**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**


**FORM
      10-Q**




x
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934




For
      the
      quarterly period ended June 30, 2008




o
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934




For
      the
      transition period from ___________ to _____________




Commission
      File No. 1-34022




**NEW
      GENERATION BIOFUELS HOLDINGS, INC.**




(Exact
      name of registrant as specified in its charter)




Florida
            
            26-0067474(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)




1000
      Primera Boulevard, Suite 3130


Lake
      Mary, Florida 32746


(Address
      of principal executive offices)




(443)
      535-8660


(Registrant’s
      telephone number including area code)




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 þ No  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer” and smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated filer  ̈ Smaller
      reporting company þ




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




At
      July 31, 2008, the registrant had 18,872,712 shares of common stock, $0.001
      par value, issued and outstanding.








**INDEX**





**PART
      I. FINANCIAL INFORMATION**





Item
                1.
            Financial
                StatementsConsolidated
                balance sheets as of June 30, 2008(Unaudited)
                and December 31, 2007
            
            3Consolidated
                statements of operations for the three and six months ended June
                30, 2008
                (Unaudited), for the three and six months ended June 30, 2007 (Unaudited)
                and for the period from February 28, 2006 (Inception) through June
                30,
                2008 (Unaudited)
            
            4Consolidated
                statement of stockholders’ equity for the six months ended June 30, 2008
                (Unaudited)
            
            5Consolidated
                statements of cash flows for the six months ended June 30, 2008
                (Unaudited), for the six months ended June 30, 2007 (Unaudited) and
                for
                the period from February 28, 2006 (Inception) through June 30, 2008
                (Unaudited)
            
            6Notes
                to consolidated financial statements
            
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            17Item
                3.
            Qualitative
                and Quantitative Disclosures About Market Risk
            
            22Item
                4.
            Controls
                and Procedures
            
            22**PART
                II.**
            **OTHER
                INFORMATION**Item
                1A.
            Risk
                Factors
            
            24Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            25Item
                6.
            Exhibits
            
            26Signatures
            
            
            27




2




**NEW
      GENERATION BIOFUELS HOLDINGS, INC.**


**(A
      Development Stage Enterprise)**


**Consolidated
      Balance Sheets**





June 30,
            
            December 31,2008
            
            2007ASSETSCurrent
                assets:Cash
            
            $
            5,478,083
            
            $
            1,644,145Prepaid
                expenses
            
            
            85,421
            
            
            84,968Total
                current assets
            
            
            5,563,504
            
            
            1,729,113License
                agreement
            
            
            8,061,300
            
            
            8,061,300TOTAL
                ASSETS
            
            $
            13,624,804
            
            $
            9,790,413LIABILITIES
                AND STOCKHOLDER'S EQUITYCurrent
                liabilities:Accounts
                payable and accrued expenses
            
            $
            630,025
            
            $
            634,587Loan
                payable-related party
            
            
            50,000
            
            
            50,000License
                agreement payable-current portion
              (net
                of unamortized discount of $328,402 and $78,153)
            
            
            671,598
            
            
            921,847Accrued
                dividend on preferred stock
            
            
            496,505
            
            
            210,275Liability
                under registration rights agreement
            
            
            82,500
            
            
            78,956Total
                current liabilities
            
            
            1,930,628
            
            
            1,895,665License
                agreement payable(net
                of unamortized discount of $1,456,961 and $1,993,830)
            
            
            3,543,039
            
            
            4,006,1705,473,667
            
            
            5,901,835Stockholders'
                equity:Series
                A Cumulative Convertible Preferred Stock: $100 stated value, 300,000
                shares authorized, 29,900 and 42,050 shares issued and outstanding
                as of
                June 30, 2008 and December 31, 2007, respectively
            
            
            1,155,326
            
            
            1,624,798Series
                B Cumulative Convertible Preferred Stock: $100 stated value, 250,000
                shares authorized, 79,405 shares issued and outstanding as of June
                30,
                2008
            
            
            5,556,361
            
            
            -Common
                stock, $0.001 par value, 100,000,000 shares authorized; 18,872,712
                and
                18,165,793 shares issued and outstanding as of June 30, 2008 and
                December
                31, 2007, respectively
            
            
            18,872
            
            
            18,166Additional
                paid-in-capital
            
            
            26,431,735
            
            
            18,955,101Deficit
                accumulated during the development stage
            
            
            (25,011,157
            )
            
            (16,709,487
            )Total
                stockholders' equity
            
            
            8,151,137
            
            
            3,888,578TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            13,624,804
            
            $
            9,790,413


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3




**NEW
      GENERATION BIOFUELS HOLDINGS, INC.**


**(A
      Development Stage Enterprise)**


**Consolidated
      Statements of Operations**





For the ThreeMonths Ended June30, 2008
            
            For the ThreeMonths Ended June30, 2007
            
            For the Six MonthsEnded June 30,2008
            
            For the SixMonths Ended June30, 2007
            
            For the Period fromFebruary 28, 2006(Inception) to June30, 2008(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Operating
                expenses:Research
                and development expenses
            
            $
            145,931
            
            $
            99,457
            
            $
            342,772
            
            $
            202,739
            
            $
            1,206,222Merger
                expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            340,000General
                and administrative expenses
            
            
            2,149,451
            
            
            1,024,273
            
            
            4,048,878
            
            
            2,144,121
            
            
            15,866,995Legal
                settlement
            
            
            359,595
            
            
            -
            
            
            359,595
            
            
            -
            
            
            359,595Total
                operating expenses
            
            
            2,654,977
            
            
            1,123,730
            
            
            4,751,245
            
            
            2,346,860
            
            
            17,772,812Net
                loss from operations
            
            
            (2,654,977
            )
            
            (1,123,730
            )
            
            (4,751,245
            )
            
            (2,346,860
            )
            
            (17,772,812
            )Interest
                income
            
            
            11,320
            
            
            7,429
            
            
            16,589
            
            
            7,429
            
            
            66,123Interest
                expense
            
            
            (132,178
            )
            
            (195,835
            )
            
            (286,620
            )
            
            (389,518
            )
            
            (1,699,085
            )Other
                expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (250,000
            )(Loss)
                gain on fair value adjustment
            
            
            (9,765
            )
            
            104,940
            
            
            (30,169
            )
            
            550,935
            
            
            601,267Net
                loss
            
            
            (2,785,600
            )
            
            (1,207,196
            )
            
            (5,051,445
            )
            
            (2,178,014
            )
            
            (19,054,507
            )Preferred
                dividends
            
            
            (1,772,475
            )
            
            (2,535,586
            )
            
            (3,250,225
            )
            
            (2,535,586
            )
            
            (5,956,650
            )Net
                loss available to common shareholders
            
            $
            (4,558,075
            )
            $
            (3,742,782
            )
            $
            (8,301,670
            )
            $
            (4,713,600
            )
            $
            (25,011,157
            )Basic
                and diluted net loss per share
            
            $
            (0.24
            )
            $
            (0.22
            )
            $
            (0.45
            )
            $
            (0.28
            )Weighted
                average number of shares outstanding
            
            
            18,639,757
            
            
            17,091,250
            
            
            18,434,664
            
            
            17,091,250


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4


**NEW
      GENERATION BIOFUELS HOLDINGS, INC.**


**(A
      Development Stage Enterprise)**


Consolidated
      Statement of Changes in Stockholders' Equity


For
      the
      Six Months ended June 30, 2008





**Common
                Stock**
            
            **Preferred Stock - Series A**
            
            **Preferred Stock -Series B**
            
            **Additional**
            
            **Deficit**
                      **Accumulated**
                      **During the**
                      **Development****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Stage**
            
            **Total**Balance
                at January 1, 2008
            
            
            18,165,793
            
            $
            18,166
            
            
            42,050
            
            $
            1,624,798
            
            
            -
            
            $
            -
            
            $
            18,955,101
            
            $
            (16,709,487
            )
            $
            3,888,578Compensation
                expense associated with options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,201,941
            
            
            -
            
            
            1,201,941Issuance
                of options and warrants for services rendered
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            462,148
            
            
            -
            
            
            462,148Issuance
                of common stock for services rendered
            
            
            16,250
            
            
            16
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            78,484
            
            
            -
            
            
            78,500Issuance
                of common stock - registration rights agreement
            
            
            35,486
            
            
            35
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            212,880
            
            
            -
            
            
            212,915Issuance
                of preferred stock and warrants in private offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            79,405
            
            
            5,556,361
            
            
            2,032,739
            
            
            -
            
            
            7,589,100Dividend
                associated with the beneficial conversion feature of the preferred
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,963,995
            
            
            (2,963,995
            )
            
            -Private
                placement costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (401,450
            )
            
            -
            
            
            (401,450
            )Conversion
                of preferred stock into common stock
            
            
            303,750
            
            
            304
            
            
            (12,150
            )
            
            (469,472
            )
            
            -
            
            
            -
            
            
            469,168
            
            
            -
            
            
            -Exercise
                of warrants into common stock
            
            
            351,433
            
            
            351
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            456,729
            
            
            -
            
            
            457,080Dividends
                accrued on preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (286,230
            )
            
            (286,230
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,051,445
            )
            
            (5,051,445
            )Balance
                at June 30, 2008
            
            
            18,872,712
            
            $
            18,872
            
            
            29,900
            
            $
            1,155,326
            
            
            79,405
            
            $
            5,556,361
            
            $
            26,431,735
            
            $
            (25,011,157
            )
            $
            8,151,137


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  5


**NEW
      GENERATION BIOFUELS HOLDINGS, INC.**


**(A
      Development Stage Enterprise)**


**Consolidated
      Statements of Cash Flows**





For the Six Months
                ended June 30, 2008
            
            For the Six Monthsended June 30, 2007
            
            For the Period fromFebruary 28, 2006(Inception) to June 30,2008CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (5,051,445
            )
            $
            (2,178,014
            )
            $
            (19,054,507
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Amortization
                of discount
            
            
            286,620
            
            
            389,518
            
            
            1,699,085Compensation
                expense associated with stock options
            
            
            1,201,941
            
            
            1,065,530
            
            
            6,193,331Issuance
                of common stock, options and warrants for services
                rendered
            
            
            540,648
            
            
            -
            
            
            2,826,131Penalty
                share expense
            
            
            186,291
            
            
            -
            
            
            186,291Loss
                (gain) on fair value adjustment
            
            
            30,169
            
            
            (550,935
            )
            
            (601,267
            )Changes
                in operating assets and liabilities:Prepaid
                expenses
            
            
            (453
            )
            
            25,275
            
            
            (85,421
            )Accounts
                payable and accrued expenses
            
            
            (4,563
            )
            
            147,240
            
            
            630,024Net
                cash used in operating activities
            
            
            (2,810,792
            )
            
            (1,101,386
            )
            
            (8,206,333
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisition
                of License Agreement
            
            
            -
            
            
            -
            
            
            (1,500,000
            )Cash
                used in investing activities
            
            
            -
            
            
            -
            
            
            (1,500,000
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Payments
                for license agreement payable
            
            
            (1,000,000
            )
            
            -
            
            
            (3,500,000
            )Proceeds
                from issuance of founders' shares
            
            
            -
            
            
            -
            
            
            554Proceeds
                from private offering issuances of common stock, net of
                costs
            
            
            -
            
            
            -
            
            
            6,405,483Proceeds
                from private offering issuance of preferred stock, net of
                costs
            
            
            7,187,650
            
            
            3,848,649
            
            
            11,006,299Proceeds
                from the exercise of warrants
            
            
            457,080
            
            
            -
            
            
            457,080Proceeds
                from convertible note payable
            
            
            -
            
            
            -
            
            
            765,000Proceeds
                from loan payable - related party
            
            
            -
            
            
            -
            
            
            50,000Net
                cash provided by financing activities
            
            
            6,644,730
            
            
            3,848,649
            
            
            15,184,416Net
                increase in cash and cash equivalents
            
            
            3,833,938
            
            
            2,747,263
            
            
            5,478,083Cash
                and cash equivalents - beginning of period
            
            
            1,644,145
            
            
            1,031,923
            
            
            -Cash
                and cash equivalents - end of period
            
            $
            5,478,083
            
            $
            3,779,186
            
            $
            5,478,083Supplemental
                Disclosure of Non-Cash Investing and Financing
                ActivitiesPayable
                for License Agreement (net of discount)
            
            $
            -
            
            $
            -
            
            $
            6,015,552License
                Agreement acquired in exchange for issuance of common
                stock
            
            $
            -
            
            $
            -
            
            $
            545,747Preferred
                Stock Dividend
            
            $
            286,230
            
            $
            -
            
            $
            496,505




The
        accompanying notes are an integral part of these consolidated financial
        statements.
  6


New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
 
 Note
        1  –  ORGANIZATION
        AND PLAN OF OPERATION
 
 New
        Generation Biofuels Holdings, Inc. (the “Company”), formerly known as H2Diesel
        Holdings, Inc., a Florida corporation, is a development stage company that
        through its wholly owned subsidiary, New Generation Biofuels, Inc., formerly
        known as H2Diesel Inc., a Delaware corporation, holds an exclusive license
        for
        North America, Central America and the Caribbean to commercialize proprietary
        technology (the “Technology”) to manufacture alternative biofuels from vegetable
        oils and animal fats that the Company intends to market as a new class of
        renewable fuel for power generation, heavy equipment, marine use and as heating
        fuel.
  The
        Company is in the development stage and has not generated any revenues. As
        a
        result, the Company has incurred a net loss of $19.1 million and negative
        cash
        flows from operating activities of $8.2 million since Inception. The Company
        is
        obligated to pay $6.0 million in additional payments under the Master License,
        of which $1.0 million is due in March 2009. The Company has fully funded
        its
        operating budget for 2008 but intends to raise additional financing during
        2008
        to fund subsequent operating budgets and long term business objectives, if
        such
        financing is available on favorable terms. The Company’s continued existence is
        dependent upon several factors, including obtaining additional debt or equity
        financing, producing biofuel, developing a market for its biofuel, and achieving
        certain levels of sales volume and profitability from the sale of its biofuel
        and sublicenses of its technology. Management is investigating various sources
        of debt or equity financing and is developing marketing and production plans
        for
        its products.
  Note
        2 **-** SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
  Basis
        of presentation
  The
        accompanying unaudited consolidated financial statements of the Company have
        been prepared in accordance with generally accepted accounting principles
        in the
        United States and the rules and regulations of the Securities and Exchange
        Commission (the “SEC”) for interim financial information. Accordingly, they do
        not include all of the information and footnotes required by generally accepted
        accounting principles for complete financial statements and should be read
        in
        conjunction with the Company’s Annual Report on Form 10-K for the year ended
        December 31, 2007. The interim financial statements are unaudited, but in
        the
        opinion of management, all adjustments, consisting only of normal recurring
        accruals, considered necessary for a fair statement of the results of these
        interim periods have been included. The results of the Company’s operations for
        any interim period are not necessarily indicative of the operating results
        that
        may be expected for any other interim period or a full fiscal
        year.
  7
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  Use
        of
        Estimates
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets, liabilities,
        revenues and expenses and related disclosure of contingent assets and
        liabilities. The Company’s most significant estimate is the value of its
        exclusive license. Other significant estimates include the valuation of shares,
        warrants or options issued for services and the estimated useful life of
        the
        exclusive license used to calculate amortization. The Company evaluates its
        estimates on an ongoing basis. Actual results could differ significantly,
        especially as to the estimated value of its exclusive license from those
        estimates under different assumptions or conditions.
  Loss
        per Common Share
  Loss
        per
        share (“EPS”) is computed based on the weighted average number of common shares
        outstanding and excludes any potential dilution. Diluted EPS reflects the
        potential dilution that could occur if securities or other contracts to issue
        common stock were exercised or converted into common stock or resulted in
        the
        issuance of common stock, which would then share in the earnings of the Company.
        The shares issuable upon the exercise of stock options and warrants are excluded
        from the calculation of net loss per share as their effect would be
        antidilutive. As of June 30, 2008 and 2007, there were 11,041,315 and 9,638,625,
        respectively, shares of common stock equivalents including options (6,005,000
        shares of common stock as of June 30, 2008 and 4,405,000 shares of common
        stock
        as of June 30, 2007), non employee options (1,591,000 shares of common stock
        as
        of June 30, 2008 and 1,531,000 shares of common stock as of June 30, 2007)
        and
        warrants (3,445,315 shares of common stock as of June 30, 2008 and 3,702,625
        shares of common stock as of June 30, 2007) that could potentially dilute
        EPS in
        the future that were not included in the computation of EPS because to do
        so
        would have been antidilutive. As of June 30, 2008 and 2007 there were 29,900
        and
        42,550, respectively, shares of Series A Convertible Preferred Stock which
        are
        convertible into 747,500 and 1,063,750, respectively, shares of common stock
        that were not included in the computation of EPS because to do so would have
        been antidilutive as well. As of June 30, 2008 there were 79,405 shares of
        Series B Convertible Preferred Stock which are convertible into 1,868,353
        shares
        of common stock that were not included in the computation of EPS because
        to do
        so would have been antidilutive as well.
  Stock
        Based Compensation
  The
        Company issues stock as compensation to employees and outside consultants
        for
        services provided to the Company. Employee share-based awards are accounted
        for
        in accordance with SFAS 123R, “Share-Based Payment”, which requires the Company
        to measure the cost of employee services received based on the grant date
        fair
        value of the award and be recognized as an expense over the requisite service
        period. The Company reports any tax benefits resulting from tax deductions
        in
        excess of share based compensation expense recognized as a source of financing
        cash flows with an offsetting amount classified as a use of operating cash
        flows. The Company accounts for non-employee share-based awards in accordance
        with EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other
        Than Employees for Acquisition, or in Conjunction with Selling, Goods or
        Services” (“EITF 96-18”). Costs are measured at the estimated fair market value
        of the consideration received or the estimated fair value of the equity
        instrument issued, whichever is more reliably measurable. The value of equity
        instruments issued for consideration other than employee services is determined
        on the earliest of a performance commitment or completion of performance
        by the
        provider for goods or services as described in EITF 96-18.
  8
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
 
 Note
        3  -  OPTIONS
  In
        October 2007, the Company’s board of directors approved an Omnibus Incentive
        Plan (the "Incentive Plan") to attract, retain and motivate key employees,
        to
        provide an incentive for them to achieve long-range performance goals and
        to
        enable them to participate in the long-term growth of the Company. The Company’s
        shareholders approved the Incentive Plan at their annual meeting in November
        2007. Options granted under the Incentive Plan may include non-qualified
        stock
        options as well as incentive stock option intended to qualify under Section
        422A
        of the Internal Revenue Code. The aggregate number of shares of common stock
        that are reserved for issuance under the Incentive Plan must not exceed 2.7
        million shares. Each stock option agreement specifies when all or any
        installment of the option becomes exercisable. Option awards are generally
        granted with an exercise price equal to the market price of the Company’s common
        stock on the grant dates; generally vest from 0 to 3 years of continuous
        service
        and have a 10 year contractual term.
  Prior
        to
        November 2007, the Company issued stock options to employees based on employment
        and other agreements and issued stock options to non-employees based on
        contractual agreements. Each
        stock option agreement specifies when all or any installment of the option
        becomes exercisable. Option awards are generally granted with an exercise
        price
        equal to the market price of the Company’s common stock on the grant date;
        generally vest from 0 to 3 years of continuous service and have a 5 to 10
        year contractual term.
  The
        Company utilizes the Black-Scholes option valuation model to estimate the
        fair
        value of option and warrant grants on the date of grant. The following table
        summarizes information about the stock options outstanding at June 30,
        2008:
  Weighted
                  Average Exercise Price
              
              $
              2.69Expected
                  Life
              
              
              5
                  yearsVolatility
              
              
              100.0
              %Dividend
                  Yield
              
              
              0
              %Risk-free
                  interest rate
              
              
              3.08
              %
  *Employee
        Options*
  A
        summary
        of the status of the Company’s options outstanding as of June 30, 2008 and the
        changes during the year ending on that date is presented below:
  9
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  Number
                  of
                Shares
              
              Weighted
                Average
                Exercise
                Price
              
              Weighted
                Average
                Remaining
                Contractual
                Life
                (Years)
              
              Aggregate
                Intrinsic
                ValueOptions
                  outstanding at December 31, 2007
              
              
              5,605,000
              
              $
              2.63
              
              
              8.54Granted
              
              
              400,000
              
              $
              3.50
              
              
              9.54Options
                  outstanding at June 30, 2008
              
              
              6,005,000
              
              $
              2.69
              
              
              8.37Vested
                  and expected to vest - June 30, 2008
              
              
              4,460,000
              
              $
              2.63
              
              
              8.30
              
              $
              10,553,750Options
                  exercisable at June 30, 2008
              
              
              3,415,000
              
              $
              2.53
              
              
              8.28
              
              $
              8,479,500
  Options
        outstanding at June 30, 2008 have an exercise price of $1.50 to $10.50 per
        share. Options exercisable at June 30, 2008 do not include 1,545,000 performance
        based options. For the six months ended June 30, 2008 and 2007, the Company
        recorded a non-cash compensation charge of $1,193,411 and $996,163
        respectively.
  The
        aggregate intrinsic value in the table above represents the total intrinsic
        value (the difference between the Company’s closing stock price on June 30, 2008
        and the exercise price, multiplied by the number of in-the-money options)
        that
        would have been received by the option holders had vested option holders
        exercised their options on June 30, 2008. This amount changes based upon
        changes
        in the fair market value of the Company’s common stock. As of June 30, 2008,
        $1,500,831 of the total unrecognized compensation costs related to stock
        options
        is expected to be recognized over a period of approximately two years and
        six
        months.
  *Non
        Employee Options* **
 
 The
        Company has issued options in exchange for services rendered. The table below
        summarizes stock option information with respect to all non employee stock
        options as of June 30, 2008:
 
 Number
                  of
                Shares
              
              Weighted
                Average
                Exercise
                PriceOptions
                  outstanding at December 31, 2007
              
              
              1,531,000
              
              $
              6.01Granted
              
              
              60,000
              
              $
              6.40Options
                  outstanding at June 30, 2008
              
              
              1,591,000
              
              $
              6.02Options
                  exercisable at June 30, 2008
              
              
              81,000
              
              $
              6.10
  10
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  Non
        employee options outstanding at June 30, 2008 have an exercise price of $6.00
        to
        $6.40 per share. Options exercisable at June 30, 2008 do not include 1,485,000
        performance based options. For the six months ended June 30, 2008 and 2007,
        the
        Company recorded a non-cash compensation charge of $329,821 and $24,706
        respectively. As of June 30, 2008, $96,357 of the total unrecognized
        compensation costs related to non employee stock options is expected to be
        recognized over a period of approximately six months.
 
 *Restricted
        Stock Grants*
  In
        May
        2008, the Compensation Committee of the Company’s board of directors approved a
        Management Equity Compensation Plan (the “Equity Compensation Plan”) to ensure
        that equity remains a significant component of management compensation, to
        align
        employee and shareholder interests by providing opportunities for employees to
        own the Company’s common stock and to motivate and retain key employees with
        multi-year equity incentives. The Equity Compensation Plan generally
        contemplates annual restricted stock grants under the Incentive Plan based
        on
        achieving certain performance targets and vesting annually over three years.
        The
        amount of each award is relative to an employee’s total compensation and based
        on the individual’s ability to affect the Company’s results, with higher level
        positions generally receiving grants equal to a greater percentage of their
        compensation than lower level positions.
  In
        May
        2008, the Company granted under the Equity Compensation Plan 31,989 restricted
        shares to certain employees based on achieving certain 2007 performance targets.
        The number of shares was calculated based on the dollar value of the award
        divided by the closing price of the Company’s common stock on the American Stock
        Exchange on the date the grant was approved by the Compensation Committee.
        For
        the period ended June 30, 2008, the Company recorded a non cash compensation
        expense of $8,530. As of June 30, 2008, $196,199 of the total unrecognized
        compensation costs related to restricted stock grants is expected to be
        recognized over a period of approximately three years.
  Note
        4 ****  –  LOSS
        /
        GAIN ON FAIR VALUE ADJUSTMENT
  On
        January 1, 2007, the Company implemented EITF 00-19-2, which requires a company
        to recognize a liability for registration rights payments when they are probable
        and the amount is reasonable estimable. As of December 31, 2006, the Company
        had
        not filed a “resale” registration statement for the October 2006 offering (the
“October 2006 Offering”). On January 1, 2007, the Company recorded a liability
        for 6% of the shares issued in the October 2006 Offering. The Company recorded
        a
        $1,574,100 contingent liability based on the Company’s stock price at that date.
        For the six months ended June 30, 2007, the Company recorded a gain on fair
        value adjustment of $550,935 related to this liability as the Company’s stock
        price declined during this period.
  On
        December 14, 2007, the Company determined that they would not be able to
        file a
“resale” registration statement for the December 2007 offering (the “December
        2007 Offering”) within 30 days. The Company anticipated that they would file by
        April 30, 2008 and recorded a liability of $78,956 for 2% of the shares issued
        in the December 2007 Offering. For the six months ended June 30, 2008, the
        Company recorded a loss on fair value adjustment of $30,169 related to this
        liability as the Company’s stock price declined during this
        period.
  11
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  The
        Company filed the registration statement on May 30, 2008. Since the Company
        filed its registration statement late and it has not been declared effective
        by
        the SEC within 180 days of the initial required filing date, for the six
        months
        ended June 30, 2008, the Company recorded an additional expense of $186,291
        for
        4% of the shares issued in the December 2007 Offering, up to the maximum
        penalty
        of 6% which is included in general and administrative expenses on the
        consolidated statement of operations.
  In
        May
        2008, the Company issued 35,486 shares of common stock representing penalty
        shares of 4% of shares issued in the December 2007 Offering.
  In
        August 2008, the Company issued 17,743 shares of
        common stock representing the balance of penalty shares of 2% of the shares
        issued in the December 2007 Offering.
  Note
        5  –  PREFERRED
        STOCK
 
 *Series
        A Preferred Stock*
  On
        May 9,
        2007, the Company completed the offering (the “Series A Private Placement”) of
        27,950 shares of the Company’s newly issued Series A Cumulative Convertible
        Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at
        price of $100.00 per share to “accredited investors” as defined under the
        Securities Act of 1933, as amended (the “Securities Act”). The gross proceeds
        were $2,795,000. Under the terms of the Series A Private Placement, each
        investor had the option to purchase additional securities up to the amount
        initially purchased on the same terms as those of the Series A Private Placement
        (the “Subscriber Option”). On June 8, 2007, the Company sold an additional
        14,600 shares of Series A Preferred Stock at price of $100.00 per share in
        connection with exercises of the Subscriber Option. The gross proceeds were
        $1,460,000.
  At
        any
        time prior to the third anniversary of the initial date of issuance, any
        holder
        of Series A Preferred Stock may convert all or a portion of their shares
        into
        shares of the Company’s common stock calculated by multiplying the number of
        shares to be converted by such shares’ “stated value” ( *i.e* ,
        $100
        per share plus the amount of all dividends accumulated thereon) and dividing
        the
        result by the “conversion price” then in effect.  The initial
        conversion price of each share of Series A Preferred Stock is $4.00, and
        each
        share of Series A Preferred Stock is initially convertible into 25 shares
        of our
        common stock.  Upon the third anniversary of the date of issuance,
        each share of Series A Preferred Stock shall automatically, and without any
        action on the part of the holder, convert into that number of shares of our
        common stock computed by dividing such share’s “stated value” by the “conversion
        price” then in effect.  The “conversion price” is subject to
        adjustment upon the occurrence of certain events, including, among others,
        a
        stock split, reverse stock split, stock dividend or combination of our common
        stock. The Series A Preferred Stock is not redeemable.
  12
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  Each
        share of Series A Preferred Stock will accrue cumulative dividends on a
        quarterly basis at a rate of 8% per annum. All dividends will be paid in
        shares
        of common stock having a fair market value at the time of issuance equal
        to the
        amount of dividends to be paid, provided that to the extent the shares of
        common
        stock to be issued are not then registered under the registration rights
        agreements with the Series A Preferred Stock investors, dividends shall cumulate
        but shall remain unpaid until such time as the shares are registered and
        issued.  The Company may elect to pay any dividends in cash in lieu of
        issuing shares of common stock.  The Series A Preferred Stock shall
        also participate on an as-converted basis with all dividends paid on the
        shares
        of common stock. For the six months ended June 30, 2008 the Company accrued
        dividends for the Series A Preferred Stock of $161,236 which is included
        in
        accounts payable and accrued expenses.
  Upon
        any
        liquidation of the Company, the holders of the Series A Preferred Stock will
        be
        entitled to be paid, prior to the common stock or any other securities that
        by
        their terms are junior to the Series A Preferred Stock, the original issue
        price
        of the Series A Preferred Stock plus all accrued and unpaid dividends. To
        the
        extent the proceeds of liquidation are insufficient to pay such amounts in
        full,
        the proceeds available will be allocated pro rata among the shares of Series
        A
        Preferred Stock.  As
        of the
        most recent balance sheet date, June 30, 2008, the liquidation value of the
        Series A Preferred Stock was $3,361,511.
  Each
        investor in the Series A Private Placement also received a warrant exercisable
        for a number of shares of common stock equal to 50% of the number of shares
        of
        common stock into which the Series A Preferred Stock purchased by such investor
        is initially convertible. The initial exercise price of the warrants is $6.00
        per share. At
        any
        time following the first anniversary of the Closing Date and provided that
        the
        shares of Common Stock issuable upon exercise of the Warrants are not then
        registered for resale pursuant to an effective registration statement under
        the
        Securities Act, the Warrants may also be exercised by means of a “cashless
        exercise.” The warrants have a fair value of $2,610,882 based on the
        Black-Scholes options pricing method.
  *Series
        B Preferred Stock*
  On
        March
        31, 2008, the Company completed the offering (the “Series B Private Placement”)
        of a total 43,986 shares of the Company’s newly issued Series B Convertible
        Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”) at a
        price of $100.00 per share to “accredited investors” under the Securities Act.
        The gross proceeds from the issuance of 40,768 shares of Series B Preferred
        Stock was $4,076,800. In addition, the Company issued 3,218 shares of Series
        B
        Preferred Stock as commission in connection with the Private
        Placement.
  On
        May
        13, 2008, the Company completed a second closing of the Series B Private
        Placement”) of a total 35,419 shares of the Company’s Series B Preferred Stock.
        The gross proceeds from the issuance of 35,123 shares of Series B Preferred
        Stock was $3,512,300. In addition, the Company issued 296 shares of Series
        B
        Preferred Stock as commission in connection with the Private Placement. In
        summary, in the offering that was closed on March 31, 2008 and May 13, 2008,
        the
        Company sold a total of 75,891 shares of Series B Preferred Stock and warrants
        to purchase 446,413 shares of its common stock for total gross proceeds of
        $7,589,100.
  The
        Series B Preferred Stock ranks junior to the Series A Preferred Stock and
        senior
        to the common stock with respect to the payment of dividends and amounts
        payable
        upon liquidation, dissolution or winding up of the Company. The Series B
        Preferred Stock also is not redeemable.
  At
        any
        time prior to the third anniversary of the date of issuance, any holder of
        Series B Preferred Stock may convert all or a portion of their shares into
        shares of the Company’s common stock calculated by dividing the sum of the
        Stated Value and all accrued dividends not previously paid or added to the
        Stated Value to the date of such conversion by the Series B Conversion Price
        then in effect.  Upon
        the
        third anniversary of the initial issue date of the Series B Preferred Stock,
        each share of Series B Preferred Stock will automatically convert into the
        number of shares of common stock into which it is then convertible.  The
        initial conversion price is $4.25 per share, subject to adjustment upon the
        occurrence of certain major corporate events such as reorganizations and
        stock
        splits (the “Series B Conversion Price”).
  13
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  Dividends
        will be payable from the date of issuance at a rate of 8% per year when and
        as
        declared by the board of directors. To the extent that dividends are not
        declared, or cannot be paid, there will be an increase in the Stated Value
        of
        the Series B Preferred Stock in the amount of 8% per year. In the event
        dividends are declared by the Board and paid by the Company on the Common
        Stock,
        holders of Series B Preferred Stock will either share ratably in such dividends
        based on the number of shares of common stock into which the Series B Preferred
        Stock may be converted or (to the extent that dividends are not declared
        or
        cannot be paid), there will be a corresponding increase in the Stated Value.
        Dividends will be paid semiannually, at the Company’s election, in cash, in
        shares of Series B Preferred Stock (valued at Stated Value) or in common
        stock
        valued at the market price, on September 30 and March 31 of each year beginning
        on September 30, 2008 to holders of record on the 15 th day of
        the preceding month. If there is an increase in Stated Value because dividends
        were not or could not be paid, that increase will occur semiannually on the
        dates that dividends would have been paid. For the six months ended June
        30,
        2008, the Company accrued dividends on the Series B Preferred Stock of $124,994.
  The
        Series B Preferred Stock is convertible into 1,868,367 shares of common stock,
        at the election of the holders, at an initial conversion price of $4.25 per
        share. The fair market value of this beneficial conversion was calculated
        based
        on the difference between the share price of the common stock, at the time
        of
        issuance, and the initial conversion price. This resulted in a Series B
        Preferred Stock dividend in the amount of $2,963,995 recorded during the
        six
        months ended June 30, 2008.
  Upon
        any
        Liquidation of the Company, after the Company has made the required
        distributions to the holders of Series A Preferred Stock (and any other
        preferred stock then outstanding, if any, ranking in liquidation senior to
        the
        Series B Preferred Stock), and before any distribution is made to the holders
        of
        Common Stock (and any other stock ranking in liquidation junior to the Series
        B
        Preferred Stock), the holders of Series B Preferred Stock will be entitled
        to be
        paid an amount in cash equal to the aggregate liquidation value of Series
        B
        Preferred Stock, which equals the Stated Value plus all accrued dividends
        not
        previously paid or added to Stated Value. As of the most recent balance sheet
        date, June 30, 2008, the liquidation value of the Series B Preferred Stock
        was
        $8,065,494.
  Each
        investor in the Series B Private Placement also received a warrant exercisable
        for a number of shares of Common Stock equal to 25% of the number of shares
        of
        Common Stock into which the Series B Preferred Stock purchased by such investor
        is initially convertible. The initial exercise price of the warrants is $6.25
        per share. Both the Series B Preferred Stock and the warrants include
        antidilution provisions that, if triggered, could result in a reduction of
        the
        conversion price of the Series B Preferred Stock or the exercise price of
        the
        warrants, but not below $3.00 per share. The warrants have a fair value of
        $2,032,739 based on the Black-Scholes option pricing method.
  14
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
  In
        connection with the Series B Private Placement, the Company agreed to register
        the resale of the shares of common stock issuable (i) upon conversion of
        the
        Series B Preferred Stock, (ii) as dividends on the Series B Preferred Stock,
        and
        (iii) upon exercise of warrants, all in accordance with registration rights
        agreements among the Company and each of the investors. Under the registration
        rights agreement, the Company is required to file a “resale” registration
        statement with the SEC covering such shares on or before the 30th day following
        the closing of the Series B Private Placement. The Company filed the
        registration statement on May 30, 2008, within the required time period.
        As of
        August 14, 2008, the registration statement was not yet effective.
  If
        at any
        time prior to the first to occur of (i) the first anniversary of the
        registration of the common stock underlying the Series B Preferred Stock
        or (ii)
        18 months after the closing , the Company issues any additional shares of
        common
        stock with a purchase price less than the Conversion Price of the Series
        B
        Preferred Stock, or additional convertible securities with a conversion price
        less than the Conversion Price of the Series B Preferred Stock, the Conversion
        Price of the Series B Preferred Stock will be reduced to the purchase price
        at
        which such common stock has been issued or the conversion price of such
        additional convertible securities, but not below a Conversion Price of $3.00
        per
        share. The antidilution adjustments in the Series B Preferred Stock and warrants
        will not apply to certain issuances of equity securities or warrants, including
        those not issued in capital-raising transactions (such as to customers,
        suppliers, joint venture partners or in connection with acquisitions of
        property) or in connection with equity award or options granted by the Company
        to employees, consultants and directors under employee benefit plans approved by
        the Board of Directors under which options generally are granted with exercise
        prices at least equal to the Company’s stock price on the grant
        dates.
 
 In
        connection with the Series B Private Placement, the Company paid a commission
        of
        $249,288, issued 3,514 shares of Series B Preferred Stock and warrants
        exercisable for 197,437 shares of common stock as consideration for investors
        introduced to the company. The warrants have a fair value of $770,858 based
        on
        the Black-Scholes option pricing model. The warrants are considered a cost
        directly associated with the issuance of stock.
 
 Note
        6  –  AGREEMENTS
  On
        March
        14, 2008, the Company entered into a lease agreement for office space in
        Lake
        Mary, Florida in connection with the relocation of its corporate headquarters
        to
        Florida. The lease commitment is for approximately 6,000 square feet of office
        space commencing in July 2008 for a period of sixty six months. The total
        rental
        commitment, for the entire rental period, is approximately $952,000.
  15
  New
        Generation Biofuels Holdings, Inc.
 (A
        Development Stage Enterprise)
 Notes
        to
        Consolidated Financial Statements
 
 On
        March
        20, 2008, the Company paid $150,000 of the $1,000,000 payment due on March
        20,
        2008 under the Exclusive License Agreement. On March 23, 2008, the Exclusive
        License Agreement, as amended, was further amended to extend the due date
        of the
        remaining $850,000 that was due on March 20, 2008 to the closing of the
        Company’s next financing, with net proceeds that exceed $850,000. On April 3,
        2008, the Company paid the $850,000 that was due under the Exclusive License
        Agreement.
  On
        March
        21, 2008, the Company entered into a test burn agreement with FirstEnergy
        Corporation to evaluate the Company’s proprietary biofuel technology in power
        generation applications. The Agreement requires the Company to supply its
        biofuel for a test program to be performed at FirstEnergy’s Edgewater Power
        Plant combustion turbine facility in Lorain, Ohio. The test program includes
        the
        evaluation of both technical and environmental performance characteristics
        of
        its biofuel. The agreement also required the Company to pay 50% of all costs
        of
        environmental emissions testing conducted in connection with the test program,
        provided that its aggregate obligation with respect to such expenses shall
        not
        exceed $15,000. FirstEnergy is entitled to all revenue arising from sales
        of
        electricity generated during the testing. The parties have agreed to negotiate
        a
        mutually agreeable biofuel purchase agreement in the event the tests are
        deemed
        successful.
 
 On
        June
        2, 2008, the Company entered into a biofuel sales agreement with Dynegy Oakland
        LLC, a subsidiary of Dynegy, Inc. The agreement provides for Dynegy to purchase
        up to 1.7 million gallons of biofuel per year for use at Dynegy’s power plant in
        Oakland, California, based on Dynegy’s forecasts of a portion of the historical
        fuel consumption at their facility. There is no minimum purchase requirement.
        The product price is based on a variable pricing formula. The contract is
        for a
        term until March 31, 2010 and month to month thereafter unless terminated
        by
        either party at any time with at least sixty day written notice.
 
 In
        August
        2007, the Company entered into an equipment rental agreement with the equipment
        manufacturer for a nominal fee for equipment used in the production process
        at
        the Twin Rivers plant facility.
 
 Note
        7  –  LEGAL
        PROCEEDINGS
  In
        August
        2008, the Company settled a lawsuit with a former consultant involving claims
        for breach of contract and specific performance in order to avoid uncertainties
        and potential litigation expenses. Pursuant to the settlement, the Company
        modified the exercise price  of  the common stock warrants originally
        issued to the former consultant. Accordingly, for the six months ended June
        30,
        2008, the Company recorded a non-cash legal settlement expense of
        $359,595.
  16
  **ITEM
        2.** **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
  **Overview**
  We
        are a
        development stage renewable fuels provider that holds an exclusive license
        for
        North America, Central America and the Caribbean to commercialize proprietary
        technology to manufacture alternative biofuels from vegetable oils and animal
        fats that we intend to market as a new class of renewable fuel for power
        generation, heavy equipment, marine use and as heating fuel.
 
 Our
        business commenced in February 2006. Our activities since inception have
        included acquiring our exclusive license, conducting research and development
        to
        improve our product, conducting test burns at power generation facilities,
        entering into an agreement with our strategic partner Twin Rivers to construct
        a
        pilot production facility, entering into a biofuel sales agreement, and raising
        equity capital. We have incurred annual operating losses since inception
        and
        expect to incur substantial operating losses in the future in connection
        with
        the development of our core products. As of June 30, 2008, we had an
        accumulated deficit of $25.0 million.
  The
        operation and development of our business will require substantial additional
        capital to fund our operations, payments due under the exclusive license,
        the
        acquisition or development of manufacturing plants, research and development,
        and other initiatives, including potentially the financing of future
        acquisitions.
  Our
        long-term business strategy consists of developing two revenue streams: (1)
        direct sales from manufacturing plants that we may purchase or build (either
        directly or through joint ventures) in order to process, market and sell
        our
        chemical additive and/or biofuel using our proprietary technology and (2)
        the
        collection of royalties through sublicensing our proprietary technology.
        Our
        near-term business strategy is focusing on direct sales of our biofuel produced
        at manufacturing plants that we may purchase or build, either directly or
        through joint ventures. To execute this strategy, we are pursuing an active
        test
        burn program where we are working with a number of energy producers to validate
        our biofuel. We have completed a number of test burns and are scheduled to
        conduct more in the near future. In addition, we are working to improve our
        ability to produce our biofuel and are continuing negotiations to lease or
        construct production facilities. We are engaged in a highly competitive business
        where we compete with petroleum-based fuels and other alternative fuels,
        but, we
        believe we have a competitive advantage because we have the flexibility to
        utilize multiple raw materials in the production of our biofuel without
        significant impact on the performance of our product. We are actively pursuing
        our eligibility and qualification for tax credits and other government
        incentives. To date, we have entered into one biofuel sales agreement but
        have
        not recognized any revenue or any costs of revenue. Our costs have consisted
        mainly of research and development relating to our product and general and
        administrative costs.
  17
 
 **Financial
        Operations Overview**
  *Research
        and Development Costs*
  We
        have
        established a research and development group, headed by our Chief Technology
        Officer, Andrea Festuccia, which is based in Rome, Italy and in Milford,
        Connecticut. We have conducted additional development of the product, as
        well as
        testing in laboratory conditions of the performance of biofuel made with
        our
        technology. From inception through June 30, 2008, we have incurred aggregate
        research and development costs of approximately $1.2 million.
  Our
        research and development costs consist of expenses incurred in identifying,
        developing and testing our product. These expenses consist primarily of salaries
        and related expenses for personnel, fees paid to professional service providers,
        costs of consultants and the costs of manufacturing batches of our biofuel
        for
        use in conducting test burns.
  *General
        and Administrative Expenses*
  General
        and administrative expenses consist primarily of the costs associated with
        our
        general management, including salaries, benefits and professional fees such
        as
        legal and accounting expenses. Continued increases will also likely result
        from
        the additional hiring of operational, financial, accounting, marketing and
        information systems personnel. We have eight employees, all of whom are full
        time executives.
  *Interest
        and Other Income (Expense), Net*
  Interest
        income consists of interest earned on our cash and short-term investments.
        Interest expense consists of interest incurred related to the license agreement
        payable.
  *Income
        Taxes*
  We
        have
        not recognized any deferred tax assets or liabilities in our financial
        statements since we cannot assure their future realization. Because realization
        of deferred tax assets is dependent upon future earnings, a full valuation
        allowance has been recorded on the net deferred tax assets, which relate
        primarily to net operating loss carry-forwards.
  **Results
        of Operations**
 *Comparison
          of the three months ended June 30, 2008 and the three months ended June 30,
          2007*
 
 *Research
          and Development Expenses*
  Research
          and development expenses were approximately $146,000 for the three months
          ended
          June 30, 2008 compared to approximately $99,000 for the three months ended
          June 30, 2007. The increase in research and development expenses in 2008
          reflects primarily the cost of conducting test burns and costs from conducting
          tests to evaluate additional customized fuel formulations using our proprietary
          blending technology.
  *General
          and Administrative Expenses*
  General
          and administrative expenses were $2.1 million for the three months ended
          June 30, 2008 compared to $1.0 million for the three months ended
          June 30, 2007. The increase of $1.1 million in 2008 over the prior period
          was primarily attributable to increased expense associated with stock options
          and warrants and an increase in personnel and related costs to support
          the
          company’s growth.
  *Interest
          Expense*
  Interest
          expense was approximately $0.1 million for the three months ended June 30,
          2008 compared to approximately $0.2 million for the three months ended
          June 30, 2007. The decrease is due to a reduction in the License Agreement
          payable balance. Interest expense consists of interest incurred related
          to the
          License Agreement payable.
  *Gain/Loss
          on fair value adjustment*
  Loss
          on
          fair value adjustment was approximately $10,000 for the three months ended
          June 30, 2008 compared to a gain of approximately $105,000 for the three
          months ended June 30, 2007.
  18
  *Comparison
          of the six months ended June 30, 2008 and the six months ended June 30,
          200* *7*
 
 *Research
          and Development Expenses*
  Research
          and development expenses were approximately $0.3 million for the six months
          ended June 30, 2008 compared to $0.2 million for the six months ended
          June 30, 2007. The increase in research and development expenses in 2008
          reflects primarily the cost of conducting test burns and costs from conducting
          tests to evaluate additional customized fuel formulations using our proprietary
          blending technology.
  *General
          and Administrative Expenses*
  General
          and administrative expenses were $4.0 million for the six months ended
          June 30, 2008 compared to $2.1 million for the six months ended
          June 30, 2007. The increase of $1.9 million in 2008 over the prior period
          was primarily attributable to increased expense associated with stock options
          and warrants and an increase in personnel and related costs to support
          the
          company’s growth.
 *Interest
        Expense*
  Interest
        expense was approximately $0.3 million for the six months ended June 30,
        2008 compared to approximately $0.4 million for the six months ended
        June 30, 2007. The decrease is due to a reduction in the License Agreement
        payable balance. Interest expense consists of interest incurred related to
        the
        License Agreement payable.
  *Gain/Loss
        on fair value adjustment*
  Loss
        on
        fair value adjustment was $30,169 for the six months ended June 30, 2008
        compared to a gain of approximately $551,000 for the six months ended
        June 30, 2007.
  **Liquidity
        and Capital Resources**
  ***Liquidity***
  At
        June
        30, 2008, we had $5.5 million in cash.
  19
  Several
        existing commitments that require significant expenditures may continue to
        impact our liquidity. Under the license agreement with the inventor of our
        proprietary technology, we paid $1,000,000 in 2008 and are required to pay
        an
        additional $6.0 million over the next six years, with the next $1.0 million
        payment due in March 2009. We have to pay various costs under our arrangements
        with Twin Rivers and will need to fund costs associated with the manufacture
        of
        biofuel at our pilot and any future production facilities. We also will continue
        incurring costs to test our technology, enhance research and development,
        pay
        our employees and sustain operations. We have fully funded our operating
        budget
        for 2008 and expect our available cash as of June 30, 2008 to be sufficient
        to
        fund our estimated $4 million cash requirements for the next 12 months. However,
        we intend to raise additional financing during 2008 to fund subsequent operating
        budgets and long term business growth objectives if such financing is available
        on favorable terms. We would likely seek such funding through public or private
        financings or some combination of them.
  ***Cash
        Flows***
  Net
        cash
        used in operating activities was approximately $2.8 million for the six
        months ended June 30, 2008 primarily reflecting our net loss of
        $5.0 million, partially offset by $1.7 million in non-cash stock-based
        compensation expense, approximately $0.2 million in non-cash penalty share
        expense and $0.3 million in non-cash amortization expense associated with
        our
        license agreement payable.
  Net
        cash
        used in investing activities was zero for the six months ended June 30,
        2008.
  Net
        cash
        provided by financing activities was $6.6 million for the six months ended
        June 30, 2008, and consisted principally of $7.2 million in net
        proceeds from the issuance of preferred stock, $0.5 in proceeds from the
        exercise of warrants and partially offset by $1.0 million in payments for
        our
        License Agreement.
  ***Capital
        Requirements and Resources***
  Our
        future capital requirements will depend on many factors, including:
  ·
              the
                  level of cash flows from product
                  sales;
  ·
              conducting
                  additional testing with utilities, independent power producers
                  or others,
                  including product application testing, to gain market acceptance
                  of our
                  biofuel among customers and equipment
                  manufacturers;
  ·
              continuing
                  operations at our pilot biofuel production facility and constructing
                  another facility under our arrangements with Twin Rivers or with
                  others to
                  supply our product initially for testing and eventually for the
                  broader
                  biofuel market;
  ·
              the
                  scope and results of our research and development
                  efforts;
  ·
              developing
                  a marketing plan for the heating fuel and marine markets and a
                  technology
                  plan that complements the marketing
                  plan;
  ·
              entering
                  into feedstock supply and transportation logistics agreements to
                  supply
                  our production facilities;
  20
  ·
              developing
                  additional strategic relationships to attract potential customers
                  and
                  sublicensees and to obtain the capital commitments necessary to
                  engineer,
                  construct and operate biofuel plants in our exclusive
                  territory;
  ·
              continuing
                  to pursue favorable tax incentives for our biofuel, particularly
                  efforts
                  to include our biofuel in the $1 per gallon credit afforded biodiesel
                  and
                  to have the benefit of such a change extend beyond the current
                  expiration
                  date of December 31, 2008;
  ·
              recruiting
                  additional key employees to expand the capabilities of our existing
                  management team; and
  ·
              the
                  costs of maintaining, expanding and protecting our intellectual
                  property
                  portfolio, including litigation costs and
                  liabilities.
  Although
        we expect our cash on hand at June 30, 2008 to be sufficient to fund operations
        for the next twelve months, we will need additional financing to fund future
        operations and capital expenditures and to cover our net losses. We
        would likely seek such funding through public or private financings or some
        combination of them. Additional funding may not be available to us on acceptable
        terms, or at all. Given our need for capital, we may raise money on an
        opportunistic basis when the market makes it attractive to do so.
  We
        have financed our operations to date primarily
        through the sale of our common and preferred stock and warrants in privately
        negotiated transactions with accredited investors. In2008, we
        have raised $7,589,100 in gross proceeds from the sale of Series B Convertible
        Preferred Stock with a conversion price of $4.25 per share and warrants to
        purchase common stock with an initial exercise price of $6.25 per
        share.
  If
        we
        raise capital through the sale of equity securities, or securities convertible
        into equity, dilution to our then existing shareholders would result. If
        we
        raise additional capital through debt, we would likely become subject to
        covenants restricting our business activities, and holders of
        debt instruments would have rights and privileges senior to those of our
        equity investors. In addition, servicing the interest and repayment obligations
        under these borrowings would divert funds that would otherwise be available
        to
        support research and development or commercialization activities.
  If
        we are
        unable to obtain adequate financing on a timely basis, we may be required
        to
        delay, reduce the scope of or eliminate one or more of our programs, any
        of
        which could have a material adverse effect on our business, financial condition
        and results of operations.
  We
        expect
        that our available cash and interest income will be sufficient to finance
        currently planned activities through June 2009. These estimates are based
        on
        certain assumptions, which could be negatively impacted by the matters discussed
        under “Risk Factors.” Future capital requirements could vary significantly and
        will depend on certain factors, many of which are not within our control.
        These
        factors include, among others, the extent of development and testing of the
        technology needed before commercial operation, the nature and timing of
        licensing and sublicensing activities, costs of plant construction, costs
        of raw
        material feed stocks, sales expenses, hiring qualified management and employees,
        responding to competitive pressures and complying with regulatory requirements.
        If we are successful, the expansion of our business will require us to commit
        capital that substantially exceeds our current financial resources. Any needed
        financing may not be available on favorable terms, if at all.
  21
 
 **Critical
        Accounting Policies**
 
 Our
        consolidated financial statements and accompanying notes have been prepared
        in
        accordance with accounting principles generally accepted in the United States.
        The preparation of these financial statements requires we make estimates,
        judgments and assumptions that affect the reported amounts of assets,
        liabilities, revenues and expense. Management evaluates the accounting policies
        and estimates it uses to prepare the financial statements. We base our
        estimates on assumptions believed to be reasonable under current facts and
        circumstances. The Company’s most significant estimates are the value of its
        exclusive, perpetual life, Master License Agreement and its useful life.
 The
          Company recorded its Master License Agreement at cost in accordance with
          SFAS
          142 “Goodwill and Other Intangible Assets.” The value of the Master License
          Agreement is tested for impairment in accordance with SFAS 144 “Accounting for
          the Impairment or Disposal of Long-Lived Assets,” which requires a review of the
          value of long-lived assets on a periodic basis for impairment whenever
          events or
          changes in circumstances indicate that the carrying amount of the assets
          may not
          be recoverable. Recoverability of assets held and used is measured by a
          comparison of the carrying amount of an asset to future undiscounted cash
          flows
          expected to be generated by the asset. If such assets are considered impaired,
          the impairment to be recognized is measured by the amount by which the
          carrying
          amount of the asset exceeds the fair value of the assets.
 
 The
          Company prepared a SFAS 144 analysis of the Master License Agreement by
          utilizing a relief of royalty valuation method. The premise behind this method
          is that a buyer would be willing to pay a royalty for the right to use
          a
          developed technology in order to gain market share, as opposed to developing
          a
          new competitive technology. Accordingly, this method measures the cash
          flows of
          the technology via the relief from the royalty on the technology that a
          willing
          buyer would typically pay. The key variables used in the relief-from-royalty
          method include the projected royalty base (i.e. product revenue or volume),
          a
          royalty rate and the effect of taxes.
 
 Based
          on
          a review of the Company’s sublicensing agreement with Xethanol and other
          third-party licensing agreements for various alternative fuel technologies,
          the
          revenue base selected was projected gallons of biofuel production. Because
          of
          the uncertainty associated with the Company’s future production, we considered
          three scenarios for a sensitivity analysis. Scenarios 1 and 2 assume the
          Company’s production will equal 1% and 2%, respectively, of total projected U.S.
          biodiesel production  in
          each
          of the projected periods.. Scenario 3 is based on the Company’s then current
          estimate of its anticipated production. We applied equal probability to
          each of
          the three scenarios.
 
 In
          determining a royalty rate for the Technology, we examined the royalty
          rates for
          alternative energy related technologies, including biofuels, as well as
          the
          Company’s sublicense with Xethanol. Based on this information, we applied a
          $0.10 per gallon royalty. Taxes were estimated based upon a combined effective
          total state and federal tax rate of 40%.
 
 Based
          upon our analysis the probability weighted sum of the undiscounted cash
          flows
          attributable to the Master License Agreement is greater than its carrying
          value.
          Therefore, the value of the licensed bio-fuel technology is recoverable
          in
          accordance with SFAS 144.
 
 The
          useful life of the Master License Agreement was assumed to be thirteen
          years
          based on management’s assessment of the projected duration of economically
          competitive new product life in the alternative-energy
          industry.
  Other
        significant estimates include the valuation of shares, stock options and
        warrants issued. Actual amounts and results could differ from these estimates
        made by management.
 
 **Off−Balance
        Sheet Arrangements**
  We
        do not
        have any off−balance sheet arrangement or commitment that will have a current
        effect on our financial condition, lead to changes in our financial condition,
        revenues or expenses, results of operations, liquidity, capital expenditures
        or
        capital resources that is material to investors.
  **ITEM
        3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
        RISK**
  Not
        applicable to “smaller reporting companies” under Item 305(e) of Regulation
        S-K.
  **ITEM
        4T. CONTROLS AND PROCEDURES**
  (a)
        Disclosure Controls and Procedures
  Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in our reports filed or
        submitted under the Exchange Act is recorded, processed, summarized and reported
        within the time periods specified in the SEC’s rules and forms. Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that information required to be disclosed in our reports
        filed under the Exchange Act, is accumulated and communicated to management,
        including our Chief Executive Officer and Chief Financial Officer, as
        appropriate, to allow timely decisions regarding required
        disclosure.
  As
        required by Rule 13a-15 under the Exchange Act, we are required to evaluate
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures as of the end of the period covered by this report. This evaluation
        was carried out under the supervision of our Chief Executive Officer and
        Chief
        Financial Officer. Based upon that evaluation, our Chief Executive Officer
        and
        Chief Financial Officer concluded that our disclosure controls and procedures were
        not
        effective due to the material weaknesses discussed in Item 9A of our Annual
        Report on Form 10-K for the fiscal year ended December 31, 2007, including
        the
        detailed discussion of these control deficiencies under *Management’s
        Report on Internal Control over Financial Reporting* . A
        material weakness is a deficiency, or a combination of deficiencies, in
        disclosure controls or internal control over financial reporting, such that
        there is a reasonable possibility that a material misstatement of the Company’s
        annual or interim financial statements will not be prevented or detected
        on a
        timely basis. During 2008, we implemented the steps outlined in our 2007
        Form
        10-K that we believe will eliminate these material weaknesses and improve
        the
        effectiveness of our internal controls over financial
        reporting.
  22
 
 (b)
        Changes in Internal Control over Financial Reporting
 
 During
        the quarter ended March 31, 2008, the Company implemented certain steps to
        improve the effectiveness of our internal control over financial reporting,
        including the following:
 
 ·
              In
                  December 2007, we hired a Chief Financial Officer. His responsibilities
                  specifically include developing and implementing appropriate disclosure
                  controls and procedures and internal controls over financial
                  reporting.
 
 ·
              In
                  January 2008, we appointed our Chief Financial Officer as the Corporate
                  Secretary of our Board of Directors to improve the communication
                  flow
                  between the Board and our accounting
                  personnel.
 
 ·
              In
                  March 2008, we established a Disclosure Committee consisting of
                  the senior
                  management team to properly ensure that we are complying with disclosure
                  requirements by addressing disclosure issues that may arise from
                  time to
                  time.
 
 ·
              We
                  also engaged outside resources to supplement our finance and accounting
                  departments to support the preparation of financial statements
                  and reports
                  that are to be filed with the SEC.
 
 During
          the quarter ended June 30, 2008, there were no significant changes in our
          control over financial reporting that have materially affected, or are
          reasonably likely to materially affect, our internal control over financial
          reporting.
  23
  **PART
        II. OTHER INFORMATION**
  **ITEM
        1A. Risk Factors**
 
 *An
        investment in our common stock involves a high degree of risk.  You
        should carefully consider the following updated risks and those incorporated
        by
        reference herein from our Annual Report on Form 10-K for the year ended December
        31, 2007, together with the other information contained in our SEC filings,
        before you decide to invest in our common stock.  If any of these
        risks actually occur, our business, results of operations and financial
        condition would likely suffer.  In these circumstances, the market
        price of our common stock could decline, and you may lose all or part of
        your
        investment.*
  **Risks
            Related to Our Business**
  ***We
          may never fully realize the value of our technology license agreement,
          which
          presently is our principal asset.***
 
 We
          may
          not be successful in realizing the expected benefits from our master license
          agreement, which represented over 80% of our total assets as of December
          31,
          2007. We have not yet generated any revenues or cash flows from our biofuel
          and
          do not expect to begin to amortize the license agreement until we recognize
          revenues from the technology at the end of 2008 at the earliest. Further,
          we
          initially intended to use the licensed technology to generate our expected
          revenues without any significant modification, but we have conducted significant
          additional research and development to modify the basic fuel technology
          to meet
          market demands for particular fuel attributes. To date, we have incurred
          approximately $1,206,222 in research and development separate from our
          license
          payments, and we are continuing to incur additional research and development
          costs to optimize our fuels to test different feedstocks and to tailor
          the fuel
          energy output, emissions and other specifications to the specific needs
          of
          potential customers.
 
 **Risks
        Related to Our Common Stock**
 
 ***Our
        Series B Preferred Stock and warrants issued in our March and May 2008 private
        placement include antidilution provisions that, if triggered, could dilute
        the
        ownership interests of our existing common
        stockholders.***
 
 Both
        the
        Series B Preferred Stock and the warrants issued in our March and May 2008
        private placement include antidilution provisions that, if triggered, would
        result in the issuance of additional shares that would dilute the interests
        of existing common stockholders. These antidilution provisions will apply
        if we issue equity in certain capital-raising transactions for a price
        below the $4.25 conversion price of the Series B Preferred Stock or the $6.25
        exercise price of the warrants within the first to occur of one year
        from the date of registration of the underlying common stock from the private
        placement or 18 months from the respective closing dates, March 31,
        2008 or May 13, 2008. If these provisions are triggered, the conversion price
        of
        the Series B Preferred Stock or the exercise price of the warrants would be
        adjusted downward, but not below a floor of $3.00 per share. Any sales of
        additional equity that trigger these antidilution provisions could be
        disproportionately dilutive and adversely affect the prevailing market prices
        of
        our common stock. The existence of conversion features also may result in
        short selling of our common stock that may further depress the
        market price.
 
 ***If
        we do not meet the American Stock Exchange (AMEX) requirements for continued
        listing, our common stock may be delisted which could negatively impact our
        stock’s liquidity.***
 
 Under
        AMEX listing rules, our common stock could be delisted from AMEX if we do
        not
        meet certain standards regarding our financial condition and operating results
        (including, among other factors, maintaining adequate stockholders’ equity and
        market capitalization and minimizing losses from continuing operations over
        multiple years), the distribution of our publicly held securities and compliance
        with AMEX listing agreements and SEC rules and regulations. If our securities
        are delisted from AMEX, they likely will be quoted again for trading on the
        OTC
        Bulletin Board which may depress demand for our shares and limit market
        liquidity due to the reluctance or inability of certain investors to buy
        stocks
        on the OTC Bulletin Board. Consequently, an investor may find it more difficult
        to trade our securities, which may adversely affect the ability to resell
        securities purchased from the selling stockholders.
  24
  *A
        significant number of our shares are
        eligible for sale, and their sale could depress the market price of our common
        stock.*
 Sales
        of
        a significant number of shares of our common stock in the public market could
        depress the market price of our common stock. In 2007, we registered on
        currently effective registration statements a total of 11,173,050 shares
        of our
        common stock held by non-affiliate selling stockholders that are now eligible
        for trading in the public market, including shares issuable upon conversion
        or
        exercise of rights to purchase that are not currently outstanding. In 2008,
        we
        are seeking to register on pending registration statements an additional
        4,809,438 shares of our common stock held by non-affiliate selling stockholders
        in connection with private placements of our common stock and warrants
        in December 2007 and our Series B convertible preferred stock and
        warrants in March and May 2008. Many of the shares sold to selling
        stockholders listed in these registration statements were offered by the
        Company
        at prices less than the recent market price of the Company’s common stock, which
        closed on AMEX on August 12, 2008 at $4.65 per share. In addition, we may
        be
        obligated to register shares held by Xethanol to facilitate the spinoff to
        Xethanol’s stockholders of the shares of our common stock issued to Xethanol in
        the reverse merger. Such registration would make 5,490,000 additional shares
        of
        our common stock eligible for trading in the public market. Some or all of
        these
        shares of common stock may be offered from time to time in the open market
        pursuant to a registration statement or Rule 144, and these sales may depress
        the market price for shares of our common stock.
 
 ***Our
        common stock is thinly traded and subject to
        volatility.***
 
 Although
        our common stock is traded on AMEX, it has traded in relatively small volumes.
        During the second quarter of 2008, an average of only about 50,000 shares
        traded
        each day. If our common stock continues to be thinly traded, it may enhance
        volatility in the share price and make it difficult for investors to buy
        or sell
        shares in the public market without materially affecting the quoted share
        price.
        Further, investors seeking to buy or sell a certain quantity of our shares
        in
        the public market may be unable to do so within one or more trading days.
        If
        limited trading in our stock continues, it may be difficult for holders to
        sell
        their shares in the public market at any given time at prevailing prices,
        which
        may limit the liquidity of our common stock.
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
 
 On
        May
        13, 2008, we completed a second closing of our private placement of Series
        B
        Convertible Preferred Stock and warrants to purchase common stock to investors
        who qualify as “accredited investors” under the Securities Act. In this second
        closing, we sold 35,123 shares of our Series B Preferred Stock at a price
        of $100.00 per share and five-year warrants to purchase 208,345 shares of
        our common stock at an exercise price of $6.25 per share (the “May Offering”).
        The gross proceeds from the May Offering were $3,512,300 excluding shares
        and
        warrants issued as commissions. In summary, in the offering that we closed
        on
        March 31, 2008 and May 13, 2008, we sold a total of 75,891 shares of our
        Series B Convertible Preferred Stock and warrants to purchase
        446,413 shares of our common stock for total gross proceeds of $7,589,100.
        This offering was exempt from registration under the Securities Act in
        accordance with Section 4(2) under the Securities Act and Rule 506 promulgated
        thereunder. The sales were made pursuant to subscription agreements between
        the
        Company and each investor. We previously disclosed information on this offering
        in our Current Report on Form 8-K, filed May 14, 2008.
  25
  **ITEM
        6. EXHIBITS AND REPORTS ON FORM 8-K**
  The
        following exhibits, which are furnished with this Quarterly Report or
        incorporated herein by reference, are filed as part of this Quarterly Report.
 **Exhibit Number**
                
                **Exhibit
                    Description**3.1
                
                Amended
                    and Restated Articles of Incorporation (incorporated by reference
                    to
                    Exhibit 3.1 to the Current Report on Form 8-K, filed March 31,
                    2008).3.2
                
                Articles
                    of Amendment to the Articles of Incorporation relating to our
                    Series B
                    Cumulative Convertible Preferred Stock (incorporated by reference
                    to
                    Exhibit 3.2 to the Current Report on Form 8-K, filed March 31,
                    2008).3.3
                
                Amended
                    and Restated Bylaws, dated March 5, 2008 (incorporated by reference
                    to
                    Exhibit 3.3 to the Annual Report on Form 10-K for the year ended
                    December
                    31, 2007, filed March 31, 2008)31.1
                
                Certification
                    of the Chief Executive Officer, as adopted pursuant to Section 302 of
                    the Sarbanes-Oxley Act of 2002.31.2
                
                Certification
                    of the Principal Financial and Accounting Officer, as adopted
                    pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                
                Certification
                    of the Chief Executive Officer, pursuant to 18 U.S.C.
                    Section 1350, as adopted pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.32.2
                
                Certification
                    of the Principal Financial and Accounting Officer, pursuant to
                    18 U.S.C. Section 1350, as adopted pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002.
  26
  SIGNATURES
 
 Pursuant
        to the requirements 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.
 
 Date:
                  August 14, 2008
              By:
              /s/
                  David A. GillespieDavid
                  A. Gillespie
                  President
                        and Chief Executive Officer
                      (Principal
                        Executive Officer)Date:
                  August 14, 2008
              By:
              /s/Cary
                  J. ClaiborneCary
                  J. Claiborne
                  Chief
                        Financial Officer
                      (Principal
                        Financial and Accounting
                        Officer)
  27