10-Q
      1
      form10qeb093007.htm FORM 10Q EB 09-30-07
 
 **UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington, D.C. 20549**
 
 **Form 10-QSB/A**
 
 **þ**
            
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF 1934****FOR
                THE QUARTERLY PERIOD ENDED September 30, 2007****OR****o**
            
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF
                1934**
  **Commission
      File Number 000-50842**
  
 
 **Earth
      Biofuels, Inc.**
 *(Exact
      name of small business issuer specified in its charter)*
 
 **Delaware**
            
            **71-0915825***(State
                or other jurisdiction of*
              *incorporation
                or organization)*
            
            *(IRS
                Employer*
              *Identification
                Number)*
  **3001
      Knox Street, Suite 403**
 **Dallas,
      TX 75205**
 *(Address
      of principal executive offices)*
  **(214) 389-9800**
 *(Issuer’s
      telephone number)*
  Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
      12 months (or for such shorter period that the registrant was required to
      file such reports), and (2) has been subject to such filing requirements
      for the past 90 days.  Yes þ     No o
  Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).  Yes o     No þ
  As
      of
      November 20, 2007, there were 250,720,619 shares of the registrant’s common
      stock outstanding.
  Transitional
      Small Business Disclosure Format (check one):  Yes o     No þ
 
 1
 
 
 **EARTH
      BIOFUELS, INC.**
  **FORM 10-QSBA
      QUARTERLY REPORT**
  PART
      I
      FINANCIAL INFORMATION
  
 Item
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets at September 30, 2007 and December 31, 2006
                (unaudited)
            3Consolidated
                Statements of Operations for the Three and Nine Month Periods Ended
                September 30, 2007 and 2006 (unaudited)
            4Consolidated
                Statement of Stockholders’ Equity for the Nine Month period ended
                September 30, 2007 (unaudited)
            5Consolidated
                Statements of Cash Flows for the Nine Month Periods Ended September
                30,
                2007 and 2006 (unaudited)
            6Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            16Item
                3.
            Controls
                and Procedures
            26PART
                II OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            27Item
                2.
            Equity
                Securities and Use of Proceeds
            29Item
                3.
            Defaults
                upon Senior Securities
            30Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            30Item
                5.
            Other
                Information
            30Item
                6.
            Exhibits
            31Signatures
            
            34Certification
                of Chief Executive OfficerCertification
                of Chief Financial OfficerCertification
                of Chief Executive OfficerCertification
                of Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 2
 
 
 
 
 
 
 
 **PART I
      FINANCIAL INFORMATION**
 **Item 1.**
 **EARTH
      BIOFUELS, INC.**
 **CONSOLIDATED
      BALANCE SHEETS**
 (Unaudited)
 ($
      in
      thousands except share amounts)
 **September 30,
                2007**
            
            
            **December
                31, 2006****Current
                Assets**Cash
                and cash equivalents
            
            $
            63
            
            
            $
            291Investments
                in equity securities
            
            
            35
            
            
            
            285Trade
                accounts receivable, net of allowances totaling $30 and
                $109
            
            
            2,071
            
            
            
            3,019Inventory,
                finished goods
            
            
            667
            
            
            
            785Prepaid
                expenses and other current assets
            
            
            2,546
            
            
            
            1,471Notes
                receivable from related parties
            
            
            2,000
            
            
            
            857**Total
                Current Assets**
            
            
            7,382
            
            
            
            6,708Property,
                Plant and equipment, net of accumulated depreciation of $10,068 and
                $7,854
            
            
            26,824
            
            
            
            27,015Investments
                and advances
            
            
            11,641
            
            
            
            40,860Investment —
                related party
            
            
            30
            
            
            
            100Notes
                receivable from related parties
            
            
            11,709
            
            
            
            5,824Deferred
                financing fees
            
            
            2,154
            
            
            
            2,445Goodwill
                and intangibles, net of impairment of $10,938 and $0 in 2007 and
                2006,
                respectively
            
            
            27,177
            
            
            
            30,032Prepaid
                and other long term assets
            
            
            275
            
            
            
            747**Total
                Assets**
            
            $
            87,192
            
            
            $
            113,731**Current
                Liabilities**Accounts
                payable
            
            $
            9,416
            
            
            $
            8,064Accrued
                interest payable
            
            
            48,151
            
            
            
            11,944Payables
                to related parties
            
            
            555
            
            
            
            6,826Demand
                Notes
            
            
            390
            
            
            
            250Line
                of Credit
            
            
            1,274
            
            
            
            5,679Short
                term convertible promissory notes, net of discount of $31,530 and
                $39,633
            
            
            22,070
            
            
            
            13,967Term
                debt facilities
            
            
            24,000
            
            
            
            —Income
                taxes payable
            
            
            1,818
            
            
            
            1,818**Total
                Current Liabilities and Total Liabilities**
            
            
            107,674
            
            
            
            48,548**Commitments
                and contingencies****Stockholders’
                Equity**Preferred
                stock, $.001 par value, 15,000,000 shares authorized,
                0 shares issued and outstanding
            
            
            —
            
            
            
            —Common
                stock, $.001 par value, 400,000,000 shares authorized,
                252,698,785 and 233,047,225 shares issued and outstanding
            
            
            252
            
            
            
            233Additional
                paid-in capital
            
            
            153,930
            
            
            
            145,555Other
                comprehensive income
            
            
            —
            
            
            
            (570
            )Treasury
                stock at cost (279,200 shares)
            
            
            —
            
            
            
            (463
            )Accumulated
                deficit
            
            
            (174,664
            )
            
            
            (79,572
            )Total
                Stockholders’ Equity
            
            
            (20,482
            )
            
            
            65,183Total
                Liabilities and Stockholders’ Equity
            
            $
            87,192
            
            
            $
            113,731
 See
      accompanying notes to consolidated financial statements
 3
 
 
 **EARTH
      BIOFUELS, INC.**
 Statements
      of Operations
 (Unaudited)
 ($
      in
      Thousands Except Per Share Amounts)
 **Three Months Ended September 30,**
            
            
            **Nine Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**(Restated)
            
            
            
            
            
            (Restated)**Sales
                revenue**
            
            $
            6,524
            
            
            $
            16,601
            
            
            $
            19,911
            
            
            $
            34,224**Cost
                of sales (exclusive of items shown separately
                below)**
            
            
            4,622
            
            
            
            16,104
            
            
            
            16,708
            
            
            
            33,507**Gross
                profit**
            
            
            1,902
            
            
            
            497
            
            
            
            3,203
            
            
            
            717Compensation
                ,(including share based compensation)
            
            
            984
            
            
            
            26,297
            
            
            
            7,505
            
            
            
            39,406Other
                selling, general and administrative
            
            
            1,877
            
            
            
            5,873
            
            
            
            8,695
            
            
            
            13,005Depreciation
                and amortization
            
            
            784
            
            
            
            638
            
            
            
            2,979
            
            
            
            1,391Loss
                on sale of fixed assets
            
            
            13
            
            
            
            —
            
            
            
            134
            
            
            
            —Impairment
                losses
            
            
            —
            
            
            
            —
            
            
            
            10,938
            
            
            
            —**Net
                loss from operations**
            
            
            (1,756
            )
            
            
            (32,311
            )
            
            
            (27,048
            )
            
            
            (53,085
            )**Other
                income (expense)**Interest
                income
            
            
            405
            
            
            
            33
            
            
            
            610
            
            
            
            171Interest
                expense
            
            
            (27,273
            )
            
            
            (6,851
            )
            
            
            (51,708
            )
            
            
            (9,982
            )Loss
                on equity investments
            
            
            (6,615
            )
            
            
            —
            
            
            
            (15,479
            )
            
            
            —Gain/Loss
                on Derivatives
            
            
            —
            
            
            
            22,805
            
            
            
            —
            
            
            
            22,404Realized
                losses on trading securities
            
            
            
            
            
            
            (402
            )
            
            
            
            
            
            
            (402
            )Other
                income (expenses)
            
            
            10
            
            
            
            1,042
            
            
            
            (396
            )
            
            
            970**Total
                other income (expense)**
            
            
            (33,473
            )
            
            
            16,627
            
            
            
            (66,973
            )
            
            
            13,161**Net
                loss**
            
            
            (35,229
            )
            
            
            (15,684
            )
            
            
            (94,021
            )
            
            
            (39,924
            )**Other
                Comprehensive expense**Realized
                losses on available for sale securities
            
            
            (220
            )
            
            
            —
            
            
            
            (1,071
            )
            
            
            —**Total
                Comprehensive loss**
            
            $
            (35,449
            )
            
            $
            (15,684
            )
            
            $
            (95,092
            )
            
            $
            (39,924
            )**Net
                loss per common share**Basic
                and diluted net loss
            
            $
            (0.14
            )
            
            $
            (0.09
            )
            
            $
            (0.38
            )
            
            $
            (0.22
            )Weighted
                average shares
            
            
            252,699
            
            
            
            183,701
            
            
            
            252,699
            
            
            
            183,701
 
 
 See
      accompanying notes to consolidated financial statements
 4
 
 **EARTH
      BIOFUELS, INC.**
 **CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **For
      the Nine Months Period Ended September 30, 2007**
 (Unaudited)
 ($
      in
      Thousands Except Per Share Amounts)
 
 **Common
                Stock Shares**
            
            
            **Common
                Stock at Par**
            
            
            **Additional
                Paid in Capital**
            
            
            **Other
                Comprehensive Income (Loss)**
            
            
            **Treasury
                Stock**
            
            
            **Accumulated
                Deficit**
            
            
            **Totals****Balance
                12/31/06 (restated)**
            
            
            233,047
            
            
            $
            233
            
            
            $
            145,555
            
            
            $
            (570
            )
            
            $
            (463
            )
            
            $
            (79,572
            )
            
            $
            65,183Shares
                issued for cash
            
            
            7,872
            
            
            
            8
            
            
            
            1,522
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,530Shares
                issued for services
            
            
            6,532
            
            
            
            6
            
            
            
            3,909
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,915Shares
                issued for exercise of warrants
            
            
            250
            
            
            
            1
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1Shares
                issued for related party payables
            
            
            8,219
            
            
            
            8
            
            
            
            1,802
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,810Unrealized
                loss on marketable securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (127
            )
            
            
            —
            
            
            
            —
            
            
            
            (127
            )Realized
                losses
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            697
            
            
            
            —
            
            
            
            —
            
            
            
            697Treasury
                Stock
            
            
            279
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            463
            
            
            
            —
            
            
            
            463Shares
                issued to escrow
            
            
            2,500
            
            
            
            2
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2Forfeiture
                of shares
            
            
            (6,000
            )
            
            
            (6
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (6
            )Net
                Changes in discounts on convertible debt and long term debt issued
                with
                warrants
            
            
            —
            
            
            
            —
            
            
            
            1,142
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,142Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (95,092
            )
            
            
            (95,092
            )**Balance**
              **September
                30, 2007**
            
            
            252,699
            
            
            $
            252
            
            
            $
            153,930
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (174,664
            )
            
            $
            (20,482
            )
 
 
 See
      accompanying notes to consolidated financial statements
 
 
 
 
 
 
 
 
 
 
 5
 
 
 **EARTH
      BIOFUELS, INC**
 **CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**
 **For
      the Nine Month Periods Ended September 30, 2007 and
      2006**
 (Unaudited)
 ($
      in
      Thousands Except Per Share Amounts)
 **Nine Months Ended September 30,****2007**
            
            
            **2006****Cash
                Flows from Operating Activities:**
            
            
            
            
            (Restated)**Total
                Comprehensive loss**
            
            $
            (95,092
            )
            
            $
            (39,924
            )Loss
                on sales of fixed assets
            
            
            121
            
            
            
            —Losses
                on equity securities
            
            
            1,071
            
            
            
            402Depreciation
            
            
            2,232
            
            
            
            1,391Amortization
                of debt issuance costs
            
            
            788
            
            
            
            173Impairment
                of  investments
            
            
            15,479
            
            
            
            —Goodwill
                impairment
            
            
            10,938
            
            
            
            —Gain
                on derivatives
            
            
            —
            
            
            
            (22,404
            )Share-based
                compensation expense
            
            
            3,915
            
            
            
            36,631Debt
                discount amortization
            
            
            8,199
            
            
            
            6,500Changes
                in assets and liabilities:Decrease
                (increase) in:Trade
                accounts receivable
            
            
            948
            
            
            
            (3,490
            )Inventory
            
            
            118
            
            
            
            (102
            )Prepaid
                expenses & other current assets
            
            
            (1,908
            )
            
            
            (2074
            )Related
                party advances
            
            
            —
            
            
            
            6,009Notes
                receivable, current
            
            
            —
            
            
            
            (3,764
            )Other
                Assets
            
            
            —
            
            
            
            (118
            )Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            1,352
            
            
            
            1,482Accrued
                interest  payable
            
            
            36,206
            
            
            
            —Other
                liabilities
            
            
            (1
            )
            
            
            571Net
                cash provided by (used in) operating activities
            
            
            (15,634
            )
            
            
            (18,717
            )**Cash
                Flows From Investing Activities:**Cash
                paid for investments
            
            
            (252
            )
            
            
            (1,354
            )Repayments
                to related parties
            
            
            (2,147
            )
            
            
            —Cash
                paid for advances on investments
            
            
            (5,346
            )
            
            
            (25,945
            )Repayments
                from investments and advances
            
            
            3,250
            
            
            
            —Cash
                paid for purchases of fixed assets
            
            
            (2,237
            )
            
            
            (6,813
            )Net
                cash used in investing activities
            
            
            (6,732
            )
            
            
            (34,112
            )**Cash
                Flows From Financing Activities:**Proceeds
                from issuance of common stock
            
            
            1,530
            
            
            
            1,074Proceeds
                from term debt facilities and line of credit
            
            
            30,036
            
            
            
            74,900Repayments
                of long term debt and line of credit
            
            
            (9,405
            )
            
            
            (24,584
            )Proceeds
                from sale of treasury stock
            
            
            463
            
            
            
            —Cash
                paid for debt issuance cost
            
            
            (486
            )
            
            
            (3,452
            )Net
                cash provided by financing activities
            
            
            22,138
            
            
            
            47,938Net
                increase (decrease) in cash
            
            
            (228
            )
            
            
            (4,891
            )Cash
                and cash equivalentsBeginning
                of period
            
            
            291
            
            
            
            5,070End
                of period
            
            $
            63
            
            
            $
            179**Supplemental
                Cash Flow Disclosures:**Cash
                paid for income taxes
            
            $
            —
            
            
            $
            —Cash
                paid for interest
            
            $
            6,183
            
            
            $
            1,171
 See
      accompanying notes to consolidated financial statements
  
 6
 
  **EARTH
      BIOFUELS, INC.**
  **NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
  **NOTE 1 —
      BASIS OF PRESENTATION**
  The
      accompanying unaudited interim financial statements of Earth Biofuels, Inc.
      (“Earth” or “the Company”) have been prepared in accordance with accounting
      principles generally accepted in the United States of America and the rules
      of
      the Securities and Exchange Commission, and should be read in conjunction with
      the audited consolidated financial statements and notes thereto contained in
      Earth’s Annual Report filed with the SEC on Form 10-KSB. In the opinion of
      management, all adjustments, consisting of normal recurring adjustments,
      necessary for a fair presentation of financial position and the results of
      operations for the interim periods presented have been reflected herein. The
      results of operations for interim periods are not necessarily indicative of
      the
      results to be expected for the full year. Notes to the financial statements
      which would substantially duplicate the disclosure contained in the audited
      consolidated financial statements for fiscal 2006 as reported elsewhere in
      this
      Form 10-QSB have been omitted.
 
 *Tax
      Credits* — Earth files federal excise tax returns each quarter,
      claiming refundable biodiesel mixture tax credits. There were no credits for
      the
      nine months and three months ended September 30 2007,
      respectively.  There were no refundable tax credits received as of
      September 30, 2007.  These credits are accounted for on a gross basis
      and included as part of sales revenues when earned.
 
 *Marketable
      Securities*— In accordance with SFAS No. 115, “Accounting for
      Certain Investments in Debt and Equity Securities”, securities are marked to
      market with gains and losses being reflected as unrealized for “available for
      sale” securities, and realized gains or losses for “trading securities”. At
      September 30, 2007 the market value of investments in equity securities was
      approximately $36,000. The change in fair value during the period has been
      determined to be other than temporary based on the deteriorations in the credit
      ratings of the investee, and the related losses on the investment totaling
      $1,071,000 is included in earnings as of September 30, 2007.
 
 **NOTE 2 —
      GOING CONCERN**
  Earth
      has
      incurred significant losses from operations and as of September 30, 2007,
      has limited financial resources. These factors raise substantial doubt about
      our
      ability to continue as a going concern.
 
 During
      the nine months ended
      September 30, 2007 the Company received net proceeds of $30 million
      from the issuance of credit facilities. We used the net proceeds in concert
      with
      other funds, to continue to execute our business plan and to finance the working
      capital needs of its Bio-diesel and LNG operations.
 
  Earth
      has
      implemented cost saving measures, primarily in its Bio-diesel operations, by
      implementing cost controls designed to reduce unnecessary expenditures and
      operate production activities within the current economic constraints with
      which
      Earth currently operates. Earth will take additional cost savings measures,
      if
      necessary, to enhance its liquidity position. Earths’ management is attempting
      to seek strategic alternatives, including the pursuit of additional investors
      for strategic acquisitions or a merger with other businesses. Management intends
      to complete construction of the underlying investment projects through
      partnerships with other interested investors, so to provide the additional
      capital needed to grow and enhance its alternative fuel production and
      distribution operations. The accompanying financial statements do not reflect
      any adjustments that might result from the outcome of this
      uncertainty.
 
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
 
 
 
 7
 
 
 
 **NOTE 3 —
      RESTATEMENTS**
  Earth
      entered into a share exchange agreement with the shareholders of Apollo LNG,
      (the LNG Business on November 22, 2006. Under the Agreement, Earth acquired
      from the shareholders all of the issued and outstanding shares of the LNG
      Business (the “LNG Shares”). Earth agreed to issue 18,844,222 shares of its
      common stock as consideration for the LNG Shares. The LNG Business had been
      previously acquired by Apollo on December 7, 2005.
  Under
      the
      guidance in Statement of Financial Accounting Standards (SFAS) No. 141
      transactions between companies under common control are to be accounted for
      at
      the historical cost basis. The transaction between Earth and the LNG business
      was a transaction between entities under common ownership and therefore recorded
      no adjustment for the fair value of the assets acquired. Earth follows the
      guidance included in Accounting Principles Board Opinion 16 by applying the
      pooling method in accounting for this acquisition.
 
 In
      accordance with SFAS 141 the prior year’s information has been restated to
      furnish comparative information.
  **NOTE 4 —
      INVESTMENTS, ADVANCES AND NOTES RECEIVABLE FROM RELATED
      PARTIES**
 
  Amounts
      representing the Company’s percentage interest in the underlying net assets of
      other significant subsidiaries, and less-than-majority-owned companies in which
      a significant ownership percentage interest is held, are included in
“Investments and advances”. There were minimal related operations during the
      three months ended September 30, 2007 and as such the Company’s share of the net
      income of these companies is $0 in the consolidated statement of income.
      Evidence of loss in value that might indicate impairment of investments in
      companies accounted for on the equity method is assessed to determine if such
      evidence represents a loss in value of the Company’s investment that is other
      than temporary. Examples of key indicators include a history of operating
      losses, negative earnings and cash flow outlook, and the financial condition
      and
      prospects for the investee’s business segment or geographic region. If evidence
      of an other than temporary loss in fair value below carrying amount is
      determined, impairment is recognized. In the absence of market prices for the
      investment, discounted cash flows are used to assess fair value.
 Investments
      and advances consist of the following entities and amounts as of and for the
      three and nine month periods ended September 30, 2007:
 
  **Description**
            **Method
                of Accounting**
            
            **Investment**
              **($
                in 000’s)**
            
            
            **Advances** **($
                in 000’s)**
            
            
            **Total**
              **($
                in 000’s)****Investments**Truckers
                Corner
            Equity
            
            $
            1,120
            
            
            $
            5,256
            
            
            $
            6,376American
                Earth
            Equity
            
            
            —
            
            
            
            —
            
            
            
            —**Letters
                of Intent**Systems
                Management Solutions, Inc.
            Cost
            
            
            —
            
            
            
            —
            
            
            
            —Vertex
                Processing, LP
            Cost
            
            
            —
            
            
            
            —
            
            
            
            —Biodiesel
                Investment Group and Bunge North America
            Cost
            
            
            4,976
            
            
            
            —
            
            
            
            4,976Earth
                Ethanol and Liquafaction  Corporation
            Cost
            
            
            —
            
            
            
            —
            
            
            
            —Earth
                Ethanol and HPS Development, L.L.C.
            Cost
            
            
            —
            
            
            
            —
            
            
            
            —Cordele
                Industrial
            Cost
            
            
            —
            
            
            
            10
            
            
            
            10Dineh-bi-Keya
            Cost
            
            
            —
            
            
            
            279
            
            
            
            279DFI-Albemarle
                Bio-Refinery,        Inc.,
            Cost
            
            
            —
            
            
            
            —
            
            
            
            —**Total**
            
            
            $
            6,096
            
            
            $
            5,545
            
            
            $
            11,641
 
 **Investments**
  ***Truckers
      Corner***- 50% interest in retail facility located in
      Hillsboro, TX for Bio-diesel distribution. Increased investment
      ownership  to 50% during the second quarter of 2007 with additional
      advances of $726,000 during the three months ended September 30, 2007. This
      project is currently 86% complete.
 
 
 
 8
 
 
 
 ***American
      Earth Fuels Company***— 51% interest (proposed) in this start up
      entity located in Dallas, TX created to pursue acquisitions of retail sites
      for
      Bio-diesel distribution. During 2006, the Company put down on deposit
      $250,000 related to a potential contract to purchase certain retail locations
      in
      Texas. In addition, advances totaling $77k had been made. Subsequent to
      year-end, this deposit was forfeited and the advances were written off due
      to
      the business decision to disband operations related to the retail locations.
      During 2007 the company was dissolved.
  ***Advances
      on Letters of Intent***
 
 ***Systems
      Management Solutions, Inc. (“SMS***”) Advance on letter of intent for
      this bio-diesel production facility in San Antonio, TX - Investment deemed
      impaired for $22k plus  note receivable $788,000. Earth is pursuing
      its security interests underlying the investment.
  ***Vertex
      Processing, LP***Bio-diesel production facility in Houston, TX
      - On May 2, 2006, Earth entered into a letter of intent with Vertex Energy,
      L.P., which contemplated a joint venture in which a newly created company would
      own and operate a biodiesel production facility on the Houston Ship Channel
      in
      Houston, Texas. As contemplated by the letter of intent, Vertex Energy would
      acquire a 49% interest in the newly created company in exchange for contributing
      to the new operating company real property and improvements, including an
      existing chemical processing facility. Earth would acquire a 51% interest in
      the
      operating company in exchange for the payment of $2,500,000 and the issuance
      of
      1,500,000 shares of our common stock to Vertex Energy. These shares were
      issued in October, 2006 and had a fair market value of $4,320,000. In addition
      advances of $658,000 had been made.
 
 On
      February 5, 2007, Vertex Energy, LP & Benjamin P. Cowart alleged
      breach of contract and a motion for new trial was granted. We believe these
      allegations are substantively without merit, and are vigorously contesting
      the
      claims brought by the plaintiff, and are exercising all available rights and
      remedies against them; however, the ultimate outcome of this matter is
      uncertain. Due to the lack of continuing operations at this location the
      investment amount is deemed impaired. The company has recorded losses of
      $2,435,000 during the first quarter 2007, $2,543,000 during the second quarter
      2007, resulting in total estimated impairments of $4,978,000.
  ***Biodiesel
      Investment Group and Bunge North America*** -10% investment in
      30 million gallon per year Bio-diesel production facility located
      in Danville, Illinois – currently under construction. There were
      no additional investments or advances related to this investment during the
      three months ended September 30, 2007, nor are any future obligations required
      under this investment.
  ***Earth
      Ethanol and Liquafaction Corporation ,*** Ethanol production
      facility in Moses Lake, Washington - Amended agreement with 5 day termination
      notice by third party-additional advances of $86,000 - all deemed impaired
      due to  termination notice $750,000.
  ***Earth
      Ethanol and HPS Development, L.L.C.*** Ethanol production
      facility Plaquemines Parish, Louisiana - Litigation settled, whereby Earth
      received $4 million in cash, an $18 million note receivable and a non-compete
      agreement in settlement.
 On
      August 31, 2006, Earth entered into letters of intent with HPS Development,
      L.L.C. which contemplated a joint venture in which a newly created limited
      liability company would own and operate a fuel ethanol distillery located on
      the
      Mississippi River in Plaquemines Parish, Louisiana. As contemplated by the
      letters of intent, HPS Development was to acquire a 50% interest in the newly
      created limited liability company in exchange for contributing to the new
      operating company real property and improvements, including a currently idle
      ethanol distillery.  Earth was to acquire a 50% interest in the
      operating company for a purchase price consisting of cash in the amount of
      $50.0
      million and the issuance of 5,829,005 shares of our common stock to HPS
      development in addition to the assumption of a $40.0 million debt obligation
      to
      be incurred by the operating company in connection with the renovation of the
      facility. We anticipated the renovation of this facility would take 12 to 14
      months, after which time we estimated the plant would have an ethanol production
      capacity of 60-80 MMGPY.
 
 
 
 
 
 9
 
 
  Earth
      had
      paid approximately $27 million towards the project when a breach of contract
      occurred.  No shares or warrants had been issued at this time, or
      subsequently related to the project. Earth filed a claim for breach of contract
      and default by SLE under the terms of the agreement. The Claim involved
      enforcement of certain rights under a contribution and purchase agreement
      regarding the construction and operation of the ethanol plant in Belle Chasse,
      Louisiana that we entered into with HPS/SLE wherein HPS/SLE agreed to contribute
      plant and property to a new company and we agreed to provide capital necessary
      to obtain a fifty percent ownership interest in Earth Ethanol and collectively,
      to help Earth Ethanol begin the construction and retrofitting work necessary
      to
      bring the plant online. One such issue in the Claim included Earth Ethanol’s
      learning that HPS, via SLE, attempted to sell a portion of the facilities’
equipment to an unaffiliated third-party, namely, Southridge Ethanol, Inc.,
      a
      wholly-owned subsidiary of Southridge Enterprises, Inc. This sale could have
      increased construction costs. In order to protect and preserve the assets of
      the
      Company, Earth Ethanol notified Southridge of its interests. Southridge
      subsequently chose to not seek the acquisition of such equipment.
 
 Earth
      entered into a settlement agreement with HPS during June 2007, whereby Earth
      received $4 million in cash and a non interest bearing note for $18
      million.  In addition, HPS signed an agreement not to compete valued
      at $5 million.  The note is payable thru 2015.  The Company has
      reported the non interest bearing note at fair market value totaling $13,584,874
      as of September 30, 2007.  Principal of $2 million is due within the
      next year, and is included in notes receivable from related parties current
      assets. The value assigned to the non-compete agreement was determined to be
      impaired and losses totaling $5,000,000 were recorded. In addition,
      approximately $4.7 million was recorded as additional losses on this investment
      in the second quarter of 2007.
  ***Cordele
      Industrial***– Investment in
      a******Cellulosic production facility located in
      Cordele, Georgia.  New investment in second quarter.
  ***Dineh-bi-Keya***- Cellulosic production facility located in Texas.  New
      investment in second quarter.
  ***DFI-Albemarle
      Bio-Refinery, Inc.*** Ethanol production facility located
      in Albemarle, North Carolina. This investment was converted to promissory
      notes and subsequently deemed impaired due to lack of activity. The investment
      totaling $5,462,416 was written off during the three months ended September
      30,
      2007.
  **Notes
      receivable from related
      parties****—**
  Notes
      receivable from related parties consists of notes related to investments bearing
      market rates from 4.85% to 6.25%, with collateral of underlying physical assets,
      and maturities in 2 to 5 years.. Total notes receivable as of Sept 30, 2007
      are
      as follows:
  **Description**
            
            **2007****($
                in 000’s)**HPS
            
            $
            13,585Other
                related parties
            
            
            124Total
            
            
            13,709Less
                current portion
            
            
            (2,000
            )Long
                term notes receivable from related parties
            
            $
            11,709
  
 
 **Investment
      in related party –**
 Earth
      has
      an investment in Blue Wireless, a publicly traded telecommunication company,
      which also provides information technology support to the Company. The company
      owned shares in the company previously valued at $100,000.  Due to the
      decline is the shares value, which has been deemed other than temporary, the
      Company has written down the investment to $30,000, based on the most recent
      publicly quoted market price.  In addition, Earth had previously
      advanced the company $160,000, which has been deemed uncollectible and was
      written off to bad debt expense during the second quarter of 2007.
 The
 
 
 
 10
 
 
  **NOTE 6 —
      INTANGIBLE ASSETS**
  Goodwill
      recorded on Earth’s balance sheet reflects the purchase price of Earth’s
      acquisitions exceeding the fair market value of the net assets. At September
      30,
      2007, Earth had recorded approximately $27,177,000 of goodwill related to its
      acquisition of its LNG businesses, and $3,981,280 related to the acquisition
      of
      Distribution Drive, reduced by $315,000 during the first quarter of 2007. In
      addition, other intangible assets consisted of a license costing approximately
      $2.2 million for the sales of a brand name biodiesel product, which had an
      unamortized balance of $2,012,000 as of March 31, 2007.
  Earth
      has
      determined that, based on the impairment tests performed on Earth as a separate
      business unit from the LNG business, the intangible assets related to goodwill
      from the acquisition of Distribution Drive and the license for the brand name
      have been impaired. As such the carrying amounts of approximately $3,666,000
      and
      $2,012,000 have been written down to zero and charged against earnings. In
      addition, a non-compete agreement had been obtained as a result of the
      settlement with the HPS investment above.  This intangible was also
      deemed to be impaired and $5,000,000 was charged against earnings during the
      quarter ended June 30, 2007.
 
 **NOTE
      7-ACCRUED INTEREST AND SHORT TERM CONVERTIBLE PROMISSORY
      NOTES**
 
 Convertible
      debt consists of the following as of September 30, 2007:
  **2007**8% convertible
                promissory notes, due August 31, 2007
            
            $
            53,600Discount
                on convertible promissory notes
            
            
            (31,530
            )Current
                portion of convertible promissory notes
            
            $
            22,070
  On
      July 24, 2006, Earth entered into a securities purchase agreement pursuant
      to which Earth issued $52.5 million aggregate senior convertible notes that
      were due in 2011 to eight institutional investors. The notes initially carry
      an
      8% coupon, payable quarterly, and are convertible into shares of common stock
      at
      $2.90 per share. In connection with the issuance of the notes, Earth also
      issued five-year warrants to purchase 9,051,725 shares of common stock to
      the investors and five-year warrants to purchase 1,357,759 shares of common
      stock to Earth’s placement agent, at $2.90 per share.
 On
      August 11, 2006,
 Earth
      entered into a securities purchase agreement pursuant to which Earth issued
      $1.1 million aggregate senior convertible notes that are due in 2011 to two
      institutional investors. The notes initially carry an 8% coupon, payable
      quarterly, and are convertible into shares of common stock at $2.90 per
      share.  In connection with the issuanceof the
      notes, Earth also issued five-year warrants to purchase 232,759 shares of
      common stock to the investors at $2.90 per share.
 At
      the
      date of original issuance the warrants had a relative fair value of $18,808,359,
      and Earth recognized a beneficial conversion feature in the amount of
      $42,906,599 based on the intrinsic value of the conversion feature.
  Due
      to
      ongoing renegotiations with the above investors, Earth did not make the first
      quarterly interest payments due October 1, 2006, or register the underlying
      securities within 30 days from closing in accordance with the original
      securities purchase agreement dated July 24, 2006 and August 11, 2006.
      As such, penalties and interest totaling approximately have accrued at the
      default rate of 15% interest, plus 1.5% for the amount outstanding for
      registration penalties, and an 18% late charge. Additionally there is a
      redemption penalty of 20% due upon settlement of the notes.
 Subsequent
      to year end 2006 Earth brought all coupon rate interest current through the
      end
      of March 31, 2007.
  Subsequent
      to the second quarter of 2007, certain of the note holders above, filed with
      the
      bankruptcy courts a Chapter 7 – Involuntary Liquidation against the
      company.  On November 14, 2007, Earth Biofuels, Inc. (the “Company”)
      negotiated and executed a settlement agreement (the “Agreement”) with the group
      of creditors who had petitioned for an involuntary bankruptcy against the
      company on July 11 of this year.  The Agreement requires the creditors
      to dismiss their petition of bankruptcy. Under the terms of the Agreement,
      the
      Company will grant certain security interests to the creditors and will execute
      a restructuring plan within 120 days. A confession of judgment was signed by
      the
      company noting the entire amount of debt and penalties due under the original
      notes was $100,651,173. Total accrued penalties were approximately $48,151,000
      as of September 30, 2007.
 
 
 
 11
 
 
 Accrued
      unpaid penalties and interest  related to the above judgment is as
      follows:
  **Accrued
                interest payable on convertible debts**
            
            **2007**Interest
            
            $
            9,148Late
                charges
            
            
            15,120Redemption
                fee
            
            
            10,500Registration
                penalites
            
            
            13,383Total
                interest expense
            
            $
            48,151
 
 **NOTE 8 —
      DEMAND NOTES —**
  Earth
      has
      several demand notes totaling $390,362 as of September 30, 2007. The notes
      are
      un-collateralized, with interest at 8%, all of which is due upon
      demand.
  **NOTE 9 —
      LINE OF CREDIT**
  The
      LNG
      subsidiary obtained a new revolving credit as of March 31, 2007, and used
      the proceeds to repay a former line of credit. Earth obtained a $5 million
      revolving credit facility which is advanced at the rate of 85% of accounts
      receivable. Interest of prime plus 2% is payable monthly.
  **NOTE 10 —
      TERM DEBT FACILITIES**
  On
      February 28, 2007, our LNG subsidiary obtained several credit facilities
      totaling $15 million. The $15 million term loan is due and payable in
      3 years, with interest accruing at LIBOR plus 1,000 basis points and
      payable monthly in advance. The loan is secured by the LNG plant facility in
      Topock, Arizona. In connection with this facility Warrant Purchase and
      Registration Right agreements were issued to purchase 13,549,816 of the
      Company’s common stock at $.36 per share for 10 years. At the date of
      original issuance the warrants had a relative fair value of $3,674,702.
      Amortization on the related debt discount totaled $202,560 for the three months
      ended September 30, 2007.
  On
      March 23, 2007, Earth obtained a $9 million term loan facility. The
      principal amount is due in 3 years with interest payable at LIBOR plus
      1,000 basis points. The loan is secured by the Durant plant facility in Durant,
      Oklahoma. In connection with this facility, Warrant Purchase and Registration
      Right agreements were issued to purchase 6,774,908 of the Company’s common stock
      at $.36 per share for 10 years. At the date of original issuance the
      warrants had a relative fair value of $1,654,643. Amortization on the related
      debt discount totaled $95,888 for the three months ended September 30, 2007.
      In
      June 2007 the lenders exchanged their rights to purchase the warrants in lieu
      of
      additional fees totaling $3,000,000.  These financing fees are payable
      at maturity of the debt and are being accrued monthly.  Total
      financing fee expense was $509,000 as of September 30, 2007.
  In
      connection with these facilities interest reserves were escrowed totaling
      $1,053,000 for interest payments due the first twelve months. These facilities
      are also cross-collaterized.
 
 The
      Company has not met underlying debt covenants related to fixed charge ratios
      and
      advances to subsidiaries.  The debtor has noted these defaults and has
      not relinquished their rights per the underlying debt
      agreements.  However, subsequent to September 30, 2007, the Company
      received additional fundings from the debtor in the amount of $4.7 million,
      which increased the amount of the existing term loan facilities.
  
 12
 
  **NOTE 11 —
      STOCKHOLDERS’ EQUITY**
 
 During
      the quarter ended September 30, 2007, 7,218,750 shares were issued to in lieu
      of
      debt guaranteed on behalf of the parent, which had a fair market value of
      $1,299,375 at date of issuance.
 
 ***Warrants —***
 Warrants
      granted by the Company consisted of the following for the three months ended
      September 30, 2007.
  **Description**
            **Remaining
                Life**
            **Exercise
                Price**
            **2006**
              **Warrants**May 4,
                2006 convertible debt-(debt repaid), warrants issued to
                investor
            8
–
                9 years
            $
            2.00
            
            920,810May 26,
                2006 convertible debt-(debt repaid), warrants issued to investor
                and
                placement agent
            8
–
                9 years
            $
            3.84
            
            768,750June 7,
                2006 convertible debt-(debt repaid), warrants issued to investor
                and
                placement agent
            8
–
                9 years
            $
            2.93
            
            1,545,000July 10,
                2006 convertible debt (debt repaid), warrants issued to investor
                and
                placement agent
            9-10
                years
            $
            2.50
            
            1,515,000July 21,2006
                warrants issued for consulting fees
            9-10
                years
            $
            .25
            
            4,000,000July 24,
                2006 convertible debt, warrants issued to investors
            9-10
                years
            $
            2.90
            
            9,051,725
  
 The
      weighted average exercise price for all warrants outstanding as of
      September 30, 2007 was $.47 per share. During the three months ended
      September 30, 2007, 20,124,688 shares were forfeited, and 125,000 shares were
      exercised.
 
 All
      warrants have a five-year or ten year expiration. The warrant fair value was
      determined by using the Black Scholes option pricing model. Variables used
      in
      the Black-Scholes option-pricing model include (1) risk-free interest rate,
      (2) expected warrant life is the actual remaining life of the warrants as
      of the year end, (3) expected volatility was 100%-400%, and (4) zero
      expected dividends.
 
 A
      summary
      of the Company’s stock warrant activity and related information at
      September, 30, 2007 is as follows:
  **Number
                of Shares**
            
            
            
            
            
            **Weighted
                Average****Under
                Warrant**
            
            
            **Exercise
                Price**
            
            
            **Exercise
                Price**Warrants
                outstanding at December 31, 2006
            
            
            17,990,940
            
            
            $
            .25-3.84
            
            
            $
            1.02Issued
            
            
            20,699,724
            
            
            $
            .01-.36
            
            
            $
            .25Exercised
            
            
            (250,000
            )
            
            $
            .01
            
            
            $
            (.01
            )Forfeited
            
            
            (20,324,724
            )
            
            $
            .30-.36
            
            
            $
            (.25
            )Expired
            
            
            —
            
            
            
            —
            
            
            
            —Warrants
                outstanding and exercisable at September 30, 2007
            
            
            18,115,940
            
            
            $
            .01-$3.84
            
            
            $
            1.01
 
 In
      summary there were warrants for 18,115,940 shares of common stock, and
      conversion options for 18,482,760 shares outstanding both totaling
      36,598,700 as of September 30, 2007. Due to net losses or anti-dilutive features
      these warrants and conversion options were not presented on the Consolidated
      Statement of Operations.
  
 
 13
 
 
  ***Share-based
      Compensation —***
  During
      the three months ended September 30, 2007, Earth issued 251,000 restricted
      shares for consulting services, valued at approximately $35,140.
  There
      have been no stock options granted as of September 30, 2007.
  **NOTE 12 —
      RELATED PARTY TRANSACTIONS**
  ***Advances***
 
 As
      of
      September 30, 2007, Earth had payables to the following related parties
      totaling $555,000 as follows:
  **Description**
            
            **2007****($
                in 000’s)**Apollo
                International Resources, Inc.
            
            $
            0Other
                affiliates
            
            
            555Total
            
            $
            555
  Apollo
      International Resources, Inc. is the majority stockholder of Earth, and LNG
      is a
      wholly owned subsidiary of Earth.  Amounts advanced from related
      parties were used to fund operations and investments of Earth. All related
      party
      payables are classified as current due to management’s intent to pay the amounts
      owed during the following fiscal year. During the quarter ended September 30,
      2007, 7,218,750 shares were issued to in lieu of debt guaranteed on behalf
      of
      the parent, valued at $1,299,375. In addition, a contingent amount was also
      recorded in accrued liabilities related to these guarantees totaling $1,393,264,
      of which was used towards amounts owed to the parent from previous
      advances.
 Earth
      also made advances totaling $969,000 to a subsidiary of the parent company
      Apollo Resources, which was also used towards amounts owed to the
      parent.
 Other
      affiliates are shareholders of the Company, whom also provide shipping services
      for our liquefied natural gas.
 Total
      shipping services for the nine months ended September 30, 2007 was approximately
      $3,656,000.
 In
      addition, the affiliate advanced the company approximately $555,000 for various
      operating activities.
 
 **NOTE 13 —
      COMMITMENTS AND CONTINGENCIES**
  The
      Company has guaranteed secured notes issued to the parent Apollo Resources
      International, Inc. (“ARI”) (the parent), The secured notes were issued in the
      total amount of $3,550,000 to ARI and guaranteed by the Company on February
      12,
      2007. The notes were collateralized by 18,214,936 shares of Earth owned by
      the
      parent-ARI. The secured notes matured on July 12, 2007, and the plan of
      repayment was to be from the production of oil and natural gas from assets
      owned
      by ARI, and/or the underlying collateral.
 
 Subsequent
      to September 30, 2007 the notes have been repaid through the sale of underlying
      collateral, and from the issuance of 7,218,750 additional shares of the
      Company’s stock, resulting in a net contingent liability of $1,393,264 still
      owed, and recorded in accounts payable on the Consolidated Balance Sheets as
      of
      September 30, 2007.  The fair market value of the additional shares
      issued and the remaining contingent liability was considered repayment by Earth
      on amounts due to the parent from prior advances, resulting in no losses to
      the
      Company.
 
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
 
 
 14
 
 
 
 ***Registration
      Payments***
  In
      December 2006, The FASB issued No. EITF 00-19-2 “Accounting for Registration
      Payment Arrangements”.  The Company adopted EITF 00-19-2 for the year
      ended December 31, 2006.  In connection with the Securities Purchase
      Agreements and the related Registration Agreements of the company, registration
      penalties were incurred for non timely filing of a registration statement,
      and
      effectiveness of a registration statement, equal to 2.5% per month with a
      maximum penalty of 12.5%.  As of September 30, 2007 these penalties
      total $6,652,500 and are being classified as accrued interest with a related
      charge to interest expense.
 
 **NOTE 14 —
      SEGMENT INFORMATION**
  Earth
      maintains one operating segment whose business is conducted through a separate
      legal entity that is wholly owned by Earth. This segment is Earth LNG, Inc.
      LNG
      is managed separately, as this business has distinct customer base and requires
      different strategic and marketing efforts. The accounting policies of the
      segment are the same as those described in the summary of significant accounting
      policies. The segment company contains liquefied natural gas production,
      distribution and marketing operations. The subsidiary revenues are in excess
      of
      10% of consolidated revenues. There are no inter-segment revenues or
      expenses.
  Certain
      segment data is included in the table below as follows:
  **LNG**
            
            **Earth
                Biofuels**
            
            **Consolidated****($
                in 000’s)**
            
            **($
                in 000’s)**
            
            **($
                in 000’s)****Nine
                months ended September 30, 2007**Revenue
            
            $
            18,886
            
            
            1,025
            
            
            19,911Income
                (Loss) from operations
            
            $
            (87)
            
            
            (26,961)
            
            
            (27,048)Interest
                Expense
            
            $
            (2,410)
            
            
            (49,298)
            
            
            (51,708)Net
                Loss for the nine months ended September 30, 2007
            
            $
            (1,581)
            
            
            (93.511)
            
            
            (95,092)Property,
                plant and equipment, net
            
            $
            10,431
            
            
            16,393
            
            
            26,824Total
                Assets
            
            $
            41,950
            
            
            45,242
            
            
            87,192Current
                Liabilities
            
            $
            18,724
            
            
            88,950
            
            
            107,674
  
 Municipal
      customers represent approximately 58% of the consolidated revenues related
      to
      LNG. The total sales to these customers for the nine months ended September
      30,
      2007 was approximately $11 million.
  **NOTE 15 —
      SUBSEQUENT EVENTS**
 
 H.C.
      Wainwright & Co., Inc. (“HCW”) commenced arbitration against us on
      July 20, 2006, asserting a claim for breach of contract relating to a
      March 7, 2006 letter allegedly appointing H.C. Wainwright our placement
      agent for a limited time for the sale of our securities. H.C. Wainwright is
      seeking an award of unpaid commissions, warrants for the purchase our common
      stock, and attorneys’ fees and costs. Earth filed an answering statement on
      August 25, 2006, and denied that it was liable to HCW for breach of
      contract. Among other things, Earth asserts that any agreement was terminated
      prior to any alleged breach, HCW failed to perform as promised, and HCW made
      material misrepresentations of fact to induce Earth in to the alleged agreement.
      An Award of Arbitration was granted in July 2007, in the absence of
      representation by Earth. Earth was ordered to pay $5,656,000 with 9% interest
      calculated annually, attorney fees of $118,887.10, and an arbitration fee of
      $35,120.  This matter was thought to be settled by actions taken previously
      by the Company. Subsequent to September 30, 2007 this matter was settled in
      the
      amount of $325,000 which was paid by the parent Apollo, and the above judgment
      against Earth was dismissed.
 
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
 
 In
      addition subsequent to the quarter ended September 30, 2007, the Company
      obtained a $4,700,000 increase on existing credit facilities.
   15
 
  **ITEM
      2.**                   ***Management’s
      Discussion and Analysis.***
 
  The
      following discussion and analysis should be read in conjunction with Earth’s
      Financial Statements, together with the notes to those statements, included
      in
      Item 7 of this Annual Report on Form 10-KSB.
  **Overview**
  The
      principal business of Earth is the domestic production, supply and distribution
      of alternative based fuels consisting of biodiesel, ethanol and vehicle-grade
      liquid natural gas (“lng”). Earth produces pure biodiesel fuel (B100) for sale
      directly to wholesalers, and to be used as a blend stock to make B20 biodiesel.
      Biodiesel is a non-toxic, biodegradable diesel fuel made from soybean and other
      vegetable oils, and used or recycled oils and fats. Earth utilizes vegetable
      oils such as soy and canola oil as raw material (feedstock) for the production
      of biodiesel fuel. Earth’s primary bio-diesel operations are located in Oklahoma
      and Texas. Earth also has investments in various Ethanol plants. Ethanol is
      another renewable alternative fuel. Ethanol, also known as ethyl alcohol or
      grain alcohol, and is produced primarily from corn and wheat. Earth also
      produces and distributes liquefied natural gas, or lng, which is natural gas
      in
      its liquid form. Unlike pipeline quality LNG, vehicle-grade Liquid natural
      gas
      is over 98% methane with only small amounts of other hydrocarbons. Earth’s
      primary operations are in Arizona and California.
  Our
      primary sources of revenue for the three months ended September 30, 2007 are
      from the sale of biodiesel fuels and lng. Our sales revenue is a function of
      the
      volume we sell and the price at which we sell. The volume of our sales is
      largely dependent upon demand and our ability to distribute the product. The
      selling prices we realize for our products are largely determined by the market
      supply and demand, which in turn, is influenced by industry factors over which
      we have little, if any, control, such as the price of gasoline and other
      alternative energy sources. We blend and market our biodiesel directly to fuel
      stations. For our biodiesel products the distribution strategy includes
      supplying B100 for storage and blending terminals, controlling the blending
      point, and obtaining exclusive agreements with terminal chains throughout the
      United States. We have entered into agreements with oil companies with the
      capability to deliver to fleet, agricultural and retail fueling terminals,
      and
      retail service stations, to expand biodiesel consumption in their local areas.
      For our lng products the production facility is one of only seven Vehicle Grade
      LNG plant in the United States. located in Topock, AZ, is just one mile east
      of
      the Arizona border with California. The plant has a maximum capacity of 86,000
      gallons per day, and is currently running at approximately 96% efficiency.
      The
      facility is strategically located in close proximity to its primary metropolitan
      markets along the west coast to minimize transportation costs. The plant’s
      natural gas feedstock supply is fed by an El Paso Natural Gas pipeline.
      Vehicles-grade LNG is sold to credit worthy corporations and municipalities
      on
      pricing above market indices. None of the currently LNG customer are fixed
      priced.
  Our
      gross
      profit is derived from our total revenues less our cost of sales. Our cost
      of
      sales is affected by the price of our purchases of biodiesel and natural gas
      on
      the open market, which are also affected by supply and demand, and the cost
      of
      raw materials used in the production process, such as soy oil and natural gas.
      As we implement our facility construction and expansion strategy, we expect
      our
      cost of sales to be impacted by our cost of raw materials used in
      production.
   16
 
  *Continuing
      Losses.*  We have had net losses from operations each year since
      inception, and there can be no assurance that we will be profitable in the
      future. Our financial results depend upon many factors that impact our results
      of operations including sales prices of natural gas, soy oil and corn, the
      volume of sales of liquefied natural gas, biodiesel and ethanol, availability
      of
      and the level and success of production, development and distribution activities
      and financial resources to meet cash flow needs. Earths’ management is
      attempting to seek strategic alternatives, including the pursuit of additional
      financing for strategic acquisitions or a merger with other businesses. The
      Company has incurred significant losses from operations and as of September
      30,
      2007, and has limited financial resources. These factors raise substantial
      doubt
      about our ability to continue as a going concern. Management intends to raise
      capital through private securities offerings, secure collateralized debt
      financing and use these sources of capital to grow and enhance its alternative
      fuel production and distribution operations. If additional funds are raised
      by
      issuing debt, we may be subject to restrictive covenants that could limit our
      operating flexibility. Earth’s performance will also be affected by prevailing
      economic conditions. Many of these factors are beyond Earth’s control. There can
      be no assurance that adequate funds will be available when needed and on
      acceptable terms, or that a strategic alternative can be arranged. The
      accompanying financial statements do not reflect any adjustments that might
      result from the outcome of this uncertainty.
  During
      the fourth quarter of fiscal 2006 Earth completed the acquisition of the LNG
      business. The acquisition of the LNG business marked the initial entrance of
      Earth into the liquefied natural gas production business. The acquisition added
      the largest producer of wholesaler vehicle-quality LNG in the western US and
      Mexico, and has allowed Earth to be more diversified. Earth believes this
      acquisition will be a major part of establishing future financial stability.
      The
      LNG company acquisitions have produced revenues in excess of $50 million
      over the preceding two fiscal years.
 In
      response to soaring fuel
      costs, and to avail it of government subsidies and tax incentives, Earth has
      pursued a strategy of developing renewable forms of energy, such as biodiesel
      and ethanol. Consequently, Earth has acquired various interests in companies
      in
      Texas, N. Carolina, New Orleans, Illinois and Washington. We are working with
      other partners to build and refurbish plants in order to produce substantial
      quantities of renewable, domestic fuel.
  Subsequent
      to year end 2006 Earth obtained several credit facilities totaling
      $33.7 million with various lenders to finance the working capital needs of
      its Biodiesel and LNG operations. Our partners in various Ethanol plants are
      raising additional equity through performance bonds and USDA guaranteed
      loans.
  While
      we
      have a history of operating loss, management has made substantial progress
      improving the operating results of the businesses. In the LNG business,
      management has increased the vehicle-grade LNG production to the plant’s
      capacity and successfully converted the formerly fixed pricing customer
      contracts to variable index pricing to reduce the commodity risk of the
      business. The effect of the changes has made the LNG business report positive
      monthly cash flow and profits since the second quarter of fiscal year 2007.
      In
      the third quarter 2007, the LNG business reported approximately $1.2 million
      in
      EBITDA for the three months ended Sepember 30,2007. Management expects the
      LNG
      business to report over $400,000 EBITDA monthly after management converted
      the
      customer contracts to index pricing making the operating profit more predictable
      since the business does not feel the impact of LNG commodity commodity price
      movements. Furthermore, management has several business initiatives to improve
      profits namely in further expansion of the Topock production plant, reduce
      transportation expenses (an important component of the company’s success) and
      strategic joint ventures with LNG related businesses that will improve the
      Company’s margins or fee income.
 For
      the
      biodiesel business, management is actively seeking alternatives to agriculture
      feedstock like soybean oil. The commodity price spread between diesel rack
      prices and soybean oil has steadily deteriorated since management announced
      the
      construction of the Durant, Oklahoma plant in 2006. Today, soybean oil is at
      an
      all time high and truly tied to the prices within the energy market. Management
      sees no changes in this relationship in the foreseeable future. Instead,
      management is exploring alternative non-food feedstock such as biomass,
      waste-oils and algae. With the sourcing of reliable feed stocks, management
      believes it can achieve cost advantages and make the production of biodiesel
      a
      viable profitable business.
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
  Earth
      has
      implemented cost saving measures, primarily in its Bio-diesel operations, by
      implementing cost controls designed to reduce unnecessary expenditures and
      operate production activities within the current economic constraints with
      which
      Earth currently operates. Earth will take additional cost savings measures,
      if
      necessary, to enhance its liquidity position.
   17
 
  **Results
      of Operations**
   **Comparison
      of Nine Months Ended September 30, 2007**
 **To
      Nine Months Ended September 30, 2006**
  The
      following table sets forth selected data as a percentage of total revenues
      (unless otherwise noted) for the periods indicated. All information is derived
      from the accompanying consolidated statements of operations.
 
 
 **Nine
                Months Ended****September
                30,****2007**
            
            
            **2006**Revenues:Sales
                revenue
            
            
            100
            %
            
            
            100
            %Cost
                of sales
            
            
            84
            %
            
            
            98
            %Gross
                profit
            
            
            16
            %
            
            
            2
            %Compensation
            
            
            38
            %
            
            
            115
            %Other
                selling, general and administrative
            
            
            44
            %
            
            
            38
            %Depreciation
                and amortization
            
            
            15
            %
            
            
            4
            %Impairments
            
            
            55
            %
            
            
            0
            %Net
                loss from operations
            
            
            (136
            )%
            
            
            (155
            )%Interest
                expense
            
            
            260
            %
            
            
            29
            %Gain
                on derivatives
            
            
            0
            %
            
            
            65
            %Loss
                on investments
            
            
            78
            %
            
            
            0
            %Net
                (loss)
            
            
            (478
            )%
            
            
            (117
            )%
 
   18
 
   *Revenue.*  Total
      revenue for the nine months ended September 30, 2007 decreased
      $12.5 million, or 39%, to approximately $19.9 million from
      approximately $32.4 million in 2006. The decrease in total revenue is
      primarily the result of decreased sales of biodiesel in 2007.
 *Cost
      of Sales.*  The types of expenses included in the cost of sales
      line item include the cost of raw materials, inbound freight charges, purchasing
      and receiving costs, terminal fees for storage and loading of biodiesel, petro
      fees, chemicals, and related costs of production. Our cost of sales excludes
      depreciation, amortization and compensation related to the production of
      alternative fuels.
 Cost
      of
      sales for nine months ended September 30, 2007 decreased $16.8 million, or
      50%, to approximately $16.7 million from approximately $33.5 million
      for 2006. Our cost of goods sold is mainly affected by the cost of biodiesel,
      vegetable oil, and other raw materials. The decrease in cost of sales is
      primarily the result of decreased sales of biodiesel.
  *Compensation.*  Compensation
      for nine months ended September 30, 2007 decreased approximately
      $31.9 million and related primarily to shares issued to consultants for
      employees and consulting services issued in 2006. The shares issued as share
      based compensation were valued at market consistent with
      SFAS No. 123(R), *“Share-Based Payment”*
      (“SFAS No. 123(R)”).
  *Other
      Selling, General and Administrative Expenses.*  The types of
      expenses included in the selling, general and administrative expenses line
      item
      include salaries and benefits, office expenses, insurance, professional
      services, travel and other miscellaneous expenses.
 Other
      selling, general and administrative expenses for nine months ended September
      30,
      2007 decreased approximately $4.3 million from approximately $13 million
      for the same period in 2006. The 2007 costs decrease consists of reductions
      in
      consulting, marketing, professional, administrative and travel
      expenses.
  *Depreciation
      and Amortization.*  Depreciation and amortization for the nine
      months ended September 30, 2007 increased to approximately $3 million from
      $1.4
      million for the same period in 2006. The increase in depreciation and
      amortization is related primarily to purchases of plant and
      equipment.
  *Impairments.*Goodwill related to the prior acquisition of Distribution Drive,
      trademarks, and a non-compete agreement totaling $10.9 million were all deemed
      impaired due to continuing losses related to biodiesal fuels.
 *Gain
      on derivatives.*A gain totaling $22 million was recorded in 2006 relating
      to convertible debts and securities.
 *Losses
      on investments.* Investments in various proposed plants were deemed impaired
      during 2007 totaling $15.5 million for the
      nine        months ended September 30,
      2007.
 *Interest
      Expense.*  Interest expense related primarily to short term
      convertible debts and long term debts for the nine months ended September 30,
      2007 was approximately $51.7 million from $10 million for the same period
      in 2006. Interest expense consisted primarily of interest fees, late charges,
      redemption premiums and registration penalties related to defaults on agreements
      in late 2006 and 2007.
  **Comparison
      of Three Months Ended September 30, 2007**
  **To
      Three Months Ended September 30, 2006**
 The
      following table sets
      forth selected data as a percentage of total revenues (unless otherwise noted)
      for the periods indicated. All information is derived from the accompanying
      consolidated statements of operations.
 **Three
                Months Ended****September
                30,****2007**
            
            
            **2006**Revenues:Sales
                revenue
            
            
            100
            %
            
            
            100
            %Cost
                of sales
            
            
            71
            %
            
            
            97
            %Gross
                profit
            
            
            29
            %
            
            
            3
            %Compensation
            
            
            15
            %
            
            
            158
            %Other
                selling, general and administrative
            
            
            29
            %
            
            
            35
            %Depreciation
                and amortization
            
            
            12
            %
            
            
            4
            %Net
                loss from operations
            
            
            (27
            )%
            
            
            (195
            )%Interest
                expense
            
            
            418
            %
            
            
            41
            %Gain
                on derivatives
            
            
            0
            %
            
            
            137
            %Loss
                on investments
            
            
            101
            %
            
            
            0
            %Net
                (loss)
            
            
            (543
            )%
            
            
            (94
            )%
 
 
   19
 
   *Revenue.*  Total
      revenue for the three months ended September 30, 2007 decreased
      $10 million, or 61%, to approximately $6.5 million from approximately
      $16.6 million in 2006. The decrease in total revenue is primarily the
      result of decreased sales of biodiesel.
 *Cost
      of Sales.*  Cost of sales for three months ended
      September 30, 2007 decreased $11.4 million, or 71%, to approximately
      $4.6 million from approximately $16.1 million for 2006. Our cost of
      goods sold is mainly affected by the cost of biodiesel, vegetable oil, and
      other
      raw materials. The decrease in cost of sales is primarily the result of
      decreased sales of biodiesel in 2007.
  *Compensation.*  Compensation
      for three months ended September 30, 2007 decreased approximately
      $25.3 million and related primarily to shares issued to consultants
      for employees and consulting services in 2006. The shares issued as share based
      compensation were valued at market consistent with SFAS No. 123(R),
*“Share-Based Payment”* (“SFAS No. 123(R)”).
  *Other
      Selling, General and Administrative Expenses.*  Other selling,
      general and administrative expenses for three months ended September 30,
      2007 decreased approximately $4 million from approximately
      $5.8 million for the same period in 2006. The decrease consists of
      reductions in consulting, marketing, professional, administrative and travel
      expenses during 2007.
  *Depreciation
      and Amortization.*  Depreciation and amortization for three months
      ended September 30, 2007 increased to approximately $784,000 million
      from $638,000 for the same period in 2006. The increase in depreciation and
      amortization is related primarily to purchases of plant and
      equipment.
 *Gain
      on derivatives.*A gain totaling $22 million was recorded in 2006 relating
      to convertible debts and securities.
 *Losses
      on investments.*  Biodiesal investments were deemed impaired
      during 2007 totaling $6.6 million for the
      nine        months ended September 30,
      2007.
  *Interest
      Expense.*  Interest expense related primarily to short term
      convertible debts and long term debts for three months ended September 30,
      2007 was approximately $27.2 million from $6.8 million for the same period
      in 2006. Interest expense consisted primarily of interest fees and the
      amortization of debt discounts. Interest expense consisted primarily of interest
      fees, late charges, redemption premium, and registration penalties related
      to
      defaults on agreements in late 2006 and 2007.
 
 **Liquidity
      and Capital Resources**
  *Overview.*  Our
      principal sources of liquidity consist of cash and cash equivalents, cash
      provided by operations and from obtaining approximately $30 million in term
      debt
      facilities. During the nine months ended September, 30, 2007 our cash and
      cash equivalents decreased by approximately $228,000 from the same period
      in 2006, primarily as the result of reduction in sales related to biodiesal
      operations during 2007.
  Net
      cash
      used in operating activities was approximately $15.6 million for nine
      months ended September 30, 2007 compared to net cash used in operating
      activities of approximately $18.7 million for the same period in 2006. The
      decrease in net cash flow used in operating activities relates to decreasing
      operating costs as a result of reducing production of biodiesal fuels due to
      current economic prices of feedstock.
  Net
      cash
      used in investing activities was approximately $6.7 million for nine months
      ended September 30, 2007 compared to net cash used in investing activities
      of
      approximately $34.1 million for the same period in 2006. The decrease in
      net cash used in investing activities related to purchases of fixed assets
      of
      $6.8  million during 2006 for our Durant facility, and a decrease of
      $22.8 million related to investments and advances related to letters of
      intent and investments we have entered into to own and operate biodiesel and
      ethanol facilities during 2006.
  Net
      cash
      provided by financing activities was $22.1 million for nine months ended
      September 30, 2007 compared to net cash provided by financing activities of
      approximately $47.9 million for the same period in 2006. Cash
      flows
 provided
      by financing activities during nine months ended September 30, 2007 relate
      primarily to new credit facilities totaling $30 million, less the repayment
      of prior debts of $9.4 million.
 We
      incurred net losses and negative cash flows from operations of approximately
      $95 million and $15.6 million, respectively, for the nine months ended
      September 30, 2007. Of the net losses for the nine months ended September 30,
      2007 approximately $10.9 million related to the impairment of goodwill and
      intangibles, $15.5 million related losses on investments deemed impaired, and
      accrued interest and penalties totaling $51.7 million. We had approximately
      $63,000 in cash and cash equivalents at September 30, 2007. Our working capital
      deficit at nine months ended September 30, 2007 was approximately
      $100 million.
  ***Current
      and Future Financing Needs —***
 Our
      limited operating history makes evaluating our business and prospects difficult.
      Our limited operating history and recent acquisitions make it difficult to
      evaluate our current business and prospects or to accurately predict our future
      revenues or results of operations.  Our revenue and income potential
      are unproven, and our business plan is constantly evolving.  The
      market for alternative fuels is evolving and we may need to continue to modify
      our business plan to adapt to these changes.  As a result, we are more
      vulnerable to risks, uncertainties, expenses and difficulties than more
      established companies.
 Some
      of
      these risks relate to our potential inability to: effectively manage our
      business and operations; successfully maintain our low-cost structure as we
      expand the scale of our business; and manage rapid growth in personnel and
      operations.
 We
      have a
      history of operating losses and we anticipate losses for the foreseeable
      future.  Unless we are able to generate profits and positive cash flow
      we may not be able to continue operations. We incurred consolidated net losses
      from operations of approximately $23 million, before depreciation and other
      non-cash based expenses, for the nine months ended September 30, 2007. We expect
      operating losses to continue for the foreseeable future as we incur expenditures
      for start up business operations and until the additional investors are obtained
      and construction of all plants are completed. With increased on-going operating
      expenses, we will need to generate significant revenues to achieve
      profitability.  Consequently, we may never achieve
      profitability.  Even if we do achieve profitability, we may not
      sustain or increase profitability on a quarterly or annual basis in the
      future.
 For
      the
      year ended December 31, 2006, the report of our independent registered public
      accounting firm stated that our financial statements were prepared assuming
      that
      we would continue as a going concern.  We continue to experience net
      operating losses.  Our ability to continue as a going concern is
      subject to our ability to generate and increase profits, and obtain additional
      investors and necessary funding from outside sources.
 We
      may
      have difficulty raising additional capital, which could deprive us of necessary
      resources to grow our business and achieve our business objectives and expansion
      strategy. We expect to continue to devote capital resources to fund our business
      plan. Our ability to raise additional funding depends on many factors beyond
      our
      control, including the state of capital markets, the market price of our common
      stock and the prices of various commodities, particularly the prices of ethanol,
      soybean, corn, natural gas and unleaded gasoline.  We might not have
      access to the funding required for the expansion of our business or such funding
      might not be available to us on acceptable terms. Given our current
      indebtedness, and limited liquidity and access to financial markets and required
      amounts of cash flow required to service our debt, we have increased our
      financial risks and have decreased the amount of funds available for our growth
      strategy, thereby making it more challenging to implement our strategy in a
      timely manner.
 Because
      our common stock is listed on the NASD OTC Bulletin Board, many investors may
      not be willing or allowed to purchase it or may demand steep
      discounts.  Sufficient additional financing may not be available to us
      or may be available only on terms that would result in further dilution to
      the
      current owners of our common stock.  If we are unable to raise
      additional funds when we need them, we may have to severely curtail our
      operations and expansion plans.
   20
 
  If
      we
      fail to remain current on our reporting requirements, we could be removed from
      the over-the-counter bulletin board, which would limit the ability of
      broker-dealers to sell our securities and the ability of stockholders to sell
      their securities in the secondary market. Companies trading on the
      over-the-counter bulletin board, such as us, must be reporting issuers under
      Section 12 of the Securities Exchange Act of 1934, as amended, and must be
      current in their reports under Section 13 in order to maintain price quotation
      privileges on the over-the-counter bulletin board.
 There
      is
      significant volatility in our stock price. The trading price of our common
      stock
      on the over-the-counter bulletin board has been and continues to be subject
      to
      wide fluctuations.  The market price of our common stock could be
      subject to significant fluctuations in response to various factors and events,
      including, among other things, the depth and liquidity of the trading market
      of
      our common stock, quarterly variations in actual or anticipated operating
      results, growth rates, changes in estimates by analysts, market conditions
      in
      the industry, announcements by competitors, regulatory actions and general
      economic conditions.  In addition, the stock market from time to time
      experiences significant price and volume fluctuations, which may be unrelated
      to
      the operating performance of particular companies.  As a result of the
      foregoing, our operating results and prospects from time to time may be below
      the expectations of public market analysts and investors.  Any such
      event would likely result in a material adverse effect on the price of our
      common stock. In addition, the trading price of our common stock will continue
      to be volatile in response to factors including the following, many of which
      are
      beyond our control: variations in our operating results; announcements of
      technological innovations, new products or new services by us or our
      competitors; changes in expectations of our future financial performance,
      including financial estimates by securities analysts and investors; our failure
      to meet analysts’ expectations; changes in operating and stock price performance
      of other energy companies similar to us; fluctuations in oil and gas prices;
      conditions or trends in the oil and gas and alternative fuels industry;
      additions or departures of key personnel; and future sales of our common
      stock.
 The
      loss
      of any of our key personnel would likely have an adverse effect on our business.
      Our future success depends, to a significant extent, on the continued services
      of our key personnel, including plant managers.  Our loss of any of
      these key personnel most likely would have an adverse effect on our
      business.  Competition for personnel throughout the industry is
      intense and we may be unable to retain our current management and staff or
      attract, integrate or retain other highly qualified personnel in the
      future.  If we do not succeed in retaining our current management and
      our staff or in attracting and motivating new personnel and plant managers,
      our
      business could be materially adversely affected.
 We
      may
      not be able to protect and enforce our intellectual property rights, which
      could
      result in the loss of our rights or increased costs. Our future success depends
      to a significant degree upon the protection of our proprietary
      technology.  The misappropriation of our proprietary technology would
      enable third parties to benefit from our technology without paying us for
      it.  Although we have taken steps to protect our proprietary
      technology, they may be inadequate and the unauthorized use thereof could have
      a
      material adverse effect on our business.  If we resort to legal
      proceedings to enforce our intellectual property rights, the proceedings could
      be burdensome and expensive, even if we were to prevail.
 Our
      expansion plans, including with respect to the sites in Texas, Oklahoma,
      Tennessee, Kentucky, Illinois and Mississippi, are subject to significant risks
      and uncertainties with respect to timing of completion, financing of
      construction costs and our ability to timely realize the benefits we anticipate
      of these additional sites. Accordingly, investors should not place undue
      reliance on our statements about our expansion plans or their feasibility in
      the
      timeframe anticipated or at all.
 Our
      construction costs could increase to levels that would make construction of
      new
      facilities too expensive to complete or unprofitable. Our construction costs
      could materially exceed budgets, which may adversely affect our financial
      condition and our anticipated operating results. We believe that contractors,
      engineering firms, construction firms and equipment suppliers increasingly
      are
      receiving requests and orders from other biodiesel/ethanol companies and,
      therefore, we may not be able to secure their services or products on a timely
      basis or on acceptable financial or commercial terms. We may suffer significant
      delays or cost overruns as a result of a variety of factors, such as shortages
      of workers or materials, transportation constraints, adverse weather, unforeseen
      difficulties or labor issues, any of which could prevent us from commencing
      operations as expected at our facilities. Any new facility that we may complete
      may not operate as planned.
 Our
      results of operations and financial condition will be significantly affected
      by
      the market price for biodiesel and the co-products from biodiesel
      production.  Price and supply are subject to and determined by market
      forces over which we have no control. Presently there are more than 165
      companies that have invested millions of dollars into the development of
      biodiesal manufacturing plants and are actively marketing biodiesal. Based
      on
      existing dedicated processing capacity and long term construction agreements
      1.85 billion gallons of biodiesal capacity currently exists.  Eighty
      companies have reported that their plants are currently under construction
      and
      scheduled to be completed within the next 18 months.  In addition,
      investors should understand that we face a competitive challenge from larger
      biodiesel plants and from biodiesel plants owned and operated by the companies
      that supply our inputs.  Cargill, Inc., a large supplier of soybean
      oil, is constructing a 37.5 million gallon biodiesel plant in Iowa
      Falls.  Another large corporation and supplier of soybean oil, Archer
      Daniels Midland Co., plans to construct a 50 million gallon biodiesel plant
      in
      North Dakota.  These plants will be capable of producing significantly
      greater quantities of biodiesel than the amount we will
      produce.  Furthermore, these plants may not face the same competition
      we do for feedstock as the companies that own them are suppliers of the
      feedstock.  In light of such competition, there is no assurance that
      we will be able to compete effectively in the industry.  We may
      generate less income as a result, which would decrease the value of your
      shares.
 Although
      the price of diesel fuel has increased over the last several years and continues
      to rise, diesel fuel prices per gallon remain at levels below or equal to the
      price of biodiesel.  In addition, other more cost-efficient domestic
      alternative fuels may be developed and displace biodiesel as an
      environmentally-friendly alternative.  If diesel prices do not
      continue to increase or a new fuel is developed to compete with biodiesel,
      it
      may be difficult to market our biodiesel, which could result in the loss of
      some
      or all of your investment.
  The
      success of our operations and business growth and expansion strategy depends
      upon our ability to raise additional equity and debt financing and our ability
      to generate sufficient cash flow from operations. We expect to continue to
      devote capital resources to fund our business plan. In order to support the
      initiatives envisioned in our business plan, we intend to raise additional
      funds
      through the sale of equity, debt or a combination of the two. Our operating
      performance and ability to raise additional financing depends on many factors
      beyond our control, including the prevailing economic conditions, state of
      the
      capital markets, the market price of our common stock and other risks and
      uncertainties including the prices of various commodities, particularly the
      prices of ethanol, soybean, corn, natural gas and petroleum diesel gasoline,
      our
      dependence on key suppliers and adverse changes in governmental incentives
      and
      governmental regulation. We might not have access to the funding required for
      the expansion of our business or such funding might not be available to us
      on
      acceptable terms. We might finance the expansion of our business with additional
      indebtedness or by issuing additional equity securities. The amount of any
      additional indebtedness could be substantial. We could face financial risks
      associated with incurring additional indebtedness, such as reducing our
      liquidity and access to financial markets and increasing the amount of cash
      flow
      required to service our debt, or associated with issuing additional stock,
      such
      as dilution of ownership and earnings. An increase in our debt would decrease
      the amount of funds available for our growth strategy, thereby making it more
      challenging to implement our strategy in a timely manner, or at all. If future
      cash flows and capital resources are insufficient to meet our debt obligations
      and commitments, we may be forced to reduce or delay activities and capital
      expenditures, obtain additional equity capital or debt financing. In the event
      that we are unable to do so, we may be left without sufficient liquidity and
      we
      may not be able to continue operations.
  We
      have
      spent, and expect to continue to spend, substantial amounts in connection with
      implementing our business strategy. Earth acquired a liquid natural gas (“LNG”)
      production company in November 2006. This company is the largest producer and
      wholesaler of vehicle-quality liquid natural gas in the United States and is
      one
      of only five production facilities in the country that produces clean liquid
      natural gas. This company offers turnkey fuel solutions, and leases storage,
      fuel dispensing equipment and fuel loading facilities. The LNG markets include
      transportation alternative fuel for transit systems, seaports, local delivery
      fleets and locomotive switch engines. This gas also has industrial and
      agricultural applications. Earth currently produces 86,000 gallons per day,
      and
      expects to expand its production capacity to 58.5 million gallons per year
      through the construction of an additional plant, and expand market area
      concentrations.
  Management
      is focusing on expanding and improving its biodiesel production and distribution
      operations. Through acquisition, organic growth and funding via collateralized
      loans and private placement offerings, Earth plans to continue to increase
      the
      profitability of its operations necessary to support operations.
  On
      February 28, 2007 and March 1, 2007 our LNG subsidiary obtained
      several credit facilities totaling $15 million and $5 million,
      respectively. The loan is secured by the LNG plant facility in Topock, Arizona.
      The $5 million revolving credit facility is advanced at the rate of 85% of
      accounts receivable. On March 23, 2010, Earth obtained a $9 million
      term loan facility. The principal amount is due in 3 years. The loan is
      secured by the Durant plant facility in Durant, Oklahoma.
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
 
  21
 
  **Critical
      Accounting Policies and Estimates**
 
  Our
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States,
      requires management to make estimates and assumptions that affect the amounts
      reported in the accompanying financial statements and related footnotes.
      Management bases its estimates and assumptions on historical experience,
      observance of industry trends and various other sources of information and
      factors. Estimates are based on information available as of the date of the
      financial statements and, accordingly, actual results could differ from these
      estimates, sometimes materially. Critical accounting policies are defined as
      those that are reflective of significant judgments and uncertainties, and
      potentially could result in materially different results under different
      assumptions and conditions. The most critical accounting policies and estimates
      are described below.
  *Revenue
      Recognition* — The geographic location of our customer base is
      primarily in the Texas and California markets, although management intends
      to
      expand operations throughout the Southeastern and Southwestern United States.
      Sales are recorded at net realizable value, net of allowances for returns,
      upon
      shipment of products to customers. We record revenue from federal incentive
      programs related to the production of biodiesel when we have produced, sold,
      blended the biodiesel, and completed all the requirements of the applicable
      incentive program. These are accounted for on a gross basis.
  *Business
      Combinations* — Business combinations are accounted for using the
      purchase method. Under the purchase method, we report the acquired entities’
assets and liabilities at fair market value as of the date of purchase. Any
      excess of the fair market value of the consideration given over the fair market
      value of the net assets acquired is reported as goodwill. If the fair market
      value of the consideration given is less than the fair market value of the
      net
      assets acquired, the resulting excess of fair value of acquired net assets
      over
      the cost of the acquired entity is allocated, on a pro rata basis, against
      certain assets acquired in the business combination. If any excess over cost
      remains after reducing certain assets to zero, the remaining excess is
      recognized as an extraordinary gain.
  *Accounting
      for Stock Based Compensation* — We use the principles defined in
      SFAS 123, “Accounting for Stock-Based Compensation,’ to account for stock
      options, awards and warrants. Under this pronouncement, we determine the fair
      value of awards, options and warrants using the Black-Scholes Option Price
      Calculation model, and recognize the fair market value of the options, awards
      and warrants when granted or vested.
  *Accounting
      for Derivatives* — Statement of Financial Accounting Standards (“SFAS”)
      No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”), as amended, requires all derivatives to be recorded on the
      balance sheet at fair value. These derivatives, including embedded derivatives
      in our structured borrowings, are separately valued and accounted for on our
      balance sheet. Fair values for exchange-traded securities and derivatives are
      based on quoted market prices. Where market prices are not readily available,
      fair values are determined using market based pricing models incorporating
      readily observable market data and requiring judgment and
      estimates.
  In
      September 2000, the Emerging Issues Task Force (“EITF”) issued EITF Issue 00-19,
“Accounting for Derivative Financial Instruments Indexed to and Potentially
      Settled in, a Company’s Own Stock,” (“EITF 00-19”) which requires freestanding
      contracts that are settled in a company’s own stock, including common stock
      warrants, to be designated as an equity instrument, asset or a liability. Under
      the provisions of EITF 00-19, a contract designated as an asset or a liability
      must be carried at fair value on a company’s balance sheet, with any changes in
      fair value recorded in earnings. A contract designated as an equity instrument
      must be included within equity, and no fair value adjustments are required.
      In
      accordance with SFAS 133 and EITF 00-19, we determined that several of the
      outstanding warrants to purchase our common stock and the embedded conversion
      feature and certain other features of several of our financial instruments
      should be separately accounted for as assets or liabilities. Our financial
      statements reflect the fair value of these warrants and the conversion and
      other
      embedded derivatives features on our balance sheet and the unrealized changes
      in
      the values of these derivatives in our consolidated statements of operations
      as
“Gain (loss) on derivative liability.” As the notes which included derivatives
      were paid or converted during the quarter, there is no derivative liability
      at
      year end 2006.
  *Net
      Loss Per Share Data* — Basic and diluted net loss per common share are
      presented in conformity with the SFAS No. 128, “Earnings Per Share”.
      Diluted net loss per share is the same as basic net loss per share as the
      inclusion of outstanding warrants until their exercise would be
      anti-dilutive.
  *Reclassifications* —
      Certain previously reported amounts have been reclassified to conform to the
      current presentation.
  *Use
      of Estimates* — The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      certain estimates and assumptions that affect the amounts reported in the
      financial statements and accompanying notes. Actual results could differ from
      those estimates.
  *Impairment
      of Long-Lived Assets* — In accordance with Statement of Financial
      Accounting Standards No. 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets”, Earth reviews the carrying value of its long-lived assets
      annually or whenever events or changes in circumstances indicate that the
      historical cost-carrying value of an asset may no longer be appropriate. Earth
      assesses recoverability of the carrying value of the asset by estimating the
      future net cash flows expected to result from the asset, including eventual
      disposition. If the future net cash flows are less than the carrying value
      of
      the asset, an impairment loss is recorded equal to the difference between the
      asset’s carrying value and fair value.
  **Recent
      Accounting Pronouncements**
  On
      February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain
      Hybrid Instruments,” which amends SFAS 133, “Accounting for Derivative
      Instruments and Hedging Activities,” and SFAS 140, “Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS 155 allows financial instruments that have embedded derivatives to be
      accounted for as a whole (eliminating the need to bifurcate the derivative
      from
      its host) if the holder elects to account for the whole instrument on a fair
      value basis. SFAS 155 also clarifies and amends certain other provisions of
      SFAS 133 and SFAS 140. This statement is effective for all financial
      instruments acquired or issued in fiscal years beginning after
      September 15, 2006. Earth does not expect its adoption of this new standard
      to have a material impact on its financial position, results of operations
      or
      cash flows.
   22
 
  **NOTE 2 —
      NEW ACCOUNTING PRONOUNCEMENTS**
  In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a
      framework for measuring fair value and expands disclosures about fair value
      measurements. SFAS 157 does not impose fair value measurements on items not
      already accounted for at fair value; rather it applies, with certain exceptions,
      to other accounting pronouncements that either require or permit fair value
      measurements. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. The
      Company is currently evaluating the impact of adopting SFAS 157 on its
      consolidated financial position and results of operations.
 In
      December 2006, The FASB issued No. EITF 00-19-2 “Accounting for Registration
      Payment Arrangements”.  This FASB Staff Position (FSP) addresses an
      issuer’s accounting for registration payment arrangements. This FSP specifies
      that the contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangement, whether issued as a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB Statement No. 5, *Accounting for Contingencies*. EITF 00-19-2 is
      effective for fiscal years beginning after December 15, 2006 and interim
      periods within those fiscal years. The Company adopted EITF 00-19-2 for the
      year
      ended December 31, 2006.  Registration payment arrangements were
      classified as accrued interest and interest expense in the December 31, 2006
      10KSBA filing.
 
 **Off-Balance
      Sheet Arrangements**
  At
      September 30, 2007 Earth had no obligations that would qualify to be disclosed
      as off-balance sheet arrangements.
  **Contractual
      obligations**
  ***Current
      Debt Obligations —***
  On
      July 24, 2006, Earth entered into a securities purchase agreement pursuant
      to which Earth issued $52.5 million aggregate senior convertible notes that
      are due in 2011 to eight institutional investors. The notes initially carry
      an
      8% coupon, payable quarterly, and are convertible into shares of common stock
      at
      $2.90 per share (without any buyback options required by the
      Earth).
 
 In
      2007,
      the coupon may decline to 6% upon Earth achieving certain financial milestones.
      The notes will begin to amortize in equal, quarterly payments beginning in
      2007.
      In connection with the issuance of the notes, Earth also issued five-year
      warrants to purchase 9,051,725 shares of common stock to the investors and
      five-year warrants to purchase 1,357,759 shares of common stock to Earth’s
      placement agent, at $2.90 per share. Earth used the net proceeds from this
      offering to repay in full the remaining unpaid principal and accrued and unpaid
      interest on our $20.0 million aggregate principal amount of senior
      convertible promissory notes issued in May, June and July 2006, and expects
      to
      use the remaining proceeds from the offering for its program of building and
      acquiring interests in biodiesel and ethanol production facilities, and for
      other general corporate purposes.
  On
      August 11, 2006, Earth entered into a securities purchase agreement
      pursuant to which Earth issued $1.1 million aggregate senior convertible
      notes that are due in 2011 to two institutional investors. The notes initially
      carry an 8% coupon, payable quarterly, and are convertible into shares of common
      stock at $2.90 per share. In 2007, the coupon may decline to 6% upon Earth
      achieving certain financial milestones. The notes will begin to amortize in
      equal, quarterly payments beginning in March, 2007. In connection with the
      issuance of the notes, Earth also issued five-year warrants to purchase
      232,759 shares of common stock to the investors at $2.90 per
      share.
  Earth
      has
      several demand notes totaling $200,000 as of March 31, 2007. The notes are
      un-collateralized, with interest at 8%, all of which is due upon
      demand.
  On
      January 19, 2007 Earth obtained proceeds totaling $750,000 from three
      separate individuals and companies. In connection with this debt Earth issued
      warrants for common stock totaling 375,000 shares, exercisable at
      $.01 per share for 10 years. The notes were repaid in March 2007. At
      the date of original issuance the warrants had a relative fair value of
      $750,000. Amortization on the debt discount totaled $750,000 for the six months
      ended June 30, 2007.
  The
      LNG
      subsidiary obtained a new revolving credit as of March 31, 2007, and used
      the proceeds to repay a former line of credit. Earth obtained a $5 million
      revolving credit facility which is advanced at the rate of 85% of accounts
      receivable. Interest of prime plus 2% is payable monthly
  On
      February 28, 2007, our LNG subsidiary obtained several credit facilities
      totaling $15 million. The $15 million term loan is due and payable in
      3 years, with interest accruing at libor plus 1,000 basis points and
      payable monthly in advance. The loan is secured by the LNG plant facility in
      Topock, Arizona.
 On
      March 23, 2007, Earth obtained a $9 million term loan facility. The
      principal amount is due in 3 years with interest payable at LIBOR plus
      1,000 basis points. The loan is secured by the Durant plant facility in Durant,
      Oklahoma. In connection with this facility,
 In
      connection with these facilities interest reserves were escrowed totaling
      $1,053,000 for interest payments due the first twelve months.
  ***Leases —***
  On
      October 17, 2005, EBO leased a truck stop in Grenada, Mississippi from RBB
      Properties, LLC which is controlled by R. Bruce Blackwell, a shareholder and
      Director of Earth. The lease agreement provides for monthly payments of $10,000
      over a five year term. EBO is responsible for operations and repair and
      maintenance of the facility.
 
  23
 
  **Risk
      Factors**
 
  Feedstocks,
      natural gas, petroleum products and chemical prices have fluctuated in response
      to changing market forces. The impacts of these price fluctuations on earnings
      have varied. For any given period, the extent of actual benefit or detriment
      will be dependent on the price movements of individual types of feedstocks,
      taxes and other government impacts, price adjustment lags in long-term
      contracts, and natural gas production volumes. Accordingly, changes in benchmark
      prices for these raw materials only provide a broad indicator of changes in
      the
      earnings experienced in any particular period. In these very competitive
      environments, earnings are primarily determined by margin capture rather than
      absolute price levels of products sold. Operating margins are a function of
      the
      difference between what a produces pays for its raw materials and the market
      prices for the range of products produced. These prices in turn depend on global
      and regional supply/demand balances, inventory levels, plant operations,
      import/export balances and weather. Such conditions, along with the
      capital-intensive nature of the industry and very long lead times associated
      with many of our projects, underscore the importance of obtaining a strong
      financial position.
  Earth’s
      revenue and operating results may fluctuate significantly from quarter to
      quarter, and fluctuations in operating results could cause its stock price
      to
      decline.
  Earth’s
      revenue and operating results may vary significantly from quarter-to-quarter
      due
      to a number of factors. In future quarters, operating results may be below
      the
      expectations of public market analysis or investors, and the price of its common
      stock may decline. Factors that could cause quarterly fluctuations
      include:
 
  ·
            the
                ability to quickly bring new production capacity on
                stream;·
            the
                fluctuating prices of feedstocks and natural
                gas;
 
 ·
            the
                ability to raise the necessary capital to fund working capital, execute
                mergers, acquisitions and asset
                purchases;
 
 The
      market in which Earth competes is intensely competitive and actions by
      competitors could render its services less competitive, causing revenue and
      income to decline;
  The
      ability to compete depends on a number of factors outside of Earth’s control,
      including:
  
 ·
            the
                prices at which others offer competitive services, including aggressive
                price competition and discounting;·
            actions
                taken by the Federal Government or State Governments to remove subsidies
                and tax credits associated with the biodiesel
                business;
 
 ·
            large
                swings in the price of oil which will affect the price at which Earth
                can
                purchase fuel supplies;·
            the
                ability of competitors to undertake more extensive marketing
                campaigns;
 
 ·
            the
                extent, if any, to which competitors develop proprietary tools that
                improve their ability to compete; and·
            the
                extent of competitors’ responsiveness to customer
                needs.
 
  24
 
  ·
            Earth
                may not be able to compete effectively on these or other factors.
                If Earth
                is unable to compete effectively, market position, and therefore
                revenue
                and profitability, would decline.
 
 ·
            Earth
                must continually enhance its services to meet the changing needs
                of its
                customers or face the possibility of losing future business to
                competitors.
 
 ·
            Future
                success will depend upon Earth’s ability to enhance existing products and
                to introduce new products to meet the requirements of customers in
                a
                rapidly developing and evolving market. Present or future products
                may not
                satisfy the needs of the market. If Earth is unable to anticipate
                or
                respond adequately to its customers’ needs, lost business may result and
                financial performance will suffer.
 
 ·
            Earth
                is dependent on a limited number of key personnel, and the loss of
                these
                individuals could harm its competitive position and financial
                performance.
  Earth’s
      business consists of the production, marketing, distribution and sale of
      biodiesel fuel, LNG and ethanol through Earth’s network of wholesale and retail
      outlets and, accordingly, its success depends upon the efforts, abilities,
      business generation capabilities and project execution of its executive
      officers. Earth’s success is also dependent upon the managerial, operational and
      administrative skills of its executive officers. The loss of any executive
      officer could result in a loss of customers or revenue, and could therefore
      harm
      Earth’s financial performance.
  Earth’s
      ability to secure debt and equity financing could have an adverse effect on
      Earth’s financial health.
  The
      inability to raise capital to fund working capital needs may:
 
  ·
            increase
                Earth’s vulnerability to general adverse economic and industry
                conditions;
 
 ·
            limit
                Earth’s ability to fund future working capital and other general corporate
                requirements; and
 
 ·
            limit
                Earth’s flexibility in planning for, or reacting to, changes in Earth’s
                business and the industry in which it
                operates.
 
 There
      can
      be no assurance that Earth’s business will generate sufficient cash flow from
      operations or that future borrowings will be available to it in an amount
      sufficient to enable it to obtain debt or to fund other liquidity
      needs.
  **Forward
      Looking Statements**
  Certain
      disclosure and analysis in this report, including information incorporated
      by
      reference, includes forward-looking statements that are subject to various
      risks
      and uncertainties. In addition to statements of historical fact, this Annual
      Report on Form 10-KSB contains forward-looking statements. The presentation
      of future aspects of Earth’s business found in these statements is subject to a
      number of risks and uncertainties that could cause actual results to differ
      materially from those reflected in such statements. Readers are cautioned not
      to
      place undue reliance on these forward-looking statements, which reflect
      management’s analysis only as of the date hereof. Without limiting the
      generality of the foregoing words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” or “could” or the negative variations thereof or
      comparable terminology are intended to identify forward-looking
      statements.
  These
      forward-looking statements are subject to certain events, circumstances,
      assumptions, risks and uncertainties that may cause Earth’s actual results to be
      materially different from any future results expressed or implied by Earth
      in
      those statements. Some of these risks might include, but are not limited to,
      the
      following:
  •
            volatility
                or decline of Earth’s stock price;•
            potential
                fluctuation in quarterly results;•
            ability
                of Earth to earn revenues or profits;•
            sufficiency
                of revenues to cover operating costs;•
            availability
                and cost of raw materials;•
            any
                impact of competition, competitive products, and
                pricing;•
            adequacy
                of capital to continue or expand its business, inability to raise
                additional capital or financing to implement its business
                plans;•
            ability
                to commercialize its technology or to make sales;•
            overall
                expected growth in the alternative fuels industry;•
            changes
                in interest rates and capital market conditions;•
            changes
                in laws and other regulatory actions;•
            acquisitions
                of business enterprises, including the ability to integrate acquired
                businesses effectively;•
            litigation
                with or legal claims and allegations by outside
                parties; and
  •
            other
                assumptions described in this report, as well as other reports filed
                with
                the United States Securities and Exchange Commission, underlying
                such
                forward-looking statements.
  There
      is
      no assurance that Earth will be profitable. Earth may not be able to
      successfully develop, manage or market its products and services, Earth may
      not
      be able to attract or retain qualified executives and technology personnel,
      Earth’s products and services may become obsolete, government regulation may
      hinder Earth’s business, and additional dilution in outstanding stock ownership
      may be incurred due to the issuance of more shares, warrants and stock options,
      or the exercise of warrants and stock options, and other risks inherent in
      Earth’s businesses.
  Earth
      undertakes no obligation to publicly revise these forward-looking statements
      to
      reflect events or circumstances that arise after the date hereof. Readers should
      carefully review the factors described in other documents Earth files from
      time
      to time with the Securities and Exchange Commission, including the Quarterly
      Reports on Form 10-QSB and Annual Report on Form 10-KSB filed by Earth
      and any Current Reports on Form 8-K filed by Earth.
  
  25
 
  **Item 3.*Controls
      and Procedures***
  Our
      management, including the principal executive officer and principal financial
      officer, evaluated our disclosure controls and procedures (as defined in
      Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
      1934) related to the recording, processing, summarization and reporting of
      information in our reports that we file with the SEC. These disclosure controls
      and procedures have been designed to provide reasonable assurance that material
      information relating to us, including our subsidiaries, is made known to our
      management, including these officers, by other of our employees, and that this
      information is recorded, processed, summarized, evaluated and reported, as
      applicable, within the time periods specified in the Sec’s rules and
      forms.
  Changes
      were made in our internal control over financial reporting during our last
      fiscal quarter to which this Quarterly Report on Form 10-QSB relates that
      have materially affected our internal control over financial reporting. Based
      on
      their evaluation, as of September 30, 2007, our principal executive officer
      and
      principal financial officer have concluded that our disclosure controls and
      procedures are not effective.
  *Extension
      of Compliance Date for Management’s Report on Internal Control Over Financial
      Reporting*
  Earth
      is
      a non-accelerated filer as defined in Rule 12b-2 of the Exchange Act. On
      September 21, 2005, the Securities and Exchange Commission extended the
      compliance dates for non-accelerated filers concerning the provisions of
      Exchange Act Rule 13a-15(d) or 15d-15(d), whichever applies, requiring an
      evaluation of changes to internal control over financial reporting requirements
      with respect to Earth’s first periodic report due after the first annual report
      that must include management’s report on internal control over financial
      reporting. A company that is a non-accelerated filer must begin to comply with
      these requirements for its first fiscal year ending on or after July 15,
      2007. In addition, the compliance period was extended to the amended portion
      of
      the introductory language in paragraph 4 of the certification required by
      Exchange Act Rules 13a-14(a) and 15d-14(a) that refers to the certifying
      officers’ responsibility for establishing and maintaining internal control over
      financial reporting for Earth, as well as paragraph 4(b). The amended
      language must be provided in the first annual report required to contain
      management’s internal control report and in all periodic reports filed
      thereafter. The extended compliance dates also apply to the amendments of
      Exchange Act Rules 13a-15(a) and 15d-15(a) relating to the maintenance of
      internal control over financial reporting.
  Under
      the
      internal control reporting provisions of the Exchange Act, management will
      be
      responsible for establishing and maintaining adequate internal control over
      financial reporting as defined in Rule 13a-15(f) under the Exchange Act.
      Internal control over financial reporting is a process designed to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      accounting principles generally accepted in the United States of
      America.
  Earth’s
      internal control over financial reporting includes those policies and procedures
      that (i) pertain to the maintenance of records that, in reasonable detail,
      accurately and fairly reflect the transactions and dispositions of the assets
      of
      Earth; (ii) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      Earth are being made only in accordance with authorizations of management and
      directors of Earth; and (iii) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use, or disposition
      of Earth’s assets that could have a material effect on the financial
      statements.
  Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.
  Prior
      to
      the extended deadline in 2007, management will conduct an evaluation of the
      effectiveness of internal control over financial reporting based on the
      framework in Internal Control — Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission. Based on
      this
      evaluation, management will determine whether Earth’s internal control over
      financial reporting is effective. Management’s assessment of the effectiveness
      of Earth’s internal control over financial reporting will be audited by an
      independent registered public accounting firm and stated in their report which
      will be included in Earth’s Form 10-KSB filing.
  There
      were no changes other than those noted above in Earth’s internal controls that
      have materially affected, or are reasonably likely to materially affect these
      controls subsequent to the date of their evaluation, including any corrective
      actions with regard to significant deficiencies and material
      weaknesses.
  
  26
 
  **PART II
      OTHER INFORMATION**
  **Item 1.*Legal
      Proceedings***
  H.C.
      Wainwright & Co., Inc. (“HCW”) commenced arbitration against us on
      July 20, 2006, asserting a claim for breach of contract relating to a
      March 7, 2006 letter allegedly appointing H.C. Wainwright our placement
      agent for a limited time for the sale of our securities. H.C. Wainwright is
      seeking an award of unpaid commissions, warrants for the purchase our common
      stock, and attorneys’ fees and costs. Earth filed an answering statement on
      August 25, 2006, and denied that it was liable to HCW for breach of
      contract. Among other things, Earth asserts that any agreement was terminated
      prior to any alleged breach, HCW failed to perform as promised, and HCW made
      material misrepresentations of fact to induce Earth in to the alleged agreement.
      The arbitration proceeding is at an early stage and no discovery has been taken
      or dates established. Earth intends to vigorously defend this claim. We believe
      these allegations are substantively without merit, are vigorously contesting
      the
      claims brought by the plaintiff, and are exercising all available rights and
      remedies against them; however, the ultimate outcome of this matter is
      uncertain. An Award of Arbitration was granted in July 2007, in the absence
      of
      representation by Earth. Earth was ordered to pay $5,656,000 with 9% interest
      calculated annually, attorney fees of $118,887.10, and an arbitration fee of
      $35,120.  This matter was thought to be settled by actions taken previously
      by the Company. Earth is currently deciding whether to take legal action against
      HC Wainwright for fraud. In addition, Earth is appealing this award and losses,
      if any, cannot be reasonably estimated at this time.
 
 Subsequent
      to the quarter ended September 30, 2007 the above judgment was extinguished
      by
      court order upon the payment of the company’s parent, Apollo Resources totaling
      $325,000 to Wainwright.
 
 On
      May 13, 2006, Earth Biofuels, Inc. (the “Company”) signed a Letter of
      Intent to acquire a 51% equity interest in Vertex Energy, LP, a company
      that owns a chemical processing facility adjacent to the Houston Ship Channel
      in
      Houston, TX. .On February 5, 2007 Vertex Energy, LP & Benjamin P.
      Cowart alleged breach of contract and fraud and subsequently a default judgment
      was entered in the amount of $5,070,640; thereafter a motion for new trial
      was
      granted. We believe these allegations are substantively without merit, are
      vigorously contesting the claims brought by the plaintiff, and are exercising
      all available rights and remedies against them; however, the ultimate outcome
      of
      this matter is uncertain. The company is in the process of filing a
      countersuit.
 
 We
      have
      counterclaimed this action claiming fraud and fraudulent inducement.  We
      have petitioned the court seeking deculatory judgment and declaring the
      agreement and the Limited Partnership Agreement set aside, and all of the assets
      of Vertex Processing be awarded to Earth.  In addition, the Company
      has petitioned the court to require Vertex and Gehrig to be responsible for
      the
      payment of the outstanding obligations, liabilities and indebtedness of Vertex
      due to their fraudulent conduct.  If the Company does not prevail it
      will obtain the underlying plant valued in excess of the claim, resulting in
      no
      additional losses to the company.
 
 Effective
      December 20, 2006, Earth Ethanol entered into an Acquisition Agreement
      (“Agreement”) with Liquafaction Corporation, a Washington corporation,
      Newco Liquafaction, Inc., a Washington corporation , and Earth Ethanol of
      Washington, LLC (herein, “Earth-Washington”), a Delaware limited liability
      company . Subsequent to year end  2006, Earth Ethanol and Liquafaction
      entered into an amended acquisition agreement. Under terms of the amended
      agreement, the Company will pay consideration of approximately 40% in common
      stock of Earth Biofuels and 60% cash.  This project is also referred
      to as Moses Lake.  As stated above in item number 3, the Company
      has again renegotiated the agreement and has funded approximately $686k as
      of
      June 30, 2007.  The other party to the agreement has the right to
      terminate this agreement with any 5 day notice, and is also required to provide
      certain assets to the company before payment is due. In addition, construction
      of the underlying plant has not commenced at this point in time.  As
      of September 30, 2007, the agreement has again been terminated and the Company
      is looking for other investors to take Earth out of the investment.
 
 On
      or
      about April 19, 2007, JM Allen & Associates, Inc. filed a
      civil action in the District Court of Rusk County, Texas for the
      4th Judicial District of Texas, entitled JM Allen & Associates,
      Inc. v. Earth Biofuels, Inc., alleging fraudulent inducement and
      non-performance under a series of oral alleged agreements to provide labor
      and
      materials in the aggregate amount of $1,900,000; and also filed a request for
      disclosure, admissions, interrogatories, and request for production of
      documents. We believe these allegations are substantively without merit, are
      vigorously contesting the claims brought by the plaintiff, and are exercising
      all available rights and remedies against them; however, the ultimate outcome
      of
      this matter is uncertain. Earth argues that only $400k of work and services
      was
      provided.  This case is currently stayed until the involuntary Chapter 7
      petition has been resolved.
 
 Breaches
      related to the **Security agreements** and underlying accredited
      investors (Castlerigg Master Investments, Ltd, Evolution Master Fund, Ltd,
      Kings
      Road Investments, Ltd, Capital Ventures International, Radcliffe SPC, Ltd,
      Cornell Capital Partners, LP, Cranshire Capital LP, Portside Growth and
      Opportunity Fund Gundyco ITF Excalibur Limited Partnership and Whalehaven
      Capital Fund Ltd)were made related to the periods October 1,2006
      through March, 2007, and pursuant to the registration requirements of the
      Registration Rights Agreement, each dated July 24, 2006, and
      August 11, 2006, respectively. Further, Earth executed confessions of
      judgment in the approximate amount of $15,956,731, in favor of the accredited
      investors.
 
 On
      November 14, 2007, Earth Biofuels, Inc. (the “Company”) negotiated and executed
      a settlement agreement (the “Agreement”) with the group of creditors who had
      petitioned for an involuntary bankruptcy against the company on July 11 of
      this
      year.  The Agreement requires the creditors to dismiss their petition
      of bankruptcy. Under the terms of the Agreement, the Company will grant certain
      security interests to the creditors and will execute a restructuring plan within
      120 days.
 
  **Item 2.****
            ***Equity
                Securities and Use of
                Proceeds***
  **Market
      for Registrant’s Common Equity**
 Earth’s
      common stock is traded on the OTCBB under the symbol EBOF. The stock prices
      set
      forth below represent the highest and lowest sales prices per share of Earth’s
      common stock as reported by the OTCBB. The prices reported in the following
      table reflect inter-dealer prices without retail mark-up, mark-down or
      commissions and may not represent actual transactions.
  **Quarter
                Ended**
            
            **High**
            
            
            **Low**September
                30, 2007
            
            $
            .05
            
            
            $
            .04June
                30, 2007
            
            
            .20
            
            
            
            .18March 31,
                2007
            
            
            .41
            
            
            
            .39December 31,
                2006
            
            
            1.29
            
            
            
            .98September 30,
                2006
            
            
            2.35
            
            
            
            2.25June 30,
                2006
            
            
            3.15
            
            
            
            2.85March 31,
                2006
            
            
            2.65
            
            
            
            2.44December 31,
                2005
            
            
            1.20
            
            
            
            .35September 30,
                2005
            
            
            .92
            
            
            
            .24
  
  27
 
  
 
 **Holders
      of Record**
  As
      of
      September 30, 2007, there were approximately 198 holders of record of Earth’s
      common stock, although we believe that there are additional beneficial owners
      of
      our common stock who own their shares in “street name.”
  **Dividends**
  There
      have been no cash dividends declared on our common stock since our company
      was
      formed. Dividends are declared at the sole discretion of our board of directors.
      It is not anticipated that any dividends will be declared for the foreseeable
      future on our common stock.
  **Equity
      Compensation Plan Information**
  Our
      Board
      of Directors and a majority of our stockholders adopted a written stock option
      and award plan in 2006. This plan provides for the grant of options or
      restricted share amounts for up to 5,000,000 shares of common stock. From
      time to time our Board of Directors has in the past, and may in the future,
      issue to consultants or other third parties common stock, and options or
      warrants that are not pursuant to the plan for compensatory purposes or pursuant
      to financings. The table below sets forth certain information as of
      December 31, 2006 regarding the shares of our common stock granted or
      issuable upon exercise of options or warrants granted as compensation for
      services.
  **Number
                of Securities****Remaining
                Available for****Number
                of Securities**
            
            
            **Future
                Issuance Under****Issued
                or Issuable Upon**
            
            
            **Equity
                Compensation Plans****Exercise
                of Outstanding**
            
            
            **(Excluding
                Securities in****Options,
                Warrants and**
            
            
            **the
                First Column of This****Description**
            
            **Rights**
            
            
            **Table)**Compensatory
                common stock awards approved by security holders
            
            
            5,000,000
            
            
            
            0Compensatory
                common stock awards and warrants or options not approved by security
                holders
            
            
            14,365,812
            
            
            
            N/A
  **Description
      of Securities**
  *Common
      Stock* — As of September 30, 2007, Earth had  252,698,785
      shares of its common stock issued and outstanding; 400,000,000 shares
      authorized. Common stock holders have full voting rights.
  *Preferred
      Stock* — As of September 30, 2007, there were no shares of its
      preferred stock issued or outstanding and 15,000,000 shares are
      authorized.
  
 ***Debt
      securities and Warrants —***
  On
      July 24, 2006, Earth entered into a securities purchase agreement pursuant
      to which Earth issued $52.5 million aggregate senior convertible notes that
      are due in 2011 to eight institutional investors. The notes initially carry
      an
      8% coupon, payable quarterly, and are convertible into shares of common stock
      at
      $2.90 per share. In 2007, the coupon may decline to 6% upon Earth achieving
      certain financial milestones. The notes will begin to amortize in equal,
      quarterly payments beginning in 2007. In connection with the issuance of the
      notes, Earth also issued five-year warrants to purchase 9,051,725 shares of
      common stock to the investors and five-year warrants to purchase
      1,357,759 shares of common stock to Earth’s placement agent, at
      $2.90 per share. Earth used the net proceeds from this offering to repay in
      full the remaining unpaid principal and accrued and unpaid interest on our
      $20.0 million aggregate principal amount of senior convertible promissory
      notes issued in May, June and July 2006, and expects to use the remaining
      proceeds from the offering for its program of building and acquiring interests
      in biodiesel and ethanol production facilities, and for other general corporate
      purposes.
  On
      August 11, 2006, Earth entered into a securities purchase agreement
      pursuant to which Earth issued $1.1 million aggregate senior convertible
      notes that are due in 2011 to two institutional investors. The notes initially
      carry an 8% coupon, payable quarterly, and are convertible into shares of common
      stock at $2.90 per share. In 2007, the coupon may decline to 6% upon Earth
      achieving certain financial milestones. The notes will begin to amortize in
      equal, quarterly payments beginning in March, 2007. In connection with the
      issuance of the notes, Earth also issued five-year warrants to purchase
      232,759 shares of common stock to the investors at $2.90 per
      share.
  Due
      to
      ongoing renegotiations with the above investors, Earth did not make the first
      quarterly interest payments due October 1, 2006, or register the underlying
      securities within 30 days from closing in accordance with the original
      securities purchase agreement dated July 24, 2006 and August 11, 2006.
      As such, penalties and interest totaling approximately have accrued at the
      default rate of 15% interest, plus 1.5% for the amount outstanding for
      registration penalties, and an 18% late charge. Subsequent to year end Earth
      brought all coupon rate interest current totaling $1,574,222.
  At
      the
      date of original issuance the warrants had a relative fair value of $18,808,359,
      and Earth recognized a beneficial conversion feature in the amount of
      $42,906,599 based on the intrinsic value of the conversion feature. Amortization
      on the debt discount totaled $3,273,933 for the year ended December 31,
      2006.
  Unless
      converted or redeemed as described above, the 8% secured convertible notes
      are
      due in 2007.
  During
      the second and third quarters of 2006, Earth received $22.5 million in
      proceeds from various investors in relation to convertible notes including
      warrants. The conversion features and exercise prices were at different variable
      market prices. In addition certain of Earth’s convertible debts were convertible
      into an indeterminate number of shares. As such, Earth evaluated the application
      of Statement of Financial Accounting Standards (“SFAS”) No. 133,
*“Accounting for Derivative Instruments and Certain Hedging Activities”*
      (“SFAS No. 133”), and EITF 00-19 for these convertible debts, as well
      as warrants for 3,389,560 shares issued in connection with the debt
      offerings. Based on the guidance in SFAS No. 133 and EITF 00-19, Earth
      concluded that instruments were required to be accounted for as derivatives
      and
      required Earth to bifurcate and separately account for the conversion features
      of the convertible debt as embedded derivatives. The conversion features and
      the
      warrants met the attributes of a liability and Earth therefore recorded the
      fair
      value of the conversion features and the warrants as current liabilities during
      these quarters.
  Earth
      recorded the fair value of the conversion features and the warrants on its
      balance sheet at fair value with changes in the values of these derivatives
      reflected in the consolidated statement of operations as “Gain (loss) on
      derivatives”. Some of the debts were converted on July 14, 2006, and the
      remaining instruments were repaid with the proceeds from the July 24, 2006
      issues. Based on Earth’s analysis and application of Statement of Financial
      Accounting Standards (“SFAS”) No. 133, *“Accounting for Derivative
      Instruments and Certain Hedging Activities”* (“SFAS No. 133”), the
      derivative liabilities were reversed as appropriate. The remaining discounts
      were reversed to additional paid in capital, and the repaid debt derivative
      liability amounts were reversed to gain on derivatives.
  ***Registration
      Rights —***
  Earth
      was
      obligated under Registration Rights Agreements to file, on the 30th day
      following the agreements a Registration Statement with the SEC registering
      for
      resale shares of common stock, and shares of common stock underlying investor
      warrants and certain of the placement agent warrants, issued in connection
      with
      the private offerings. If (i) Earth did not file the Registration Statement
      within the time period prescribed, or (ii) Earth failed to file with the
      SEC a request for acceleration in accordance with Rule 461 promulgated
      under the Securities Act of 1933, within five trading days of the date that
      Earth is notified (orally or in writing, whichever is earlier) by the SEC that
      the Registration Statement will not be “reviewed,” or is not subject to further
      review, or (iii) the Registration Statement filed or required to be filed
      under the Registration Rights Agreement was not declared effective by the SEC
      on
      or before 120 days following March 23, 2005, or (iv) after the
      Registration Statement is first declared effective by the SEC, it ceases for
      any
      reason to remain continuously effective as to all securities registered there
      under, or the holders of such securities are not permitted to utilize the
      prospectus contained in the Registration Statement to resell such securities,
      for more than an aggregate of 45 trading days during any 12-month period (which
      need not be consecutive trading days) (any such failure or breach being referred
      to as an “Event,” and for purposes of clause (i) or (iii) the date on
      which such Event occurs, or for purposes of clause (ii) the date on which
      such five-trading day period is exceeded, or for purposes of clause (iv)
      the date on which such 45-trading day-period is exceeded being referred to
      as
“Event Date”), then in addition to any other rights the holders of such
      securities may have under the Registration Statement or under applicable law,
      then, on each such Event Date and on each monthly anniversary of each such
      Event
      Date (if the applicable Event shall not have been cured by such date) until
      the
      applicable Event is cured and except as disclosed below, Earth is required
      to
      pay to each such holder an amount in cash, as partial liquidated damages and
      not
      as a penalty, equal to 1.5% per month of the aggregate purchase price paid
      by such holder pursuant to the Securities Purchase Agreement relating to such
      securities then held by such holder. If Earth fails to pay any partial
      liquidated damages in full within seven days after the date payable, Earth
      is
      required to pay interest thereon at a rate of 15% per annum (or such lesser
      maximum amount that is permitted to be paid by applicable law) to such holder,
      accruing daily from the date such partial liquidated damages are due until
      such
      amounts, plus all such interest thereon, are paid in full. The partial
      liquidated damages are to apply on a daily pro-rata basis for any portion of
      a
      month prior to the cure of an Event.
  Such
      non-filing of the registration statement impacted and breached those certain
      Registration Rights Agreements with Earth and certain investors including Lance
      Bakrow, Tom Groos, Marc Weill, Josh Cohen, Kamunting Street Master Fund, Ltd.,
      and K Street Emerald Fund, LLC. Subsequent to the forbearance agreement the
      securities are now required to be registered as of May 15,
      2007.
  The
      Registration Rights Agreement also provides for customary piggy-back
      registration rights whereby holders of shares of Earth’s common stock, or
      warrants to purchase shares of common stock, can cause Earth to register such
      shares for resale in connection with Earth’s filing of a Registration Statement
      with the SEC to register shares in another offering. The Registration Rights
      Agreement also contains customary representations and warranties, covenants
      and
      limitations.
 
 
 
  28
 
  
  
 ***Change
      in Securities and Use of Proceeds —***
   ***UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS —***
  On
      March 31, 2006, we issued 1,800,000 shares of our common stock to
      Dr. Miguel Dabdoub in connection with the purchase of a membership interest
      in Earth Biofuels Technology Company, LLC. These shares were issued in reliance
      upon the exemption from registration afforded by Section 4(2) of the
      Securities Act.
 On
      March 31, 2006, pursuant to the closing of the merger with Southern Bio
      Fuels, we issued 2,933,333 shares of our common stock to the sole
      stockholder of Southern Bio Fuels. The sale of these shares of our common stock
      to accredited investors was made in reliance upon the exemption from
      registration afforded by Section 4(2) of the Securities Act of 1933, as
      amended, or the Securities Act.
  On
      April 28, 2006, we entered into a securities purchase agreement, pursuant
      to which we issued 6,400,000 shares of our common stock to accredited
      investors, in consideration for the payment of approximately $3.2 million.
      We will use the proceeds, in concert with other funds, to acquire a 50% equity
      interest in an entity, which will own and operate a planned ethanol plant in
      New
      Orleans, Louisiana. The purchase agreement provides for an additional issuance
      of 6,400,000 shares of our common stock, if we have not timely consummated
      the acquisition of the equity interest in the planned New Orleans ethanol plant
      discussed below. Contemporaneously with the execution and delivery of the
      securities purchase agreement, we entered into a registration rights agreement,
      pursuant to which we agreed to provide certain registration rights with respect
      to the shares of common stock issued pursuant to the securities purchase
      agreement. The sale of these shares of our common stock to accredited investors
      was made in reliance upon the exemption from registration afforded by
      Section 4(2) of the Securities Act of 1933, as amended, or the Securities
      Act. The 6,400,000 shares issued to an accredited investor included
      registration rights therein. As of year end December 31, 2006 these shares
      have not been registered, however, the company will include these rights upon
      filing of its registration statement to be filed during the year ended
      2007.
  On
      June 12, 2006, we issued 125,000 shares of our common stock in
      connection with our April 20, 2006 acquisition of a 25% limited partnership
      interest in Trucker’s Corner, L.P. In addition, Trucker’s Corner received
      $1.1 million from us and 25,000 shares of Apollo Resources’ common
      stock from Apollo Resources. Our shares of common stock were issued in reliance
      upon the exemption from registration afforded by Section 4(2) of the
      Securities Act.
  On
      June 12, 2006, we issued 537,500 shares of our common stock to
      Biodiesel Venture, L.P. and 537,500 shares of our common stock to Willie H.
      Nelson in connection with a sublicense agreement entered into on April 1,
      2006 with Biodiesel Venture, L.P., pursuant to which Biodiesel Venture granted
      us an exclusive sublicense to use the trademark “BioWillie” which is licensed to
      Biodiesel Venture pursuant to a master license with Mr. Nelson, the owner
      of the trademark. These shares were issued in reliance upon the exemption from
      registration afforded by Section 4(2) of the Securities Act.
  On
      July 13, 2006, holders of convertible notes issued during January through
      June of 2006, exercised their conversion option and the Company issued an
      aggregate of 3,000,000 shares of common stock in exchange for the
      conversion of notes with an aggregate principal amount of $1.5 million.
      These shares were issued in reliance upon the exemption from registration
      afforded by Section 4(2) of the Securities Act. The related debt, which was
      converted to shares, included registration rights therein. As of the year end
      these shares have not been registered, however, the company will include these
      rights upon filing of its registration statement to be filed during the year
      ended 2007.
  In
      addition, on July 21, 2006, Apollo Resources entered into a securities
      purchase agreement with Greenwich Power, LLC and Greenwich Power II, LLC,
      pursuant to which Apollo Resources issued notes exchangeable for shares of
      our
      common stock held by Apollo Resources and options to purchase our common stock
      held by Apollo Resources. In connection with this transaction, Apollo Resources
      agreed to cause us to grant these Apollo Resources note holders registration
      rights with respect to the shares of common stock underlying the convertible
      notes and options. We have acknowledged and agreed to comply with the terms
      of
      the registration rights agreements between Apollo and these note holders. In
      connection with this transaction, Lance Bakrow, who is the sole manager of
      both
      Greenwich Power entities, purchased a warrant to purchase 4,000,000 shares
      of our common stock at an exercise price of $0.25 per share.
      Mr. Bakrow paid us $100,000 for the issuance of this warrant. We granted
      Mr. Bakrow certain registration rights with respect to the shares of common
      stock issuable upon exercise of this warrant. As of year end December 31,
      2006 these shares have not been registered, however, the company will include
      these rights upon filing of its registration statement to be filed during the
      year ended 2007.
  On
      January 19, 2007 Earth obtained proceeds totaling $750,000 from three
      separate individuals and companies. In connection with this debt Earth issued
      warrants for common stock totaling 375,000 shares, exercisable at
      $.01 per share for 10 years. The notes were repaid in March 2007. At
      the date of original issuance the warrants had a relative fair value of
      $750,000. Amortization on the debt discount totaled $750,000 for the three
      months ended March 31, 2007.
  
  29
 
  
 
 On
      February 28, 2007, our LNG subsidiary obtained several credit facilities
      totaling $15 million. The $15 million term loan is due and payable in
      3 years, with interest accruing at libor plus 1,000 basis points and
      payable monthly in advance. The loan is secured by the LNG plant facility in
      Topock, Arizona. In connection with this facility Warrant Purchase and
      Registration Right agreements were issued to purchase 13,549,816 of the
      Company’s common stock at $.36 per share for 10 years. At the date of
      original issuance the warrants had a relative fair value of
      $3,105,394.
  On
      March 23, 2007, Earth obtained a $9 million term loan facility. The
      principal amount is due in 3 years with interest payable at LIBOR plus
      1,000 basis points. The loan is secured by the Durant plant facility in Durant,
      Oklahoma. In connection with this facility, Warrant Purchase and Registration
      Right agreements were issued to purchase 6,774,908 of the Company’s common stock
      at $.30 per share for 10 years. At the date of original issuance the
      warrants had a relative fair value of $1,605,960.
 During
      the quarters ending June 30, 2006 and September 30, 2006, we issued
      convertible notes and warrants to institutional investors in reliance upon
      the
      exemption from registration afforded by Section 4(2) of the Securities Act
      as follows:
  •
            On
                May 4, 2006, we issued a $1.0 million convertible, secured
                promissory note, bearing interest at 7%, payable within thirty days
                upon
                demand by the holder, and convertible into shares of our common stock
                at a
                conversion price of $1.086 per share. We also issued the investor a
                warrant to purchase 920,810 shares of our common stock, exercisable
                until May 31, 2001 at the lesser of $2.00 per share or 80% of
                the average trading price of our common stock for the thirty trading
                days
                prior to the exercise of the warrant. We used the net proceeds from
                the
                sale in connection with our biodiesel and ethanol plant acquisition
                strategy and for other general corporate purposes. We granted the
                note
                holder certain registration rights with respect to the shares of
                common
                stock underlying the convertible note and the warrant. The note and
                warrant and a corresponding guarantee given by Apollo Resources,
                our
                majority stockholder, were subsequently cancelled by the holder in
                connection with Apollo Resources’ closing on July 21, 2006 of a
                securities purchase agreement with Greenwich Power.•
            On
                May 26, 2006, we issued $5.0 million principal amount of
                8% senior convertible promissory notes to a single institutional
                investor. The notes carried an 8% coupon, payable quarterly, and
                were
                redeemable by us at par at any time prior to their initial maturity
                date
                in August 2006. The notes were not convertible until after August
                2006, at
                which time the maturity date was extendable to November 2006 at the
                holder’s option. The notes were convertible into our common stock at a
                conversion price equal to the greater of $1.00 per share or 75% of
                the weighted average price per share of our common stock on a five-day
                volume weighted average prior to closing. We also issued five-year
                warrants to purchase 750,000 shares of common stock to the investor
                and five-year warrants to purchase 18,750 shares of common stock to
                our placement agent, both at an exercise price of $3.84 per share. We
                used the net proceeds from the sale in connection with our biodiesel
                and
                ethanol plant acquisition strategy and for other general corporate
                purposes. We granted the investor certain registration rights with
                respect
                to the shares of common stock issuable upon conversion of the convertible
                notes and exercise of the warrants. The remaining unpaid principal
                and
                accrued and unpaid interest on these notes were repaid in full with
                a
                portion of the net proceeds from the senior convertible promissory
                notes
                we issued in July 2006. The warrants remain
                outstanding.•
            On
                June 2, 2006, we issued a convertible note with a principal amount of
                $500,000 to one individual. The note bore interest at 8% per year,
                which
                was payable on July 28, 2006, August 28, 2006, January 28,
                2007 and April 28, 2007. The note had a maturity date of
                April 28, 2007. The note was convertible into shares of our common
                stock at a conversion price equal to the lesser of $0.50 per share or
                70% of the weighted average price per share of our common stock.
                We used
                the net proceeds from the sale in connection with our biodiesel and
                ethanol plant acquisition strategy and for other general corporate
                purposes. We granted the note holder certain registration rights
                with
                respect to the shares of common stock underlying the convertible
                notes. On
                July 13, 2006, the holder of the note exercised its option to convert
                the notes, and we issued an aggregate of 1,000,000 shares of our
                common stock to such holder in exchange for the cancellation of the
                note.•
            On
                June 7, 2006, we issued $10 million aggregate principal amount
                of senior convertible notes to four institutional investors. The
                notes
                carried an 8% coupon, payable quarterly, and were redeemable by us
                at par
                at any time prior to their initial maturity date in September 2006.
                The
                notes were not convertible until after September 2006, at which time
                the
                maturity date was extendable to December 2006 at the holder’s option. The
                notes were convertible into our common stock at a conversion price
                equal
                to the greater of $1.00 per share or 70% of the weighted average
                price per share of our common stock on a five-day volume weighted
                average
                prior to closing. We also issued to the investors five-year warrants
                to
                purchase an aggregate of 1,500,000 shares of common stock to the
                investors and five-year warrants to purchase 45,000 shares of common
                stock to our placement agent, at an exercise price of $2.93 per
                share. We used the net proceeds from the sale, in concert with other
                funds, to continue to execute our business plan, specifically the
                construction or acquisition of additional biodiesel and ethanol
                facilities, and for other general corporate purposes, including working
                capital. We granted the investor certain registration rights with
                respect
                to the shares of common stock underlying the convertible notes and
                warrants. The remaining unpaid principal and accrued and unpaid interest
                on these notes were repaid in full with a portion of the net proceeds
                from
                the senior convertible promissory notes we issued in July 2006. The
                warrants remain outstanding.•
            On
                July 10, 2006, Earth entered into a securities purchase agreement,
                pursuant to which Earth issued an 8% senior convertible note with a
                principal amount of $5.0 million to one institutional investor. Earth
                also issued five-year warrants to purchase an aggregate of
                1,500,000 shares of common stock to the investor and five-year
                warrants to purchase 15,000 shares of common stock to Earth’s
                placement agent, both at an exercise price of $2.50 per share. On
                July 24, 2006, Earth used a portion of the net proceeds from its
                July 24, 2006 offering to repay in full the remaining unpaid
                principal and accrued and unpaid interest on this note.•
            On
                July 13, 2006, holders of convertible notes issued during January
                through June of 2006, exercised their conversion option and Earth
                issued
                an aggregate of 3,000,000 shares of common stock in exchange for the
                conversion of notes with an aggregate principal amount of
                $1.5 million.•
            On
                July 24, 2006, Earth entered into a securities purchase agreement
                pursuant to which Earth issued $52.5 million aggregate senior
                convertible notes that are due in 2011 to eight institutional investors.
                The notes initially carry an 8% coupon, payable quarterly, and are
                convertible into shares of common stock at $2.90 per share. In 2007,
                the coupon may decline to 6% upon Earth achieving certain financial
                milestones. The notes will begin to amortize in equal, quarterly
                payments
                beginning in 2007. In connection with the issuance of the notes,
                Earth
                also issued five-year warrants to purchase 9,051,725 shares of common
                stock to the investors and five-year warrants to purchase
                1,357,759 shares of common stock to Earth’s placement agent, at $2.90
                per share. Earth used the net proceeds from this offering to repay
                in full
                the remaining unpaid principal and accrued and unpaid interest on
                our
                $20.0 million aggregate principal amount of senior convertible
                promissory notes issued in May, June and July 2006, and expects to
                use the
                remaining proceeds from the offering for its program of building
                and
                acquiring interests in biodiesel and ethanol production facilities,
                and
                for other general corporate purposes.•
            In
                connection with the 8% senior convertible notes issued in July, 2006,
                Earth incurred loan costs in the amount of $3,452,000, which will
                be
                amortized over the term of the convertible notes.•
            On
                August 11, 2006, Earth entered into a securities purchase agreement
                pursuant to which Earth issued $1.1 million aggregate senior
                convertible notes that are due in 2011 to two institutional investors.
                The
                notes initially carry an 8% coupon, payable quarterly, and are convertible
                into shares of common stock at $2.90 per share. In 2007, the coupon
                may decline to 6% upon Earth achieving certain financial milestones.
                The
                notes will begin to amortize in equal, quarterly payments beginning
                in
                March, 2007. In connection with the issuance of the notes, Earth
                also
                issued five-year warrants to purchase 232,759 shares of common stock
                to the investors at $2.90 per share. The shares issued to an
                accredited investor included registration rights therein. As of year
                end
                December 31, 2006 these shares have not been registered, however, the
                company will include these rights upon filing of its registration
                statement to be filed during the year ended
                2007.
  **Item 3.****
            ***Defaults
                upon Senior
                Securities***
  See
      footnote 2 in “Going Concern” under Item 1.
  **Item 4.****
            ***Submission
                of Matters to a Vote of Security
                Holders***
  None
 **Item 5.****
            ***Other
                Information***
  None
 
 
  30
 
  
 
  **ITEM 6.****
            ***EXHIBITS***
  The
      following documents are filed as part of this report:
  **Exhibit****Number**
            
            **Description**3.01
            
            Certificate
                of Incorporation (filed as Exhibit 3.1 to the Report on
                Form 10-QSB for the period ending September 30, 2005 and
                incorporated herein by reference)3.02
            
            Bylaws
                (filed as Exhibit 3.2 to the Report on Form 10-QSB for the
                period ending September 30, 2005 and incorporated herein by
                reference)10.1
            
            Merger
                Agreement dated March 31, 2006 by and among Earth Biofuels, Inc.,
                Southern Bio Fuels, Inc. and certain affiliates of Southern Bio Fuels,
                Inc. (filed as Exhibit 10.1 to the Report on Form 8-K filed
                April 10, 2006 and incorporated herein by
                reference)10.2
            
            Stock
                Purchase Agreement dated October 1, 2005 by and between The Wing Sail
                Company and Earth Biofuels, Inc. (filed as Exhibit 10.1 to the Report
                on Form 8-K filed December 14, 2005 and incorporated herein by
                reference)10.3
            (1)
            Indemnification
                Agreement dated September 29, 2005 by and between Meadow Springs,
                Inc. (as predecessor to Earth Biofuels, Inc.) and William O. Locket,
                Jr.10.4
            (1)
            Indemnification
                Agreement dated September 29, 2005 by and between Meadow Springs,
                Inc. (as predecessor to Earth Biofuels, Inc.) and Morgan
                Freeman.10.5
            (1)
            Indemnification
                Agreement dated September 29, 2005 by and between Meadow Springs,
                Inc. (as predecessor to Earth Biofuels, Inc.) and Bruce
                Blackwell.10.6
            (1)
            Lease
                Agreement dated October 2005 by and between R. Bruce Blackwell and
                Earth
                Biofuels, LLC.10.7
            (1)
            Intercompany
                Credit Agreement dated January 1, 2006 by and between Earth Biofuels,
                Inc. and Apollo Resources International, Inc.10.8
            (1)
            Registration
                Rights Agreement dated January 27, 2006 by and between Earth
                Biofuels, Inc. and Tom Groos.10.9
            (1)
            Earth
                Biofuels, Inc. Convertible Promissory Note dated January 27, 2006
                issued by Earth Biofuels, Inc. in favor of Tom Groos.10.10
            (1)
            Registration
                Rights Agreement dated January 30, 2006 by and between Earth
                Biofuels, Inc. and Marc Weill.10.11
            (1)
            Earth
                Biofuels, Inc. Convertible Promissory Note dated January 30, 2006
                issued by Earth Biofuels, Inc. in favor of Marc Weill.10.12
            (1)
            Membership
                Interest Purchase Agreement dated March 1, 2006 by and between Earth
                Biofuels, Inc. and Dr. Miguel J. Dabdoub.10.13
            (1)
            Registration
                Rights Agreement dated March 29, 2006 by and between Earth Biofuels,
                Inc. and Josh Cohen.10.14
            (1)
            Earth
                Biofuels, Inc. Convertible Promissory Note dated March 29, 2006
                issued by Earth Biofuels, Inc. in favor of Josh Cohen.10.15
            (1)
            Registration
                Rights Agreement dated March 31, 2006 by and between Earth Biofuels,
                Inc. and Tom Groos.10.16
            (1)
            Earth
                Biofuels, Inc. Convertible Promissory Note dated March 31, 2006
                issued by Earth Biofuels, Inc. in favor of Tom Groos.10.17
            (1)
            Letter
                of Intent dated June 13, 2006 by and between Earth Biofuels, Inc. and
                HPS Development, L.L.C.10.17
            (1)
            Letter
                of Intent dated June 13, 2006 by and between Earth Biofuels, Inc. and
                HPS Development, L.L.C.10.18
            (1)
            Agreement
                dated August 2, 2006 by and between Earth Biofuels, Inc. and HPS
                Development, L.L.C.10.19
            
            Securities
                Purchase Agreement dated April 28, 2006, by and among Earth Biofuels,
                Inc. and the buyers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.1 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on May 10,
                2006).**Exhibit****Number**
            **Description**10.20
            
            Registration
                Rights Agreement dated April 28, 2006 by and among Earth Biofuels,
                Inc. and the buyers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.2 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on May 10,
                2006).10.21
            (1)
            Registration
                Rights Agreement dated May 4, 2006 by and between Earth Biofuels,
                Inc. and Greenwich Power, L.L.C.10.22
            (1)
            Convertible
                Secured Promissory Note-Bridge Loan dated May 4, 2006 issued by Earth
                Biofuels, Inc. in favor of Greenwich Power, L.L.C.10.23
            (1)
            Warrant
                to Purchase Shares of Common Stock of Earth Biofuels, Inc. dated
                May 4, 2006 issued to Greenwich Power, L.L.C.10.24
            (1)
            Unconditional
                Guaranty of Payment and Performance dated May 4, 2006 executed by
                Apollo Resources International, Inc. in favor of Greenwich Power,
                L.L.C.10.25
            (1)
            Letter
                of Intent dated May 13, 2006 by and between Earth Biofuels, Inc. and
                Vertex Energy, LP.10.26
            
            Securities
                Purchase Agreement dated May 26, 2006 by and between Earth Biofuels,
                Inc. and the purchasers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.1 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on May 31,
                2006).10.27
            (1)
            Amended
                and Restated Securities Purchase Agreement dated May 26, 2006 by and
                between Earth Biofuels, Inc. and the purchasers listed on the schedule
                thereto.10.28
            
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                May 26, 2006, issued to Evolution Master Fund, Ltd. (incorporated by
                reference to Exhibit 4.3 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on May 31,
                2006).10.29
            (1)
            Warrant
                No. 1r to Purchase Common Stock of Earth Biofuels, Inc. dated
                May 26, 2006 issued to Evolution Master Fund, Ltd.10.30
            (1)
            Warrant
                No. 2 to Purchase Common Stock of Earth Biofuels, Inc. dated
                May 26, 2006 issued to Cowen & Company
                LLC.10.31
            
            8%
                Senior Convertible Note dated May 26, 2006 issued by Earth Biofuels,
                Inc. in favor of Evolution Master Fund, Ltd. (incorporated by reference
                to
                Exhibit 4.2 of the Current Report on Form 8-K filed by Earth
                Biofuels, Inc. with the SEC on May 31, 2006).10.32
            
            Registration
                Rights Agreement dated May 26, 2006 by and between Earth Biofuels,
                Inc. and the purchasers listed on the signature pages thereto
                (incorporated by reference to Exhibit 4.4 of the Current Report on
                Form 8-K filed by Earth Biofuels, Inc. with the SEC on May 31,
                2006).10.33
            (1)
            Amended
                and Restated Registration Rights Agreement dated May 26, 2006 by and
                between Earth Biofuels, Inc. and the purchasers listed on the signature
                pages thereto.10.34
            (1)
            Registration
                Rights Agreement dated June 2, 2006 by and between Earth Biofuels,
                Inc. and Marc Weill.10.35
            (1)
            Earth
                Biofuels, Inc. Convertible Promissory Note dated June 2, 2006 issued
                by Earth Biofuels, Inc. in favor of Marc Weill.10.36
            (1)
            Convertible
                Promissory Note, dated May 31, 2006, made by Albemarle Bio-Refinery,
                Inc. in favor of Earth Biofuels, Inc.10.37
            (1)
            Convertible
                Promissory Note, dated July 19, 2006, made by Albemarle Bio-Refinery,
                Inc. in favor of Earth Biofuels, Inc.10.38
            
            Securities
                Purchase Agreement dated June 7, 2006 by and among Earth Biofuels,
                Inc. and the purchasers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.1 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on June 12,
                2006).10.39
            
            Registration
                Rights Agreement dated June 7, 2006, by and among Earth Biofuels,
                Inc. and the purchasers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.8 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on June 12,
                2006).10.40
            
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                June 7, 2006 issued to Capital Ventures International (incorporated
                by reference to Exhibit 4.6 of the Current Report on Form 8-K
                filed by Earth Biofuels, Inc. with the SEC on June 12,
                2006).**Exhibit****Number**
            **Description**10.41
            (1)
            Warrant
                No 1r to Purchase Common Stock of Earth Biofuels, Inc. dated June 7,
                2006 issued to Capital Ventures International.10.42
            
            8%
                Senior Convertible Note dated June 7, 2006 issued by Earth Biofuels,
                Inc. in favor of Capital Ventures International (incorporated by
                reference
                to Exhibit 4.3 of the Current Report on Form 8-K filed by Earth
                Biofuels, Inc. with the SEC on June 12, 2006).10.43
            
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                June 7, 2006 issued to Castlerigg Master Investments Ltd.
                (incorporated by reference to Exhibit 4.5 of the Current Report on
                Form 8-K filed by Earth Biofuels, Inc. with the SEC on June 12,
                2006)10.44
            
            8%
                Senior Convertible Note dated June 7, 2006 issued by Earth Biofuels,
                Inc. in favor of Castlerigg Master Investments, Ltd (incorporated
                by
                reference to Exhibit 4.2 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on June 12,
                2006).10.45
            
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                June 7, 2006 issued to Radcliffe SPC, Ltd for and on behalf of the
                Class A Convertible Crossover Segregated Portfolio (incorporated by
                reference to Exhibit 4.7 of the Current Report of Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on June 12,
                2006)10.46
            (1)
            Warrant
                No 1r to Purchase Common Stock of Earth Biofuels, Inc. dated June 7,
                2006 issued to Radcliffe SPC, Ltd. for and on behalf of the Class A
                Convertible Crossover Segregated Portfolio.10.47
            
            8%
                Senior Convertible Note dated June 7, 2006 issued by Earth Biofuels,
                Inc. in favor of Radcliffe SPC, Ltd. for and on the behalf of the
                Class A Convertible Crossover Segregated Portfolio (incorporated by
                reference to Exhibit 4.4 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on June 12,
                2006).10.48
            (1)
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                June 7, 2006 issued to Cowen & Company
                LLC.10.49
            (1)
            Warrant
                No. 1r to Purchase Common Stock of Earth Biofuels, Inc. dated
                June 7, 2006 issued to Cowen & Company
                LLC.10.50
            (1)
            Consulting
                Agreement dated June 9, 2006 by and between Earth Biofuels, Inc. and
                Herb Meyer.10.51
            (1)
            Securities
                Purchase Agreement dated July 10, 2006 by and between Earth Biofuels,
                Inc. and the purchaser’s signatory thereto.10.52
            (1)
            Registration
                Rights Agreement dated July 10, 2006 by and between Earth Biofuels,
                Inc. and the purchaser’s signatory thereto.10.53
            (1)
            8%
                Senior Convertible Note dated July 11, 2006 issued by Earth Biofuels,
                Inc. to Castlerigg Master Investments Ltd.10.54
            (1)
            Warrant
                No. 1 to Purchase Common Stock of Earth Biofuels, Inc. dated
                July 11, 2006 issued to Castlerigg Master Investments
                Ltd.10.55
            (1)
            Warrant
                No. 2 to Purchase Common Stock of Earth Biofuels, Inc. dated
                July 11, 2006 issued to Castlerigg Master Investments
                Ltd.10.56
            (1)
            Warrant
                No. 2 to Purchase Common Stock of Earth Biofuels, Inc. dated
                July 11, 2006 issued to Cowen & Company
                LLC.10.57
            (1)
            Registration
                Rights Agreement dated July 21, 2006 by and between Apollo Resources
                International, Inc. and Greenwich Power, LLC and acknowledged by
                Earth
                Biofuels, Inc.10.58
            (1)
            Registration
                Rights Agreement dated July 21, 2006 by and between Apollo Resources
                International, Inc. Greenwich Power II, LLC and acknowledged by Earth
                Biofuels, Inc.10.59
            (1)
            Registration
                Rights Agreement dated July 21, 2006 by and between Earth Biofuels,
                Inc. and Lance A Bakrow.10.60
            (1)
            Warrant
                to Purchase Shares of Common Stock of Earth Biofuels, Inc. dated
                July 21, 2006 to Lance A. Bakrow.**Exhibit****Number**
            **Description**10.61
            
            Securities
                Purchase Agreement dated July 24, 2006 by and among Earth Biofuels,
                Inc. and the buyers listed on the schedule thereto (incorporated
                by
                reference to Exhibit 4.1 of the Current Report on Form 8-K filed
                by Earth Biofuels, Inc. with the SEC on July 25,
                2006).10.62
            
            Registration
                Rights Agreement dated July 24, 2006 among Earth Biofuels, Inc. and
                the buyers listed on the schedule thereto (incorporated by reference
                to
                Exhibit 4.2 of the Current Report on Form 8-K filed by Earth
                Biofuels, Inc. with the SEC on July 25, 2006).10.63
            (1)
            Lock-Up
                Letter dated July 24, 2006 from Apollo Resources International,
                Inc.10.64
            (1)
            Lock-Up
                Letter dated July 24, 2006 from Dennis G. McLaughlin
                III.10.65
            (1)
            Warrant
                No. 3 to Purchase Common Stock of Earth Biofuels, Inc. dated
                July 24, 2006 by Cowen & Company LLC.10.66
            
            Form
                of Warrant to Purchase Common Stock of Earth Biofuels, Inc. dated
                July 24, 2006 (incorporated by reference to Exhibit 4.4 of the
                Current Report on Form 8-K filed by Earth Biofuels, Inc. with the SEC
                on July 25, 2006).10.67
            
            Form
                of Notes dated as of July 24, 2006 issued by Earth Biofuels, Inc.
                (incorporated by reference to Exhibit 4.3 on the Current Report on
                Form 8-K filed by Earth Biofuels, Inc. with the SEC on July 25,
                2006).10.68
            
            Merger
                Agreement, dated March 31, 2006, by and between Earth Biofuels,
                Southern Bio Fuels, Inc., Southern Bio Fuels, LLC, and the other
                members
                and individuals party thereto (incorporated by reference to
                Exhibit 10.1 of the Current Report on Form 8-K filed by Earth
                Biofuels, Inc. with the SEC on April 10, 2006).10.69
            (1)
            Securities
                Purchase Agreement, dated August 19, 2005, by and among Apollo
                Resources International, Inc., Tommy Johnson, Bruce Blackwell, William
                H.
                Webster and Robert Glenn.10.70
            (1)
            Purchase
                and Sale Agreement dated February 25, 2005 by and between Earth
                Biofuels, Inc., R. Bruce Blackwell, Tommy Johnson, Robert Glenn,
                William
                Webster and Apollo Resources International, Inc.10.71
            (1)
            Promissory
                Note issued on March 2, 2006 to Southern Bio Fuels,
                LLC.10.72
            (1)
            Commercial
                Guaranty made on March 2, 2006 by Dennis G. McLaughlin, III in favor
                of Southern Biofuels, LLC.10.73
            (1)
            Promissory
                Note issued on March 31, 2006 to Southern Bio Fuels,
                LLC.10.74
            (1)
            Commercial
                Guaranty made on March 31, 2006 by Dennis G. McLaughlin, III in favor
                of Southern Bio Fuels, LLC.
 
 31
 
 
  
  10.75(1)
            Commercial
                Guaranty made on March 31, 2006 by R. Bruce Blackwell in favor of
                Southern Bio Fuels, LLC.10.76(1)
            Commercial
                Guaranty made on March 31, 2006 by Tommy Johnson in favor of Southern
                Bio Fuels, LLC.10.77(1)
            Earth
                Biofuels, Inc. 2006 Stock Option and Award Plan effective April 15,
                2006.10.78(1)
            Sublicense
                Agreement dated April 1, 2006 by and between Earth Biofuels, Inc. and
                Biodiesel Venture, L.P.10.79(1)
            Securities
                Purchase Agreement dated August 11, 2006 by and among Earth Biofuels,
                Inc. and the buyers listed on the schedule.10.80(1)
            Revised
                Schedule of buyers on Securities Purchase Agreement dated August 11,
                2006.10.81(1)
            Registration
                Rights Agreement dated August 11, 2006 among Earth Biofuels, Inc. and
                the buyers listed on the schedule.10.82(1)
            Form
                of Notes dated as of August 11, 2006 issued by Earth Biofuels, Inc.
                with Whalehaven Capital Fund Ltd.10.83(1)
            Form
                of Notes dated as of August 11, 2006 issued by Earth Biofuels Inc.
                with Gundyco ITF Excalibur Ltd Partnership.10.84(1)
            Form
                of Warrant to Purchase Common Stock of Earth Biofuels, Inc. dated
                August 11, 2006, with Whalehaven Capital
                Fund Ltd.10.85(1)
            Form
                of Warrant to Purchase Common Stock of Earth Biofuels, Inc. dated
                August 11, 2006, with Gundyco ITF Excalibur Ltd
                Partnership.10.86(1)
            Form
                of Warrant to purchase Common Stock of Earth Biofuels, Inc. dated
                July 21, 2006 with Lance Bakrow, and Consulting Agreement with Lance
                Bakrow.10.87(2)
            Share
                Exchange Agreement effective as of November 17, 2006, by and between
                Earth Biofuels, Inc., a Delaware corporation (“Earth Biofuels”) and Apollo
                Resources International, Inc., a Utah corporation
                (“Apollo”).10.88(4)
            Acquisition
                Agreement between Liquafaction Corporation, et al and Earth Ethanol
                (incorporated by reference to Exhibit 1.01 of the Current Report on
                Form 8-K filed by Earth Biofuels, Inc. with the SEC on
                December 21, 2006).10.89
                (4)
            Pledge
                Agreement, Promissory Notes and Warrant Agreements with and from
                Two
                Ponds, Gilcreast and Bryant Russell Construction
 
   10.90(3)
            Letter
                from Nexxus re offer to Capitalize Biofuels with $150 million in
                Exchange for Common Stock and Escrow Agreement dated January 9, 2007
                (Exhibit previously labeled 14.)10.91(3)
            Credit
                Agreement dated March 23 2007 by and between Durant Biofuels, LLC
                and
                Lenders and related Amendment No. 1, Amended and Restated Collateral
                Agreement, and Warrant Purchase and Registration Rights Agreement
                (Exhibit
                previously labeled 15.)10.92(3)
            Credit
                Agreement dated February 28, 2007 by and between Earth LNG, Inc. and
                Lenders, and related Guarantee and Collateral Agreement and Warrant
                Purchase and Registration Rights Agreement (Exhibit previously labeled
                16.)10.93(3)
            Loan
                and Security Agreement with Greenfield Commercial Credit LLC dated
                March 1, 2007, and related Revolving Credit Loan note and Guaranty
                (Exhibit previously labeled 17.)12.1(3)
            Report
                of Independent Registered Public Accounting Firm to the audit committee
                of
                Earth LNG, Inc. (Exhibit previously labeled 18.)12(3)
            Subsidiaries14(3)
            Code
                of Ethics – (Exhibit previously labeled 11.)20.1
            
            Series
                of 7 Secured Notes (incorporated by reference to Exhibit 7.4 of the
                Current Report on Form 8-K filed by Earth Biofuels, Inc. with the SEC
                on November 19, 2007).*31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) under the
                Securities Act of 1934.*31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) under the
                Securities Act of 1934.
 
 32
 
 
  
  **Exhibit****Number**
            
            **Description***32.1
            
            Certification
                of 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 Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.
   *
            
            Filed
                herewith.**
            
            Previously
                filed.
  +
            
            Management
                contract, compensatory plan or
                arrangement.
  (1)
            
            Filed
                as an exhibit to the registrants Report on Form 10-QSB for the period
                ending September 30, 2006 filed with the SEC on November 21,
                2006.(2)
            
            Filed
                as an exhibit to the registrant’s Current Report on Form 8-K filed
                with the SEC on November 22, 2006(3)
            
            Filed
                as an exhibit to the registrants Report on Form 10-KSB for the period
                ending December 31, 2006 filed with the SEC on May 18,
                2007.(4)
            
            Filed
                as an exhibit to the registrants Report on Form 10-QSB for the period
                ending June 30, 2007 filed with the SEC on August 13,
                2007.
 
 33
 
 
  
   **SIGNATURE**
  In
      accordance with 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.
  EARTH
      BIOFUELS, INC.
  /s/  Dennis
                G. McLaughlin, III
 Dennis
      G.
      McLaughlin, III
 Chief
      Executive Officer
 (Principal
      Executive Officer)
  Date:
      November 20, 2007
  /s/  Darren
      L. Miles
 Darren
      L.
      Miles
 Chief
      Financial Officer
 (Principal
      Financial and Accounting Officer)
  Date:
      November 20, 2007
 
 34