
FUELS ENERGY, INC.
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
   For
      the Periodfrom
      March 10, 2006For
      the Years
                                                                      
                                                                      
                                                                      (date
      of inception) throughEnded
      December 31,
                                                                      
                                                                      
                                                                      December
      31,2008
                                                                      
                                                                      
                                                                      2007
                                                                      
                                                                      
                                                                      2008Cash
      flows from operating activities:Net
      loss
                                                                      
                                                                      $
                                                                      (4,163,437
                                                                      )
                                                                      
                                                                      $
                                                                      (23,911,383
                                                                      )
                                                                      
                                                                      $
                                                                      (29,456,018
                                                                      )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Impairment
      loss of long-lived assets
                                                                      
                                                                      
                                                                      458,730
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      458,730Impairment
      loss - mineral claims
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      10,000Shares
      of common stock issued or acquired in lieu of payment for
      services
                                                                      
                                                                      
                                                                      24,375
                                                                      
                                                                      
                                                                      
                                                                      643,923
                                                                      
                                                                      
                                                                      
                                                                      716,369Transaction
      costs in connection with asset acquisition
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      21,594,587
                                                                      
                                                                      
                                                                      
                                                                      22,897,759Depreciation
      expense
                                                                      
                                                                      
                                                                      22,214
                                                                      
                                                                      
                                                                      
                                                                      13,168
                                                                      
                                                                      
                                                                      
                                                                      35,382Minority
      Interest
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (454,249
                                                                      )
                                                                      
                                                                      
                                                                      (454,249
                                                                      )Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
                                                                      
                                                                      
                                                                      14,550
                                                                      
                                                                      
                                                                      
                                                                      (63,688
                                                                      )
                                                                      
                                                                      
                                                                      (49,138
                                                                      )Sales
      tax and interest receivable
                                                                      
                                                                      
                                                                      55,400
                                                                      
                                                                      
                                                                      
                                                                      (91,137
                                                                      )
                                                                      
                                                                      
                                                                      (35,737
                                                                      )Security
      deposits
                                                                      
                                                                      
                                                                      3,388
                                                                      
                                                                      
                                                                      
                                                                      (8,600
                                                                      )
                                                                      
                                                                      
                                                                      (5,212
                                                                      )Accounts
      payable
                                                                      
                                                                      
                                                                      319,758
                                                                      
                                                                      
                                                                      
                                                                      47,360
                                                                      
                                                                      
                                                                      
                                                                      380,573Accrued
      expenses
                                                                      
                                                                      
                                                                      99,217
                                                                      
                                                                      
                                                                      
                                                                      119,646
                                                                      
                                                                      
                                                                      
                                                                      222,863Tax
      and social security
                                                                      
                                                                      
                                                                      (25,968
                                                                      )
                                                                      
                                                                      
                                                                      65,204
                                                                      
                                                                      
                                                                      
                                                                      39,236Net
      cash used in operating activities
                                                                      
                                                                      
                                                                      (3,191,773
                                                                      )
                                                                      
                                                                      
                                                                      (2,045,169
                                                                      )
                                                                      
                                                                      
                                                                      (5,239,442
                                                                      )Cash
      flows from investing activities:Purchase
      of property and equipment
                                                                      
                                                                      
                                                                      (124,202
                                                                      )
                                                                      
                                                                      
                                                                      (786,977
                                                                      )
                                                                      
                                                                      
                                                                      (911,179
                                                                      )Purchase
      of intangible asset
                                                                      
                                                                      
                                                                      (7,240
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (7,240
                                                                      )Cost
      of investment in FFE ltd
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (20,000
                                                                      )Purchase
      of mineral claim
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (10,000
                                                                      )Net
      cash used in investing activities
                                                                      
                                                                      
                                                                      (131,442
                                                                      )
                                                                      
                                                                      
                                                                      (786,977
                                                                      )
                                                                      
                                                                      
                                                                      (948,419
                                                                      )Cash
      flows from financing activities:Proceeds
      from sale of shares of common stock in private placements, net of issuance
      costs
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      17,332,068
                                                                      
                                                                      
                                                                      
                                                                      18,977,068Net
      cash provided by financing activities
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      17,332,068
                                                                      
                                                                      
                                                                      
                                                                      18,977,068Effects
      of exchange rate changes on cash
                                                                      
                                                                      
                                                                      (4,130,487
                                                                      )
                                                                      
                                                                      
                                                                      43,960
                                                                      
                                                                      
                                                                      
                                                                      (4,086,527
                                                                      )Net
      (decrease) increase in cash and cash equivalents
                                                                      
                                                                      
                                                                      (7,453,702
                                                                      )
                                                                      
                                                                      
                                                                      14,543,882
                                                                      
                                                                      
                                                                      
                                                                      8,702,680Cash
      and cash equivalents, beginning of period
                                                                      
                                                                      
                                                                      16,156,382
                                                                      
                                                                      
                                                                      
                                                                      1,612,500
                                                                      
                                                                      
                                                                      
                                                                      -Cash
      and cash equivalents, end of period
                                                                      
                                                                      $
                                                                      8,702,680
                                                                      
                                                                      
                                                                      $
                                                                      16,156,382
                                                                      
                                                                      
                                                                      $
                                                                      8,702,680Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -Income
      tax
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -Supplemental
      disclosure of non cash activities:Shares
      of common stock issued or acquired in lieu of payment for services
                                                                      
                                                                      $
                                                                      24,375
                                                                      
                                                                      
                                                                      $
                                                                      643,923
                                                                      
                                                                      
                                                                      $
                                                                      716,369Transaction
      costs in connection with asset acquisition
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      21,594,587
                                                                      
                                                                      
                                                                      $
                                                                      22,897,759Office
      equipment acquired on credit / accounts payable
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      1,760Asset-prepaid
      expense acquired in connection with FFE Ltd.
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      449Liabilities-accounts
      payable assumed in connection with FFE Ltd.
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      4,516Liabilities-accrued
      expenses assumed in connection with FFE Ltd.
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      50,464
  The
accompanying notes are an integral part of these consolidated financial
statements.




F-6




Flex
Fuels Energy, Inc.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


December
31, 2008 and 2007




Note
1 - Nature of Operations and Going Concern





Nature
of Operations





Flex
Fuels Energy, Inc. (“Flex Fuels” “we”, “us”, “our”) (formerly Malibu Minerals,
Inc.) was incorporated in the State of Nevada on March 10, 2006, to engage in
the business of exploration and discovery of gold, minerals, mineral deposits
and reserves. Flex Fuels has staked two mineral claims containing 33 cell claim
units totaling approximately 683 hectares. These mining claims are hereafter
referred to as the “Malibu Gold Mine Property” or the “Malibu Gold Property”.
Flex Fuels purchased the Malibu Gold Property in March of 2006. The Malibu Gold
Property is located approximately 110 km northwest of Vancouver, British
Columbia, and 75 km north of Sechelt, BC. The property is situated on the south
side of Queen’s Reach on upper Jervis Inlet, at the entrance to Princess Louisa
Inlet. Access to the property is available via plane from Vancouver or Sechelt,
or by boat from Egmont or Pender Harbor on the Sechelt Peninsula.




During
the fourth quarter of our 2006 fiscal year, for the purpose of diversifying our
business, acquiring capital, gaining greater access to the capital markets and
with the assistance of newly acquired capital promotion of Flex Fuels business
of exploration and discovery of gold, minerals, mineral deposits and reserves,
Flex Fuels entered into the Agreement with Flex Fuels Energy Limited (“FFE Ltd”)
and the stockholders of FFE Ltd as more fully described below. FFE Ltd became
our wholly-owned subsidiary effective on May 29, 2007.  Flex Fuels
Energy, Inc. and or Flex Fuels Energy, Inc. and FFE Ltd are hereafter
collectively referred to as (the “Company”).





Flex
Fuels is currently engaged in two sectors:




·
            developing
      our business of manufacturing and distributing Oil Seed Rape (“OSR”)
      products through our wholly owned subsidiary, FFE
  Ltd.




·
            the
      exploration and discovery of gold, minerals, mineral deposits and reserves
      through our Malibu Gold Property
operation.




FFE Ltd.
has the following subsidiaries, each of which was formed under the laws of
England and Wales:
  ·        Flex
Fuel Biomass Ltd.;
  ·        Flex
Fuel Crush Ltd.;
  ·        Flex
Fuel Farming Ltd.;
  ·        Flex
Fuel Refineries Ltd.; and
  ·        Flex
Fuel Trading Ltd.
  These
subsidiaries are hereinafter collectively referred to as the "FFE Ltd.
Subsidiaries." The FFE Ltd. Subsidiaries have conducted no activities since
their respective formations and remain inactive at this time.




In May of
2007, Flex Fuels authorized and affected a dividend in the form of common stock,
whereby each stockholder of record of Flex Fuels as of the end of the business
day on May 21, 2007, received five shares of common stock, in exchange for one
share of existing common stock held, in effect 6 for 1 stock
split.  All references in the accompanying consolidated financial
statements and notes thereto have been retroactively restated to reflect the
stock split, unless explicitly stated otherwise.




Going
Concern





The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  The Company is a
development stage company and has not commenced its planned principal
operations. As shown in the accompanying consolidated financial statements, the
Company has generated no revenue and has incurred recurring losses for the
period from March 10, 2006 (date of inception) through December 31,
2008.  Additionally, the Company has negative cash flows from
operations since date of inception and has an accumulated deficit of $29,456,018
at December 31, 2008.  These factors raise substantial doubt about the
Company’s ability to continue as a going concern.




F-7




The
Company’s ability to continue existence is dependent upon commencing its planned
operations, management’s ability to develop and achieve profitable operations
and/or upon obtaining additional financing to carry out its planned
business.  The Company intends to fund its construction of the Cardiff
Project and acquisition endeavors and operations through equity and debt
financing arrangements.  However, there can be no assurance that these
arrangements will be sufficient to fund its ongoing capital expenditures,
working capital, and other cash requirements.  The outcome of these matters
cannot be predicted at this time.





The
Company has undertaken further steps as part of a plan to commence its planned
operations with the goal of sustaining its operations for the next twelve months
and beyond to address its lack of liquidity by raising additional funds, either
in the form of debt or equity or some combination thereof.  The
Company will continue its effort to explore different options to raise
capital.





There can
be no assurance that any additional financings will be available to the Company
on satisfactory terms and conditions, if at all.  In the event we are
unable to continue as a going concern, we may elect or be required to seek
protection from our creditors by filing a voluntary petition in bankruptcy or
may be subject to an involuntary petition in bankruptcy. To date, management has
not considered this alternative, nor does management view it as a likely
occurrence.





The
accompanying consolidated financial statements do not include any adjustments
related to the recoverability or classification of asset-carrying amounts or the
amounts and classification of liabilities that may result should the Company be
unable to continue as a going concern.




Note
2 - Summary of Significant Accounting Policies




Use
of estimates





The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.




Development
stage company





The
Company is considered to be in the Development Stage as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by
Development Stage Enterprises”. The Company has generated no revenues to date
and has incurred significant expenses and has sustained recurring losses.
Consequently, its operations are subject to all the risks inherent in the
establishment of a new business enterprise. For the period from March 10, 2006
(date of inception) through December 31, 2008, the Company has accumulated
losses of $29,456,018.




Principles
of consolidation





The
consolidated financial statements include the accounts of Flex Fuels Energy,
Inc. and Flex Fuels Energy Limited (“FFE Ltd”), a wholly owned subsidiary
including the FFE Ltd. Subsidiaries (see Note 1, under "Nature of Operations"). All
significant intercompany transactions and balances have been eliminated in
consolidation.  FFE Ltd ceased to be a variable interest entity on May
29, 2007 when the Company acquired the remaining 85% of FFE
Ltd.




F-8




Reclassifications





Certain
reclassifications have been made to prior year’s consolidated financial
statements and notes thereto for comparative purposes to conform with current
year’s presentation.  These reclassifications have no effect on
previously reported results of operations.




Foreign
currency translation





The
Company’s reporting currency is US Dollars. Flex Fuels functional currency is US
Dollars. The accounts of the Company’s wholly-owned subsidiary, FFE Ltd are
maintained using the local currency (Great British Pound) as the functional
currency.  In accordance with SFAS No. 52, "Foreign Currency
Translation," monetary assets and liabilities are translated into U.S. Dollars
at balance sheet date and revenue and expense accounts are translated at the
average exchange rate for the year.  FFE Ltd’s assets and liabilities
are translated into U.S. dollars at period-end exchange rates, and income and
expense amounts are translated at average exchange rates.  The
translation adjustments are deferred as a separate component of stockholders’
equity, captioned as accumulated other comprehensive (loss)
gain.  Transaction gains and losses arising from exchange rate
fluctuation on transactions denominated in a currency other than the functional
currency are included in the consolidated statements of operations.




Property
and equipment





Property
and equipment is stated at cost less accumulated depreciation.
 Depreciation is provided on the straight line basis over the estimated
useful lives of the assets as follows:




Office
      equipment
            2 yearsCapitalized Plant
      under Construction
            N/A




Costs
relating to the design, permitting, specification and construction of the
Company’s Cardiff Project are being capitalized until the plant construction has
started and the plant is operational, at which time depreciation will
commence.





Expenditures
for repair and maintenance which do not materially extend the useful lives of
property and equipment are charged to operations.  When property or
equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the respective accounts with the resulting gain or
loss reflected in operations.  Management periodically reviews the
carrying value of its property and equipment for
impairment.   The Company has recorded an asset impairment loss
of $458,730 on its Capitalized Plant under Construction at December 31, 2008 as
a result of management’s detail review of the Cardiff Project, see Note 2,
“Impairment of long-lived assets”.




Basic
and diluted loss per share





In
accordance with SFAS No. 128 – “Earnings Per Share”, the basic and diluted loss
per share is computed by dividing net loss available to common stockholders by
the weighted average number of common shares outstanding. Diluted net loss per
share is computed similar to basic loss per share except that the denominator is
adjusted for the potential dilution that could occur if stock options, warrants,
and other convertible securities were exercised or converted into common stock.
Potentially dilutive securities were not included in the calculation of the
diluted loss per share as their effect would be anti-dilutive. The Company does
not have any common stock equivalents at December 31, 2008 and
2007.




F-9




Fair
Value of Financial Instruments





SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts payable and accrued liabilities,
and short-term borrowings, as reflected in the consolidated balance sheets,
approximate fair value because of the short-term maturity of these
instruments.  All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.





Effective
January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No.
157") and SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS
No. 159"), which permits entities to choose to measure many financial
instruments and certain other items at fair value. Neither of these statements
had an impact on the Company’s consolidated financial position, results of
operations or cash flows.




Income
taxes





Income
taxes are provided for using the liability method of accounting in accordance
with SFAS No. 109, “Accounting for Income Taxes”. A deferred tax asset or
liability is recorded for all temporary differences between financial and tax
reporting. Deferred income taxes and tax benefits are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and for tax loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The Company provides for deferred tax assets for the
estimated future tax effects attributable to temporary differences and
carry-forwards when realization is more likely than not.





Comprehensive
Income (Loss)





The
Company adopted SFAS No. 130, "Reporting Comprehensive Income."  SFAS
No. 130 establishes standards for the reporting and displaying of comprehensive
income (loss) and its components.  Comprehensive income is defined as
the change in equity of a business during a period from transactions and other
events and circumstances from non-owners sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. SFAS No. 130 requires other comprehensive income (loss)
to include foreign currency translation adjustments and unrealized gains and
losses on available for sale securities.




Cash
and cash equivalents





For
purposes of the statement of cash flows, cash and cash equivalents includes
demand deposits, saving accounts and money market accounts. The Company
considers all highly liquid debt instruments with maturities of three months or
less when purchased to be cash and cash equivalents.





Concentrations
of Credit Risk





The
Company maintains cash and cash equivalents with major financial institutions.
Cash held in UK bank accounts is insured by the Financial Services Authority
(“FSA”) up to £50,000
at December 31, 2008 (approximately $72,000 at December 31, 2008) at each
institution for each entity.  At time, such amounts may exceed the FSA
limits.  The uninsured cash bank balances were approximately
$8,561,000 and $16,086,000 at December 31, 2008 and 2007,
respectively.  The Company has not experienced any loss on these
accounts.  The balances are maintained in demand accounts to minimize
risk.




F-10




Stock-based
compensation





The
Company has adopted the fair value provisions of SFAS No. 123(R) "Share-Based Payment" which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to a Employee Stock Purchase
Plan based on the estimated fair values.  The Company does not have
any employee stock options and stock purchases plans at December 31, 2008 and
2007, respectively.





During
the period from March 10, 2006 (date of inception) through December 31,
2008, the following stock-based compensations were issued.  On
December 18, 2006, Mr. Thomas Barr received 412,038 shares, May 22, 2007, Mr.
Thomas Barr received 137,344 shares and on May 13, 2008, Mr. Paul Gothard
received 65,000 shares.  These shares were fair valued based on the
fair value of each respective private placement.


There
were no employee stock options granted to employees and directors during the
period from March 10, 2006 (date of inception) through December 31, 2008. There
were no unvested options outstanding as of the date of adoption of SFAS No.
123(R).





Revenue
recognition





The
Company has not yet generated any revenues to date.  It is the Company’s
policy that revenue from product sales or services will be recognized in
accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” ("SAB
No. 104"), which superseded Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements” ("SAB No. 101"). SAB No. 104 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgments
regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded. The Company will defer
any revenue for which the product was not delivered or is subject to refund
until such time that the Company and the customer jointly determine that the
product has been delivered or no refund will be required.


Research
and development





In
accordance with SFAS No. 2, “Accounting for Research and Development Costs”, the
Company expenses all research and development costs as incurred.  As
at December 31, 2008 and 2007, the Company had incurred no research and
development costs.




Segment
information





SFAS No.
131, “Disclosure about Segments of an Enterprise and Related Information”,
changed the way public companies report information about segments of their
business in their quarterly and annual reports issued to stockholders.  It
also requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues
and its major customers.  Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance.  The Company’s reportable operating segments are the
Malibu Gold Property and planned OSR processing operations (see Note
9).




F-11




Impairment
of long-lived assets





The
Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires that long-lived
assets and certain identifiable intangibles held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted discounted cash flows.
Should impairment in value be indicated, the carrying value of the long-lived
assets and certain identifiable intangibles will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition
of the asset.  SFAS No. 144 also requires assets to be disposed of be
reported at the lower of the carrying amount or the fair value less disposal
costs.





The
Company has determined that its Malibu Gold property is to be impaired as of
December 31, 2006, as per SFAS 144, “Accounting for the Impairment of Long-Live
Assets.” Impairment is the condition that exists when the carrying amount of a
long-lived asset (asset group) exceeds its fair value. An impairment loss shall
be recognized only if the carrying amount of a long- lived asset (asset group)
is not recoverable and exceeds its fair value. The carrying amount of a
long-lived asset (asset group) is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset (asset group). Our determination is based on the Company’s current
period operating loss combined with the Company’s history of operating losses
and our projection that demonstrates continuing losses associated with the
Malibu Gold property.  The license was originally acquired for $10,000
in cash and initially held on behalf of the Company by Jim Laird – see Note 6 -
Related Party Transactions.





In
addition, the Company has recorded a total asset impairment loss of $458,730 to
its operations on December 31, 2008.  The asset impairment loss
consist of an impairment loss on the Capitalized Plant under Construction Costs
for the Cardiff Project as this was evaluated as no longer adding value to the
Cardiff Project based on management’s detail review performed during December
2008 mainly due to the change in its strategy of the Cardiff Project from
Biodiesel to Oilseed Crush.





Minority
Interest





The
Minority Interest represents the equity attributable to the external
shareholders of a subsidiary of variable interest entity that the initial 15%
interest was acquired by the Company in December 2006.  FFE Ltd.
ceased to be a variable interest entity on May 29, 2007 when the Company
acquired the remaining 85% of FFE Ltd.  Effectively, minority interest
ceased on May 29, 2007.  It is comprised of the portion of the net
assets attributable to the minority on acquisition plus the share of any post
acquisition profits less the share of any post-acquisition
losses.




At
      December 31, 2007 the Minority Interest was as follows:AmountBalance
      at December 31, 2006
                        
                        $
                        1,228,691Share
      of losses
                        
                        
                        (454,249
                        )Acquired
      remaining 85% interest by the Company – May 29, 2007
                        
                        
                        (774,442
                        )Balance
      at December 31, 2007
                        
                        $
                        -





Recent
accounting pronouncements




In June
2006, the Financial Accounting Standards Board (the “FSAB”) issued “Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB issued Statement No.
109”, (“FIN 48”). FIN 48 clarifies the accounting for Income Taxes by
prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. It also provides guidance
on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “Accounting for
Contingencies”.  Effective January 1, 2007, the Company adopted
the provisions of FIN 48, as required.  As of a result of implementing
FIN 48, there has been no adjustment made to the Company’s consolidated
financial statements and the adoption of FIN 48 did not have a material impact
on the Company's consolidated financial position, results of operations or
cashflows.




F-12




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). The objective of SFAS No. 157 is to increase consistency and
comparability in fair value measurements and to expand disclosures about fair
value measurements.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements.  SFAS No. 157
applies under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. Effective
January 1, 2008, the Company adopted SFAS No. 157.  The adoption of
this statement did not have a material impact on the Company’s consolidated
financial position, results of operation or cash flows.  In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2,“Effective Date of FASB Statement
No. 157” (“FSP 157-2"), which delayed the
effective date of SFAS No. 157 for all non-financial assets and liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until the fiscal years beginning after November
15, 2008.   We have not yet determined the impact that the
implementation of FSP 157-2 will have on our non-financial assets and
liabilities which are not recognized on a recurring basis; however, we do not
anticipate the adoption of this standard will have a material impact on our
consolidated financial position, results of operations or cash
flows.





In
December 2006, the FASB issued FSP EITF 00-19-2, “Accounting for Registration
Payment Arrangements” ("FSP 00-19-2") which addresses accounting for
registration payment arrangements. FSP 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, “Accounting
for Contingencies”. FSP 00-19-2 further clarifies that a financial instrument
subject to a registration payment arrangement should be accounted for in
accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. For registration payment arrangements
and financial instruments subject to those arrangements that were entered into
prior to the issuance of EITF 00-19-2, this guidance shall be effective for
financial statements issued for fiscal years beginning after December 15, 2006
and interim periods within those fiscal years. The adoption of this standard did
not have a material impact on the Company’s consolidated financial position,
results of operations or cash flows.





In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115" ("SFAS No. 159"). This statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. Effective January 1, 2008,
the Company adopted SFAS No. 159.  The adoption of this statement did
not have a material impact on the Company’s consolidated financial position,
results of operation or cash flows.





In
December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141(R) is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited and the Company is currently evaluating the effect, if
any, that the adoption will have on its consolidated financial position, results
of operations or cash flows.




F-13




In
June 2007, the Accounting Standards Executive Committee issued Statement of
Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
Investment Companies and Accounting by Parent Companies and Equity Method
Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
provides guidance for determining whether an entity is within the scope of the
AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
07-1 was originally determined to be effective for fiscal years beginning on or
after December 15, 2007, however, on February 6, 2008, FASB issued a
final Staff Position indefinitely deferring the effective date and prohibiting
early adoption of SOP 07-1 while addressing implementation issues.





In June
2007, the FASB ratified the consensus in EITF Issue No. 07-3,“Accounting
for Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities” (EITF 07-3), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred
and amortized over the period that the goods are delivered or the related
services are performed, subject to an assessment of recoverability.
 EITF 07-3 will be effective for fiscal years beginning after
December 15, 2007.  The adoption of EITF 07-3 did not have a
material impact on our consolidated financial position, results of operations or
cash flows.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS
No. 160"), which will change the accounting and reporting for minority
interests, which will be re-characterized as noncontrolling interests and
classified as a component of equity within the consolidated balance sheet.
 SFAS No. 160 is effective as of the beginning of the first fiscal year
beginning on or after December 15, 2008.  Earlier adoption is
prohibited and the Company is currently evaluating the effect, if any, that the
adoption will have on its consolidated financial position, results of operations
or cash flows.





In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines
collaborative arrangements and requires collaborators to present the result of
activities for which they act as the principal on a gross basis and report any
payments received from (made to) the other collaborators based on other
applicable authoritative accounting literature, and in the absence of other
applicable authoritative literature, on a reasonable, rational and consistent
accounting policy is to be elected.  EITF 07-1 also provides for
disclosures regarding the nature and purpose of the arrangement, the entity’s
rights and obligations, the accounting policy for the arrangement and the income
statement classification and amounts arising from the agreement. EITF 07-1 will
be effective for fiscal years beginning after December 15, 2008, and will be
applied as a change in accounting principle retrospectively for all
collaborative arrangements existing as of the effective date.  We have not
yet evaluated the potential impact of adopting EITF 07-1 on our
consolidated financial position, results of operations or cash
flows.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133” (“SFAS No.
161”).  SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance, and cash flows.  Entities are required to
provide enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  We are currently evaluating the impact of
SFAS No. 161, if any, will have on our consolidated financial position, results
of operations or cash flows.




F-14




In April
2008, the FASB issued FSP No.  FAS 142-3,“Determination of the Useful Life
of Intangible Assets”.  This FSP amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible
Assets”.   We are required to adopt FSP 142-3 on January
1, 2009 and early adoption is prohibited.  The guidance in FSP 142-3 for
determining the useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after adoption, and the disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, adoption.  We are currently evaluating the impact
of FSP 142-3 on our consolidated financial position, results of operations or
cash flows.





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162").  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy).  SFAS No. 162
will become effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles."  We do not expect the adoption of SFAS No. 162 will have
a material effect on our consolidated financial position, results of operations
or cash flows.





In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("FSP APB 14-1").  FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer's non-convertible debt borrowing rate.  FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis.  We are currently evaluating the potential
impact, if any, of the adoption of FSP APB 14-1 on our consolidated
financial position, results of operations or cash flows.





In June
2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5),
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock”.  EITF 07-5 requires entities to evaluate whether
an equity-linked financial instrument (or embedded feature)
is indexed to its own stock by assessing the instrument’s contingent exercise
provisions and settlement provisions. Instruments not indexed to their own stock
fail to meet the scope exception of Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and Hedging Activities”,
paragraph 11(a), and should be classified as a liability and marked-to-market.
The statement is effective for fiscal years beginning after December 15, 2008
and is to be applied to outstanding instruments upon adoption with the
cumulative effect of the change in accounting principle recognized as an
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the provisions of EITF 07-5.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future consolidated
financial statements.




Note
3 – Capitalized Plant under Construction





Costs
relating to the design, permitting, specification and construction of the
Company’s Oilseed Crush Plant are being capitalized until the plant construction
has started and the plant is operational, at which time depreciation will
commence.




F-15




The
Company charged an asset impairment loss of $458,730 to its operations on
December 31, 2008 in relation to the change in its business strategy, (see Note
2 “Impairment of long-lived assets”).




Note
4 - Property and Equipment





A
breakdown of the Company’s main items of property and equipment are given in the
table below:





December
      31,2008
                              
                              
                              2007Capitalized
      Plant under Construction
                              
                              $
                              868,065
                              
                              
                              $
                              747,780Office
      equipment
                              
                              
                              36,331
                              
                              
                              
                              40,921904,396
                              
                              
                              
                              788,701Asset
      impairment loss
                              
                              
                              (458,730
                              )
                              
                              
                              (-
                              )Adjusted
      cost basis
                              
                              $
                              445,666
                              
                              
                              $
                              788,701Accumulated
      depreciation and amortization
                              
                              
                              (26,840
                              )
                              
                              
                              (13,133
                              )Carrying
      value
                              
                              $
                              418,826
                              
                              
                              $
                              775,568




Depreciation
expense was $22,214 and $13,168 for the years ended December 31, 2008, 2007,
respectively and $35,382 for the period from March 10, 2006 (date of inception)
through December 31, 2008. The impairment charge was $458,730 for the year ended
December 31, 2008, $0 for the year ended December 31, 2007 and $458,730 for the
period from March 10, 2006 (date of inception) through December 31, 2008,
respectively. The impairment loss relating to the year ended December, 31
2008 has been charged to operations resulting from the recent detailed review of
the Cardiff Project by the newly appointed board.




Note
5 - Related Party Transactions





On March
27, 2006, the Company acquired the mineral license from Mr. Jim Laird, a former
director and stockholder, for $10,000.





As a
non-Canadian individual or company cannot directly hold a mineral license in
British Columbia, therefore it was initially held on behalf of the Company by
Jim Laird (a former director). It was subsequently transferred to Esther Briner
(a licensed prospecting agent and stockholder) in June 2006 who then transferred
it to Coalharbour Consulting, Inc (“Coalharbour”), a licensed prospecting agent
owned and controlled by Esther Briner (a stockholder) in July 2007. In December
2007, the license was transferred back to Jim Laird who holds the license on
behalf of the Company.





The
claims are currently in good standing and are 100% owned by Flex Fuels, subject
to a carried 3% Net Smelter Return Royalty if mineral production is
commenced.





Under the
laws of the government of British Columbia regarding Mineral Tenure, the
property can be held in perpetuity, provided all required governmental fees are
paid in a timely manner.  Annual work requirements can be fulfilled by
performing approved work or by payment of cash-in-lieu. Development of the
property is subject to obtaining a work permit from the government for certain
types of work beyond basic exploration sampling and geological studies. More
advanced development programs may also require an environmental
survey.




F-16




The
Sechelt First Nation group (which represents the local Indian populace and is
part of government in Canada) are brought into consultation at the work permit
stage.  Additional government departments are also notified of the
application for a work permit.  In general, the work permit process
takes about 4 - 6 weeks, provided that it has been filed properly and
fully.  There are no fees required to obtain a work
permit.





The
duration of a work program must be stated on the permit application, and there
are numerous regulations under the British Columbia Mineral Tenure Act 1996
(consolidated 2007) and the British Columbia Mineral Exploration Code which
state how the work must be carried out.





Prior to
major production (not bulk-sampling), the mineral deposit area proposed for
production must be surveyed and a mining lease obtained from the government of
British Columbia.  Circumstances that may lead to relinquishing such
rights include failure to determine profitable deposits, sale of the license and
a lack of funding.





Under the
accounting treatment set forth in SFAS 144 (“Accounting for the Impairment or
Disposal of Long-Lived Assets”), because of the Company’s current period
operating loss, its history of operating losses, a projection of continuing
losses associated with the Malibu Gold property and the fact the property is
without known reserves along with the fact the proposed program is exploratory
in nature, the Company is allowed to treat the mining license as fully
impaired





During
2008, the Company incurred costs of approximately $31,045, with Laird
Exploration Ltd (“Laird”), $1,045 relating to phase 1 of its mining operations
and approximately $30,000
annual cost associated directly with Jim Laird for. Jim Laird is the President
and a director of Laird.




NOTE
6 – ACQUISITIONS





On May
29, 2007, Flex Fuels acquired the remaining 85% of FFE Ltd, a development stage
company formed under the laws of England and Wales, for the purpose of
diversifying the Company’s business. As a consideration for the acquisition of
the shares, the Company issued an aggregate of 24,854,477 shares of its common
stock, $0.001 par value to the stockholders of FFE Ltd.





The
Company has attributed a fair value of $22,369,000 on the shares issued based
upon stock placed at $0.90 per share under the private placement completed on
the same day. Flex Fuels had acquired its initial 15% holding in FFE Ltd in
December 2006.





The
acquisition of FFE Ltd (a development stage company) has been accounted for not
as part of a business combination but the purchase of assets and assumption of
liabilities not qualifying as a business in accordance with EITF 98-3,
“Determining Whether a Nonmonetary Transaction Involves Receipt or Production
Assets or of a Business” (‘EITF No. 98-3”). Management determined that FFE Ltd
was not business (under EITF 98-3) as it did not have a self-sustaining
integrated set of activities and assets conducted and managed for the purpose of
providing a return to investors.  In addition, FFE Ltd, the
transferred set’s current activities are focused on the development of a planned
business rather than the operation of a business.  Because the planned
principal operations of FFE Ltd. have not yet commenced, the set is not a
business in accordance with EITF No. 98-3.




The
assets acquired and liabilities assumed were recorded at fair value. Management
undertook a review of intangible assets and concluded that the only potential
intangible asset was the value of the business plan proposed by FFE Ltd and the
ability of the FFE Ltd management to deliver that plan. Management then made an
assessment as to whether this qualifies as a separately identifiable asset under
US GAAP.




F-17




For an
asset to be identifiable it must either be separable and thus be capable of
being sold, rented, licensed etc or the asset arises from contractual or legal
obligations.





The
management concluded that the FFE Ltd business plan was not separately
identifiable from FFE Ltd’s management and their ability to deliver the plan and
neither the business plan nor management were subject to contractual obligations
that could be capitalized. Additionally, because FFE Ltd had to further raise
significant additional capital and secure numerous capital and operational
contracts to execute the business plan the value of any such asset could not be
measured reliably.





Therefore
management concludes that the cost of the purchasing the business plan and
management‘s ability to deliver that plan cannot be capitalized and must
therefore be expensed in the consolidated statements of operations in accordance
with EITF No. 98-3 as transaction costs in connection with asset
acquisition.





The
purchase price allocations for the transactions are as follows:





Acquisition
of 85% of FFE Ltd in May 2007:




Fixed
      assets
                    
                    $
                    221,442Cash
                    
                    
                    662,000Current
      assets
                    
                    
                    105,000Current
      liabilities
                    
                    
                    (214,000
                    )Purchase
      of business plan - expensed
                    
                    
                    21,594,587$
                    22,369,029


The Company
has expensed the cost of the business plan acquired of $21,594,587 as
transaction cost in connection with the asset acquisition of FFE Ltd. at the
completion date of this transaction in
accordance with EITF No. 98-3.




Acquisition
of 15% of FFE Ltd in December 2006:





Cash
                                    
                                    $
                                    225,000Current
      liabilities
                                    
                                    
                                    (8,172
                                    )Purchase
      of business plan - expensed
                                    
                                    
                                    1,303,172$
                                    1,520,000





The
Company has expensed the cost of the business plan acquired of $1,303,172
as transaction cost in connection with the asset acquisition of FFE Ltd. at the
completion date of this transaction in
accordance with EITF No. 98-3.




With
regard to the acquisition of 15% of FFE Ltd in December 2006, the Company
determined that FFE Ltd was a Variable Interest Entity under FIN46R
(“Consolidation of Variable Interest Entities”) and therefore the balance sheet
and results of FFE Ltd were consolidated with the Company’s balance sheet and
results. The determination was based on the fact that although the Company
acquired a 15% holding in FFE Ltd, the Company provided all of the initial
capital for the operations of FFE Ltd and therefore took on risks in excess of
its percentage holding or voting rights.




Note
7 - Commitments and Contingencies




Lease
commitments





The
Company has an option to purchase a leased land site situated in Cardiff, Wales
for the Oilseed Crush Plant.  The commitment is for approximately
$120,000 per annum until May 2009.  If the option is exercised prior
to May 31, 2009, the license period commences and the commitment is then
$154,393 during year 2, $307,299 during year 3, $428,686 during year 4 and
$525,000 during year 5.




F-18




Employment
agreements





For the
year ended December, 31 2008, the Company entered into employment agreements
with certain officers and employees of the Company each for a term ranging from
3 months temporary to full time contracts term of 12 months . Total annual base
salaries under these agreements are $762,453; with notice periods severances
ranging from 1 to 6 months under described conditions.


Consulting
agreements





The
Company has entered into consulting agreements with outside contractors, certain
of whom are also the Company’s stockholders and directors. The Agreements are
generally for a term of one year or less from inception and renewable unless
either the Company or Consultant terminates such agreement by written
notice.  The Company incurred $500,415 and $270,279 in fees to these
individuals for the years ended December 31, 2008 and 2007, respectively, in a
consulting role.  The Company incurred $770,694 in fees to these
individuals for the period from March 10, 2006 (date of inception) through
December 31, 2008, in a consulting role.





Litigation





State Court
Action




On July
24, 2008, Mr. Thomas Barr commenced an action (Case no. A568118) in the District
Court of Clark County, Nevada (the “Court”) against our former Chief Executive
Officer (“CEO”) and Chairman of the Board, Mr. Brian Barrows, and a former
director, Mr. James Laird ("Laird"), seeking declaratory and injunctive relief
preventing Messrs. Barrows and Laird from taking actions Mr. Barr believed would
be detrimental to the Company, including their taking control of the management
of the Company. Mr. Barr's court action sought to preclude Mr. Laird, who had
resigned as a director on May 16, 2008 from participating in any future meetings
of the Board and to prevent Mr. Barr from being disciplined or otherwise
punished for his filing on July 15, 2008, with the SEC, a current report on Form
8-K on behalf of the Company.  On the same date, Mr. Barr filed a
motion for a Temporary Restraining Order and Preliminary Injunction seeking such
relief on a temporary and preliminary basis pending a trial on the merits of the
case.




On July
28, 2008, the Court issued a temporary restraining order granting the relief
sought by Mr. Barr and setting a non-evidentiary preliminary injunction hearing
on the matter for August 11, 2008.  On August 1, 2008, Mr. Barr filed
an amended complaint in this action to add the Company as a
defendant.  On August 11, 2008, the Court held the non-evidentiary
hearing, at which the Motion to Quash filed by Messrs. Barrows and Laird was
denied and a Preliminary Injunction Hearing date was set for August 19,
2008.  On August 25, 2008, the parties executed a Stipulation and
Order in which the parties stipulated to continue the Preliminary Injunction
Hearing and to hold a shareholders’ meeting as soon as possible with respect to
the election of directors.  A shareholders’ meeting was held on
December 12, 2008 at which a slate of directors consisting of Mr. Barr, Mr. John
Nangle and Mr. David Miller were elected. The suit is still active while the
Company reviews its options for the prospective recovery of costs incurred and
payments made during Mr. Barrows’ tenure.  The Company has not
determined whether it will pursue recovery costs incurred and payments made
during Mr. Barrow’s tenure, at this point in time but will make appropriate
disclosure including an estimate of the likely costs of pursuing such an action
in future filings, if it decides to proceed based on a thorough assessment of
its review.




F-19




Federal
Action




The
Company, along with Mr. Barrows, filed a complaint against Mr. Barr in federal
district court (“the Federal Case”) in Nevada on October 7, 2008 (Case No.
2:08-cv-01358-KLD-RJJ) seeking compensatory and punitive damages and injunctive
relief for, among other things, alleged breaches of his fiduciary duties as a
director to the Company and its shareholders.  On October 30, 2008,
Mr. Barr filed an answer to the complaint denying all of the material
allegations set forth in the complaint and asserting affirmative
defenses.  Subsequent to the shareholders’ meeting held on December
12, 2008, the Company’s directors, excluding Mr. Barr who recused himself
(hereinafter referred to as the “Unaffected Directors”), commenced a review of
the Federal Case and the facts and circumstances giving rise to its
filing.  Such review included meetings with the Company's legal advisers,
compiling and reviewing correspondence between the Company and its consultants,
legal advisers, accountants, proxy solicitors and other persons relating to the
litigation and the matters alleged therein, and discussions with Mr. Barr and
other officers and employees of the Company.  In the course of their
review, the Unaffected Directors examined such other records and matters as they
deemed appropriate.  The Unaffected Directors concluded, and advised
the Board, that the instigation and the continuation of the Federal Case was not
in the best interest of the Company or its stockholders and recommended that the
Company withdraw from the Federal Case which it did on February 11, 2009. The
Federal Case is still active however, as Mr. Barrows has not elected to withdraw
his claims against Mr. Barr.  Further, at the suggestion of the
Unaffected Directors, on February 24, 2009, Brian Barrows was terminated as an
employee of the Company’s subsidiary, Flex Fuels Energy Ltd.  However,
Brian Barrows remains as a director of Flex Fuels Energy, Ltd. as he has not
tendered his resignation.  He has not participated in any Flex Fuels
Energy, Ltd board meetings since December 14, 2008.  If he does not
resign, the Company expects to go through the required statutory process to
remove him, the costs of which are expected to be minimal.




The
Company’s wholly-owned subsidiary, FFE Ltd, has received notice from Mr.
Barrows, former CEO, stating that he may have a claim against FFE Ltd for breach
of contract and UK employment law relating to his dismissal as an employee of
FFE Ltd for gross misconduct in February 2009. FFE Ltd does not believe there is
any merit to Mr. Barrows’ contention and it is likely the Company will
vigorously defend any such claim and may counterclaim.  At this point,
the Company has not received a formal complaint containing actual damage claims,
and consequently we are unable to assess with any degree of precision the
estimated costs that may be incurred by the Company in defending such action or
for any damages that may potentially be awarded arising from any
action.  It is not possible at this time to determine whether an
adverse outcome would have a material adverse effect on the Company’s
consolidated financial position, results of operations or
liquidity.





From time
to time we may be a defendant and plaintiff in various other legal proceedings
arising in the normal course of our business. Except as disclosed above, we are
currently not a party to any material legal proceedings or government actions,
including any bankruptcy, receivership, or similar proceedings. In addition, we
are not aware of any known litigation or liabilities involving the operators of
our properties that could affect our operations. Furthermore, as of the date of
this report, our management is not aware of any proceedings to which any of our
directors, officers, or affiliates, or any associate of any such director,
officer, affiliate, or security holder is a party adverse to our company or has
a material interest adverse to us.




Note
8 - Stockholders’ Equity





The
Company is authorized to issue 500,000,000 shares of its common stock, with par
value of $.001 per share.  As of December 31, 2008 and 2007, there
were 69,380,441 and 69,315,441 shares of common stock issued and outstanding,
respectively.




F-20




On March
10, 2006, the Company issued 60,000,000 shares of common stock to the founders
for $10,000.





On
December 18, 2006, the Company issued 412,038 shares of common stock to Mr. Tom
Barr in recognition of services provided to the Company as director. The Company
has recognized compensation expense of $48,000 under SFAS 123(R) based upon a
fair value of $0.1167 per share of its common stock based on the price of shares
issued in the subsequent private placement on December 29, 2006.





On
December 29, 2006, the Company completed a private placement of 14,142,846
shares of common stock at $0.1167 per share to independent third parties. The
Company received $1,635,000 net of legal costs of $15,000.





On April
26, 2007, the Company (formerly, Malibu Minerals, Inc.) filed with the
Secretary of State of the State of Nevada a Certificate of Amendment to its
Articles of Incorporation (the “Amendment”) that was effective as of the same
date. The Amendment was filed to increase the authorized common stock of the
Company from 100,000,000 shares to 500,000,000 shares and to create 10,000,000
shares of “blank check” preferred stock, $0.001 par value per
share.





On May
11, 2007, the Stockholders of the Company, without direction from the Company,
undertook a re-organization of their respective shareholdings by retiring
varying percentages of their stock. In total 51,685,723 shares of common stock
were retired.  As Mr. Tom Barr was not required to retire any stock
and therefore gained additional common stock in the stock split on May 21, 2007
the Company, under SFAS 123R, attributed the fair value of approximately
$308,000 under compensatory arrangements based upon a fair value of $0.90 per
share of common stock – the price of shares issued in the subsequent private
placement on May 29, 2007.


On May
21, 2007, the Board of Directors declared a stock split, in effect 6 for 1 stock
split, distributable on May 22, 2007, in the form of a dividend of five
additional shares of the Company's common stock for each share owned by
stockholders of record at the close of business on May 21,
2007.   All references in the accompanying consolidated financial
statements and notes thereto have been retroactively restated to reflect the
stock split, unless explicitly stated otherwise.




The stock
retirement, stock dividend and stock split was agreed by the individual
shareholders and the Company.  The consideration given to these
shareholders was that the Company would effectively raise the required funds in
the subsequent private placement and complete the acquisition of FFE
Ltd.





On May
22, 2007, the Company issued 137,344 shares of common stock to Mr. Tom Barr in
recognition of services provided to the Company as director. The Company has
recognized compensation expense of $124,000 under SFAS 123(R) based upon a fair
value of $0.90 per share of its common stock based on the price of shares issued
in the subsequent private placement on May 29, 2007.





On May
25, 2007, Mr. Tom Barr acquired 200,000 shares of common stock from a
stockholder at a discount to market value as compensation for providing certain
services. The Company, under SFAS 123R, have attributed a fair value of $178,000
to the transaction under compensatory arrangements based a fair value of $0.90
per share of common stock from shares issued in the subsequent private placement
on May 29, 2007 less the amount paid by Mr. Barr.


F-21





On May
29, 2007, the Company completed a private placement of 16,582,621 shares of
common stock at $0.90 per share to independent third parties. The Company
received $13,392,000 net of placement costs of $1,492,000 and legal costs of
$40,000.





On May
29, 2007, the Company completed the acquisition of FFE Ltd and issued 24,854,477
shares of its common stock to the stockholders of FFE Ltd. The Company has
attributed a fair value of $22,369,000 on the shares issued based on stock
placed at $0.90 per share under the private placement completed on the same
day.





On July
29, 2007, the Company closed on a private placement offering in which it sold an
aggregate of 4,871,838 shares (the “Shares”) of its common stock, $0.001 par
value per share (the “Common Stock”), at a price of $0.90 per share for
aggregate net proceeds of approximately $3,941,000





International
Capital Partners SA (“ICP”) acted as the placement agent for the offering. The
Company paid the following fees in connection with the offering (i) a commission
equal to approximately $438,000 paid to ICP representing 10% of the proceeds;
and (ii) approximately $6,000 in legal and miscellaneous fees. The net proceeds
of the offering are expected to be used as by the Company as working capital and
for general corporate purposes.





At
December 31, 2007, the Company had set aside $34,000 in recognition of the fair
value of 65,000 shares of its common stock to be issued to Mr. Paul Gothard, the
former chief financial officer, upon the completion of four financial filings as
per his employment agreements. The estimate of fair value is based on a value of
$0.90 per share (the market value of a share at the date of grant) and is being
amortized over 12 months, the vesting period to May 2008. These shares have not
been included in the Earnings per Share calculation for the year ended December
31, 2007.  Such shares have been issued and expensed during the year
ended December 31, 2008.





Note
9 – Segmental Reporting





Under
SFAS no. 131, “Disclosures about segments of an Enterprise and Related
Information”, operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group in
deciding how to allocate resources and in assessing performance. Our chief
operating decision making group is composed of the Chief Executive Officer and
members of senior management. The Company’s reportable operating segments are
the Malibu Gold Property and planned OSR processing operations.





The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. We evaluate performance of our
operating segments based on revenue and operating loss.





Segmental
information for fiscal year 2008 is as follows:




Year
      ended December 31, 2008
                  
                  Malibu
      Gold
                  
                  
                  BioFuels
                  
                  
                  Corporate
                  
                  
                  TotalNet
      revenue to external customers
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Net
      loss
                  
                  $
                  (31,045
                  )
                  
                  $
                  (1,742,357)
                  
                  
                  $
                  (2,390,035)
                  
                  
                  $
                  (4,163,437)Property
      and equipment
                  
                  $
                  -
                  
                  
                  $
                  418,826
                  
                  
                  $
                  -
                  
                  
                  $
                  418,826Total
      Assets
                  
                  $
                  -
                  
                  
                  $
                  9,219,332
                  
                  
                  $
                  -
                  
                  
                  $
                  9,219,332Stock-based
      compensation
                  
                  $
                  -
                  
                  
                  $
                  24,375
                  
                  
                  $
                  -
                  
                  
                  $
                  24,375Expenditure
      on property and equipment
                  
                  $
                  -
                  
                  
                  $
                  124,202
                  
                  
                  $
                  -
                  
                  
                  $
                  124,202Intangible
      asset
                  
                  $
                  -
                  
                  
                  $
                  7,240
                  
                  
                  $
                  -
                  
                  
                  $
                  7,240Depreciation
      expense
                  
                  $
                  -
                  
                  
                  $
                  22,214
                  
                  
                  $
                  -
                  
                  
                  $
                  22,214









F-22




Segmental
information for fiscal year 2007 is as follows:




Year
      ended December 31, 2007
                    
                    Malibu
      Gold
                    
                    
                    BioFuels
                    
                    
                    Corporate
                    
                    
                    TotalNet
      revenue to external customers
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Net
      loss
                    
                    $
                    (43,000
                    )
                    
                    $
                    (23,517,730
                    )
                    
                    $
                    (350,653
                    )
                    
                    $
                    (23,911,383
                    )Property
      and equipment
                    
                    $
                    -
                    
                    
                    $
                    775,568
                    
                    
                    $
                    -
                    
                    
                    $
                    775,568Total
      Assets
                    
                    $
                    73,000
                    
                    
                    $
                    16,968,328
                    
                    
                    $
                    54,546
                    
                    
                    $
                    17,095,874Stock-based
      compensation
                    
                    $
                    -
                    
                    
                    $
                    643,923
                    
                    
                    $
                    -
                    
                    
                    $
                    643,923Expenditure
      on property and equipment
                    
                    $
                    -
                    
                    
                    $
                    786,977
                    
                    
                    $
                    -
                    
                    
                    $
                    786,977Depreciation
      expense
                    
                    $
                    -
                    
                    
                    $
                    13,168
                    
                    
                    $
                    -
                    
                    
                    $
                    13,168




The
Company’s Malibu Gold operations are based in Canada and the planned OSR
Processing operations are based in the United
Kingdom.





Note
10 - Income Taxes





The
Company follows SFAS No. 109, which requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the consolidated financial statement or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between consolidated financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.





At
December 31, 2008, the Company has available for U.S federal income tax purposes
a net operating loss carry forward of approximately $25,432,000 expiring in the
year 2028, subject to limitations of Sections 382 of the Internal Revenue Code,
as amended that may be used to offset future taxable income.  The
deferred tax asset related to the carrying forward is approximately
$8,901,000.  The Company has provided a valuation reserve against
the full amount of the net operating loss benefit, since in the opinion of
management based upon the earnings history of the Company; it is more likely
than not that the benefits will not be realized.  Due to significant
changes in the Company’s ownership, the future use of its existing net operating
losses may be limited. Components of deferred tax assets as of December 31, 2008
and 2007 are as follows:


For
income tax reporting purposes, the Company has available for UK unused net
operating loss carry forward of approximately $4,024,000 with no
expiration.  The Company has provided a valuation reserve against the
full amount of UK unused net operating loss benefit, since in the opinion of
management based upon the earnings history of the Company; it is more likely
than not that the benefits will not be realized.





The
provision for income taxes differ from the amount of income tax determined by
applying the applicable U.S statutory rate to losses before income tax expense
for the years ended December 31, 2008 and 2007 as follows:





December
      31,2008
                    
                    
                    2007Statutory
      federal income tax rate
                    
                    
                    35
                    %
                    
                    
                    35
                    %Statutory
      state and local income tax rate (0%), net of federal
    benefit
                    
                    
                    -
                    
                    
                    
                    -Net
      operating losses and other tax benefits for which no current benefit is
      being realized
                    
                    
                    (35
                    %)
                    
                    
                    (35
                    %)Effective
      tax rate
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %




F-23




Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes. The tax
effect of these temporary differences representing deferred tax asset and
liabilities result principally from the following:





Inception
      (March 10,Years
    ended
                              
                              
                              2006)
      toDecember
      31,
                              
                              
                              December
    31,2008
                              
                              
                              2007
                              
                              
                              2008Deferred
      tax assets:Net
      operating loss carry forward
                              
                              $
                              1,324,000
                              
                              
                              $
                              8,220,000
                              
                              
                              $
                              10,028,000Less:  valuation
      allowance
                              
                              $
                              (1,324,000
                              )
                              
                              $
                              (8,220,000
                              )
                              
                              $
                              (10,028,000
                              )Net
      deferred tax asset
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -





Note
11 - Subsequent Events




On
February 11, 2009, the Company withdrew from the Federal Case as concluded by
the Unaffected Directors as the instigation and the continuation of the Federal
Case was not in the best interest of the Company or its
stockholders.  The Federal Case is still active however, as Mr.
Barrows has not elected to withdraw his claims against Mr.
Barr.  Further, at the suggestion of the Unaffected Directors, on
February 24, 2009, Brian Barrows was terminated as an employee of the Company’s
subsidiary, FFE Ltd.  However, Brian Barrows remains as a director of
FFE Ltd. as he has not tendered his resignation.  He has not
participated in any FFE Ltd board meetings since December 14,
2008.  If he does not resign, the Company expects to go through the
required statutory process to remove him, the costs of which are expected to be
minimal.
  The
Company’s subsidiary, FFE Ltd, has received notice from Mr. Barrows, former CEO,
stating that he may have a claim against FFE Ltd for breach of contract and UK
employment law relating to his dismissal as an employee of FFE Ltd for gross
misconduct in February 2009.  FFE Ltd does not believe there is any
merit to Mr. Barrows’ contention and the Company will vigorously defend any such
claim.






F-24