**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-KSB/A**


**(Amendment
      No. 2)**








**(Mark
                One)**





ý
            **Annual
                report under section 13 or 15(d) of the Securities Exchange Act of
                1934**





**For
                the fiscal year ended December 31,
                2007**





**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: 001-32228**





**O2Diesel
      Corporation**


(Name
      of
      small business issuer in its charter)




**Delaware**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            
            **91-2023525**
              (I.R.S.
                Employer
              Identification
                No.)





**100
                Commerce Drive Suite 301**
              **Newark,
                Delaware**
              (Address
                of principal executive offices)
            
            **19713**
              (Zip
                Code)





Issuer's
                telephone number:**(302) 266-6000**
              
              Securities
                registered under Section 12(b) of the Exchange Act:
                None





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $0.0001
      Par Value


(Title
      of
      class)





Check
      whether the Issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Securities 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 ý No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. ý





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





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the Past 60 days. (See definition of affiliate in
      Rule 12b-2 of the Exchange Act.)





Registrant's
      revenues for its most recent fiscal year: $358,464





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant on March 19, 2008 computed by the average bid and asked price as
      of March 19, 2008, at which the stock was sold, was $21,824,668, assuming
      solely for purposes of this calculation that all directors and executive
      officers of the issuer are "affiliates." This determination of affiliate status
      is not necessarily a conclusive determination for other purposes.










On
      March 19, 2008, the registrant had 87,298,674 shares of common stock,
      $0.0001 par value per share, issued and outstanding.





TRANSITIONAL
      SMALL BUSINESS DISCLOSURE FORMAT: Yes o No ý





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Documents
      incorporated by reference are listed in the Exhibit Index.










**EXPLANATORY
      NOTE**





O2Diesel
      Corporation (“the Company”) is filing this Amendment No. 2 to our Annual Report
      on Form 10-KSB ("Amendment") for the year ended December 31, 2007, which was
      originally filed on March 31, 2008 (the "Original Filing") and our Amendment
      No.
      1 to the Original Filing which was filed on August 6, 2008 (“Amendment No. 1”),
      for the purpose of revising management’s evaluation of Disclosure Controls and
      Procedures for the year ended December 31, 2007 in Part II, Item 8A(T), as
      a
      result of the Company’s failure to file management’s annual report on internal
      control over financial reporting in the Original Filing.





Except
      for the revision described above, this Amendment does not amend, modify or
      update the Original Filing or Amendment No. 1 to that filing, and the Company
      has not updated the disclosure contained herein to reflect events that have
      occurred subsequent to the filing. Accordingly, this Amendment should be read
      in
      conjunction with the Company’s other filings made with the Securities and
      Exchange Commission.




1





**Part
      II**





**Item 8A(T).    Controls
      and Procedures**





**DISCLOSURE
      CONTROLS AND PROCEDURES**





The
      Company’s Chief Executive Officer and Chief Financial Officer evaluated the
      effectiveness of our disclosure controls and procedures as of December 31,
      2007. The term "disclosure controls and procedures," as defined in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended
      (the “Exchange Act”) means controls and other procedures of a company that are
      designed to ensure that information required to be disclosed by a company in
      the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC's rules
      and
      forms. Disclosure controls and procedures include, without limitation, controls
      and procedures designed to ensure that information required to be disclosed
      by a
      company in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the company's management, including its
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure. Our management recognizes that
      any controls and procedures, no matter how well designed and operated, can
      provide only reasonable assurance of achieving their objectives and our
      management necessarily applies its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures. Based on the evaluation of
      our
      disclosure controls and procedures as of December 31, 2007, and because of
      the Company’s failure to file the required management’s annual report on
      internal control over financial reporting (“Report of Management”) in its Annual
      Report on Form 10K-SB when it was originally filed on March 31, 2008, the
      Company’s Chief Executive Officer and Chief Financial Officer concluded that, as
      of December 31, 2007, our disclosure controls and procedures were not effective
      at the reasonable assurance level at that date.





The
      Company has remedied this failure in the effectiveness of its disclosure
      controls and procedures by filing the appropriate disclosure regarding
      Disclosure Controls and Procedures in the Amendment No. 1 and below. The Company
      has implemented additional controls and procedures designed to ensure that
      the
      disclosures provided by the Company meet the then-current requirements of the
      applicable filing made under the Exchange Act.




2





**INTERNAL
      CONTROL OVER FINANCIAL REPORTING**





**Management's
      Report on Internal Control Over Financial Reporting**





The
      Company's management is responsible for establishing and maintaining adequate
      internal control over financial reporting (as defined in the Securities Exchange
      Act of 1934 Rules 13a-15(f) and 15d-15(f), as amended) for the Company. 
Internal control over financial reporting is a process designed to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles.





The
      Company's internal control over financial reporting includes policies and
      procedures that (1) pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the
      assets of the Company, (2) provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles and that receipts
      and
      expenditures are made in accordance with authorizations of management and
      directors of the Company, and (3) provide reasonable assurance that unauthorized
      acquisitions, use or disposition of Company assets that could have a material
      effect on the Company's financial statements would be prevented or detected
      on a
      timely basis.  Because of its inherent limitations, internal control over
      financial reporting is not intended to provide absolute assurance that a
      misstatement of our financial statements would be prevented or detected. 
To evaluate the effectiveness of the Company's internal control over financial
      reporting, the Company's management uses the Internal Control - Integrated
      Framework adopted by the Committee of Sponsoring Organizations of the Treadway
      Commission ("COSO").





The
      Company's management has assessed the effectiveness of the Company's internal
      control over financial reporting as of December 31, 2007, using the COSO
      framework.  The Company's management has determined that the Company's
      internal control over financial reporting is effective as of that
      date.





This
      annual report does not include an attestation report of the Company's registered
      public accounting firm regarding internal control over financial
      reporting.  Management's report was not subject to attestation by the
      Company's registered public accounting firm pursuant to temporary rules of
      the
      Securities and Exchange Commission that permit the company to provide only
      management's report in the annual report.





**Changes
      in Internal Controls Over Financial Reporting**





During
      the most recent fiscal year, there have not been any changes in the Company's
      internal controls over financial reporting or in other factors that have
      materially affected, or are reasonably likely to materially affect internal
      controls over financial reporting.




3





**Part
      III**





**Item 13.
      Exhibits**





(a)
      Exhibits




31.1
            
            Certification
                of the Chief Executive Officer pursuant to Rule 13a-14(a) or
                Rule 15d-14(a), as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of the Chief Financial Officer pursuant to Rule 13a-14(a) or
                Rule 15d-14(a), as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




4





**SIGNATURES**








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




O2DIESEL
                CORPORATION





By:
            /s/  ALAN
                R. RAE
              
              Alan
                R. Rae
              *Chief
                Executive Officer and Director*
              September
                24, 2008





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons in the capacities and on the dates
      indicated.




**TITLE**
            
            **DATE**





/s/  ALAN
                R. RAE
              
              Alan
                R. Rae
            
            Director
                and Chief Executive Officer (Principal Executive Officer)
            
            September
                24, 2008





/s/  DAVID
                H. SHIPMAN
              David
                H. Shipman
            
            Chief
                Financial Officer (Principal Financial and Accounting
                Officer)
            
            September
                24, 2008





/s/  ARTHUR
                MEYER
              Arthur
                Meyer
            
            Chairman
            
            September
                24, 2008





/s/  KARIM
                JOBANPUTRA
              Karim
                Jobanputra
            
            Director
            
            September
                24, 2008





/s/  GERSON
                SANTOS-LEON
              Gerson
                Santos-Leon
            
            Director
            
            September
                24, 2008




5