UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





Form
      10-KSB





[X]
      ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES


EXCHANGE
      ACT OF 1934


For
      Fiscal Year Ended


September
      30, 2007





Commission
      File # 333-67174





BETTER
      BIODIESEL, INC.


(A
      Development Stage Company)


(Exact
      name of registrant as specified in its charter)





Colorado


(State
      or
      other jurisdiction of incorporation or organization)





84-1153946


(IRS
        Employer Identification Number)
 
 355
        South
        1550 West
 Spanish
        Fork, UT 84660
 (Address
        of principal executive offices)(Zip Code)


(801) 798-7576


(Registrant's
      telephone no., including area code)





Securities
      registered pursuant to Section 12(b) of the
      Act:   None


Securities
      registered pursuant to Section 12(g) of the Act:  Common Stock, no
      par
      value




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
x
      No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B not contained in this form, and no disclosure will be contained,
      to the best of the 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. x





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





Registrant’s
      revenues for the twelve months ended September 30, 2007 were
      $11,925.





Aggregate
      market value of the voting common stock held by non-affiliates of the registrant
      as of September 30, 2007 was $9,183,752





Number
      of
      shares of the registrant's common stock outstanding as of January 10, 2008
      was
      15,195,001.







1


TABLE
        OF CONTENTS
 PART
        I
  ITEM
        1.  DESCRIPTION OF
        BUSINESS........................................................................3
 ITEM
        2.  PROPERTY................................................................................................13
 ITEM
        3.  LEGAL PROCEEDINGS................................................................................14
 ITEM
        4.  SUBMISSION OF MATTERS TO A VOTE BY SECURITY
        HOLDERS...................14
  PART
        II
  ITEM
        5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
        MATTERS,
 COMPANY
        PURCHASES OF EQUITY AND  SECURITIES...................................14
 ITEM
        6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
        FINANCIAL
 CONDITION
        AND
        RESULTS OF OPERATIONS................................................16
 ITEM
        7.  FINANCIAL
        STATEMENTS.........................................................................21
 ITEM
        8A.  CONTROLS AND
        PROCEDURES................................................................21
 ITEM
        8B.  OTHER INFORMATION...........................................................................22
  PART
        III
  ITEM
        9.  DIRECTORS AND EXECUTIVE
        OFFICERS......................................................23
 ITEM
        10.  EXECUTIVE
        COMPENSATION....................................................................26
 Stock
        Options Granted in Fiscal 2006...............................................................26
 ITEM
        11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
        AND
 MANAGEMENT
        AND
        RELATED STOCKHOLDER MATTERS.............................28
 ITEM
        12.  CERTAIN RELATIONSHIPS AND RELATED
        TRANSACTIONS........................29
 ITEM
        13.  EXHIBITS LIST AND REPORTS ON FORM
        8-K..............................................29
 ITEM
        14.  PRINCIPAL ACCOUNTANT FEES AND
        SERVICES.........................................29


2


DISCLOSURE
      REGARDING FORWARD-LOOKING
      STATEMENTS





This
      Form
      10-KSB release contains “forward-looking statements.” In some cases, you can
      identify forward-looking statements by terminology such as “may,” “will,”
“should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of such terms
      and other comparable terminology. These forward-looking statements include,
      without limitation, statements about our market opportunity, our strategies,
      competition, expected activities and expenditures as we pursue our business
      plan, and the adequacy of our available cash resources. Although we believe
      that
      the expectations reflected in the forward-looking statements are reasonable,
      we
      cannot guarantee future results, levels of activity, performance or
      achievements. Actual results may differ materially from the predictions
      discussed in these forward-looking statements. The economic environment within
      which we operate could materially affect our actual results. Additional factors
      that could materially affect these forward-looking statements include, among
      other things, the company’s ability to, (i) obtain and/or produce and market and
      distribute biodiesel fuel; (ii) the Company’s ability to obtain contracts with
      fuel producers and suppliers of raw materials (for the Company’s production of
      biodiesel fuel) and distributors of the Company’s biodiesel fuel product; (iii)
      the risks inherent in the mutual performance of such supplier and distributor
      contracts (including the Company’s performance); (iv) the Company’s ability to
      develop, protect and defend its proprietary technology; (v) the Company’s
      ability to secure and retain management capable of managing growth; (vi) the
      Company’s ability to raise necessary financing to execute the Company's business
      plan; and (vii) the Company's ability to comply with all applicable federal,
      state and local government and international rules and regulations; and other
      factors discussed in Better Biodiesel’s filings with the Securities and Exchange
      Commission.





Our
      management has included projections and estimates in this Form 10-KSB, which
      are
      based primarily on management’s experience in the industry, assessments of our
      results of operations, discussions and negotiations with third parties and
      a
      review of information filed by our competitors with the Securities and Exchange
      Commission or otherwise publicly available.  We caution readers not to
      place undue reliance on any such forward-looking statements, which speak only
      as
      of the date made.  We disclaim any obligation subsequently to revise
      any forward-looking statements to reflect events or circumstances after the
      date
      of such statements or to reflect the occurrence of anticipated or unanticipated
      events.




PART
      I




ITEM
      1. DESCRIPTION OF
      BUSINESS





Better
      Biodiesel Inc., a Colorado corporation (“Better Biodiesel” or the “Company”),
      whose headquarters is located at 355 South 1550 West, Spanish Fork, Utah, 84660,
      is a development stage company engaged in  the commercial development
      of (i) proprietary biodiesel fuel technology (ii) the supply of biodiesel raw
      materials and (iii) marketing and distribution of biodiesel fuel
      products.





We
      were
      previously known as Mountain States Holdings, Inc. (“Mountain
      States”).  Mountain States was incorporated in November 1990 as a
      Colorado corporation under the name Slam Dunk Enterprises, Inc.  The
      corporation was inactive until May 1998 when it started engaging in the business
      of providing first and second mortgage financing under the name of Mountain
      States Lending, Inc.  During January 2001, the Company filed articles
      of amendment with the Colorado Secretary of State changing the corporation's
      name to Mountain States Lending, Inc., and during September 2002 the Company
      changed the name to Mountain States Holdings, Inc.  In September 2002,
      the Company formed a wholly-owned subsidiary named Mountain States Lending,
      Inc.
      (“Mountain States Lending”), and on December 31, 2002, the Company transferred
      all of its assets and liabilities related to the mortgage lending business
      to
      this new subsidiary.  In August 2006, all of the Company's assets and
      liabilities resided in two wholly-owned subsidiaries that were spun-off to
      two
      stockholders, one of whom was the former CEO of the Company, in exchange for
      325,000 pre-split (162,500 post-split) shares of the Company's common
      stock.





In
      September 2006, the Company entered into a share exchange agreement with
      Domestic Energy Partners, LLC, a Utah limited liability company (“DEP”),
      pursuant to which it acquired all of the equity interests in DEP (the Share
      Exchange”).  On September 20, 2006, prior to the closing of its
      Exchange Agreement with DEP, a majority of the shareholders of the Company
      at a
      special meeting of the shareholders approved amendments to the Company’s
      Articles of Incorporation to change the Company’s name to Better Biodiesel,
      Inc., and to reverse split its shares of common stock on the basis of one share
      for each two shares issued and outstanding, with all fractional shares rounded
      up to the nearest whole share. The foregoing amendments were effective September
      21, 2006.





3


DEP
      was
      organized as a limited liability corporation on May 18, 2005, having
      previously commenced operations in November 2004, to develop alternative fuel
      sources, particularly the manufacture and distribution of biodiesel
      products.  The Exchange Agreement between the Company and DEP is
      accounted for as a reverse merger, which is equivalent to a recapitalization
      of
      the Company.  Thus, the September 30, 2006 Financial Statements for
      the Company’s Form 10-KSB (for the fiscal year ended September 2006), presents
      the Company as being in the development stage with the assets and liabilities
      in
      the consolidated balance sheets representing the book values of DEP’s assets and
      liabilities and the operations in the consolidated statement of operations
      representing the operations of DEP at that time.  The Financial
      Statements for the Fiscal Year ended 2007, which are the Financial Statements
      included in this 10-KSB, continue this methodology.





Until
      recently the Company focused almost exclusively on the development of
      proprietary technology to enable the production of biodiesel fuel from all
      types
      of animal fats as well as virgin oils derived from vegetative sources such
      soybeans, rapeseed, palm and switch grass, for example.   Better
      Biodiesel’s production process focused on eliminating the use of the caustic
      chemical catalyst and thereby limiting the “washing process” in favor of a
      streamlined, continuous flow production method.  Eliminating the
“washing process” also eliminated the need for outdoor evaporation ponds which
      require several acres of land devoted to the removal of caustic chemical through
      the evaporation of the water used in the washing process.





The
      Company and its advisors continued to develop and evaluate the proprietary
      technology during, and subsequent to, the fiscal year ended
      2007.  Based on its evaluation, on December 20, 2007, the Company
      entered into and closed an Asset Purchase, Settlement and Mutual Release
      Agreement with Ron Crafts, Chairman and Chief Executive Officer of the Company,
      John Crawford, President, Chief Technology Officer and a Director of the
      Company, Lynn Dean Crawford, Chief Operations Officer of the Company, James
      Crawford, Mary Crafts, and Culinary Crafts, LLC, under which Ron Crafts, John
      Crawford, Lynn Dean Crawford and James Crawford exchanged a total of
      15,750,000shares
      of common stock of the Company in exchange for all of the rights, title and
      interest held in the invention identified in the patent application assigned
      to
      the Company, along with certain other assets (a detailed description of the
      agreement is provided in Item 8B of this annual report, the “Asset Sale
      Agreement”).





Seven
      shareholders of the Company beneficially owning a total of 24,751,000 shares
      of
      the Company’s 30,945,001 total issued and outstanding shares of common stock
      consented to the Asset Sale Agreement, in accordance with Section 7-107-104
      and
      Section 7-112-102 of the Colorado Revised Statutes.  Excluding
      shareholders with a direct interest in the assets sold in the Asset Sale
      Agreement, three shareholders beneficially owning a total of 9,001,000 shares
      consented out of the remaining 15,154,001 total shares that are considered
      disinterested in the assets of the transaction.





On
      December 20, 2007, the Company accepted the resignations of Ron Crafts from
      his
      positions as Chairman of the Board of Directors and Chief Executive Officer,
      John Crawford, from his positions as Director and as President and Chief
      Technology Officer, and Lynn Dean Crawford from his position as Chief Operations
      Officer.  The resignations were the result of the Board of Director’s
      and management’s decision to broaden its business plan, as described in the
      following paragraph, and the resulting Asset Sale Agreement, in response to
      management’s belief that the proprietary technology included in the Asset Sale
      Agreement would not be ready for large-scale commercial use in the near term,
      requiring the Company to modify its business plan and to identify new revenue
      opportunities in the biodiesel industry.





The
      remaining management of the Company continues to focus on the Company’s
      operations in the biodiesel industry, while shifting its business plan, from
      a
      singular focus on biodiesel production through proprietary technology, to a
      broader business plan including, in addition to research and development of
      biodiesel fuel technology, the supply of biodiesel raw materials vertically
      integrated with the marketing and distribution of biodiesel fuel
      products.   The Company intends to appoint additional management
      and directors during the first half of 2008.




4


Biodiesel,
      unlike ethanol-- which requires modifications to both engines and fuel
      infrastructure and distribution systems-- can be used in any conventional diesel
      engine, without requiring any modifications to existing diesel engines and
      distribution infrastructure, while providing substantially similar energy
      output.  Biodiesel is fully biodegradable, pollutes less than
      petroleum diesel and can be distributed by the existing petroleum distribution
      system without further downstream infrastructure investments.





In
      the
      United States, a primary driver of biodiesel fuel demand stems from the Energy
      Policy Act of 2005, which mandates the increased use of all renewable fuel
      from
      2.5 billion to 7.5 billion gallons by 2010.  Moreover, The Energy
      Independence and Security Act of 2007 sets a mandatory Renewable Fuel Standard
      (RFS) requiring fuel producers to use a minimum of 36 billion gallons of biofuel
      in 2022, nearly five-fold increase over current levels. Additional drivers
      are
      the Energy Policy Act of 1994, which mandates the use of renewable fuel by
      federal, state and utility fleets.  The U.S. Navy mandates the use of
      20% biodiesel in non-tactical vehicles.  Additionally, many states
      including, by way of example, California, Washington and Minnesota have issued
      their own mandates of 2% (B2) blended biodiesel or higher.  Currently,
      the domestic availability of biodiesel fuel falls below the mandated demand
      by
      more than 1 billion gallons per year.  The U.S. Government pays a
      Blenders Tax Credit of $0.50 to $1.00 per gallon produced in addition to $0.10
      per gallon for the first 15 million gallons produced at any single
      location.








Biodiesel
      Fuel - Market
      Overview





Biodiesel
      fuel is fully interchangeable with petroleum diesel.  The domestic
      market for diesel fuel in 2005 was 70 billion gallons and at least 200 billion
      gallons for the rest of the world.  In 2005, the combined worldwide
      biodiesel refining capacity was less than 800 million gallons.





Better
      Biodiesel believes that most prospective end users of biodiesel will be
      individuals and entities requiring the lowest possible pollution levels in
      their
      vehicle and machinery emissions.  These include trucking companies
      operating in states with biodiesel initiatives (see chart below), inner city
      transport companies that are required to reduce their fleet pollution levels
      and
      other users who also require the advantages of less polluting fuel.





Biodiesel
      blends such as B5 and B20 (5% biodiesel blended with 95% petrol diesel, and
      20%
      biodiesel blended with 80% petrol diesel respectively) are currently the most
      common way that biodiesel reaches end users.  When used as a blended
      fuel, biodiesel becomes an additive to petroleum diesel that substantially
      lowers toxic emissions like carbon based gases while improving the performance
      and longevity of the engine.





The
      domestic and international petroleum based diesel fuel market is a mature
      industry.  In Europe, over 60% of the cars, buses, trucks, ships and
      trains are powered by diesel fuels.  In the U.S., the total petroleum
      diesel fuel consumption was approximately 70 billion gallons in
      2005.  Based on the interchangeability of petroleum diesel and
      biodiesel fuel and current shortfall of supply as compared to demand in the
      U.S.
      biodiesel industry, without considering a potential increase in the percentage
      of diesel to gasoline fuel consumption, unmet demand for biodiesel fuel seems
      likely to  require at least 10 years to resolve.





Biodiesel
      can be used in 100% pure form (B100) or as an additive to petroleum
      diesel.  It requires no additional investment or alterations by fuel
      distributors for piping, pumps or transportation equipment.  And all
      conventional diesel engines are can sun on biodiesel so no investments are
      required by existing diesel car, bus, truck, ship or train
      owners.  The efficient logistics of biodiesel fuel, therefore, create
      a significant competitive advantage.





The
      2005
      U.S. petroleum diesel market was approximately 70 billion gallons and is
      expected to grow 10% per year over the next several years.  The
      Federally mandated B2 blends (98% petroleum diesel plus 2% biodiesel) demand
      translates into a 1.4 billion gallon U.S. market.  In 2005, the total
      U.S. biodiesel production was only 70 million gallons.  Even
      considering the 400+ million GPY of announced production under construction
      at
      this time, management believes that biodiesel fuel supply will lag behind the
      increasing demand for many years.




5


Competitive
      Conditions





The
      European market for biodiesel fuel is significantly more mature than the
      domestic biodiesel market.  The existing European technology employs
      customary production methods (also described above), producing over 700 million
      gallons of biodiesel fuel per year.  The major biodiesel fuel
      producers in the current market are Archer Daniels Midland, Altra Biofuels,
      Australian Renewable Fuels, D-1 Oils and Renewable Energy
      Group.  Several oil companies including Chevron and Exxon Mobil have
      announced construction of 100 million GPY plants using the European industry
      technology to come online by 2008.





Raw
      Materials





Under
      management’s current plan to vertically integrate its biofuels business to
      incorporate raw material (feed stock) procurement into its production, supply
      and distribution chain, Better Biodiesel has commenced negotiating with land
      cooperatives and agricultural concerns with the goal of securing land and
      interests devoted to the cultivation and procurement of renewable crops and
      diverse feedstock suitable for conversion to biodiesel fuel.  The
      choice of feedstock crops in a particular region would be based on the unique
      weather patterns, soil conditions, native vegetation and other resources found
      of that particular region of the U.S. as well a internationally, but may include
      a combination of any or all of rapeseed, switchgrass, soybeans, cottonseed,
      canola, palm, coconut, fats from animal processing plants and other organic
      debris.


Management
      believes the value of long term supply chain commitments adds significant value
      to the enterprise valuation.





Licenses





All
      necessary
      applications have been filed with the EPA (Environmental Protection Agency)
      and
      the IRS (Federal Internal Revenue Service).  All necessarystate and county business licenses have been issued to Better
      Biodiesel.  Better Biodiesel adheres to all state and federal
      requirements for the health and safety of its employees.




Research
      and
      Development





During
      the twelve months ended September 30, 2007 and the nine months ended September
      30, 2006 the Company spent $43,502 and $26,544 on Research and Development,
      respectively.





Employees





As
      of
      September 30, 2007, the Company employed six full time employees.





Domestic
      Biodiesel Production
      Capacity and Demand





Current
      demand for all diesel fuel (bio- and petrol-) is estimated at approximately
      65
      billion gallons, while current domestic production of biodiesel is a mere 300
      million gallons.





Three
      important trends define the biodiesel fuel market:





1)
            Declining
                petroleum diesel supply


2)
            Increasing
                petroleum diesel prices


3)
            Mandated
                demand for lower polluting, renewable, and locally produced
                fuels.





In
      spite
      of favorable market forecasts for biodiesel, increasing costs of biodiesel
      feedstock, resulting from increasing demand, and possible innovations of other
      alternative fuels (ethanol, for example) may reduce any future biodiesel pricing
      advantages that the company expects from increasing demand for petroleum
      diesel.  Currently, biodiesel market prices are 10% - 15% higher than
      petroleum diesel.  Biodiesel fuel contains approximately 90% of the
      energy of petroleum diesel.





6


Marketing
      Strategy &
Positioning




Better
      Biodiesel’s marketing efforts will emphasize the inherent benefits of biodiesel
      fuel and cost savings of the Company’s proprietary technology and equipment
      design:






1.
Biodiesel
      reduces emissions
      significantly.The use of biodiesel in a conventional diesel
      engine results in substantial reduction of unburned hydrocarbons, carbon
      monoxide, and particulate matter as compared with petroleum
      diesel.  Biodiesel provides a decrease in the solid carbon fraction of
      particulate matter (since the oxygen in biodiesel enables more complete
      combustion to CO2) and eliminates the sulfate fraction (as there is no sulfur
      in
      the fuel), while the soluble, or hydrocarbon, fraction stays the same or is
      increased. Emissions of nitrogen oxides indicate mixed results as emissions
      test
      of nitrogen oxides have shown either slightly reduced or slightly increased
      depending on the duty cycle and testing methods.







Biodiesel
      works well with new technologies such as catalysts, particulate traps, and
      exhaust gas recirculation. Soy biodiesel reduces carbon dioxide by 78% on a
      life
      cycle basis.







2.Biodiesel
      exhaust is less
      offensive. The use of biodiesel and biodiesel blends results in a
      noticeably less offensive exhaust odor than petroleum diesel.  Users
      also report absence of eye irritation when compare with petroleum
      diesel.  Furthermore, since biodiesel is oxygenated, diesel engines
      have more complete combustion with biodiesel than with petroleum
      diesel.




3.  Biodiesel
      is safer to
      use than petroleum diesel. The flash point (the point at which fuel
      ignites) for biodiesel in its pure form is a minimum of 260 degrees versus
      about
      125 degrees Fahrenheit for regular No. 2 diesel, making biodiesel a
      significantly safer fuel to use, handle and store.





Better
      Biodiesel believes the rapidly expanding market of building biodiesel fuel
      refineries will enter a period of consolidation by 2010.  During this
      expected consolidation, undercapitalized and unqualified entrants may become
      targets of acquisition by larger, better-capitalized oil
      incumbents.  Better Biodiesel intends to exploit its competitive
      advantages to pursue strategic relationships or business combination with
      multiple, incumbent energy or agricultural companies to enhance the Company’s
      market position.





Marketing
      and
      Sales





Our
      marketing efforts intend to target fuel blenders and distributors nationally.
      These activities will employ:





1.
            Press
                and Advertising: We will concentrate our marketing message on the
                unique
                advantages of biofuels compared with conventional petroleum
                diesel.  We will
                leverage:





a.
            Advertisements
                in local and national newspapers and
                periodicals;


b.
            Advertising
                in industry trade journals and targeted environmental publications;
                and


c.
            Coverage
                in alternative fuel websites and web
                blogs.





2.
            Attending
                and speaking at conferences and
                seminars.





3.
            Attending
                and exhibiting at energy events and industry trade
                shows.








Risk
      Factors





You
      should carefully read and
      consider the risks and uncertainties below and the other information contained
      in this report.  The risks and uncertainties described below are not
      the only ones we may face.  The following risks, together with the
      additional risks and uncertainties not currently known to us or that we
      currently deem immaterial could impair our financial condition and results
      of
      operation.





7




Risks
      Related to Our Business and
      Industry




Our
      current operations have a
      limited operating history, which make us a speculative
      investment.





Since
      the
      inception of business operations, we have been engaged in organizational
      activities, including developing a strategic operating plan, entering into
      contracts, hiring personnel, developing and refining, altering and supplementing
      our processing technology, raising private equity capital and seeking
      acquisitions.  Accordingly, we have limited relevant operating history
      upon which an evaluation of our performance and prospects can be
      made.  We are subject to all of the business risks associated with a
      new enterprise, including, but not limited to, risks of unforeseen capital
      requirements, failure to obtain market acceptance, failure to establish business
      relationships and assorted competitive disadvantages against larger and more
      established companies.




We
      have had a history of net losses
      and our biodiesel technologies are unproven on a large-scale commercial basis
      and could fail to perform in a commercial production environment, which could
      have a detrimental effect on the long-term capital appreciation of our
      stock.




During
      the period from November 1, 2004 (date of inception) through September 30,
      2007,
      we have incurred a net loss of $2,840,482, and may incur additional losses
      thereafter, depending upon our ability to generate material revenues or achieve
      profitable operations from biodiesel production, supply and
      distribution.  While production of biodiesel fuel is a mature
      technology, other technologies for production may still be in
      development.  The biodiesel technologies that we pursue have never
      been utilized on a large-scale commercial basis.  All of the tests
      conducted to date by us with respect to our biodiesel technologies have been
      performed on limited quantities of feedstocks, and we cannot assure that the
      same or similar results could be obtained at competitive costs on a large-scale
      commercial basis.





We
      have
      never utilized these biodiesel technologies under the conditions or in the
      volumes that will be required to be profitable and cannot predict all of the
      difficulties that may arise.  It is possible that the technologies,
      when used, may require further research, development, design and testing prior
      to larger-scale commercialization.  Accordingly, we cannot assure you
      that these technologies will perform successfully on a large-scale commercial
      basis or that they will be profitable to us.




Failure
      to make accretive
      acquisitions and to successfully integrate them could adversely affect our
      future financial results.




As
      part
      of our growth strategy, we will seek to acquire or invest in complementary
      (including competitive) businesses, facilities or technologies and enter into
      co-location joint ventures.  Our goal is to make such acquisitions,
      integrate these acquired assets into our operations and reduce operating
      expenses.  The process of integrating these acquired assets into our
      operations may result in unforeseen operating difficulties and expenditures
      and
      may absorb significant management attention that would otherwise be available
      for the ongoing development of our current business.  We cannot assure
      you that the anticipated benefits of any acquisitions will be realized, nor
      of
      the long term survival of our business in the absence of such
      acquisitions.  In addition, future acquisitions by us could result in
      potentially dilutive issuances of equity securities, the incurrence of debt
      and
      contingent liabilities and amortization expenses related to goodwill and other
      intangible assets, any of which can materially and adversely affect our
      operating results and financial position.




Our
      business employs proprietary
      technology and information which may be difficult to protect and may infringe
      on
      the intellectual property rights of third parties.




Our
      success depends, in part, on our ability to obtain patents, maintain trade
      secrecy and operate without infringing on the proprietary rights of third
      parties.  We cannot assure you that the patents of others will not
      have an adverse effect on our ability to conduct our business, that we will
      develop additional proprietary technology that is patentable, that any such
      applications will be approved, or that any patents issued to us will provide
      us
      with any competitive advantages or will not be challenged by third
      parties.  Further, we cannot assure you that others will not
      independently develop similar or superior technologies, duplicate elements
      of
      our technology or design around it.




8


It
      is
      possible that we may need to acquire licenses to, or to contest the validity
      of,
      issued or pending patents or claims of third parties.  We cannot
      assure you that any license acquired under such patents would be made available
      to us on acceptable terms, if at all, or that we would prevail in any such
      contest.  In addition, we could incur substantial costs in defending
      ourselves in suits brought against us for alleged infringement of another
      party’s patents or in defending the validity or enforceability of our patents,
      or in bringing patent infringement suits against other parties based on our
      patents.




In
      addition to patent protection, we also rely on trade secrets, proprietary
      know-how and technology that we seek to protect, in part or in whole, by
      confidentiality agreements with prospective joint venture partners, employees
      and consultants.  We cannot assure you that these agreements will not
      be breached, or that we will have adequate remedies for any breach, or that
      our
      trade secrets and proprietary know-how will not otherwise become known or be
      independently discovered by others.




We
      will have a need for financing in
      order to sustain our operations and in order to expand, which may not be
      available when needed.  If we cannot obtain needed funding to sustain
      our operations we may have to curtail our operations, sell some of our assets
      or
      take actions that may dilute the financial interests of our shareholders and
      creditors.




We
      have
      financed our operations to date primarily through capital contributions by
      Company stockholders, Company founders, and through the issuance of debt.Based on our current
      financial position, cash forecast and plan of operation, we believe, but can
      not
      be certain, that we do not have adequate cash resources to sustain our
      operations through the next fiscal year unless we are able to raise additional
      capital.





Additionally,
      future capital requirements could vary significantly and will depend on certain
      factors, many of which are not within our control.  These include the
      nature of ongoing development and testing of our proprietary biodiesel
      technologies, the nature and timing of necessary plant acquisitions and
      improvements, permitting, and the availability of financing.  The
      development of our business will require us to commit significant capital
      resources in amounts substantially in excess of our current financial
      resources.




We
      are dependent
      upon management,
      whom we need to succeed.




We
      believe that our continued success will depend to a significant extent upon
      our
      ability to retain management capable of facilitating capital financing and
      of
      executing our business plan, but have a limited management team at this
      time.  We are currently seeking strategic management for these
      purposes.  See “Management.”




We
      are smaller and have fewer
      financial resources than many larger biodiesel producers; therefore, we may
      not
      be able to successfully compete in the biodiesel
      industry.




There
      is
      significant pricing competition among biodiesel producers.  Our
      business faces competition from larger plants, from plants that can produce
      a
      wider range of products than we produce, and from similar biodiesel
      participants.  Many of our competitors have greater resources than we
      currently have.  Large biodiesel producers are capable of producing a
      significantly greater amount of biodiesel than we can and expect to produce,
      and
      to draw upon economies of scale that are not yet available to us.




Competition
      from large producers of
      petroleum-based diesel fuels and other competitive products may impact our
      profitability.




We
      will
      also compete with producers of other petroleum-based diesel fuels having similar
      performance and tail-pipe emissions characteristics as biodiesel, if not the
      life-cycle emissions advantage that we foresee arising from vegetative based
      biodiesel.  The major oil companies have significantly greater
      resources than we have to develop alternative products and to influence
      legislation and public perception of biodiesel.  These other companies
      also have significant resources to begin production of biodiesel should they
      choose to participate.




9


Our
      profits are impacted by
      feedstock oil prices, which could impact the value of your
      investment.




Our
      biodiesel production is dependant on feedstock oils, which are derived from
      agricultural commodities such as soybeans, and animal fats.  A
      significant reduction in the harvest of these commodities due to adverse weather
      conditions, farmer planting decisions, domestic and foreign government farm
      programs and policies, global demand and supply, or other factors could result
      in increased feedstock oil costs, which would thus increase our cost to produce
      biodiesel.  The significance and relative impact of these factors on
      the price of these feedstock oil commodities is difficult to predict, but such
      pricing pressure due to commodity prices has already negatively impacted both
      corn based ethanol and biodiesel.  Any events that tend to negatively
      impact the supply of feedstock oil commodities will tend to increase prices
      and
      harm our business.




Rising
      feedstock prices produce lower profit margins for the production of biodiesel
      and, therefore, represent unfavorable market conditions.  This is
      especially true when market conditions do not allow us to pass along increased
      feedstock costs to our customers, which is generally the case where petroleum
      biodiesel is priced more favorably or at a similar level.





The
      price
      of soybeans and other feedstock commodities has fluctuated significantly in
      the
      past and may fluctuate significantly in the future.  We cannot assure
      you that we will be able to offset any increase in the price of feedstock by
      increasing the price of our product.  If we cannot offset increases in
      the price of feedstock oil, our financial performance may be materially and
      adversely affected.




If
      petroleum diesel prices drop
      significantly, we will also be forced to reduce our prices, which potentially
      may lead to further losses.




Prices
      for biodiesel products can vary significantly over time and decreases in price
      levels could adversely affect our profitability and viability.  The
      price of biodiesel has some relation to the price of petroleum diesel as well
      as
      gasoline.  The price of biodiesel tends to decrease as the price of
      petroleum diesel decreases, in order to remain competitive.  Any
      lowering of petroleum prices will likely lead to lower prices for biodiesel
      and
      adversely affect our operating results.  We cannot assure you that we
      will be able to sell our biodiesel profitably, or at all.




Increased
      biodiesel production in
      the United States could increase the demand for feedstocks and the resulting
      price of feedstocks, reducing our profitability.




Increased
      biodiesel production without a similar (or greater) increase in feed stock
      supply would likely lead to an increase in feedstock prices, resulting in higher
      production costs and lower profits.  We believe that our plan to
      pursue greater vertical integration in production and supply, including
      participation in feedstock investment and development, will help reduce these
      risks.




Price
      increases or interruptions in
      needed energy supplies could cause loss of customers and impair our
      profitability.




Biodiesel
      production requires a constant and consistent supply of energy.  If
      there is any interruption in our supply of energy for whatever reason, such
      as
      availability, delivery or mechanical problems, we may be required to halt
      production.  If we halt production for any extended period of time, it
      will have a material adverse effect on our business.  Natural gas and
      electricity prices have historically fluctuated significantly.  We
      purchase significant amounts of these resources as part of our biodiesel
      production.  Increases in the price of natural gas or electricity
      would harm our business and financial results by increasing our energy
      costs.




10


Risks
      Related to Government
      Regulation and Subsidization




Federal
      regulations concerning tax
      incentives could expire or change, which could cause an erosion of the current
      competitive strength of the biodiesel industry.




Congress
      currently provides certain federal tax credits for biodiesel producers and
      marketers.  The biodiesel industry and our business will depend on
      continuation of these credits until significant increases in raw material supply
      and production efficiencies are attained.  The credits have supported
      a market for biodiesel that might disappear without the credits.





These
      credits may not continue beyond their scheduled expiration date or, if they
      continue, the incentives may not be at the same level.  The revocation
      or amendment of any one or more of these tax incentives could adversely affect
      the future use of biodiesel in a material way, and we cannot assure investors
      that any of these tax incentives will be continued.  The elimination
      or reduction of federal tax incentives to the biodiesel industry could have
      a
      material adverse impact on our business by making it more costly or difficult
      for it to produce and sell biodiesel.  If the federal biodiesel tax
      incentives are eliminated or sharply curtailed, we believe that a decreased
      demand for biodiesel could result.




Lax
      enforcement of environmental and
      energy policy regulations may adversely affect demand for
      biodiesel.




Our
      success will depend in part on effective enforcement of existing environmental
      and energy policy regulations.  Many of our potential customers are
      unlikely to switch from the use of conventional fuels unless compliance with
      applicable regulatory requirements leads, directly or indirectly, to the use
      of
      biodiesel.  Both additional regulation and enforcement of such
      regulatory provisions are likely to be vigorously opposed by the entities
      affected by such requirements.  If existing emissions-reducing
      standards are weakened, or if governments are not active and effective in
      enforcing such standards, our business and results of operations could be
      adversely affected.





Even
      if
      the current trend toward more stringent emissions standards continues, we will
      depend on the ability of biodiesel to satisfy these emissions standards more
      efficiently than other alternative technologies.  Certain standards
      imposed by regulatory programs may limit or preclude the use of our products
      to
      comply with environmental or energy requirements.  Any decrease in the
      emission standards or the failure to enforce existing emission standards and
      other regulations could result in a reduced demand for biodiesel.  A
      significant decrease in the demand for biodiesel will reduce the price of
      biodiesel, adversely affect our profitability and decrease the value of your
      stock.




Costs
      of compliance with burdensome
      or changing environmental and operational safety regulations could cause our
      focus to be diverted away from our business and our results of operations to
      suffer.




Biodiesel
      production involves the emission of various airborne pollutants, including
      particulate matter, carbon monoxide, carbon dioxide, nitrous oxide, volatile
      organic compounds and sulfur dioxide.  As a result, we are subject to
      complicated environmental regulations of the U.S. Environmental Protection
      Agency and regulations and permitting requirements of state
      governments.  These regulations are subject to change and such changes
      may require additional capital expenditures or increased operating
      costs.  Consequently, considerable resources may be required to comply
      with future environmental regulations.  In addition, biodiesel plants
      could be subject to environmental nuisance or related claims by employees,
      property owners or residents near the biodiesel plants arising from air or
      water
      discharges.  Environmental and public nuisance claims, or tort claims
      based on emissions, or increased environmental compliance costs could
      significantly increase our operating costs.




Biodiesel
      plants will also be subject to federal and state laws regarding occupational
      safety.  Risks of substantial compliance costs and liabilities are
      inherent in biodiesel production.  We may be subject to costs and
      liabilities related to worker safety and job related injuries, some of which
      may
      be significant.  Possible future developments, including stricter
      safety laws for workers and other individuals, regulations and enforcement
      policies and claims for personal or property damages resulting from operation
      of
      the biodiesel plants could reduce the amount of cash that would otherwise be
      available to further enhance our business.




11


Risks
      Related to Our Common
      Stock




Our
      common stock price may fluctuate
      considerably and stockholders may not be able to resell their shares at or
      above
      the price at which such shares were purchased.




The
      market price of our common stock may fluctuate significantly in response to
      factors, some of which are beyond our control, including the
      following:





·
            Inability
                to commercially manufacture or market and distribute biodiesel
                fuel;





·
            Inability
                to manufacture biodiesel fuel as efficiently as we expect due to
                factors
                related to costs and supply of feedstock oil and
                energy;





·
            Factors
                affecting demand for biodiesel such as price, competition and general
                economic conditions;





·
            Discontinuation
                or limitations on state and federal biodiesel
                subsidies;





·
            Negative
                public sentiment toward biodiesel production and use;
                and





·
            Environmental
                restrictions increasing the costs and liabilities of biodiesel
                production.





The
      stock
      market in general has experienced extreme price and volume
      fluctuations.  The market prices of securities of fuel-related
      companies have experienced fluctuations that often have been unrelated or
      disproportionate to the operating results of these
      companies.  Continued market fluctuations could result in extreme
      volatility in the price of our common stock, which could cause a decline in
      the
      value of our common stock.  Price volatility might be worse if the
      trading volume of our common stock is low.




Because
      we became public by means of
      a reverse merger, we may not be able to attract the attention of major brokerage
      firms for research and support.




Additional
      risks may exist since we became public through a “reverse
      merger.”  Securities analysts of major brokerage firms may not provide
      us with coverage since there is no incentive to brokerage firms to recommend
      the
      purchase of our common stock.  We cannot assure you that brokerage
      firms will want to conduct any secondary offerings on our behalf in the
      future.




Our
      common stock may be considered
“a penny stock” and may be difficult for you to sell.




The
      SEC
      has adopted regulations which generally define “penny stock” to be an equity
      security that has a market price of less than $5.00 per share or an exercise
      price of less than $5.00 per share, subject to specific
      exemptions.  The market price of our common stock has been for much of
      its trading history since February 2005 and may continue to be less than $5.00
      per share, and therefore may be designated as a “penny stock” according to SEC
      rules.  This designation requires any broker or dealer selling these
      securities to disclose certain information concerning the transaction, obtain
      a
      written agreement from the purchaser and determine that the purchaser is
      reasonably suitable to purchase the securities.  These rules may
      restrict the ability of brokers or dealers to sell our common stock and may
      affect the ability of investors to sell their shares.  In addition,
      since our common stock is currently traded on the NASD’s OTC Bulletin Board,
      investors may find it difficult to obtain accurate quotations of our common
      stock and may experience a lack of buyers to purchase such stock or a lack
      of
      market makers to support the stock price.





12


Failure
      to achieve and maintain
      effective internal controls in accordance with Section 404 of the Sarbanes-Oxley
      Act of 2002 could have a material adverse effect on our business and operating
      results.  In addition, current and potential stockholders could lose
      confidence in our financial reporting, which could have an adverse effect on
      our
      stock price.




Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud.  If we cannot provide reliable financial
      reports or prevent fraud, our operating results could be harmed.





In
      accordance with 1933 Act Release No. 8760, commencing with our fiscal year
      ending September 30, 2008, we will become subject to the requirement to include
      in our annual report management’s assessment of internal controls over financial
      reporting.  This assessment will require us to document and test our
      internal control procedures in accordance with Section 404 of the Sarbanes-Oxley
      Act of 2002. Our independent registered public accountants will be required
      to
      attest to our assessment of internal controls for our fiscal year ending
      September 30, 2009.





During
      the course of our testing, we may identify deficiencies which we may not be
      able
      to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act
      for
      compliance with the requirements of Section 404.  In addition, if we
      fail to maintain the adequacy of our internal accounting controls, as such
      standards are modified, supplemented or amended from time to time, we may not
      be
      able to ensure that we can conclude on an ongoing basis that we have effective
      internal controls over financial reporting in accordance with Section
      404.  Failure to achieve and maintain an effective internal control
      environment could cause us to face regulatory action and also cause investors
      to
      lose confidence in our reported financial information, either of which could
      have an adverse effect on our stock price.




Our
      principal stockholders have
      significant voting power and may take actions that may not be in the best
      interest of all other stockholders.




Our
      officers, directors and principal stockholders control approximately 84% of
      our
      currently outstanding shares of common stock.  If these stockholders
      act together, they may be able to exert significant control over our management
      and affairs requiring stockholder approval, including approval of significant
      corporate transactions.  This concentration of ownership may have the
      effect of delaying or preventing a change in control and might adversely affect
      the market price of our common stock.  This concentration of ownership
      may not be in the best interests of all our stockholders.




Investors
      should not anticipate
      receiving cash dividends on our common stock.




We
      have
      never declared or paid any cash dividends or distributions on our capital
      stock.  We currently intend to retain our future earnings to support
      operations and to finance expansion and therefore we do not anticipate paying
      any cash dividends on our common stock in the foreseeable future.




We
      could issue “blank check”
preferred stock without stockholder approval with the effect of diluting then
      current stockholder interests and impairing their voting rights, and provisions
      in our charter documents and under Delaware law could inhibit a takeover at
      a
      premium price.




Our
      certificate of incorporation authorizes the issuance of up to 5,000,000 shares
      of “blank check” preferred stock with designations, rights and preferences as
      may be determined from time to time by our board of
      directors.  Accordingly, our board of directors is empowered, without
      stockholder approval, to issue a series of preferred stock with dividend,
      liquidation, conversion, voting or other rights which could dilute the interest
      of, or impair the voting power of, our common stockholders.  The
      issuance of a series of preferred stock could be used as a method of
      discouraging, delaying or preventing a change in control.





ITEM
      2. DESCRIPTION OF
      PROPERTY





The
      Company does not own any real property.  Better Biodiesel’s production
      facilities are located on an operational rail spur in Spanish Fork, Utah, just
      off Interstate Highway 15.   As of the date of this filing,
      however, the Company is actively seeking to relocate its
      facilities.





13


ITEM
      3. LEGAL PROCEEDINGS





The
      Company is not currently subject to any legal proceedings. From time to time,
      the Company may become subjected to litigation or proceedings in connection
      with
      its business, as either a plaintiff or defendant.  The Company is
      currently not aware of any pending legal proceedings to which the Company may
      become a party that is likely to have a material adverse effect on the Company’s
      business, financial condition or results of operations.





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





None
      during the fiscal year ended September 30, 2007.





PART
      II




ITEM
      5. MARKET FOR COMMON EQUITY AND
      RELATED STOCKHOLDER MATTERS





The
      Company’s common stock is traded in
      the Over-the-Counter market and is quoted on the Electronic Bulletin Board
      (“OTC
      Bulletin Board”) under the symbol “Better Biodiesel.”  The following
      table represents the range of the high and the low closing prices, as quoted
      on
      the OTC Bulletin Board, for each fiscal quarter for the fiscal year ended
      September 30, 2007 for the transition period ended September 30,
      2006.  These quotations represent prices between dealers, and may not
      include retail mark-ups, markdowns or commissions, and may not necessarily
      represent actual transactions.  On September 20, 2006, the Company’s
      amended its Articles of Incorporation to change the Company’s name to Better
      Biodiesel, Inc., and to reverse split its shares of common stock on the basis
      of
      one share for each two shares issued and outstanding with all fractional shares
      rounded up to the nearest whole share. The foregoing amendments were effective
      September 21, 2006. On September 29, 2006, the Company announced the closing
      of
      its acquisition of Domestic Energy Partners, LLC by way of a Share Exchange
      Agreement.


FISCAL
                    QUARTER ENDING
                HIGH
                LOWSeptember
                    30, 2007
                $2.40
                $1.50June
                    30, 2007
                $2.70
                $2.40March
                    31, 2007
                $7.00
                $3.70December
                    31, 2006
                $9.70
                $7.95September
                  30, 2006
                $2.50
                $1.30June
                  30, 2006
                $6.00
                $1.30March
                  31, 2006
                $6.00
                $3.10December
                  31, 2005
                $10.00
                $4.00


As
      of
      January 10, 2008, the Company had 15,195,001 shares of common stock issued
      and
      outstanding and had approximately 82 stockholders of record.




We
      have
      never declared or paid cash dividends to our stockholders. We currently intend
      to retain all available funds and any future earnings for use in the operation
      of our business and we do not anticipate declaring or paying cash dividends
      for
      the foreseeable future.




Equity
      Compensation
      Plans





In
      August
      2002 the Company established an equity compensation plan, the 2002 Equity
      Incentive Plan (the “Equity Incentive Plan”), authorizing 2,500,000 shares of
      common stock of the Company, which pursuant to the terms of the Equity Incentive
      Plan was adjusted downward, as a result of the September 2006 reverse stock
      split of the Company’s common stock to 1,250,000 shares, for the grant of
      incentive stock options and non-qualified stock options, as well as restricted
      stock awards or bonuses.  Currently, no options are issued and
      outstanding and no options or stock grants have been issued Equity Incentive
      Plan, nor has the Company’s Board of Directors has not allocated any shares to
      the Equity Incentive Plan.





14


Pursuant
      to Section 4.3 of the Equity Incentive Plan the number of shares authorized,
      issued and outstanding or stock awards or options granted under the Equity
      Incentive Plan are adjusted in like manner with any increase, decrease in the
      issued and outstanding shares by payment of stock dividend or other distribution
      payable in stock, or through stock split, subdivision, consolidation,
      combination or recapitalization.





Equity
                Compensation Plan
                InformationPlan
                Category
            Number
                of securities to
            
            Weighted-average
            Number
                of securitiesbe
                issued upon exercise
            
            exercise
                price of
            remaining
                available forof
                outstanding options,
            
            outstanding
                options,
            future
                issuance underwarrants
                and rights (a)
            
            warrants
                and rights (b)
            equity
                compensationplans
                (excludingsecurities
                reflected incolumn
                (a))Equity
                compensation
            N/A
            
            N/A
            N/Aplans
                approved bysecurity
                holdersEquity
                compensation
            N/A
            
            Price
                as listed on the
            N/Aplans
                not approved by
            
            
            OTCBB
                at the time ofsecurity
                holders
            
            
            issuance.





Recent
      Sales of Unregistered
      Securities





During
      the fiscal year ended September 30, 2007 and for the nine month transition
      period ended September 30, 2006, the Company sold the following securities
      that
      were not registered under the Securities Act of 1933 (the “Act”) and not
      reported on any other form:





During
      May and June 2007 the Company sold 377,500 units of securities of the Company,
      pursuant to an exemption under Rule 506 of the Securities Act to accredited
      investors, as defined in Rule 501 of the Securities Act in a private placement
      (the “Private Placement”).  The units consist of 377,500 shares of
      common stock and warrants to purchase 377,500 share of common stock at $2.65
      per
      share.  The units were sold at $2.00 per unit.  Gross
      proceeds totaled $755,000.  The Company’s Chief Executive Officer and
      Chief Financial Officer purchased 41,000 and 25,000 units,
      respectively.  The common shares have “piggy back” registration rights
      and demand registration rights after 90 days, subject to limitations for
      additional financing being sought and limitations under current SEC
      regulations.





The
      warrants vest immediately, expire in five years and may be exercised for cash
      or
      on a cashless basis.  Analysis utilizing the Black-Scholes model
      utilizing volatility of 184%, a dividend yield of 0% and a risk free interest
      rate of 5.1% resulted in an allocation of proceeds of $385,050 to common stock
      (51%) and $369,950 to the warrants as additional paid in capital
      (49%).  The Company accrued $75,500 as a placement fee that is payable
      at a larger round of financing or as a result of terminating the underlying
      agreement and allocated the costs as 51% to common stock and 49% to additional
      paid in capital.  The Company also issued to Thomas Lloyd Capital, LLC
      28,491 warrants as a placement fee with an exercise price of $2.65, expiring
      in
      five years that can be exercised as cash or cashless.  The warrants
      were valued utilizing the Black- Scholes model utilizing a volatility of 179%,
      a
      dividend yield of 0% and a risk free rate of 4.9%.  The $65,523 value
      was recorded as a reduction to common stock proceeds.





In
      June
      2007 the Company issued 67,500 units of securities of the Company, pursuant
      to a
      private placement exemption under Section 4(2) of the Securities Act to
      accredited investors, consisting of 67,500 shares of common stock and warrants
      to purchase 67,500 shares of common stock valued at $2.00 per
      unit.  The terms and conditions of the securities are the same as the
      Private Placement described above, excluding placement fees.  In
      exchange the Company received $11,107 of inventory, $35,721 of assets and
      $88,172 of operating expenses.  The $135,000 was allocated 51% to
      common stock and 49% to additional paid in capital.




15


In
      Connection with the share exchange between the Company and DEP, which closed
      on
      September 29, 2006 the Company, authorized the issuance of 28,500,000 shares
      of
      its unregistered common stock, pursuant to the private offering exemption under
      Section 4(2) of the Securities Act of 1933.  The issuance was as
      follows:





In
      exchange for services provided, the Company authorized the issuance of 4,500,000
      shares of common stock to Capital Group Communications, Inc. and 1,500,000
      shares of its common stock to Joseph Martin, LLC.





At
      the
      election of Sausalito Capital Partners I, LLC, pursuant to the terms of a
      convertible promissory note issued to SCP by the Company, SCP converted the
      promissory note into 1,500,000 shares of the Company’s common
      stock.





Additionally,
      in connection with the terms the Company’s share exchange agreement with
      Domestic Energy Partners, LLC,
      under an exemption provided by Section 4(2) of the Securities Act of 1933,
      the
      Company issued, in exchange for all of the and outstanding equity and voting
      interests of Domestic Energy Partners, LLC, 5,250,000 shares of common stock
      to
      Ron Crafts, 5,250,000 shares to John Crawford, 3,755,500 shares to Lynn Dean
      Crawford, 2,625,000 shares to Peter Kristensen, 2,625,000 shares to Briton
      McConkie and 1,494,500 shares of common stock to James
      Crawford.








ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR
      PLAN OF OPERATIONS




FORWARD
      LOOKING STATEMENTS CAUTIONARY




This
      Item
      6 and the report on Form 10-KSB for the twelve month period ended September
      30,
      2007 may contain “forward-looking statements.” In some cases, you can identify
      forward-looking statements by terminology such as “may,” “will,” “should,”
“could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of such terms and other
      comparable terminology. These forward-looking statements include, without
      limitation, statements about our market opportunity, our strategies,
      competition, expected activities and expenditures as we pursue our business
      plan, and the adequacy of our available cash resources. Although we believe
      that
      the expectations reflected in any forward-looking statements are reasonable,
      we
      cannot guarantee future results, levels of activity, performance or
      achievements. Actual results may differ materially from the predictions
      discussed in these forward-looking statements. Changes in the circumstances
      upon
      which we base our predictions and/or forward-looking statements could materially
      affect our actual results. Additional factors that could materially affect
      these
      forward-looking statements and/or predictions include, among other things:
      (1)
      our limited operating history; (2) our ability to pay down existing debt; (3)
      the Company’s ability to obtain contracts with suppliers of raw materials (for
      the Company’s production of biodiesel fuel) and distributors of the Company’s
      biodiesel fuel product; (4) the risks inherent in the mutual performance of
      such
      supplier and distributor contracts (including the Company’s production
      performance); (5) the Company’s ability to protect and defend the Company’s
      proprietary technology; (6) the Company’s ability to secure and retain
      management capable of managing growth; (7) the Company’s ability to raise
      necessary financing to execute the Company’s business plan; (8) potential
      litigation with our shareholders, creditors and/or former or current investors;
      (9) the Company’s ability to comply with all applicable federal, state and local
      government and international rules and regulations; and (10) other factors
      over
      which we have little or no control.




Organization
      and
      Business - Better Biodiesel, Inc. (f/k/a Mountain States Holdings, Inc.
      (“Mountain States”)) was incorporated as a Colorado corporation in November 1990
      under the name Slam Dunk Enterprises, Inc, was inactive until May 1998 when
      it
      started engaging in the business of providing first and second mortgage
      financing under the name of Mountain States Lending, Inc.  During January
      2001, the corporation filed articles of amendment with the Colorado Secretary
      of
      State, changing the corporation’s name to Mountain States Lending, Inc., and
      during September 2002 changed the name again, to Mountain States Holdings,
      Inc.  During September 2002, the corporation formed a wholly-owned
      subsidiary named Mountain States Lending, Inc. (“Mountain States Lending”) and
      on December 31, 2002, it transferred all of its assets and liabilities related
      to the mortgage lending business to this new subsidiary.  In August 2006,
      all of the Company’s assets and liabilities resided in two wholly-owned
      subsidiaries that were spun-off to two stockholders, one of whom was the former
      CEO of the Company, in exchange for 325,000 pre-split (162,500 post-split)
      shares of the Company’s common stock.  In September 2006, the Company
      entered into a the Exchange Agreement with Domestic Energy Partners, LLC, a
      Utah
      limited liability company (“DEP”), pursuant to which it acquired all of the
      equity interests in DEP.  On September 20, 2006 prior to the closing of its
      Exchange Agreement with DEP, a majority of the shareholders of the Company
      at a
      special meeting of the shareholders approved amendments to the Company’s
      Articles of Incorporation to change the Company’s name to Better Biodiesel,
      Inc., and to reverse split its shares of common stock on the basis of one share
      for each two shares issued and outstanding with all fractional shares rounded
      up
      to the nearest whole share. The foregoing amendments were effective September
      21, 2006.




16


The share exchange of the Company and DEP has been accounted for as a reverse
      merger, which is equivalent to a recapitalization of the Company.  Thus, in
      the September 30, 2007 Financial Statements of the Company included in this
      Form
      10-KSB, which present the Company as being in the development stage, the assets
      and liabilities in the consolidated balance sheets are the book values of DEP’s
      assets and liabilities and the operations in the consolidated statement of
      operations are the operations of DEP.  Further, unless obvious from the
      context that they refer to Mountain States, operational and financial data
      presented elsewhere in this Form 10-KSB refer to DEP, as the Company’s sole and
      wholly-owned subsidiary.




PLAN
      OF OPERATION




During
      the next 12-month period the Company intends to focus on (1) the commercial
      development of (i) proprietary biodiesel fuel technology (ii) the procurement
      and supply of biodiesel raw materials and (iii) marketing and distribution
      of
      biodiesel fuel products (2) the vertical integration of these strategies, and
      (3) raising additional capital through debt or equity financing.





Management
      believes that the key to profitability in the biodiesel industry is to control
      raw material and production costs.  Rising commodity prices have
      caused many biodiesel producers to close operations while concurrently leading
      to a tightening of available investment capital. To control costs, the Company
      is expanding its focus to establish long-term contracts with low cost,
      diversified feedstock providers, and investing in technologies to that will
      enable the processing of a wider range of feedstocks.  From the point
      of acquisition of low cost feedstock, the Company’s goal will be to produce high
      quality American Society for Testing and Materials(“ASTM”) fuel using existing
      proven technologies.  Additionally, the Company intends to acquire
      established biodiesel plants to produce biodiesel fuel for resale and is
      investigating a potential acquisition of an established petrodiesel distributor
      capable of distributing biodiesel fuel.





We
      had a
      net loss of $2,367,682 for the twelve months ended September 30, 2007 and a
      net
      loss of $420,853 for the transitional period (nine months) ended September
      30,
      2006, an increase in net loss of $1,946,829.  The increase in net loss
      is due to an increase of $664,099 in costs associated with warrant and option
      related expenses for consulting, director fees and other expenses, a $104,787
      increase in interest expense, a $119,546 increase in depreciation expense as
      well as increase in other operating expenses associated with being a public
      company for a full twelve months.  The loss from inception (November 1,
      2004) through September 30, 2007 amounted to $2,840,482.




We
      have
      financed our operations through various related party advances, private equity
      and debt transactions.




Going
      concern
      presentation - The accompanying consolidated financial statements have
      been prepared in conformity with generally accepted accounting principles,
      which
      contemplate continuation of the Company as a going concern. The Company has
      incurred recurring losses from operations and has a net working capital
      deficiency and net capital deficiency that raises substantial doubt about its
      ability to continue as a going concern. The Report of Independent Registered
      Public Accounting Firm included in this Annual Report on Form 10-KSB stated
      that
      these conditions, among others, raise substantial doubt about the Company’s
      ability to continue as a going concern. Company management intends to raise
      additional debt and equity financing to fund future operations and to provide
      additional working capital. However, there is no assurance that such financing
      will be obtained in sufficient amounts necessary to meet the Company’s needs.
      The accompanying consolidated financial statements do not include any
      adjustments to reflect the possible future effects on the recoverability and
      classification of assets or the amounts and classifications of liabilities
      that
      may result from the outcome of this uncertainty.




17


Critical
      Accounting Policies
      and Estimates - The preparation of financial statements included in this
      Annual Report on Form 10-KSB requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period.  On an on-going basis, management
      evaluates its estimates and judgments. Management bases its estimates and
      judgments on historical experiences and on various other factors that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying value of assets and liabilities
      that are not readily apparent from other sources.  Actual results may
      differ from these estimates under different assumptions or conditions.  The
      more significant accounting estimates inherent in the preparation of the
      Company’s financial statements include estimates as to the valuation of equity
      related instruments issued, and valuation allowance for deferred income tax
      assets. Our accounting policies are described in the notes to financial
      statements included in this Annual Report on Form 10-KSB. The more critical
      accounting policies are as described below.




Revenue
      recognition - The
      Company recognizes revenue when the product has been delivered or the services
      have been provided to the customer, the sales price is fixed or determinable,
      and collectability is reasonably assured.




Income
      taxes - The Company
      utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires recognition
      of deferred tax assets and liabilities for the expected future tax consequences
      of events that have been included in the financial statements or tax returns.
      Under this method, deferred income taxes are recognized for the tax consequences
      in future years of differences between the tax bases of assets and liabilities
      and their financial reporting amounts at each period end based on enacted tax
      laws and statutory tax rates applicable to the periods in which the differences
      are expected to affect taxable income. Valuation allowances are established,
      when necessary, to reduce deferred tax assets to amounts expected to be
      realized. The provision for income taxes represents the tax payable for the
      period and change during the period in net deferred tax assets and
      liabilities.




Share-based
      compensation -
      The Company did not issue options or warrants to employees prior to 2005.
      Effective January 1, 2006, the Company accounts for all options and warrant
      grants to employees and consultants in accordance with SFAS 123R, which requires
      recording an expense over the requisite service period for the fair value of
      all
      options or warrants granted employees and consultants.  As of September 30,
      2007, there were 684,816 warrants outstanding, of which 200,000 were for
      consulting services and there were 100,000 options outstanding to an independent
      director.




18


Results
      of Operations
      -




For
                the Twelve Months Ended
                9/30/07
            
            For
                the Nine Month Transition
                Period Ended 9/30/06
            
            DifferenceSales
            $
            11,925
            $
            --
            $
            11,925Cost
                of Sales
            
            33,271
            
            --
            
            33,271Gross
                Profit
            
            (21,346)
            
            --
            
            (21,346)Operating
                ExpensesDepreciation
            
            136,129
            
            16,583
            
            119,546Marketing
            
            83,300
            
            106,778
            
            (23,478)Research
                & development
            
            43,502
            
            26,544
            
            16,958General
                & administrative
            
            1,921,585
            
            264,281
            
            1,657,304Total
                operating expenses
            
            2,184,516
            
            414,186
            
            1,770,330Loss
                from operations
            
            (2,205,862)
            
            (414,186)
            
            (1,791,676)Interest
                expense
            
            (111,454)
            
            (6,667)
            
            (104,787)Net
                Loss Before Extraordinary Item
            $
            (2,317,316)
            $
            (420,853)
            $
            (1,896,463)Extraordinary
                Loss From Fire
            $
            (50,366)
            $
            --
            $
            (50,366)Net
                Loss
            $
            (2,367,682)
            $
            (420,853)
            $
            (1,946,829)







Sales
      amounted to $11,925 for
      the twelve months ended September 30, 2007 (2007) compared to no sales for
      the
      nine month transition ended September 30, 2006 (2006).  The sales in
      2007 came from the delivery of 4,500 gallons of fuel in March of 2007 to a
      potential customer to be used by the buyer for testing in their laboratory
      and
      in actual use.  There have been no sales since that time.




Cost
      of Sales amounted to
      $33,271 for 2007 compared to $0 in 2006.  The cost of sales recorded
      in 2007 were inventory adjustments to reduce the carrying value to net
      realizable value.  The write-down consisted of $16,532 for out of
      specification and unsalvageable fuel in process and $16,739 to adjust other
      additional work in process to net realizable value.  There were no
      cost of sales associated with the sales, since that fuel was produced from
      feedstock that been expensed for research and development purposes.




Depreciation
      expense
      increased $119,546 from $16,583 in 2006 to $136,129 in 2007.  The
      increase is a result of additional capital expenditures.




Marketing
      decreased from
      $106,778 in 2006 to $83,300 in 2007, a decline of $23,478.  The
      decease was primarily the result of canceling a sponsorship arrangement in
      December of 2006.




Research
      and development rose
      from $26,544 in 2006 to $43,502, an increase of $16,958.  The Company
      conducted additional research in the first half of 2007.




19


General
      and administrative
      expenses amounted to $1,921,585 in 2007 compared to $264,281 in
      2007.  $664,099 of the $1,657,304 increase was from non-cash expenses
      recognized for consulting, directors and other operating expenses associated
      with issuance of warrants and options.   There was an increase of
      $390,915 in salary expense associated with developing the Company’s
      administrative capabilities.  The remainder of the increases are
      primarily associated with a full year of expense and the costs associated with
      being a public company.




Interest
      expense increased
      $104,787 to $111,454 in 2007 when compared to interest expense of $6,667 in
      2006.  The increase is associated with advances received and debt
      placed in 2007 and includes $70,913 in debt discount amortization.




Extraordinary
      loss in 2007 of
      $50,366 was due to a fire sustained by the Company in its fuel
      processor.  The amount reflects the write-off of damaged equipment net
      of accumulated depreciation of $1,291.  There was no insurance
      available to cover the loss.  After reviewing the expenditures
      required to bring the processor back to full production and the economic
      benefit, the Company determined that its financial interests were best served
      by
      making basic repairs and to use the processor for limited production and for
      testing and demonstration purposes.  It is expected the City of
      Spanish Fork will require certain improvements to be made in the building and
      containment equipment before it allows full production to resume.




Liquidity
      and Capital
      Resources - Historically, our cash needs have been satisfied
      primarily through proceeds from private placements of our equity securities
      and
      debt instruments including debt instruments convertible into our equity
      securities and related party advances.  We expect to continue to be
      required to raise capital in the future, but cannot guarantee that such
      financing activities will be sufficient to fund our current and future projects
      and our ability to meet our cash and working capital needs.




The
      Company’s working capital was a deficit of $1,055,311 at September 30, 2007
      compared to positive net working capital of $54,666 at September 30,
      2006.




Net
      cash
      used in operating activities amounted to $854,662 in 2007 compared to $283,953
      net cash used in operating activities for 2006.




Cash
      used
      in investing activities for 2007 amounted to $333,215 in 2007 compared to
      $144,158 in 2006.




Cash
      was
      provided from financing activities in the amount of $1,112,485 compared to
      $601,927 during the transitional period ended September 30, 2006.




Off-Balance
      Sheet
      Arrangements - We do not have any off-balance sheet arrangements that
      have or are likely to have a material current or future effect on the Company’s
      financial condition, or changes in financial condition, liquidity or capital
      resources or expenditures.




Recent
      accounting
      pronouncements– In accordance with Release No. 8760 of the Securities Act
      of 1933, commencing with the Company’s fiscal year ending September 30, 2008,
      the Company will become subject to the requirement to include in its annual
      report management’s assessment of internal controls over financial
      reporting.  This assessment will require the Company to document and
      test its internal control procedures in accordance with Section 404 of the
      Sarbanes-Oxley Act of 2002.  The Company’s independent registered
      public accountants will be required to attest to the Company’s assessment of
      internal controls for its fiscal year ending September 30, 2009.




In
      September 2006, the FASB issued
      Statement of Financial Accounting Standards No. 157, Fair ValueMeasurements
      (“SFAS
      157”).  SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years.  The Company has not yet determined the effect of
      applying SFAS 157.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The Fair
      ValueOption for
      Financial Assets and Financial Liabilities, (“SFAS 159”).  SFAS
      159 is effective for fiscal years beginning after November 15,
      2007.  The Company does not believe that FAS 159 will have any
      material effect on its financial statements.




20


In
      June 2007, the Emerging Issues Task
      Force of the FASB issued EITF Issue no. 07-3, Accounting forNonrefundable
      Advance Payments for
      Goods or Services to be Used in Future Research and DevelopmentActivities, (“EITF 07-3”)
      which is effective for fiscal years beginning after December 15,
      2007.  EITF 07-3 requires that nonrefundable advance payments for
      future research and development activities be deferred and
      capitalized.  Such amounts will be recognized as an expense as the
      goods are delivered or the related services are performed.  The
      Company does not expect the adoption of EITF 07-3 to have a material impact
      on
      the financial results of the Company.




In
      December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS
      No. 141(R)”), which requires the Company to record fair value estimates of
      contingent consideration and certain other potential liabilities during the
      original purchase price allocation, expense acquisition costs as incurred and
      does not permit certain restructuring activities previously allowed under
      Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
      purchase accounting.  The Company will adopt this standard at the
      beginning of The Company’s fiscal year ending September 30, 2010 for all
      prospective business acquisitions.  The Company has not determined the
      effect that the adoption of SFAS No. 141(R) will have on its consolidated
      financial statements, but the impact will be limited to any future acquisitions
      beginning in fiscal 2010.




In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
      in
      Consolidated Financial Statements—an amendment of ARB No. 51, (“SFAS No.
      160”), which causes noncontrolling interests in subsidiaries to be included in
      the equity section of the balance sheet.  The Company will adopt this
      standard at the beginning of the Company’s fiscal year ending September 30,
      2010.  The Company has not determined the effect that the adoption of
      SFAS No. 160 will have on its consolidated financial statements.






ITEM
      7. FINANCIAL
      STATEMENTS




The
      financial statements are set forth following the Exhibit Index.




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




None




ITEM
      8A. CONTROLS AND PROCEDURES




The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s Exchange Act reports
      is recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms, and that such information is accumulated
      and communicated to the Company’s management, including its Chief Executive
      Officer and Chief Financial Officer, as appropriate, to allow timely decisions
      in accordance with the required “disclosure controls and  procedures” as
      defined in Rule 13a-15(e).  The Company’s disclosure and control procedures
      are designed to provide reasonable assurance of achieving their objectives,
      and
      the principal executive officer and principal financial officer of the Company
      concluded that the Company’s disclosure controls and procedures were effective
      at the reasonable assurance level.




At
      the
      end of the period covered by this Annual Report, the Company carried out an
      evaluation, under the supervision and with the participation of the Company’s
      management, including the Company’s principal executive officer and principal
      financial officer, of the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures.  Based of the foregoing, the
      principal executive officer and principal financial officer of the Company
      concluded that the Company’s disclosure controls and procedures were effective
      to ensure that the information required to be disclosed in the Company’s
      Exchange Act reports is recorded, processed, summarized and reported within
      the
      time periods specified in the SEC’s rules and forms, and that such information
      is accumulated and communicated to the Company’s management including the
      Company’s principal executive officer and principal financial officer to allow
      timely decisions regarding required disclosure.




There
      were no changes in the Company’s internal control over financial reporting that
      occurred during the Company’s last fiscal quarter that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




21


ITEM
      8B. OTHER
      INFORMATION




On
      October 31, 2007, the Company
      accepted the resignations of Steve Nordaker and John Robinson from the Board
      of
      Directors of the Company, as reported on the Company’s Form 8-K, filed November
      6, 2007.  Mr. Nordaker and Mr. Robinson had served on the Board of
      Directors since June 19, 2007.  Their resignations did not arise from
      the Board of Directors did not arise from any disagreement on any matter
      relating to the Company’s operations, policies or practices, or regarding the
      general direction of the Company.





On
      December 20, 2007, the Company entered into and closed an Asset Purchase,
      Settlement and Mutual Release Agreement with Ron Crafts, Chairman and Chief
      Executive Officer of the Company, John Crawford, President, Chief Technology
      Officer and a Director of the Company, Lynn Dean Crawford, Chief Operations
      Officer of the Company, James Crawford, Mary Crafts, and Culinary Crafts, LLC.
      (the “Disengaging Parties”), under which Ron Crafts, John Crawford, Lynn Dean
      Crawford and James Crawford exchanged a total of 15,750,000shares of common stock
      of the Company in exchange for: (i) 100% of the membership interests in Domestic
      Energy Partners, LLC., the Company’s wholly-owned subsidiary (“DEP”); (ii)
      certain contracts, certain biodiesel processing equipment related to the
      Company’s proprietary production technology, office furnishings, transferable
      tax rebate certificates, documents and copyrights owned by the Company and/or
      DEP; (iii) all of the rights, title and interest held in the invention
      identified in the patent application assigned to the Company; and (iv) the
      Company’s Twin Cessna airplane (the “Asset Sale Agreement”).





Additionally,
      under the Asset Sale Agreement, DEP assumed all liabilities in connection with,
      or obligations owed to, Ron Crafts, John Crawford, James Crawford, Lynn Dean
      Crawford and Culinary Crafts, including certain wages and loans payable (the
      liabilities have a stated, total of approximately $321,784).





The
      Asset
      Sale Agreement also stipulated that Ron Crafts, John Crawford and Lynn Dean
      Crawford resign from their respective positions with the Company, upon
      closing.





Seven
      shareholders of the Company beneficially owning a total of 24,751,000 shares
      of
      the Company’s 30,945,001 total issued and outstanding shares of common stock
      consented to the Asset Sale Agreement, in accordance with Section 7-107-104
      and
      Section 7-112-102 of the Colorado Revised Statutes.  Excluding
      shareholders with a direct interest in the assets sold in the Asset Sale
      Agreement, three shareholders beneficially owning a total of 9,001,000 shares
      consented out of the remaining 15,154,001 total shares that are considered
      disinterested in the assets of the transaction.





On
      December 20, 2007, the Company accepted the resignations of Ron Crafts from
      his
      positions as Chairman of the Board of Directors and Chief Executive Officer,
      John Crawford, from his positions as Director and as President and Chief
      Technology Officer, and Lynn Dean Crawford from his position as Chief Operations
      Officer.





The
      resignations, as reported on the Company’s Form 8-K, filed December 21, 2007,
      were the result of the Board of Director’s and management’s decision to broaden
      its business plan, as described in the following paragraph, and the resulting
      Asset Sale Agreement, in response to management’s belief that the proprietary
      technology included in the Asset Sale Agreement would not be ready for
      large-scale commercial use in the near term.





The
      remaining management of the Company continues to focus on the Company’s
      operations in the biodiesel industry, while shifting its business plan, from
      a
      singular focus on biodiesel production through proprietary technology, to a
      broader business plan including, in addition to research and development of
      biodiesel fuel technology, the supply of biodiesel raw materials vertically
      integrated with the marketing and distribution of biodiesel fuel
      products.   The Company intends to appoint additional management
      and directors during the first half of 2008.







22





PART
      III








ITEM
      9. DIRECTORS AND EXECUTIVE
      OFFICERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
      ACT





Directors
      and Executive
      Officers





NAME
            AGE
            POSITIONRon
                Crafts(1)
            50
            Chief
                Executive Officer, Chairman and DirectorJohn
                Crawford(1)
            42
            President,
                Chief Technology Officer and DirectorLynn
                Dean Crawford(1)
            63
            Chief
                Operations OfficerPeter
                Kristensen(2)
            46
            Vice
                President of Corporate Development and DirectorF.
              Briton McConkie(2)
            61
            Vice
              President of Business Development and DirectorGary
                Crook
            55
            Chief
                Financial OfficerSteve
                Nordaker(3)
            60
            DirectorJohn
                Robinson(3)
            66
            DirectorDavid
                M. Otto
            49
            Director
                and General Securities Counsel





(1)
      On
      December 20, 2007, the Company Ron Crafts resigned from his positions as
      Chairman of the Board of Directors and Chief Executive Officer; John Crawford
      resigned from his positions as Director and as President and Chief Technology
      Officer; Lynn Dean Crawford from his position as Chief Operations
      Officer.





(2)
      In
      July of 2007 the Company accepted the resignations of Briton McConkie as Vice
      President of Business Development and Peter Kristensen as Vice President of
      Corporate Development.  Mr. McConkie and Mr. Kristensen had previously
      served on the Board of Directors from September 29, 2007, through June 19,
      2007,
      resigning their positions concurrent with the appointment of Steve Nordaker
      and
      John Robinson to the Board of Directors on June 19, 2007.





(3)
      On
      October 31, 2007, Steve Nordaker and John Robinson resigned from the Board
      of
      Directors of the Company.





23


The
      above
      table states the individuals who served as officers and/or directors at any
      time
      during the fiscal year ended September 30, 2007.  As described above,
      several of these individuals resigned both during the fiscal year ended
      September 30, 2007 and during the first quarter of the fiscal year 2008,
      subsequent to the period covered in this annual report.  Therefore the
      descriptions of the backgrounds of the individuals, below, represent historic
      disclosures regarding these individuals as of September 30, 2007.





Ron
      Crafts


Chairman,
      Chief Executive Officer and Chief Financial Officer





Mr.
      Crafts, age 50, is an entrepreneur with 23 years of experience in business
      management and operations.  Mr. Crafts was a Utah “Best of State”
winner of the “Entrepreneur of the Year” award in 2005 for his successful
      catering company. Mr. Crafts attended college at Brigham Young University
      and has a background in accounting.





John
      Crawford


President,
      Chief Technology Officer and Director





Mr.
      Crawford, age 41, is the inventor of the Company’s improved refining technology,
      and is in charge of all scientific development and advisory.  Mr.
      Crawford is a chemical engineer who has co-authored numerous scientific papers
      and holds several patents in the area chemical science and engineering. Mr.
      Crawford’s career began in environmental chemistry at Brigham Young
      University.  Since that time he has had 16 years of experience
      developing chemical reaction measuring devices and equipment.





Lynn
      Dean
      Crawford


Chief
      Operations Officer





Mr.
      Crawford, age62,
      has extensive experience in all aspects of technical engineering management,
      research and development, large-scale maintenance and logistics support for
      operations, government compliance oversight, mechanical design, computer systems
      and software implementation, and employee supervision.  Mr. Crawford
      has over 25 years of experience in technical management positions of small
      and
      large companies, with 11 of those positions at the corporate
      level.  Since 2002, Mr. Crawford has also been an independent
      consultant, providing guidance on project management, product design, patent
      development and regulatory support to start-up companies.  Mr.
      Crawford received a B.S.E. in Mechanical Engineering and a Masters in Mechanical
      Engineering from Brigham Young University in 1971.





Gary
      Crook


Chief
      Financial Officer





Mr.
      Crook
      is a Partner in the Salt Lake City practice off Tatum, LLC, whose twenty-five
      year career includes serving as the Chief Financial and Controller in public,
      foreign and privately held companies in the business services, healthcare and
      retailing segments.  His professional accomplishments include
      coordinating the $4 million acquisition of a radio station and helping take
      public SOS Staffing Services, a temporary staffing and consulting
      firm.  Mr. Crook has led two follow-on equity offerings and a private
      debt placement, raising over $100 million.  He was also a director and
      chairman of the audit committee for Q Comm International, Inc., an electronic
      prepaid transaction processor headquartered in Utah (QMMI.PK) prior of the
      merger of Q Comm into another firm in May 2007.  Mr. Crook holds both
      a B.S. in Business Economics and Masters in Business Administration from the
      University of Utah.





Peter
      Kristensen


Vice
      President of Corporate Development





Mr.
      Kristensen, age 45, is Vice President of Corporate Development and a Director
      of
      the Company.  He is responsible for contract procurement of feedstock
      as well as forming key business alliances worldwide.  Since 1998,
      Mr. Kristensen has also been a business consultant, facilitating and arranging
      capital formations, evaluating business opportunities and deal structuring,
      and
      advising on mergers and acquisitions and corporate governance
      issues.  Mr. Kristensen received a B.S. in Geophysical Engineering
      from the University of Utah in 1985.





24


F.
      Briton
      McConkie


Vice
      President of Business Development





Mr.
      McConkie, age 60, is Vice President of Business Development and a Director
      of
      the Company.  His responsibilities include structuring biodiesel joint
      ventures, strategic alliances and distribution transactions all over the
      world.  Since 1994, Mr. McConkie has consulted on private/public
      mergers and acquisitions in Salt Lake City, where he has worked with investors
      and institutions on deal structuring and capital formation involving limited
      partnerships, as well as consulting for public companies.  Mr.
      McConkie has worked to provide financing for NASDAQ companies.  Mr.
      McConkie received a Bachelor of Science from the University of Utah in
      1971.





John
      K.
      Robinson


Director,





John
      Robinson, Ph. D, served as chief executive officer of Houston, Texas-based
      ChemConnect, Inc. (“ChemConnect”), which he joined in
      2000.  ChemConnect is an electronic marketplace for buying and selling
      chemical feedstocks, commodity and specialty chemicals and
      polymers.  Between 1983 through 2000, Mr. Robinson was employed with
      BP, p.l.c. (British Petroleum, “BP”) as Group VP and member of the BP Chemicals
      Executive Committee.  Mr. Robinson earned his Ph.D. in chemistry from
      Rice University, and an MBA in Finance from the University of
      Houston.





Steve
      A.
      Nordaker


Director





Steve
      Nordaker is Senior Vice President of Finance for The Energy Capital Group
      (“ECG”), a Houston-based development company dedicated to building, owning, and
      operating gasification units for the refining, petrochemical, and fertilizer
      industries.  Prior to joining ECG, Mr. Nordaker was employed with JP
      Morgan Chase and its predecessor entities between 1982 and 2001, where he served
      as a Managing Director in the Energy Group, specializing in downstream energy
      and petrochemical, oil refining, pipeline, mining, and commodity/specialty/basic
      chemical companies.  He received an MBA from University of Houston and
      a BS in Chemical Engineering from South Dakota School of Mines and
      Technology.








David
      M.
      Otto


Director
      and General Securities Counsel





Mr.
      Otto,
      age 48, is a Seattle-based attorney and the President of The Otto Law Group,
      PLLC. Mr. Otto’s practice is focused on corporate finance, securities, mergers
& acquisitions, corporate law and governance. Mr. Otto began his practice on
      Wall Street in New York City in 1987 with the Hughes, Hubbard and Reed law
      firm,
      where he concentrated on significant corporate leveraged buyout and takeover
      transactions and equity and debt offerings for investment banks, venture capital
      firms and Fortune 1000 companies. In 1991, Mr. Otto moved to Seattle in order
      to
      dedicate his extensive experience to entrepreneurs, technology innovators,
      start-up and emerging growth businesses. In July 1999, Mr. Otto founded the
      Otto
      Law Group, PLLC in Seattle. Mr. Otto is a Director of Vocalscape Networks,
      Inc.,
      SinoFresh Healthcare, Inc., TechAlt, Inc., Avisere, Inc. and Saratoga Capital
      Partners, Inc. He is a member of the American Bar Association Committee on
      the
      Federal Regulation of Securities, Subcommittee on the 1933 Act and Chairman
      of
      the Legislation Subcommittee of the ABA’s Venture Capital and Private Equity
      Committee. Mr. Otto is admitted to practice law in New York and Washington.
      Mr.
      Otto earned an AB from Harvard University and a JD from Fordham University
      School of Law.





Compliance
      with Section 16(a) of the
      Exchange Act





Section
      16(a) of the Exchange Act requires the Company’s officers, directors and persons
      who beneficially own more than 10% of the Company’s common stock to file reports
      of ownership and changes in ownership with the SEC. These reporting persons
      also
      are required to furnish the Company with copies of all Section 16(a) forms
      they
      file. None of the officers or directors of the Company have provided to the
      Company any filed reports upon their acquisition or disposition of securities
      of
      the Company. With the exception of the aforementioned, to the Company’s
      knowledge, no officers, directors and persons who beneficially own more than
      10%
      of the Company’s common stock have failed to file the reports required pursuant
      to Section 16(a).





25


ITEM
      10. EXECUTIVE
      COMPENSATION




The
      following tables set forth certain information regarding the Company’s former
      CEO and CFO and each of our most highly compensated executive officers whose
      total annual salary and bonus for the period ended September 30, 2007 and
      transitional period ended September 30, 2006 exceeded
      $100,000.   No former or current officer received compensation in
      excess of $100,000 for the fiscal year ended September 30, 2007 or for the
      transitional period ended September 30, 2006:





SUMMARY
      COMPENSATION TABLE





Name
                and Principal Position
            Year
            Salary
            Bonus
            Stock
                Awards
            Option
                Awards
            Non-Equity
                Incentive Plan Compensation
            Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings
            All
                Other Compensation
            TotalCEO
              Ron
                Crafts
              Appointed
                October 2006
            2007
            $0
            $0
            $0
            $0
            $0
            $0
            $0
            $02006
            $0
            $0
            $0
            $0
            $0
            $0
            $0
            $0








OPTION
      GRANTS IN LAST FISCAL YEAR.





In
      connection with the Independent Directors Services Agreement between the Company
      and Steve Nordaker, dated June 19, 2007, the Company awarded Mr. Nordaker
      100,000 stock options.  Mr. Nordaker subsequently resigned on October
      31, 2007.  33,334 options vested immediately upon his
      appointment.  The remaining 66,666 did not vest prior to his
      resignation, and therefore are cancelled.  The Company has not issued
      the 33,334 vested options to Mr. Nordaker as of the date of this filing, but
      believes that the obligation to issues these options to Mr. Nordaker
      remains.








26


OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END




Name
                Option
                    Awards
                Stock
                    AwardsNumber
                    of Securities Underlying Unexercised Options
                Number
                    of Securities Underlying Unexercised Options
                Equity
                    Incentive Plan Awards: Number of Securities Underlying Unearned
                    Options
                Option
                    Exercise Price
                Option
                    Expiration Date
                Number
                    of Shares or Units of Stock That Have Not Vested
                Market
                    Value of Shares or Units of Stock That Have Not Vested
                Equity
                    Incentive Plan Awards: Number of Unearned Shares, Units or Other
                    Rights
                    That Have Not Vested
                Equity
                    Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                    Units or
                    Other Rights That Have Not Vested
 CEO
                Ron
                  Crafts
              0
              0
              0
              $0
              N/A
              0
              $0
              0
              $0DIRECTOR
                Steve
                  Nordaker
              33,334
              0
              0
              $2.65
              6/18/2017
              0
              $0
              0
              $0




(1)
            Mr.
                Nordaker was awarded stock options in the Company at the time of
                his
                acceptance of a position on the Board of Directors, on June 19, 2007,
                from
                which Mr. Nordaker resigned on October 31, 2007.  33,334 options
                vested immediately upon his appointment.  The Company has not
                issued these options to Mr. Nordaker, but believes that the obligation
                to
                issues these options to Mr. Nordaker remains, despite of Mr. Nordaker’s
                resignation.




OPTION
      EXERCISES AND STOCK VESTED TABLE





Name
            Option
                Awards
            Stock
                AwardsNumber
                of Shares Acquired on Exercise
            Value
                Realized on Exercise
            Number
                of Shares Acquired on Vesting
            Value
                Realized on VestingCEO
              Ron
                Crafts
            N/A
            N/A
            N/A
            N/ADIRECTOR
              Steve
                Nordaker
            N/A
            N/A
            N/A
            N/A




27


PENSION
      BENEFITS TABLE





The
      Company did not offer a pension plan during fiscal year 2007.








NONQUALIFIED
      DEFERRED COMPENSATION TABLE





The
      Company did not offer any non-qualified deferred compensation plans during
      fiscal year 2007.








DIRECTOR
      COMPENSATION DISCLOSURE





In
      connection with the Independent Directors Services Agreement between the Company
      and Steve Nordaker, the Company awarded Mr. Nordaker 100,000 stock options
      in
      the Company at the time of his acceptance of a position on the Board of
      Directors, on June 19, 2007.  Mr. Nordaker subsequently resigned on
      October 31, 2007.  33,334 options vested immediately upon his
      appointment.  The Company has not issued these options to Mr.
      Nordaker, but believes that the obligation to issues these options to Mr.
      Nordaker remains, despite Mr. Nordaker’s resignation.








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





The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of September 30, 2007, out of a total of
      30,945,001 shares of common stock of the Company issued and
      outstanding:





Title
                of Class
            Name
                and Address of Beneficial Owner
            Amount
                and Nature of Beneficial Ownership
            Percent
                of ClassCommon,
                no par value
            Ron
                Crafts
              690
                West 350 North
              Spanish
                Fork, UT 84660
            5,291,000
            17.10%Common,
                no par value
            John
                Crawford
              3820
                S. Elm
              Tempe,
                AZ 85282
            5,250,000
            16.96%Common,
                no par value
            Lynn
                Dean Crawford
              5121
                Yearling Ave
              Irvine,
                CA 92064
            3,755,500
            12.14%Common,
                no par value
            Peter
                Kristensen
              7668
                Quicksilver Dr.
              Salt
                Lake City, UT 84121
            2,625,000
            8.48%Common,
                no par value
            F.
                Briton McConkie
              4014
                Splendor Way
              Salt
                Lake City, UT 84124
            2,625,000
            8.48%Common,
                no par value
            David
                M. Otto
              601
                Union Street, Suite 4500
              Seattle,
                WA 98164
            1,500,000
            4.85%[1]Common,
              no par value
            Gary
              Crook
              355
                South 1550 West
              Spanish
                Fork, UT 84660
            25,000
            <1%Common,
                no par value
            Capital
                Group Communications I
              1750
                Bridgeway, Suite A 200
              Sausalito,
                CA 94945
            3,751,000
            12.12%Common,
                no par value
            Directors
                and Officers as a Group
            21,071,500
            68.0%[2]




(1)
            Represents
                the common stock shares owned by Joseph Martin, LLC, of which David
                M.
                Otto is a beneficial owner of 50% of the
                equity.


(2)
            Represents
                the total as of September 30, 2007, prior to the Asset Sale Agreement
                (See
                Item 8B, above) under  which 15,750,000
                shares,  including 14,255,500 shares held by Ron Crafts, John
                Crawford and Lynn Dean Crawford, were returned to the
                Company.





28


ITEM
      12. CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS





Lynn
      Dean
      Crawford is the uncle of John Crawford.





ITEM
      13. EXHIBITS





See
      Exhibit Index immediately following the signature page below.





ITEM
      14. PRINCIPAL ACCOUNTANT FEES
      AND SERVICES








Fee
                Category
            
            Fiscal
                2007
            
            Fiscal
                2006Audit
                Fees
            
            $
            125,049
            
            $
            5,000Audit-Related
                Fees
            
            
            8,390
            
            
            --Tax
                Fees
            
            
            5,160
            
            
            --All
                Other Fees
            
            
            --
            
            
            --Total
            
            $
            138,599
            
            $
            5,000





The
      audit
      fees stated above consisted of fees for the Company's annual financial
      statements for the year ended September 30, 2007, and for September 30, 2006
      and
      the review of quarterly financial statements for the three periods ended
      December 31, 2006, March 31, 2007 and the six months ended June 30, 2007, as
      well as for services normally provided in connection with statutory and
      regulatory filings or engagements, consents and assistance with review of
      Company documents filed with the SEC.




Tax
      fees
      consisted primarily of fees for the filing of the Company’s tax return and for
      tax compliance, tax advice and tax planning services.




Policy
      for Pre-Approval of Audit and
      Non-Audit Services




The
      Board’s policy is to pre-approve all audit, audit-related and non-audit services
      to be provided by the independent auditors and adopt and implement policies
      for
      such pre-approval. Independent auditors shall not be engaged to perform specific
      non-audit services proscribed by law or regulation.




All
      engagements of the independent auditor to perform any audit services and
      non-audit services have been pre-approved by the Board in accordance with the
      pre-approval policy. The policy has not been waived in any
      instance.





29





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, in the City of Orem, Utah on January
      14, 2008.







RegistrantBetter
                Biodiesel, Inc.By:
            
            /s/
                Gary CrookGary
                CrookChief
                Financial Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of Registrant and in the
      capacities indicated on December 29, 2006.





/s/
          Gary
          Crook_______________
 Gary
          Crook
 Chief
          Financial
          Officer
 
 /s/
          David M.
          Otto____________
 David
          M. Otto
 Director,
          General Securities Counsel,
          Authorized Officer


30


EXHIBIT
      INDEX





Exhibit
                  No.
              
              Description
              
              Location3(i)
              
              Articles
                  of Incorporation of Slam Dunk Enterprises, Inc.
              
              Incorporated
                  by reference to Exhibit 3 of the Company’s Form SB-2 filed August 9,
                  20013(ii)
              
              Bylaws
              
              Incorporated
                  by reference to Exhibit 3 of the Company's Form SB-2 filed August
                  9,
                  20013.1
              
              Articles
                  of Amendment to the Articles of Incorporation of Slam Dunk Enterprises,
                  Inc. changing name to Mountain States Lending, Inc.
              
              Incorporated
                  by reference to Exhibit 3.1 of the Company's Form SB-2 filed August
                  9,
                  20013.2
              
              Articles
                  of Incorporation of Mountain Eagle Homes, Inc.
              
              Incorporated
                  by reference to Exhibit 3.2 of the Company’s Form SB-2 filed August 9,
                  20013.3
              
              Articles
                  of Amendment to the Articles of Incorporation of Mountain States
                  Lending,
                  Inc., including a name change to Mountain States Holdings,
                  Inc.
              
              Incorporated
                  by reference to Exhibit 3.3 of the Company’s Form 10-KSB filed March 31,
                  20033.4
              
              Articles
                  of Amendment to the Articles of  Incorporation of Mountain
                  States Holdings, Inc.
              
              Incorporated
                  by reference to Exhibit 3.4 of the Company’s Form 10-KSB filed April 17,
                  20044.1
              
              Promissory
                  Note issued to Sausalito Capital Partners I, LLC
              
              Incorporated
                  by reference the Company’s Form 10-KSB filed January 2,
                  20074.2
              
              Security
                  Agreement issued to Sausalito Capital Partners I, LLC
              
              Incorporated
                  by reference the Company’s Form 10-KSB filed January 2,
                  20074.3
              
              Form
                  of Subscription Agreement for Common Stock
              
              Incorporated
                  by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 5,
                  20064.4
              
              Loan
                  Agreement, Promissory Note and Warrant with Sausalito Capital Partners
                  I,
                  LLC
              
              Incorporated
                  by reference to Exhibit 4.4 of the Company’s Form 8-K filed February
                  20,20074.5
              
              Subscription
                  Agreement from National Real Estate Solutions Group Inc.
              
              Incorporated
                  by reference to Exhibit 4.5 of the Company’s Form 8-K filed February
                  20,20074.6
              
              Subscription
                  Agreement
              
              Incorporated
                  by reference to Exhibit 4.6 of the Company’s Form 8-K filed May
                  8,200710.1
              
              Share
                  Exchange Agreement by and among Mountain States Holdings, Inc.
                  and
                  Domestic Energy Partners, LLC and the security holders of Domestic
                  Energy
                  Partners, LLC
              
              Incorporated
                  by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 5,
                  200610.2
              
              REDD
                  Engineering Engagement
              
              Incorporated
                  by reference the Company’s Form 10-KSB filed January 2,
                  200710.3
              
              Assignment
                  of Intellectual Property
              
              Incorporated
                  by reference to Exhibit 10.3 of the Company’s Form 10-KSB filed January 2,
                  200710.5
              
              Agreement
                  with TSG-LLC
              
              Incorporated
                  by reference to Exhibit  10.5 of the Company’s Form 10-QSB filed
                  February 22, 2007, 200616.1
              
              Letter
                  re change in certifying accountant
              
              Incorporated
                  by reference to Exhibit 16.1 of the Company’s Form 8-K/A filed October 30,
                  200621.1
              
              Subsidiaries
                  of Better Biodiesel
              
              Attached31.1
              
              Certification
                of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.
              
              Attached31.2
              
              Certification
                of CFO pursuant to Section 302 of the Sarbanes-Oxley Act.
              
              Attached32
              
              Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
                Section 1350)
              
              Attached99.1
              
              Financial
                  Statements
              
              Incorporated
                  by reference to Exhibit 99.1 of the Company’s Form 8-K filed December 18,
                  200699.2
              
              Press
                  Release Issued May 8, 2007
              
              Incorporated
                  by reference to Exhibit 99.2 of the Company’s Form 8-K filed May 8,
                  200799.3
              
              Press
                  Release Issued June 20, 2007
              
              Incorporated
                  by reference to Exhibit 99.3 of the Company’s Form 8-K filed June 20,
                  200799.4
              
              Press
                  Release Issued June 20, 2007
              
              Incorporated
                  by reference to Exhibit 99.4 of the Company’s Form 8-K filed June 20,
                  200799.5
              
              Press
                  Release Issued July 31, 2007
              
              Incorporated
                  by reference to Exhibit 99.5 of the Company’s Form 8-K filed July 31,
                  2007







Better
      BioDiesel,
      Inc.


Consolidated
      Financial Statements







PageReport
                  of Independent
                  Registered Public Accounting Firm
              F1Consolidated
                  Balance
                  Sheet
              F2Consolidated
                  Statements of
                  Operations
              F3Consolidated
                  Statement of
                  Stockholders’ Equity
              F4Consolidated
                  Statements of Cash
                  Flows
              F5Notes
                  to Consolidated Financial
                  Statements
              F6


REPORT
        OF INDEPENDENT
        REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors
 Better
        Biodiesel, Inc.
 Spanish
        Fork, Utah
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Better Biodiesel,
        Inc.,
        and Subsidiary (a development stage company) ("the Company"), as of
        September 30, 2007, and the related consolidated statements of operations,
        stockholders' equity (deficit), and cash flows for the year ended
        September 30, 2007, the nine months ended September 30, 2006, and the
        period from November 1, 2004, (date of inception) through
        September 30, 2007.  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
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  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 has determined that it is not required to have, nor were we engaged
        to
        perform, an audit of its internal control over financial
        reporting.  Our audit 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 includes examining, on a test basis, evidence supporting the amounts
        and
        disclosures in the financial statements.  An audit also includes
        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 financial position of Better Biodiesel, Inc.
        and
        Subsidiary (a development stage company) as of September 30, 2007, and the
        results of their operations and their cash flows for the year ended
        September 30, 2007, the nine months ended September 30, 2006, and the
        period from November 1, 2004 (date of inception) through September 30,
        2007, in conformity with accounting principles generally accepted in the
        United
        States.
  The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern.  As discussed in Note 2
        to the financial statements, the Company has experienced recurring losses
        from
        operations since inception and has relied on advances and loans from owners,
        debt, and sales of shares of its equity for operating capital.  These
        conditions raise substantial doubt about the Company's ability to continue
        as a
        going concern.  Management's plans regarding these matters are also
        discussed in Note 2 and Note 16.  The consolidated financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
 
 
 /s/
        PETERSON SULLIVAN
        PLLC
 
 
 January
        11, 2008
 Seattle,
        Washington
  F1


BETTER
                  BIODIESEL,
                  INC.(A
                  Development Stage Company)CONSOLIDATED
                  BALANCE SHEETSeptember
                  30, 2007ASSETS
              
              
              September
                  30, 2007Current
                  AssetsCash
                  and cash equivalents
              $                    98,424Accounts
                  receivable, net of $500 reserve
              4,000Inventory
              
              57,333Prepaid
                  expenses
              20,459Employee
                  advances
              8,000Total
                  current assets
              188,216Property
                  and equipment, net
              439,166Deposits
              
              
              25,500Total
                  assets
              $                  652,882LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                  LiabilitiesAccounts
                  payable and accrued expenses
              $                  856,828Notes
                  payable, net of discount
              311,699Advances
                  payable, related party
              75,000Total
                  current liabilities
              1,243,527Stockholders'
                  Equity (Deficit)Preferred
                  stock, no par value, 5,000,000 shares authorized, none
                  issued
              -Common
                  stock, no par value, 200,000,000 shares authorized,30,945,001,
                  issued and outstanding
              1,147,585Additional
                  paid in capital
              1,102,252Deficit
                  accumulated during the development stage
              (2,840,482)Total
                  stockholders' (deficit)
              (590,645)Total
                  liabilities and stockholders' (deficit)
              $                  652,882See
                  Notes to Consolidated Financial Statements


F2





BETTER
                BIODIESEL,
                INC.(A
                Development Stage Company)CONSOLIDATED
                STATEMENTS OF OPERATIONSFor
                the Twelve Month Period Ended September 30, 2007 and For the Nine
                Month
                Period Ended September 30, 2006 andFor
                the Period from Inception (November 1, 2004) through September 30,
                2007For
                the Twelve Months Ended September 30, 2007
            
            
            For
                the Nine Months Ended September 30, 2006
            
            
            From
                Inception on November 1, 2004 Through September 30, 2007Sales
            
            $
            11,925
            
            
            $
            -
            
            
            $
            11,925Cost
                of Sales
            
            
            33,271
            
            
            
            
            
            
            
            33,271Gross
                Profit
            
            
            (21,346
            )
            
            
            -
            
            
            
            (21,346
            )Operating
                ExpensesDepreciation
            
            
            136,129
            
            
            
            16,583
            
            
            
            154,365Marketing
            
            
            83,300
            
            
            
            106,778
            
            
            
            193,053Research
                and development
            
            
            43,502
            
            
            
            26,544
            
            
            
            72,341General
                and administrative
            
            
            1,921,585
            
            
            
            264,281
            
            
            
            2,230,890Total
                operating expenses
            
            
            2,184,516
            
            
            
            414,186
            
            
            
            2,650,649Loss
                from operations
            
            
            (2,205,862
            )
            
            
            (414,186
            )
            
            
            (2,671,995
            )Interest
                (expense)
            
            
            (111,454
            )
            
            
            (6,667
            )
            
            
            (118,121
            )Net
                Loss Before Extraordinary
                Item
            
            $
            (2,317,316
            )
            
            $
            (420,853
            )
            
            $
            (2,790,116
            )Extraordinary
                Loss - Loss of
                Assets From Fire
            
            $
            (50,366
            )
            
            $
            -
            
            
            $
            (50,366
            )Net
                Loss
            
            $
            (2,367,682
            )
            
            $
            (420,853
            )
            
            $
            (2,840,482
            )Basic
                and diluted net loss per common share before extraordinary
                item
            
            $
            (0.08
            )
            
            $
            (0.18
            )Basic
                and diluted net loss per common share for extraordinary
                item
            
            $
            (0.00
            )
            
            $
            -Basic
                and diluted net loss per common share
            
            $
            (0.08
            )
            
            $
            (0.18
            )Weighted
                average basic and diluted sharesoutstanding
            
            
            30,668,638
            
            
            
            2,342,491See
                Notes to Consolidated Financial Statements


F3


BETTER
                    BIODIESEL,
                    INC.(A
                    Development Stage Company)CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)For
                    the Period from Inception (November 1, 2004) through September
                    30,
                    2007Preferred
                    Stock
                
                Common
                    Stock
                
                
                
                Additional
                    Paid in CapitalShares
                
                Amount
                
                Shares
                
                Amount
                
                Subscription
                    Receivable
                Shares
                
                Amount
                
                Accumulated
                    Deficit
                TotalAt
                    inception November 1, 2004
                -
                
                $                    -
                
                2,000,000
                
                $                    -
                
                $                    -
                
                -
                
                $                    -
                
                $                     -
                
                $                     -December
                    2004 - Sale of commonshares
                    at $0.50per pre-split share
                -
                
                -
                
                75,000
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -Net
                    loss for the two months ended December 31, 2004
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (1,300)
                
                (1,300)Balance
                    at December 31, 2004
                -
                
                -
                
                2,075,000
                
                -
                
                -
                
                -
                
                -
                
                (1,300)
                
                (1,300)May
                    2005 - Sale of commonshares
                    at $0.50per pre-split share
                -
                
                -
                
                25,000
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -December
                    2005 - Sale of common shares at $0.50shares
                    at $0.50per pre-split share
                -
                
                -
                
                50,000
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -Net
                    loss for the year ended
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (50,647)
                
                (50,647)31-Dec-05Balance
                    at December 31, 2005
                -
                
                -
                
                2,150,000
                
                -
                
                -
                
                -
                
                
                
                (51,947)
                
                (51,947)August
                    2006 - Sale of common shares at $0.50per
                    pre-split share
                -
                
                -
                
                12,500
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -August
                    2006 - Common shares returned and cancelled in exchangefor
                    two former subsidiaries
                -
                
                -
                
                (162,500)
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -September
                    2006 - Share arising in reverse stock split
                -
                
                -
                
                1
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -September
                    2006 - Common shares issued upon conversion ofnote
                    payable at merger
                -
                
                -
                
                1,500,000
                
                506,667
                
                -
                
                -
                
                -
                
                -
                
                506,667September
                    2006 - Common shares issued to former LLC Memberof
                    Domestic exchange for cash and propertyEnergy
                    Partners, LLC incontributions
                    to DEP
                -
                
                -
                
                5,250,000
                
                291,046
                
                -
                
                -
                
                -
                
                -
                
                291,046September
                    2006 - Other commonshares
                    issued in merger
                -
                
                -
                
                21,750,000
                
                -
                
                -
                
                -
                #
                -
                
                -
                
                -Net
                    loss for the nine month periodended
                    September 30, 2006
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                #
                -
                
                (420,853)
                
                (420,853)Balance
                    at September 30, 2006
                -
                
                -
                
                30,500,001
                
                797,713
                
                -
                
                -
                
                
                
                (472,800)
                
                324,913February
                    2007 - 11,325 warrant issues
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                45,764
                
                -
                
                45,764February
                    2007 - Discount for beneficialconversion
                    feature
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                13,860
                
                -
                
                13,860May
                    through June 2007 - Sale of units in private placement,
                    eachunit
                    consisting of one common share and one warrant, $2.00per
                    unit, net of fees of $75,500
                -
                
                -
                
                377,500
                
                346,545
                
                (82,000)
                
                -
                
                332,955
                
                -
                
                597,500June
                    2007 - 28,491 warrants issued as fee in private placement
                -
                
                -
                
                -
                
                (65,523)
                
                -
                
                -
                
                65,523
                
                -
                
                -June
                    2007 - repricing of 11, 325 warrants issued in February
                    2007per
                    warrant agreement
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                2,073
                
                -
                
                2,073June
                    2007 - 67,500 units in exchange for goods and services,
                    eachunit
                    consisting of one common share and one warrant, $2.00per
                    unit
                -
                
                -
                
                67,500
                
                68,850
                
                -
                
                -
                
                66,150
                
                -
                
                135,000June
                    2007 - 200,000 warrants issuedfor
                    financial consulting services
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                482,215
                
                -
                
                482,215July
                    2007 - Receipt of subscription receivable
                -
                
                -
                
                -
                
                -
                
                82,000
                
                -
                
                -
                
                -
                
                82,000June
                    through September 2007 - 100,000 options as director's
                    compensation
                
                
                
                
                
                
                
                
                
                
                
                93,712
                
                
                
                93,712Net
                    loss for the year ended September 30, 2007
                -
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                (2,367,682)
                
                (2,367,682)Balance
                    at September 30, 2007
                -
                
                $                    -
                
                30,945,001
                
                $     1,147,585
                
                $                    -
                
                -
                
                $      1,102,252
                
                $     (2,840,482)
                
                $        (590,645)See
                    Notes to Consolidated Financial Statements


F4


BETTER
                  BIODIESEL,
                  INC.(A
                  Development Stage Company)CONSOLIDATED
                  STATEMENTS OF CASH FLOWSFor
                  the Twelve Month Period Ended September 30, 2007 and For the Nine
                  Month
                  Period Ended September 30, 2006 andFor
                  the Period from Inception (November 1, 2004) through September
                  30,
                  2007For
                  the Twelve Months Ended September 30, 2007
              
              
              For
                  the Nine Months Ended September 30, 2006
              
              
              From
                  Inception on November 1, 2004 through September 30, 2007Cash
                  Flows From Operating ActivitiesNet
                  loss
              
              $
              (2,367,682
              )
              
              $
              (420,853
              )
              
              $
              (2,840,482
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activitiesDepreciation,
                  including $8,022 capitalized to inventory as of September 30,
                  2007
              
              
              144,151
              
              
              
              16,583
              
              
              
              162,387Amortization
                  of debt discount
              
              
              70,913
              
              
              
              -
              
              
              
              70,913Non-cash
                  expense for consulting, director fees and other expenses
              
              
              664,099
              
              
              
              -
              
              
              
              664,099Non-cash
                  expense for bad reserve ($500) and carrying value of inventory
                  ($33,269)
              
              
              33,769
              
              
              
              -
              
              
              
              33,769Non-cash
                  expense for extraordinary item - write down of assets lost in
                  fire
              
              
              50,366
              
              
              
              -
              
              
              
              50,366Changes
                  in operating assets and liabilitiesChange
                  in accounts receivable
              
              
              (4,500
              )
              
              
              -
              
              
              
              (4,500
              )Change
                  in inventory
              
              
              (79,497
              )
              
              
              -
              
              
              
              (79,497
              )Change
                  in prepaid expenses
              
              
              (2,082
              )
              
              
              (18,377
              )
              
              
              (20,459
              )Change
                  in employee advances
              
              
              (8,000
              )
              
              
              -
              
              
              
              (8,000
              )Change
                  in deposits
              
              
              (20,000
              )
              
              
              (5,500
              )
              
              
              (25,500
              )Change
                  in accounts payable andaccrued
                  expenses
              
              
              663,801
              
              
              
              144,194
              
              
              
              807,995Net
                  cash used in operating activities
              
              
              (854,662
              )
              
              
              (283,953
              )
              
              
              (1,188,909
              )Cash
                  Flows From Investing ActivitiesPurchases
                  of property and equipment
              
              
              (333,215
              )
              
              
              (144,158
              )
              
              
              (477,373
              )Cash
                  Flows From Financing ActivitiesProceeds
                  from related party for companyexpenses,
                  net
              
              
              75,000
              
              
              
              101,927
              
              
              
              227,221Proceeds
                  from notes payable
              
              
              282,485
              
              
              
              -
              
              
              
              282,485Proceeds
                  from sale of 377,500 units, consisting of 377,500 sharesand
                  warrants to purchase 377,500 shares valued at $2.00 per
                  unit,excluding
                  $75,500 in accrued financing fees
              
              
              755,000
              
              
              
              -
              
              
              
              755,000Proceeds
                  from related party notes payable
              
              
              -
              
              
              
              500,000
              
              
              
              500,000Net
                  cash provided by financingactivities
              
              
              1,112,485
              
              
              
              601,927
              
              
              
              1,764,706Net
                  Change In Cash and Cash Equivalents
              
              
              (75,392
              )
              
              
              173,816
              
              
              
              98,424Cash
                  and Cash Equivalents, beginning of period
              
              
              173,816
              
              
              
              -
              
              
              
              -Cash
                  and Cash Equivalents, end of period
              
              $
              98,424
              
              
              $
              173,816
              
              
              $
              98,424Supplemental
                  Cash Flow InformationNon-Cash
                  Investing and Financing ActivitiesContribution
                  of airplane and other assets by related party
              
              $
              -
              
              
              $
              -
              
              
              $
              138,825Conversion
                  of related party note payable and accruedinterest
                  to common stock
              
              $
              -
              
              
              $
              506,667
              
              
              $
              506,667Conversion
                  of contributions of cash and airplaneby
                  related party to common stock
              
              $
              -
              
              
              $
              291,046
              
              
              $
              291,046Accrued
                  financing fees for private placement of 377,500 units
                  consistingof 377,500 shares and warrants to purchase 377,500 share valued
                  at$2..00
                  per unit
              
              $
              (75,500
              )
              
              $
              -
              
              
              $
              (75,500
              )Issuance
                  of
                  28,491 warrants as financing fee on 377,500 units
                  private
                placement
              $
              (65,523
              )
              
              $
              -
              
              
              $
              (65,523
              )Contribution
                  of inventory and assets in exchange
                  for
                units consiting of shares and warrants valued at $2.00 per
                unit
              $
              46,828
              
              
              $
              -
              
              
              $
              46,828
  See
        Notes
        to Consolidated Financial Statements.
 F5
  NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  Note
        1.  Organization and
        Description of Business
  Better
        Biodiesel, Inc., (“the Company”) is a Colorado corporation and is a “C”
corporation for federal income tax purposes.  The Company was known as
        Mountain State Holdings, Inc., (“MSH”) until September 20, 2006, when it
        was renamed in anticipation of a merger on September 29, 2006, when it acquired
        all of the LLC Member Units of Domestic Energy Partners, LLC, (“DEP”), a Utah
        limited liability corporation.  The previous assets and liabilities of MSH
        were spun off to two stockholders in August 2006 in exchange for the return
        of
        common shares.  At the time of the acquisition of DEP, the Company had zero
        assets and zero liabilities.  It had 2,000,001 shares of common stock
        issued and outstanding carried at zero value.
  The
        merger of the Company and DEP has been accounted for as a reverse merger,
        which
        is equivalent to a recapitalization of the Company.  The assets and
        liabilities of DEP are presented in the consolidated balance sheets at book
        value.  The historical operations presented in the Company’s Consolidated
        Statements of Operations are those of DEP.
  DEP
        was
        organized as a limited liability corporation on May 18, 2005, although it
        had commenced operations in November 2004.  Therefore, November 1,
        2004, is considered to be its effective date of inception.  DEP was
        organized to develop alternative fuel sources, particularly the manufacture
        and
        distribution of bio-diesel products.  DEP has had $11,925 of revenues to
        date and has been considered a development stage company since its inception
        (see Note 7).  DEP comprises the Company’s sole subsidiary and operations
        and the management of DEP and the Company are the same.  The Company’s
        headquarters is in Spanish Fork, Utah.
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiary and all intercompany balances and transactions have
        been
        eliminated.
  On
        December 20, 2007 the Company transfered certain
        assets in exchange for the return of 15,750,000 shares of stock, see Note
        16.
  F6
  Note
        2.  Going
        Concern
  The
        Company’s consolidated financial statements are prepared consistent with
        accounting principles generally accepted in the United States applicable
        to a
        going concern, which contemplate the realization of assets and liquidation
        of
        liabilities in the normal course of business.  However, as shown in the
        accompanying consolidated financial statements, the Company has sustained
        losses
        and has relied on advances and loans from owners, debt and sales of shares
        of
        its equity for operating capital.  To support the Company’s operations for
        the next year, management has plans to raise between $7 and $8 million in
        capital by a combination of stockholder loans and private placements. 
There is no assurance, however, that these sources of capital will be timely
        obtained on acceptable terms.
  The
        consolidated financial statements do not include any adjustments relating
        to the
        recoverability and classification of recorded asset amounts and classification
        of liabilities that might be necessary should the Company be unable to continue
        in existence.
  Note
        3.  Significant Accounting
        Policies
  This
        summary of significant accounting policies of the Company is presented to
        assist
        in understanding the Company’s consolidated financial statements.  The
        financial statements and notes are representations of the Company’s management
        who are responsible for their integrity and objectivity.  These accounting
        policies conform to accounting principles generally accepted in the United
        States and have been consistently applied in the preparation of the financial
        statements.  The following policies are considered to be
        significant.
  Use
        of
        Estimates
  The
        preparation of 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 financial statements
        and
        reported amounts of revenues and expenses during the reporting period. 
Actual results could differ from those estimates.
 F7
  Cash
        and Cash
        Equivalents
  Cash
        equivalents are generally comprised of certain liquid investments with original
        maturities of less than three months.  On occasion, the Company has cash
        balances in excess of federal insurance limits.  No cash has ever been paid
        for interest expense or income tax.
  Accounts
        Receivable
  Accounts
        receivable consist of $4,500 due from the sale of fuel in March of 2007 and
        are
        associated with the tax rebate to be collected by the buyer and passed back
        to
        the Company.  The Company has taken a $500 reserve to cover the
        potential cost to the buyer for amending its tax return, since the Company
        did
        not have its Federal tax rebate certificate until after the buyer’s taxes were
        filed.
  Inventory
  Inventory
        consists of raw material for fuel production and fuel production in process
        and
        is carried at the lower of average cost or market.  At September 30,
        2007 inventory consisted of $32,584 of raw material and $24,749 of fuel
        production in process, net of a write-down of $33,271 (this amount is included
        in the cost of sales).  The write-down consisted of $16,532 for out of
        specification and unsalvageable fuel in process and $16,739 to adjust other
        additional work in process to net realizable value.
  Prepaid
        Expenses
  The
        Company has recognized pre-payments for its insurance premiums as a prepaid
        expense.
  F8
 Financial
        Instruments
  The
        Company’s financial instruments consist of cash and cash equivalents, accounts
        receivable, accounts payable, accrued expenses, notes payable and related
        party
        advances.  The fair value of all financial instruments approximates the
        recorded value based on the short-term nature of these financial
        instruments.
  Property
        and
        Equipment
  Property
        and equipment are stated at cost and depreciated using the straight-line
        method
        over their estimated useful lives.  Lease-hold improvements are being
        depreciated over the term of the lease, excluding option periods.  When
        assets are disposed of, the cost and accumulated depreciation (net book value
        of
        the assets) are eliminated and any resultant gain or loss reflected
        accordingly.  In July of 2007 the Company suffered a fire in its pilot
        processor, which resulted in the loss of the part of the
        equipment.  As a result the Company wrote off $50,366 of equipment,
        net of $1,291 of accumulated depreciation as an extraordinary loss, see Note
        14.  Betterments and improvements are capitalized over their estimated
        useful lives whereas repairs and maintenance expenditures on the assets are
        charged to expense as incurred.  Property and equipment consisted of the
        following:
  Asset Class
              
              Life
              
              September 30,
                2007Airplane
              
              7
                  years
              
              $
              138,825Furniture
              
              5
                  years
              
              
              5,694Office
                  Equipment
              
              3
                  years
              
              
              6,830Leasehold
                  Improvements
              
              Term
              
              
              125,035Processing
                  Equipment
              
              5
                  years
              
              265,966Tanks
              
              10
                  years
              
              42,887Misc.
                  Production Equipment
              
              5
                  years
              
              15,025Less
                  — Accumulated Depreciation
              
              
              
              (161,096
              )Net
                  Property and Equipment
              
              
              
              $
              439,166
  F9
  On
        December 20, 2007 the airplane and other assets were transferred in exchange
        for
        the return of 15,750,000 shares, see Note 16.
  Depreciation
        expense for the twelve months ended September 30, 2007, the nine months ended
        September 30, 2006 and from inception (November 1, 2004) through September
        30, 2007 was $136,129, $16,583 and $154,365, respectively.  In
        addition, $8,022 of depreciation was capitalized to inventory for the twelve
        months ended September 30, 2007 for the time the Company was producing
        fuel.
  Deposits
  The
        Company has $25,500 of long-term deposits.  $20,000 of the deposit is
        to an engineering firm as a retainer for work that was to be performed, $5,000
        is a deposit on the Company’s property lease and there is $500 in miscellaneous
        deposit.
  Impairment
        of Long-Lived
        Assets
  In
        accordance with Statement of Financial Standards (SFAS) No. 144, Accounting for the Impairment
        or
        Disposal of Long-Lived Assets, the Company reviews long-lived assets for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount of an asset may not be recoverable.  Recoverability of
        assets to be held and used is measured by a comparison of the carrying amount
        of
        an asset to future net cash flows expected to be generated by the asset. 
If such assets are considered to be impaired, the impairment to be recognized
        is
        measured by the amount by which the carrying amount of the assets exceeds
        the
        fair value of the assets.  Assets to be disposed of are reported at the
        lower of the carrying amount or fair value less cost to sell.  The
        Company recognized $50,366 (net of accumulated depreciation of $1,291) as
        an
        extraordinary loss from the write-down of equipment damaged by a fire in
        July of
        2007 in the Company’s pilot processor, see Note 14.  The Company’s
        management does not believe that any other of the Company’s long-lived assets
        were impaired as of September 30, 2007.
  F10
  Revenue
        Recognition
  The
        Company has had $11,925 of revenues to date from a demonstration test in
        March
        of 2007.  Sales of its product are recognized when delivered to
        customers.
  Advertising
  Advertising
        costs, which are included in marketing expense, are expensed as they are
        incurred. For the twelve months ended September 30, 2007 and the nine months
        ended September 30, 2006, advertising expense amounted to $50,171 and $6,488
        respectively.
  Research
        and
        Development
  Research
        and development costs are expensed as incurred.
  Income
        Taxes
  The
        Company follows the liability method of accounting for income taxes.  Under
        this method, deferred tax assets and liabilities are determined based on
        differences between the financial reporting and tax basis of assets and
        liabilities and on the expected future tax benefits to be derived from net
        operating loss carryforwards measured using current tax rates.  A valuation
        allowance is established if it is more likely than not that some portion
        or all
        of the deferred tax assets will not be realized.
  F11
 Loss
        Per
        Share
  Potential
        common shares are those issuable upon the conversion or exercise of other
        potentially dilutive securities such as preferred stock, convertible debt,
        options, and warrants.  In these financial statements there were no
        potential common equivalent shares used in the calculation of weighted average
        common shares outstanding as the effect would be anti-dilutive because of
        the
        net loss.
  The
        calculation of weighted average basic shares outstanding reflects a two-for-one
        reverse stock split in September 2006.  The accompanying financial
        statements are presented on a post-split basis.  Basic loss per share is
        computed by dividing net loss by the weighted average number of common shares
        outstanding during the reporting period.
  Common
                  Shares and
                  Equivalents
              12
                  Months Ended September 30,
                  2007
              9
                  Months Ended September 30,
                  2006Weighted
                  average shares used to compute basic and diluted net loss per
                  share
              30,668,638
              2,342,491Potentially
                  dilutive securities excluded from loss per share
                  computation:Warrants
                  related to issuance of notes payable
              11,325
              --Warrants
                  related to private equity placement
              473,491
              --Warrants
                  related to consulting expense
              200,000
              --Options
                  granted to independent director(1)
              100,000
              --Securities
                  convertible into common shares(2)
              44,000
              --
 (1)
              On
                  October 31, 2007 the holder of the options, Steve Nordaker, resigned
                  from
                  the Company’s board of directors.  At the time of the
                  resignation two-thirds of the options had not vested, resulting
                  in a
                  forfeiture of 66,667 options.  See Note
                  16.
  (2)
              The
                  Company had discussions with the convertible note holder regarding
                  changing the terms, but has been unable to reach an
                  agreement.  During November 2007 the Company forwarded the
                  44,000 shares of common stock.  See Note
                  16.
  F12
 Share-Based
        Payments
  Grants
        of stock options and stock purchase warrants
        to employees and non-employees are accounted for in accordance with the
        Financial Accounting Standards Board's State of Financial Accounting Standards
        No. 123 (revised 2004), Share-Based Payment ("SFAS
        123R") and with the Financial Accounting Standard Board's Emerging Issue
        Tast
        Force Abstract, EITF 96-18, Accounting for Equity
        Instruments
        that are Issued to Other Than Employees for Acquiring, or in Conjunction
        with
        Selling, Goods and Services ("EITF 96-18").  To calculate the value
        of share-based payments, the Company used the Black-Scholes fair vale
        option-pricing model.
  Recent
        Accounting
        Developments
  In
        accordance with Release No. 8760 of the Securities Act of 1933, commencing
        with
        the Company’s fiscal year ending September 30, 2008, the Company will become
        subject to the requirement to include in its annual report management’s
        assessment of internal controls over financial reporting.  This
        assessment will require the Company to document and test its internal control
        procedures in accordance with Section 404 of the Sarbanes-Oxley Act of
        2002.  The Company’s independent registered public accountants will be
        required to attest to the Company’s assessment of internal controls for its
        fiscal year ending September 30, 2009.
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, Fair ValueMeasurements
        (“SFAS
        157”).  SFAS 157 is effective for financial statements issued for
        fiscal years beginning after November 15, 2007, and interim periods within
        those
        fiscal years.  The Company has not yet determined the effect of
        applying SFAS 157.
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159, The Fair
        ValueOption for
        Financial Assets and Financial Liabilities, (“SFAS 159”).  SFAS
        159 is effective for fiscal years beginning after November 15,
        2007.  The Company does not believe that FAS 159 will have any
        material effect on its financial statements.
  F13
 In
        June
        2007, the Emerging Issues Task Force of the FASB issued EITF Issue no. 07-3,
        Accounting forNonrefundable
        Advance Payments for
        Goods or Services to be Used in Future Research and DevelopmentActivities, (“EITF 07-3”)
        which is effective for fiscal years beginning after December 15,
        2007.  EITF 07-3 requires that nonrefundable advance payments for
        future research and development activities be deferred and
        capitalized.  Such amounts will be recognized as an expense as the
        goods are delivered or the related services are performed.  The
        Company does not expect the adoption of EITF 07-3 to have a material impact
        on
        the financial results of the Company.
  In
        December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS
        No. 141(R)”), which requires the Company to record fair value estimates of
        contingent consideration and certain other potential liabilities during the
        original purchase price allocation, expense acquisition costs as incurred
        and
        does not permit certain restructuring activities previously allowed under
        Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
        purchase accounting.  The Company will adopt this standard at the
        beginning of The Company’s fiscal year ending September 30, 2010 for all
        prospective business acquisitions.  The Company has not determined the
        effect that the adoption of SFAS No. 141(R) will have on its consolidated
        financial statements, but the impact will be limited to any future acquisitions
        beginning in fiscal 2010.
  In
        December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
        in
        Consolidated Financial Statements—an amendment of ARB No. 51, (“SFAS No.
        160”), which causes noncontrolling interests in subsidiaries to be included in
        the equity section of the balance sheet.  The Company will adopt this
        standard at the beginning of the Company’s fiscal year ending September 30,
        2010.  The Company has not determined the effect that the adoption of
        SFAS No. 160 will have on its consolidated financial statements.
  F14
 Note
        4.  Related Party
        Transactions
  During
        2007 Gary Crook, the Company’s CFO, (who remains a partner in Tatum, LLC)
        engaged Tatum, LLC to assist in completing the filing of the Company’s 10-QSB’s
        for the periods ending December 31, 2006 and March 31, 2007 and to
        assist in the documentation of accounting controls for production during
        the
        three months ending June 30, 2007.  The cost of the engagements to the
        Company has totaled $13,800.
 
 During
        the twelve months ended September 30, 2007 Ron Crafts, the Company’s Chief
        Executive Officer, advanced the Company $75,000.  Interest is being
        accrued at 8% per annum.  Subsequent to September 30, 2007 the
        advance, along with accrued interest was transferred to Domestic Energy
        Partners, LLC (see Note 16).
 
 Ron
        Crafts, the Company’s Chief Executive Officer, purchased 41,000 units of the
        Company’s Private Placement in May 2007, described in Note 11, for consideration
        of $82,000.  Gary Crook, the Company’s Chief Financial Officer,
        purchased 25,000 units for consideration of $50,000 in the same Private
        Placement.  The terms of the transaction for Mr. Crafts and Mr. Crook
        were the same as that of the other investors.
 
 David
        M.
        Otto is general securities counsel and a director of the Company and a principal
        at The Otto Law Group, PLLC.  The Company has expensed and accrued $100,620
        in legal fees to The Otto Law Group, PLLC, as of and for the twelve months
        ended
        September 30, 2007.
  Prior
        to
        the merger of the Company and DEP, the Company’s Chief Executive Officer, who
        was an LLC member of DEP, contributed net cash of $152,221 to fund the
        operations of DEP and contributed an airplane valued at $138,825 to DEP. 
He received common stock of the Company in the merger in exchange for these
        contributions.
  Another
        party who became a stockholder of the Company in the merger loaned money
        to DEP
        under a convertible note.  The note and the accrued interest thereon
        totaling $506,667 were converted to common stock of the Company at the
        merger.
  Two
        DEP
        LLC members who became stockholders of the Company were paid $40,000 for
        consulting services prior to the merger.
  F15
 Note
        5.  Nonmonetary
        Transactions Prior to Merger
  Prior
        to
        the merger of the Company and DEP, two persons contributed future services
        and
        two persons contributed future services and processing development rights
        to DEP
        in the Form of an assignment (also signed by the Company’s CEO) of an
        application for a patent on the Company’s core technology in exchange for LLC
        member units.  The Company determined that the value of these contributions
        was insignificant because of the highly speculative nature of the DEP
        development process at that time.  All of these persons became stockholders
        of the Company in the merger.  The first two persons contributing future
        services referred to above are the two DEP LLC members paid $40,000 referred
        to
        in Note 4.
  Note
        6.  The Merger and
        Stockholders’ Equity
  On
        September 29, 2006, the Company acquired all the operations of DEP in exchange
        for 28,500,000 shares of the Company’s no par value common stock, as
        follows:
  ·5,250,000 shares issued to the Company’s CEO in exchange for cash
                  and property contributed to DEP;
  ·1,500,000 shares issued upon conversion of note payable
                  by DEP;
                  and
  ·21,750,000 shares issued to other parties, including LLC
                  members of
                  DEP
  As
        a
        result of this merger, the Company became the sole LLC member of
        DEP.
  F16
 As
        of the
        effective date of inception of DEP’s development stage (November 1, 2004),
        the Company, then operating as MSH, had 4,000,000 shares of its common stock
        issued and outstanding.  In August 2006, two former stockholders of
        MSH exchanged a total of 325,000 common shares for two former subsidiaries
        of
        MSH, which comprised all of the assets and liabilities of MSH.  The
        remaining common stock shares of MSH were then subject to a two-for-one reverse
        split, resulting in 2,000,001 shares of its common stock issued and outstanding
        at the time of merger.  These stockholders, combined with the new shares
        issued in the merger, comprise the 30,500,001 shares of the Company’s common
        stock issued and outstanding at September 30, 2006.  During May
        and June of 2007 the Company issued 377,500 shares and 377,500 warrants in
        exchange for $755,000 in cash consideration and 67,500 shares and 67,500
        warrants in exchange for $135,000 of goods and services, see Note
        11.  Total shares outstanding as of September 30, 2007 were
        30,945,001.  The Company has also issued 11,325 warrants associated
        with the issuance of debt, 28,491 warrants as a private placement fee for
        the
        Private Placement of equity in 2007 and 200,000 warrants as a consulting
        fee,
        see Note 11.  There is a convertible debenture outstanding that is
        convertible into 44,000 shares of common stock.  The shares were
        issued in November 2007, see Note 16. The Company is authorized to issue
        a total
        of 200,000,000 shares of common stock.
  The
        Company also has 5,000,000 shares of no par value preferred stock authorized
        but
        none is issued.  This class of stock is a “blank check” class in that the
        rights of such stock would be established at the time of its
        issuance.
  The
        Company left in place an incentive stock option plan established by MSH in
        2002
        but there are no stock grants issued or outstanding under the plan and the
        Company’s Board of Directors has not allocated any stock to the
        plan.  The Company has issued options to purchase 100,000 shares of
        common stock to an independent director as part of his board services agreement,
        see Notes 12 and 16.
  F17
 A
        summary
        of the accounting for the merger of the Company and DEP follows (in
        thousands):
  BBD (formerly MSH)
              
              DEPAs of
                9/29/06
                before
                merger
              
              Merger
                adj.
              
              As of
                9/29/06
                after
                merger
              
              As of
                9/29/06
                before
                merger
              
              Merger
                adj.
              
              As of
                9/29/06
                after
                merger
              
              Consol.
                Adj.
              
              BBD -
                Consol.
                Post-
                MergerASSETS:Current
                  assets
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              192
              
              $
              0
              
              $
              192
              
              $
              0
              
              $
              192PPE
                  & other assets
              
              0
              
              0
              
              0
              
              270
              
              0
              
              270
              
              0
              
              270Due
                  from subsidiary
              
              0
              
              507
              (1)
              507
              
              
              
              
              
              
              
              (507
              )(3)
              0Investment
                  in subsidiary
              
              0
              
              (182
              )(2)
              (182
              )
              
              
              
              
              
              
              182
              (4)
              0TOTAL
                  ASSETS
              
              $
              0
              
              $
              325
              
              $
              325
              
              $
              462
              
              $
              0
              
              $
              462
              
              $
              (325
              )
              $
              462LIABILITIES
&
                  EQUITY:LIABILITIES:Current
                  liabilities
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              138
              
              $
              0
              
              $
              138
              
              $
              0
              
              $
              138Conv.
                  note payable to related party
              
              
              
              
              
              
              
              507
              
              (507
              )(1)
              0
              
              0
              
              0Advances
                  from parent
              
              
              
              
              
              
              
              0
              
              507
              (1)
              507
              
              (507
              )(3)
              0TOTAL
                  LIABILITIES
              
              0
              
              0
              
              0
              
              644
              
              0
              
              644
              
              (507
              )
              138EQUITY:BBD
                  Stockholders’ Equity:BBD
                  Preferred Stock
              
              0
              
              0
              
              0
              
              
              
              
              
              
              
              0
              
              0BBD
                  Common Stock
              
              0
              
              507
              (1)
              798
              
              
              
              
              
              
              
              0
              
              798291
              (2)BBD
                  Retained Earnings (Deficit)
              
              0
              
              (473
              )(2)
              (473
              )
              
              
              
              
              
              
              0
              
              (473
              )DEP
                  Members’ Capital:DEP
                  Contrib. by LLC member
              
              
              
              
              
              
              
              291
              
              0
              (5)
              291
              
              (291
              )(4)
              0DEP
                  Accumulated Deficit
              
              
              
              
              
              
              
              (473
              )
              0
              
              (473
              )
              473
              (4)
              0TOTAL
                  EQUITY
              
              0
              
              325
              
              325
              
              (182
              )
              0
              
              (182
              )
              182
              
              325TOTAL
                  LIAB. &
                  EQUITY
              
              $
              0
              
              $
              325
              
              $
              325
              
              $
              462
              
              $
              0
              
              $
              462
              
              $
              (325
              )
              $
              462
   Notes:1.
              Record
                  the conversion of the DEP convertible note payable and accrued
                  interest
                  payable to 1,500,000 BBD common shares.2.
              Record
                  the net book value of the net assets of DEP on the books of
                  BBD.3.
              Eliminate
                  intercompany advances.4.
              Eliminate
                  BBD’s investment in DEP.5.
              Contributions
                  by LLC Member:Cash
                  - per consolidated statement of Cash Flows
              $
              152Contribution
                  of airplane to DEP
              139Total
              $
              291
   F18
  Note
        7.  Development Stage
        Operations
  By
        virtue
        of its merger with DEP, which became its sole operations, the Company is
        considered to be in the development stage in accordance with the Financial
        Accounting Standards Board SFAS No. 7, “Accounting and Reporting
        by
        Development Stage Enterprises”.  Since its inception, DEP has
        devoted substantially all of its time to raising capital, obtaining financing,
        and research and development activities.  Furthermore, DEP has had a total
        of $11,925 of revenues and has had recurring losses since its
        inception.
  Total
        stockholders’ equity on the balance sheet includes the deficit accumulated
        during the development stage of $2,840,482 through September 30,
        2007.
  Note
        8. Notes
        Payable
  In
        November of 2006 the Company received an advance of $100,000 from Sausalito
        Capital Partners (a shareholder of the Company) in anticipation of negotiating
        and executing a promissory note.  In February of 2007 a note payable
        was executed in exchange for the advance.  The interest rate on the
        note is 6% per annum.  Principal and accrued interest are due at the
        earlier of February of 2008 or within two days of the Company completing
        a
        private placement of at least $3.0 million.  Warrants to purchase
        5,000 shares of the Company’s common stock were issued to the investor in
        conjunction with the execution of the note.  The warrants were
        granted with an initial exercise price of $5.00 per share and expire in
        February of 2009.  The exercise price of the warrant may be adjusted
        downward if the Company issues common stock or securities convertible or
        exchangeable into common stock at a lower price.  The warrants were
        valued utilizing the Black-Scholes model with volatility of 192%, a risk
        free
        interest rate of 4.8%, an expected life of two years, and a dividend yield
        of 0% resulting in a value of $4.17 per warrant.  The valuation has
        been taken as a $17,253 discount on the note payable which is being expensed
        over the life of the note.  The discount was determined based on the
        relative fair value of the warrants and the note. During May and June 2007
        the
        Company issued shares and warrants that triggered a revaluation lowering
        the
        exercise price to $2.00 per warrant resulting in an increase in valuation
        of
        $1,243.  All of the change was expensed as interest.  As of
        September 30, 2007 the debt discount amounted to $8,301 and accrued interest
        was
        $5,339.
 
 F19
 In
        December of 2006 the Company received an advance of $200,000 from National
        Real
        Estate Solutions Group in anticipation of negotiating and executing a debt
        agreement.  In February of 2007, pursuant to a subscription agreement
        between National Real Estate and the Company,  a convertible debenture
        was executed in exchange for the advance.  The debenture matured at
        March 31, 2007 and had accrued interest of $20,000.  Both the
        subscription agreement and the debenture provides that, at maturity, the
        Company
        has the option to convert the debenture and accrued interest into shares
        of the
        Company’s common stock at a share price which is the greater of either $5.00 or
        75% of the most current 10-day trailing average bid price.  The
        Company has valued the beneficial conversion feature at $13,860 and taken
        that
        amount as a discount on the debenture.  Warrants to purchase 3,125
        shares of the Company’s common stock with an initial exercise price of
        $8.00 and an exercise period of 3 years were issued to the debenture
        holder. The exercise price of the warrant may be adjusted downward if the
        Company issues common stock or securities convertible or exchangeable into
        common stock at a lower price. The warrants were valued utilizing the
        Black-Scholes model with volatility of 192%, a risk free interest rate of
        4.7%,
        an expected life of three years and a dividend yield of 0% resulting in a
        value of $4.44 per warrant.  The valuation has been taken as a $12,962
        discount on the debenture.  The discount was determined based on the
        relative fair value of the warrants and note.  Placement fees of $17,515
        were paid to an outside party for securing the financing.  In
        addition, warrants were issued to that party to purchase 3,200 shares of
        the
        Company’s common stock with an initial exercise price of $5.00 with an
        exercise period of 5 years for placement services rendered. The exercise
        price
        of the warrant may be adjusted downward if the Company issues common stock
        or
        securities convertible or exchangeable into common stock at a lower price.
        The
        warrants were valued utilizing the Black-Scholes model with volatility of
        192%,
        a risk free interest rate of 4.7% an expected life of five years, and a dividend
        yield of 0% resulting in a value of $4.86 per warrant.  The valuation
        of $15,549 and the placement fee of $17,515 were taken as a as an additional
        discount on the debenture.   The discount was determined based on
        the relative fair value of the warrants and note. As of March 31, 2007, the
        maturity date, the debt discount of $59,786 was fully amortized to
        interest and  $20,000 of accrued interest  at that date was
        transferred from accrued interest to principal. Since March 31, 2007,
        interest has been accruing at 10% per annum resulting in accrued
        interest of $11,000 at September 30, 2007.  During May and June 2007
        the Company issued shares and warrants that triggered a revaluation lowering
        the
        exercise price to $2.00 per warrant associated with the debenture resulting
        in
        an increase in valuation of $830.  All of the change was expensed as
        interest.  The Company provided notice to National Real Estate
        Solutions Group to convert its subordinated convertible debenture, but national
        Real Estate Solutions Group requested certain amendments to the agreement
        in
        lieu of conversion of the debenture.  The Company has been in
        discussions with the debenture holder.  In November of 2007 the
        Company issued the note holder, National Real Estate Solutions Group, 44,000
        shares of common stock, per the note agreement.  Despite the stated
        terms of the above referenced subscription agreement and the convertible
        debenture, National Real Estate Solutions Group takes the position that the
        Company is obligated to repay the convertible debenture, in cash.  In
        reliance on these documents, the Company disputes National Real Estate Solutions
        Group’s position, but remains committed to reaching an agreement acceptable to
        both parties.  Because the 44,000 shares were issued to National Real
        Estate Solutions Group, but National Real Estate Solutions Group maintains
        its
        position that it remains a debt-creditor of the Company, the Company will
        state
        National Real Estate Solutions Group as a both a shareholder and debt-creditor
        until a definitive agreement is reached, see Note 16.
  F20
 Note
          9.  Related Party
          Advances
 
 As
          of
          September 30, 2007 Ron Crafts, the Company’s Chief Executive Officer, had
          advanced the Company $75,000.  Interest is being accrued at 8% per
          annum.  Accrued interest at September 30, 2007 amounted to
          $3,785.
 
 Note
          10.  Commitments and
          Contingencies
  The
          Company leases its property, consisting of building and property for $5,000
          per
          month.  Rent expense for the twelve months end September 30, 2007 and
          the nine months end September 30, 2006 was $60,000 and $15,000
          respectively. The lease expires in July of 2008, with four, two-year
          renewal option periods.  The exercise of the renewal option allows the
          lease payment to be adjusted by 75% of the change in the Consumer Price
          Index in
          the preceding two year period.
  Future
          minimum lease payments are as follows for the year ending September
          30:
  2008
                $
                50,000
  On
          January 29, 2007, the Company's board of directors resolved to issue 16,000
          shares of the Company's common stock to two separate parties for services
          rendered.  The value of these services were deemed to be $120,000
          (based on the closing price of shares on the grant date).  As of
          September 30, 2007, the shares have not been issued, but a liability has
          been
          recorded and is included in accounts payable and accrued expenses.  An
          additional $20,000 of expense has been recorded under the terms of an agreement
          with one of the parties, resulting in a total liability of
          $140,000.
 
 During
          2007 the board of directors resolved to issue Gary Crook, the Company’s Chief
          Financial Officer, 305,000 options.  On October 12, 2007, the board of
          directors adjusted the still unissued option grant to 500,000 options.  The
          options have not been issued as of yet and no terms or conditions have
          been
          determined.
  The
          Company has an engagement letter with Thomas Lloyd (a financial advisor
          to the
          Company) to issue an additional 300,000 warrants at the completion of a
          $10
          million, or higher, financing or upon termination of the underlying
          engagement.  In addition, the Company has a $75,500 accrual for the
          placement associated with the Company’s private placement from May and June of
          2007.  The fee is due at the completion of a $10 million, or higher
          financing, or upon termination of the underlying agreement, see Note
          11.
 F21
  Note
          11.  Common Stock and
          Warrants
  During
          May and June 2007 the Company sold 377,500 units in a private
          placement.  The units consist of 377,500 shares of common stock and
          warrants to purchase 377,500 share of common stock at $2.65 per
          share.  The units were sold at $2.00 per unit.  Gross
          proceeds totaled $755,000.  The Company’s Chief Executive Office and
          Chief Financial Officer purchased 41,000 units and 25,000 units,
          respectively.  The common shares have “piggy back” registration rights
          and demand registration rights after 90 days, subject to limitations for
          additional financing being sought and limitations under current SEC
          regulations.  The warrants vest immediately, expire in five years and
          may be exercised for cash or on a cashless basis.  Analysis utilizing
          the Black-Scholes model utilizing volatility of 184%, an interest rate
          of 5.1%,
          an expected life of five years, and a dividend yield of 0% resulted in an
          allocation of proceeds of $385,050 to common stock (51%) and $369,950 to
          the
          warrants as additional paid in capital (49%).  The Company accrued
          $75,500 as a placement fee that is payable at a larger round of financing
          or as
          a result of terminating the underlying agreement.  The Company also
          issued 28,491 warrants as a placement fee with an exercise price of $2.65,
          expiring in five years that can be exercised as cash or cashless.  The
          warrants were valued utilizing the Black- Scholes model utilizing a volatility
          of 184%, a risk free rate of 5.1%, an expected life of five years, and
          a
          dividend yield of 0%.  The $65,523 value was recorded as a reduction
          to common stock proceeds.
 
 In
          June
          2007 the Company issued 67,500 units consisting of 67,500 shares of common
          stock
          and warrants to purchase 67,500 shares of common stock valued at $2.00
          per
          unit.  The terms and conditions are the same as the private placement,
          excluding placement fees.  In exchange the Company received $11,107 of
          inventory, $35,721 of property, plant, and equipment and $88,172
          of services and other expenses.  The $135,000 was allocated
          51% to common stock and 49% to additional paid in capital.
 
 In
          June
          2007 the Company issued 200,000 warrants with an exercise of $2.65 per
          warrant
          and a five year expiration to a company in exchange for services.  The
          warrants were valued utilizing the Black-Scholes model utilizing 184%
          volatility, a risk free rate of 5.1%, an expected life of five
          years and a dividend yield of 0% resulting in a value of $482,215 which was
          immediately expensed.
 
 F22
 Note
          12. Options
  The
          Company has granted options to a director of the Company.  The Company
          has adopted the provisions of SFAS No. 123R using the modified-prospective
          transition method and the disclosures that follow are based on applying
          SFAS No.
          123R.  During June 2007 100,000 options were issued to a director with
          an exercise price of $2.65, which expire in June 2017.  One-third of
          the options vest upon execution of the agreement with the director, another
          one-third vesting on the last day of the first year of the execution of
          the
          agreement and the remaining one-third on the last day of the second year
          of the
          execution of the agreement.  The options were valued utilizing the
          Black-Scholes model with volatility of 181%, a risk-free rate of 5.1%,
          an
          expected life of five years and a dividend yield of 0% resulting in a fair
          value of $2.19 per option.  Compensation expense is amortized over the
          vesting period of the option on a straight-line basis resulting in $93,712
          in
          compensation expense for the twelve months ended September 30,
          2007.  On October 31, 2007 the option holder, Steve Nordaker, resigned
          his board seat.  At the time of the resignation 33,333 options were
          vested and 66,667 options were not vested.  The $93,712 compensation
          expense at September 30, 2007 consisted of $73,110 expense on vested options
          and
          $20,602 in accrued compensation amortized toward the next vesting period,
          see
          Note 16.
 
 Note
          13. Sales
 
 In
          March
          of 2007 the Company sold 4,500 gallons of biodiesel fuel to a potential
          customer
          as part of negotiating a letter of intent for Better Biodiesel to deliver
          fuel
          in the future.  The purpose of the delivery was for the potential
          customer to run tests of the fuel in actual driving conditions and in the
          laboratory.  The Company received $11,925 in revenue for delivering
          the fuel.
 
 During
          June of 2007 the Company began continuous production of biodiesel fuel,
          primarily to optimize the design of a new 10 million gallon per year
          processor.  The Company was still in the process of modifying its
          process as of July 25, 2007 when a fire in the fuel processor halted production,
          see Note 14.  The Company has made basic repairs to the processor and
          has only used the processor for limited production testing since
          then.  No fuel has been sold since March of 2007.
 
 F23
  Note
          14. Extraordinary
          Loss
 
 On
          July
          25, 2007 the Company sustained a fire to its fuel processor which caused
          the
          Company to temporarily suspend fuel production at its production
          facility.  As a result of the fire damage the Company wrote off
          $50,366 worth of equipment, net of $1,291 of accumulated depreciation and
          no
          expected salvage value, as an extraordinary loss.  There was no
          insurance available to cover the loss.
 
 After
          reviewing the expenditures required to bring the processor back to full
          production and the economic benefit, the Company determined that its financial
          interests were best served by making basic repairs and to use the processor
          for
          limited production and for testing and demonstration purposes.
 
 Note
          15. Income
          Taxes
  Significant
          components of the Company's deferred tax assets and liabilities and related
          valuation allowances are as follows as of September 30:
  2007Deferred
                    tax assets:Net
                    operating loss carryforwards
                
                $
                557,252Option
                    / warrant compensation
                
                
                244,434Other
                
                
                10,219Total
                    net deferred tax assets
                
                
                811,905Valuation
                    allowance
                
                $
                (811,905
                )Deferred
                    tax assets, net of valuation allowance
                
                $
                --
  The
          Company has established a valuation allowance to fully offset the $811,905
          deferred tax asset as of September 30, 2007, due to the uncertainty of
          future realization of the net deferred tax assets.  The ability to
          realize any deferred tax asset is dependent on generating future taxable
          income.
  During
            the twelve months ended September 30, 2007 and the nine months ended
            September
            30, 2006, the valuation allowance increased by $771,042 and $40,863,
            respectively.
  The
            difference between the tax at the statutory federal tax rate and no tax
            provision recorded by the Company for the twelve months ended September
            30,
            2007, and the nine months ended September 30, 2006, is primarily due
            to the
            Company's full valuation allowance against its deferred tax
            assets.
  At Setember 30, 2007 the Company had net operating
          loss
          carryforwards for the Federal income tax purposes of approximately $1.6
          million to offset future income that expire beginning in 2021. 
Utilization of the carryforwards is dependent on generating future taxable
          income.
 F24
  Note
          16.  Subsequent
          Events
  In
          November of 2007 the Company issued 44,000 shares of common stock to National
          Real Estate Solutions Group (“National Real Estate”) per the terms of the
          subscription agreement and subordinated convertible debenture (the “Securities
          Agreement”) after National Real Estate and the Company failed to reach an
          agreement on an amendment to the Securities Agreement.  Despite the
          written terms of the Security Agreement, National Real Estate takes the
          position
          that the Company remains obligated to repay the convertible debenture in
          cash.  The Company continues to rely on the written terms of the
          Security Agreement to support its right to convert the debentures and issue
          the
          shares, but remains committed to reaching an agreement acceptable to both
          parties.  Because the 44,000 shares were issued to National Real
          Estate, but National Real Estate Solutions Group maintains its position
          that it
          remains a debt-creditor of the Company, the Company will state National
          Real
          Estate Solutions Group as a both a shareholder and debt-creditor until
          a
          definitive agreement is reached,
 
 On
          October 31, 2007, the Board of Directors (the “Board”) of Better Biodiesel, Inc.
          (the “Company”) accepted the resignations of Steve Nordaker and John Robinson
          from the Board.  Mr. Nordaker and Mr. Robinson had served on the Board
          since June 19, 2007.  The resignations of Mr. Nordaker and Mr.
          Robinson from the Board do not arise from any disagreement on any matter
          relating to the Company’s operations, policies or practices, or regarding the
          general direction of the Company.  The Company is currently
          interviewing potential Board candidates who can facilitate strategic
          relationships for the Company within the biodiesel industry.
  On
          November 6, 2007, the Company executed a letter of intent with Green Energy
          Technology, Inc. (“GET”) to enter into a share exchange, whereby, upon the
          development, execution and closing of a definitive agreement by November
          30,
          2007, 15,750,000 shares of the Company’s common stock and the Company’s best
          efforts commitment to facilitate capital financing shall be exchanged for
          100%
          of the common stock of GET, and GET will become a wholly owned subsidiary
          of the
          Company.  GET plans to realign the focus of the Company’s business
          from a technology-based producer of biodiesel fuel to a vertically integrated
          business comprised of: i) the procurement of low cost and diversified feedstock;
          ii) biodiesel fuel production using proven, established technologies; iii)
          the
          distribution of internally produced petro-biodiesel blended fuel; and iv)
          the
          research and development of future renewable, cost-beneficial feedstocks. 
As of January 2008, the parties were unable to reach a definitive agreement
          and
          have terminated further discussions.
  Also,
          on
          November 6, 2007, the Company executed a letter of intent with Ron Crafts,
          the
          Company’s Chairman and Chief Executive Officer, John Crawford, President, Chief
          Technology Officer and a Director of the Company, Lynn Dean Crawford, Chief
          Operations Officer of the Company, James Crawford, Mary Crafts, and Culinary
          Crafts, LLC., whereby common stock of the Company owned by Ron Crafts,
          John,
          James and Lynn Dean Crawford will be returned to the Company in exchange
          for: i)
          100% of the membership interests in Domestic Energy Partners, LLC., the
          Company’s wholly owned subsidiary (“DEP”); ii) all accounts, contracts,
          equipment, furnishings, miscellaneous personal property, fixtures, general
          intangibles, transferable tax rebate certificates, documents and copyrights
          owned by the Company and/or DEP; iii) all of the rights, title and interest
          held
          in the invention identified in the patent application assigned to the Company;
          iv) the Company’s Twin Cessna airplane; and v) all liabilities in connection
          with, or obligations owed to, Mr. Crafts, John, James and Lynn Dean Crawford
          and/or Culinary Crafts.  Under this letter of intent, Ron Crafts, John
          Crawford and Lynn Dean Crawford will resign from their respective positions
          with
          the Company.
  F25
 The
          Company filed an 8-K on the board member resignations and the letters of
          intent
          on November 6, 2007.
  On
          December 20, 2007, the Company entered into and closed an Asset Purchase,
          Settlement and Mutual Release Agreement with Ron Crafts, Chairman and Chief
          Executive Officer of the Company, John Crawford, President, Chief Technology
          Officer and a Director of the Company, Lynn Dean Crawford, Chief Operations
          Officer of the Company, James Crawford, Mary Crafts, and Culinary Crafts,
          LLC.,
          under which Ron Crafts, John Crawford, Lynn Dean Crawford and James Crawford
          exchanged a total of 15,750,000shares of common
          stock
          of the Company in exchange for: (i) 100% of the membership interests in
          Domestic
          Energy Partners, LLC., the Company’s wholly-owned subsidiary (“DEP”); (ii)
          certain contracts, certain biodiesel processing equipment related to the
          Company’s proprietary production technology, office furnishings, transferable
          tax rebate certificates, documents and copyrights owned by the Company
          and/or
          DEP; (iii) all of the rights, title and interest held in the invention
          identified in the patent application assigned to the Company; and (iv)
          the
          Company’s Twin Cessna airplane (the “Asset Sale Agreement”).
 
 Additionally,
          under the Asset Sale Agreement, DEP assumed all liabilities in connection
          with,
          or obligations owed to, Ron Crafts, John Crawford, James Crawford, Lynn
          Dean
          Crawford and Culinary Crafts, including certain wages and loans
          payable.  The Asset Sale Agreement also stipulated that Ron Crafts,
          John Crawford and Lynn Dean Crawford resign from their respective positions
          with
          the Company, upon closing.
 
 Seven
          shareholders of the Company beneficially owning a total of 24,751,000 shares
          of
          the Company’s 30,945,001 total issued and outstanding shares of common stock
          consented to the Asset Sale Agreement, in accordance with Section 7-107-104
          and
          Section 7-112-102 of the Colorado Revised Statutes.  Excluding
          shareholders with a direct interest in the assets sold in the Asset Sale
          Agreement, three shareholders beneficially owning a total of 9,001,000
          shares
          consented out of the remaining 15,154,001 total shares that are considered
          disinterested in the assets of the transaction.
  On
          December 17, 2007, the Company executed a letter
          of intent with GeoAlgae Technology, Inc., a Wyoming corporation (“GAT”), to
          enter into an acquisition agreement (the “Exchange”) whereby Better Biodiesel
          will acquire 100% of GAT, which will become a wholly-owned subsidiary of
          the
          Company, in exchange for (i) 3,300,000 shares of common stock of Better
          Biodiesel and  (ii) Better Biodiesel’s commitment to make 6,700,000
          shares available as additional compensation, issuable to GAT subject to
          following performance based criteria, to be definitively determined in
          the
          Exchange.  GAT is both (i) a development stage biodiesel supply and
          distribution company and (ii) currently developing proprietary technology
          that
          its management believes will enable the production of biodiesel fuel on
          a
          commercial scale using green algae as feed stock.
 F26