U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB



|                                                  |                                                                                          | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------- | 
|(Mark One)                                       
|x                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                  |                                                                                          | 
|For the quarterly period ended July 31, 2008     
|                                                  |                                                                                          | 
|o                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                  |                                                                                          | 
|For the transition period from _______ to _______
|                                                  |                                                                                         
|Commission file number  000-31091                

FOUR RIVERS BIOENERGY INC.

(Exact name of small business issuer as specified in its charter)

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|                                                               |                                     
|Nevada                                                         | 980442163                           
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|P.O. Box 1056
Calvert City, Kentucky                           | 42029                               
|(Address of principal executive offices)                       | (Zip Code)                          



Issuers telephone number:  (270) 282-0943

N/A

________________________________
(Former name, former address and former
fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ý    No  o



Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  oNo  ý



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 6,804,689 shares of common stock, par value $.001 per share, outstanding as of September 12, 2008.



Transitional Small Business Disclosure Format (Check one):   Yes  oNo  ý





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FOUR RIVERS BIOENERGY INC.



INDEX

|                               |      |                                                                                  |   
|------------------------------ | ---- | -------------------------------------------------------------------------------- | --
|                               |      |                                                                                  |   
|                               | Page
|PART I – FINANCIAL INFORMATION |     
|                               |      |                                                                                  |   
|Item 1.                        |      | Condensed Consolidated Financial Statements                                      | 3 
|                               |      | Condensed Consolidated Balance Sheet at July 31, 2008 (Unaudited)                | 4 
|                               |      | Condensed Consolidated Statements of Operations (Unaudited)                      | 5 
|                               |      | Condensed Consolidated Statements of Changes in Stockholders Equity (Unaudited) | 6 
|                               |      | Condensed Consolidated Statements of Cash Flows (Unaudited)                      | 7 
|                               |      | Notes to Condensed Consolidated Financial Statements (Unaudited)                 | 8 
|                               |      |                                                                                  |   
|Item 2.                        |      | Managements Discussion and Analysis or Plan of Operations                       | 20
|Item 3.                        |      | Controls and Procedures                                                          | 28
|                               |      |                                                                                  |   
|PART II  OTHER INFORMATION    |     
|                               |      |                                                                                  |   
|Item 1.                        |      | Legal Proceedings                                                                | 29
|Item 2.                        |      | Unregistered Sales of Equity Securities and Use of Proceeds                      | 29
|Item 3.                        |      | Defaults Upon Senior Securities                                                  | 29
|Item 4.                        |      | Submission of Matters to a Vote of Security Holders                              | 29
|Item 5.                        |      | Other Information                                                                | 29
|Item 6.                        |      | Exhibits                                                                         | 30
|                               |      |                                                                                  |   
|Signatures                     |      |                                                                                  | 31







2





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PART I  FINANCIAL INFORMATION



Item 1.  Financial Statements.



Statements made in this quarterly report on Form 10-QSB that are not historical or current facts are forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements often can be identified by the use of terms such as may, will, expect, believe, anticipate, estimate, approximate, or continue, or the negative thereof. Four Rivers BioEnergy Inc. (the Company) intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent managements best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events than those presently anticipated or projected. These factors include our limited experience in constructing, owning and operating a bioenergy plant and distribution system; our ability to locate, consummate and integrate acquisition opportunities; our ability to secure the land and other assets for our business plan; pricing pressures on our product caused by competition; sensitivity to corn prices and other bio oils; the demand for bio-energy in the United States market; the cost and supply of energy; and the price and production of gasoline and diesel fuels; the status of the federal bio-ethanol tax incentive; our compliance with regulatory impositions; our potential engagement with hedging transactions; the continuing world interest in alternative energy sources; and our capital needs and the availability of funds to the company.



For further information about these and other risks, uncertainties and factors, please review the Companys disclosure included in its Annual Report filed on Form 10-KSB with the Securities and Exchange Commission on February 8, 2008, under Part I, Item 1, Description of Business - Risk Factors.



Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.





3





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|                                                                                                           |  |  |          |            
|---------------------------------------------------------------------------------------------------------- |  |  | -------- | -----------
|Four Rivers BioEnergy Inc.                                                                                 |  |  |          |            
|(A Development Stage Enterprise)                                                                           |  |  |          |            
|Condensed Consolidated Balance Sheet                                                                       |  |  |          |            
|(Unaudited)                                                                                                |  |  |          |            
|                                                                                                           |  |  |          |            
|                                                                                                           |  |  | July 31,
|                                                                                                           |  |  | 2008    
|Assets                                                                                                     |  |  |          |            
|Current                                                                                                    |  |  |          |            
|Cash and cash equivalents                                                                                  |  |  | $        | 12,750,485 
|Restricted Cash - in Escrow (Note 12)                                                                      |  |  |          | 3,204,433  
|Prepaid expenses                                                                                           |  |  |          | 509,185    
|                                                                                                           |  |  |          | 16,464,103 
|Plant under construction (Note 4)                                                                          |  |  |          | 2,473,282  
|Property and equipment (Note 5)                                                                            |  |  |          | 6,164,832  
|                                                                                                           |  |  |          |            
|                                                                                                           |  |  | $        | 25,102,217 
|                                                                                                           |  |  |          |            
|Liabilities                                                                                                |  |  |          |            
|Current                                                                                                    |  |  |          |            
|Accounts payable and accrued liabilities                                                                   |  |  | $        | 769,348    
|Deferred consideration (Note 6)                                                                            |  |  |          | 600,000    
|Due to related parties (Note 7)                                                                            |  |  |          | 166,935    
|                                                                                                           |  |  |          | 1,536,283  
|Automobile loans (Note 8)                                                                                  |  |  |          | 20,106     
|                                                                                                           |  |  |          | 1,556,389  
|                                                                                                           |  |  |          |            
|Commitment (Note 9)                                                                                        |  |  |          | -          
|                                                                                                           |  |  |          |            
|Stockholders' Equity                                                                                       |  |  |          |            
|Capital stock (Note 10)                                                                                    |  |  |          |            
|Preferred stock                                                                                            |  |  |          |            
|Authorized: 100,000,000 shares with par value of $0.001
per share issued and outstanding: 2 shares         |  |  |          | -          
|Common stock                                                                                               |  |  |          |            
|Authorized: 500,000,000 shares with par value of $0.001
per share issued and outstanding: 6,804,689 shares |  |  |          | 6,805      
|Additional paid in capital                                                                                 |  |  |          | 26,366,032 
|Deficit accumulated during development stage                                                               |  |  |          | (2,827,009)
|                                                                                                           |  |  |          | 23,545,828 
|                                                                                                           |  |  |          |            
|                                                                                                           |  |  | $        | 25,102,217 
|Nature of operations and going concern (Note 1)                                                            |  |  |          |            



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



4





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|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |             |  |  |  |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------- | ----------------------------------- | --------- | ---------------------------------- | - | --------------------------------------------------------- |  | - | ----------- |  | - | --------- |  | - | ----------- |  |  |  |  |  |  |  |  |  |  | 
|Four Rivers BioEnergy Inc.                                             |                                     |           |                                    |   |                                                           |  |   |             |  |  
|(A Development Stage Enterprise)                                       |                                     |           |                                    |   |                                                           |  |   |             |  |  
|Condensed Consolidated Statements of Operations                        |                                     |           |                                    |   |                                                           |  |   |            
|(Unaudited)                                                            |                                     |           |                                    |   |                                                           |  |   |             |  |  
|                                                                       | For the Three Months
Ended July 31, |           | For the Nine Months
Ended July 31, |   | For the Period from Inception (March 9, 2007) to July 31,
|                                                                       |                                     | 2008      |                                    |   | 2007                                                      |  |   | 2008        |  |   | 2007      |  |   | 2008       
|Operating expenses                                                     |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Professional fees                                                      | $                                   | 67,207    |                                    | $ | 224                                                       |  | $ | 147,870     |  | $ | 224       |  | $ | 149,550    
|Administration                                                         |                                     | 119,992   |                                    |   | -                                                         |  |   | 202,080     |  |   | -         |  |   | 202,080    
|Bank charges                                                           |                                     | 150       |                                    |   | 1,168                                                     |  |   | 1,406       |  |   | 1,754     |  |   | 3,539      
|Consulting expenses                                                    |                                     | 672,446   |                                    |   | 285,706                                                   |  |   | 2,015,831   |  |   | 416,295   |  |   | 2,706,236  
|Depreciation                                                           |                                     | 3,008     |                                    |   | 669                                                       |  |   | 9,025       |  |   | 669       |  |   | 12,033     
|Office and sundry                                                      |                                     | 7,896     |                                    |   | 795                                                       |  |   | 21,184      |  |   | 795       |  |   | 23,943     
|Rent expense                                                           |                                     | 4,200     |                                    |   | 2,567                                                     |  |   | 16,900      |  |   | 2,567     |  |   | 21,300     
|Telephone and communications                                           |                                     | 4,610     |                                    |   | 1,764                                                     |  |   | 11,959      |  |   | 1,764     |  |   | 16,673     
|Travel expense                                                         |                                     | 32,568    |                                    |   | 110,307                                                   |  |   | 130,768     |  |   | 152,125   |  |   | 371,834    
|                                                                       |                                     | (912,077) |                                    |   | (403,200)                                                 |  |   | (2,557,023) |  |   | (576,193) |  |   | (3,507,188)
|Other income (expense)                                                 |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Interest income                                                        |                                     | 71,327    |                                    |   | 10,078                                                    |  |   | 367,952     |  |   | 16,331    |  |   | 384,284    
|Interest                                                               |                                     | -         |                                    |   | -                                                         |  |   | (819)       |  |   | -         |  |   | (819)      
|Forgiveness of debt                                                    |                                     | -         |                                    |   | -                                                         |  |   | 296,714     |  |   | -         |  |   | 296,714    
|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Net loss before provision for income taxes                             |                                     | (840,750) |                                    |   | (393,122)                                                 |  |   | (1,893,176) |  |   | (559,862) |  |   | (2,827,009)
|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Income taxes (benefit)                                                 |                                     | -         |                                    |   | -                                                         |  |   | -           |  |   | -         |  |   | -          
|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Net loss                                                               | $                                   | (840,750) |                                    | $ | (393,122)                                                 |  | $ | (1,893,176) |  | $ | (559,862) |  | $ | (2,827,009)
|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Basic and diluted loss per share                                       | $                                   | (0.13)    |                                    | $ | (0.10)                                                    |  | $ | (0.30)      |  | $ | (0.15)    |  | $ | (0.55)     
|                                                                       |                                     |           |                                    |   |                                                           |  |   |             |  |   |           |  |   |            
|Weighted average number of basic and
diluted common shares outstanding |                                     | 6,675,053 |                                    |   | 3,818,717                                                 |  |   | 6,402,853   |  |   | 3,677,401 |  |   | 5,167,156  



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



5





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|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |             |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------- | --------------- |  | ------------ | - | ---------- | ----------- | ---------- | - | ------- |  | ------- | ---------- | ----------- | ----------- | ------------- |  | - | ----------- |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Four Rivers BioEnergy Inc.                                          |                 |  |              |   |            |             |            |   |         | 
|(A Development Stage Enterprise)                                    |                 |  |              |   |            |             |            |   |         |  |        
|Condensed Consolidated Statements of Stockholders' Equity           |                 |  |              |   |            |            
|(Unaudited)                                                         |                 |  |              |   |            |             |            |   |         |  |         |            |            
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |            
|For the Period from Inception (March 9, 2007) to July 31, 2008      |                 |  |              |   |            |            
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |            
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             | Deficit     |               |  |  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             | Accumulated |               |  |  
|                                                                    | Preferred Stock |  | Common Stock |   | Additional |             | During the |   | Total  
|                                                                    | Number of       |  |              |   |            | Number of   |            |   |         |  | Paid In |            | Development |             | Stockholders'
|                                                                    | Shares          |  | Par Value    |   | Shares     |             | Par Value  |   | Capital |  | Stage   |            | Equity     
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Balance at inception (March 9, 2007), adjusted for recapitalization | -               |  | $            | - |            | 5,629,716   |            | $ | 5,630   |  | $       | (5,630)    |             | $           | -             |  | $ | -          
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares issued for cash                                              | -               |  |              | - |            | 1,197,029   |            |   | 1,197   |  |         | 1,998,803  |             |             | -             |  |   | 2,000,000  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Net loss                                                            |                 |  |              |   |            |             |            |   |         |  |         |            |             |             | (933,833)     |  |   | (933,833)  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Balance, October 31, 2007                                           | -               |  |              | - |            | 6,826,745   |            |   | 6,827   |  |         | 1,993,173  |             |             | (933,833)     |  |   | 1,066,167  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares issued for services prior to
reverse merger                  | -               |  |              | - |            | 1,197,030   |            |   | 1,197   |  |         | 245,303    |             |             | -             |  |   | 246,500    
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Effect of reverse merger and
assumption of liabilities              | -               |  |              | - |            | -           |            |   | -       |  |         | (270,185)  |             |             | -             |  |   | (270,185)  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares issued for cash in December
2007 at $13.77 per share, net    | -               |  |              | - |            | 1,657,881   |            |   | 1,658   |  |         | 22,827,364 |             |             | -             |  |   | 22,829,022 
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares issued for fees in
December 2007                             | 2               |  |              | - |            | -           |            |   | -       |  |         | -          |             |             | -             |  |   | -          
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares returned for
cancellation in December 2007                   | -               |  |              | - |            | (3,008,028) |            |   | (3,008) |  |         | 3,008      |             |             | -             |  |   | -          
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Shares issued for cash in July
2008 at $15.26 per share, net        | -               |  |              | - |            | 131,061     |            |   | 131     |  |         | 1,567,369  |             |             | -             |  |   | 1,567,500  
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Net loss for the nine months
ended July 31, 2008                    | -               |  |              | - |            | -           |            |   | -       |  |         | -          |             |             | (1,893,176)   |  |   | (1,893,176)
|                                                                    |                 |  |              |   |            |             |            |   |         |  |         |            |             |             |               |  |   |            
|Balance, July 31, 2008                                              | 2               |  | $            | - |            | 6,804,689   |            | $ | 6,805   |  | $       | 26,366,032 |             | $           | (2,827,009)   |  | $ | 23,545,828 



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



6





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|                                                |  |  |  |  |  | 
|----------------------------------------------- |  |  |  |  |  | 
|Four Rivers BioEnergy Inc.                      |  |  |  |  |  | 
|(A Development Stage Enterprise)                |  |  |  |  |  | 
|Condensed Consolidated Statements of Cash Flows |  |  |  |  |  | 
|(Unaudited)                                     |  |  |  |  |  | 



|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|----------------------------------------------------- | ---------------------------------- | ------------ | ---------------------------------- | - | --------------------------------------------------------- |  | - | ------------
|                                                      | For the Nine
Months Ended
July 31, |              | For the Nine
Months Ended
July 31, |   | For the Period
from Inception
(March 9, 2007)
to July 31,
|                                                      | 2008                               |              | 2007                               |   | 2008                                                     
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Cash flows from operating activities                  |                                    |              |                                    |   |                                                           |  |   |             
|Net loss                                              | $                                  | (1,893,176)  |                                    | $ | (559,862)                                                 |  | $ | (2,827,009) 
|Adjustments to reconcile net loss to net cash used in |                                    |              |                                    |   |                                                           |  |   |             
|operating activities                                  |                                    |              |                                    |   |                                                           |  |   |             
|Depreciation                                          |                                    | 9,025        |                                    |   | -                                                         |  |   | 12,033      
|Forgiveness of debt                                   |                                    | (296,714)    |                                    |   | -                                                         |  |   | (296,714)   
|Shares issued for services                            |                                    | 246,500      |                                    |   | -                                                         |  |   | 246,500     
|Changes in operating assets and liabilities           |                                    |              |                                    |   |                                                           |  |   |             
|Prepaid expenses                                      |                                    | (200,000)    |                                    |   | (5,000)                                                   |  |   | (440,000)   
|Accounts payable and accrued liabilities              |                                    | 476,785      |                                    |   | 265,671                                                   |  |   | 754,348     
|Due to related parties                                |                                    | 166,935      |                                    |   | -                                                         |  |   | 166,935     
|Net cash used in operating activities                 |                                    | (1,490,645)  |                                    |   | (299,191)                                                 |  |   | (2,383,907) 
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Cash flows from investing activities                  |                                    |              |                                    |   |                                                           |  |   |             
|Purchase of property and equipment                    |                                    | (5,528,734)  |                                    |   | -                                                         |  |   | (5,576,865) 
|Plant construction costs                              |                                    | (1,870,490)  |                                    |   | (367,461)                                                 |  |   | (2,473,282) 
|Cash placed into escrow to purchase land              |                                    | (3,204,433)  |                                    |   | -                                                         |  |   | (3,204,433) 
|Cash acquired in reverse merger                       |                                    | 51,544       |                                    |   | -                                                         |  |   | 51,544      
|Prepaid expenses (Note 13)                            |                                    | (69,185)     |                                    |   | -                                                         |  |   | (69,185)    
|Net cash used in investing activities                 |                                    | (10,621,298) |                                    |   | (367,461)                                                 |  |   | (11,272,221)
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Cash flows from financing activities                  |                                    |              |                                    |   |                                                           |  |   |             
|Issuance of common stock, net of issuance costs       |                                    | 24,396,522   |                                    |   | 2,000,000                                                 |  |   | 26,396,522  
|Proceeds from automobile loans                        |                                    | -            |                                    |   | -                                                         |  |   | 41,361      
|Repayment of automobile loans                         |                                    | (16,350)     |                                    |   | -                                                         |  |   | (21,255)    
|Repayment of director loan                            |                                    | (10,015)     |                                    |   | -                                                         |  |   | (10,015)    
|Net cash provided by financing activities             |                                    | 24,370,157   |                                    |   | 2,000,000                                                 |  |   | 26,406,613  
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Net increase in cash and cash equivalents             |                                    | 12,258,214   |                                    |   | 1,333,348                                                 |  |   | 12,750,485  
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Cash and cash equivalents at beginning of period      |                                    | 492,271      |                                    |   | -                                                         |  |   | -           
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Cash and cash equivalents at end of period            | $                                  | 12,750,485   |                                    | $ | 1,333,348                                                 |  | $ | 12,750,485  
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Supplemental cash flow information                    |                                    |              |                                    |   |                                                           |  |   |             
|Interest paid                                         | $                                  | (819)        |                                    | $ | -                                                         |  | $ | (819)       
|Income taxes paid                                     | $                                  | -            |                                    | $ | -                                                         |  | $ | -           
|                                                      |                                    |              |                                    |   |                                                           |  |   |             
|Non-cash financing and investing activity             |                                    |              |                                    |   |                                                           |  |   |             
|Property and equipment purchased on credit            | $                                  | (600,000)    |                                    | $ | -                                                         |  | $ | (600,000)   



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



7





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|                                                     |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  | 
|Four Rivers BioEnergy Inc.                           |  |  |  |  |  | 
|(A Development Stage Enterprise)                     |  |  |  |  |  | 
|Notes to Condensed Consolidated Financial Statements |  |  |  |  |  | 
|(Unaudited)                                          |  |  |  |  |  | 



1.

Nature of Operations and Going Concern



We originally were incorporated in the State of Nevada on May 28, 2004, under the name Med-Tech Solutions, Inc. (MTSI).  Subsequently, MTSI changed its name to Four Rivers BioEnergy Inc. (FRBE or together with its subsidiaries, the Company).



On March 26, 2007, MTSI entered into an Acquisition Agreement (the Agreement) with The Four Rivers BioEnergy Company Inc., a Kentucky corporation (4Rivers), and all of the shareholders of 4Rivers to acquire 4Rivers by share purchase and share exchange.  Pursuant to the Agreement, MTSI acquired the entire issued and outstanding shares of common stock of 4Rivers in two stages: (a) on March 26, 2007, 15% was acquired in exchange for an investment by MTSI in cash into 4Rivers of $2,000,000; and (b) on December 4, 2007, the remaining 85% was acquired by the issuance of 2,392,059 shares of MSTIs common stock to the shareholders of 4Rivers.  The closing of the acquisition of the remaining 85% was completed on December 4, 2007.  The acquisition was accounted for as a reverse merger whereby 4Rivers is identified as the acquirer.  On December 4, 2007, the Company raised $22,829,022, net of costs, by way of the placement of 1,657,881 shares of common stock.



Since the conclusion of the funding in December 2007, the Company has developed two primary objectives.  The Company, through its subsidiaries, plans to construct, own and manage a facility in Kentucky for the production of bio-ethanol and bio-diesel products and for the sale and distribution of such products and by-products. In addition, in view of the prevailing market conditions within the bio-energy industry, the Company is evaluating and intends to exploit the opportunities that may arise to acquire existing bio-energy facilities and related enterprises that are either overleveraged, not operating or operating inefficiently, incomplete or otherwise troubled.  The Company believes that with its internal expertise and know-how, it could complete, operate and/or improve those types of opportunities.



The Company has preserved much of the cash that it raised out of the financings described above, with expenditures being mainly focused on land purchases in Kentucky. However, to maintain flexibility to enable it to execute its twin strategies it requires access to further cash and the Company announced on August 1, 2008 that it had raised $2 million in gross proceeds ($1,567,500 net of costs) on July 30, 2008 as an initial closing of an ongoing private placement of its common stock pursuant to Regulation S.  The securities being offered have not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the state and federal securities laws.  After this financing the Company had cash balances at July 31, 2008 amounting to approximately $12.7 million (excluding approximately $3.2 million which is about to be released back to the Company from escrow (see note 14)). The Company will continue to explore routes to raise capital to provide it with maximum flexibility to enable it to execute against its strategy and to pursue a careful cash management strategy to maintain its flexibility.



The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern.  Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and retire its liabilities in other than the normal course of business and at amounts different from those in the accompanying financial statements. The Companys ability to continue as a going concern is dependent upon achieving profitable operations and/or upon obtaining additional financing. The Company intends to fund its construction and acquisition endeavors and operations through equity and debt financing arrangements.  There can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements.  The outcome of these matters cannot be predicted at this time.



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2.

Significant Accounting Policies



a)

General



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-QSB pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements of the Company included in the Companys Form 8-K filed with the SEC on December 11, 2007 for the reverse merger transaction and MTSIs Form 10-KSB filed with the SEC on February 8, 2008. Management acknowledges its responsibility for the preparation of the accompanying interim financial statements, which reflect all adjustments (consisting of normal recurring accruals) considered necessary, in the opinion of management, for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.



b)

Use of estimates



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



c)

Reclassifications



Certain items in these unaudited condensed consolidated financial statements have been reclassified to confirm to the current periods presentation.



d)

Development stage company



The Company is considered to be in the Development Stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises.  The Company has no revenues to date.



e)

Principles of consolidation



The consolidated financial statements include the accounts of FRBE, 4Rivers, and The Four Rivers BioEthanol Company Limited.  All significant intercompany transactions and balances have been eliminated in consolidation.



f)

Foreign currency translation



The Companys functional and reporting currency is the United States Dollar. In accordance with SFAS No. 52 "Foreign Currency Translation," monetary assets and liabilities are translated at period-end exchange rates and other assets and liabilities are translated at the rates prevailing at the date of transaction. Revenue and expense items, except for amortization, are translated at the average rate of exchange for the period or year.  Amortization is converted using rates prevailing at dates of acquisition. Gains and losses from foreign currency translation are included in the consolidated statement of operations.





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g)

Property and equipment



Property and equipment is stated at cost less accumulated depreciation.  Depreciation is provided on the straight line basis with the following useful lives:



Automobiles

4 years

Office equipment

4 years



h)

Basic and diluted loss per share



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



i)

Financial instruments



All significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.



j)

Income taxes



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



k)

Cash and cash equivalents



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



l)

Stock-based compensation



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



There were no employee stock options and employee stock purchases granted to employees and directors during the period from inception (March 9, 2007) to July 31, 2008. There were no unvested options outstanding as of the date of adoption of SFAS No. 123(R).





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m)

Revenue recognition



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



n)

Research and development



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



o)

Segment information



SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, changed the way public companies report information about segments of their business in their quarterly reports issued to shareholders.  It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers.



p)

Impairment of long-lived assets



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



q)

Debt and equity securities



The Company follows the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company classifies debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading. These security classifications may be modified after acquisition only under certain specified conditions. Securities classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified as available for sale.



Held-to-maturity securities are measured at amortized cost. Unrealized holding gains and losses are not included in earnings or in a separate component of capital. They are merely disclosed in the notes to the consolidated financial statements.





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Available-for-sale securities are carried at fair value on the consolidated balance sheet. Unrealized holdings gains and losses are not included in earnings but are reported as a net amount(less expected tax) in a separate component of capital unless realized.



Trading securities are carried at fair value on the consolidated balance sheet. Unrealized holding gains and losses are included in earnings.



Declines in fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.



r)

Recent accounting pronouncements



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



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.  The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.   In February 2008, the FASB issued FASB Staff Position (FSP) 157-2,Effective Date of FASB Statement No. 157(FSP 157-2), which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until the fiscal years beginning after November 15, 2008.   We have not yet determined the impact that the implementation of FSP 157-2 will have on our non-financial assets and liabilities which are not recognized on a recurring basis; however, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.



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





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In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS No. 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007, although earlier adoption is permitted. Management has not determined the effect that adopting this statement would have on the Company's consolidated financial position, results of operations or cash flows.



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



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



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



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





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



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



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



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



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





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



3.

Reverse Merger



On March 26, 2007, MTSI entered into an Acquisition Agreement (the Agreement) with 4Rivers and 4Rivers then shareholders whereby MTSI agreed to acquire the entire issued and outstanding shares of the common stock of 4Rivers in two stages: (a) on March 26, 2007, 15% was acquired in exchange for an investment by MTSI in cash into 4Rivers of $2, 000,000; and (b) on December 4, 2007, the remaining 85% were acquired by the issuance of 2,392,059 shares of MSTIs common stock to the shareholders of 4Rivers.  Also on December 4, 2007, as a condition of the acquisition, the Company raised net proceeds of $22,829,022 through the issuance of 1,657,881 shares of its common stock through a private placement in connection with the acquisition.  Further, as a condition of the Agreement, the Company received 3,655,087 shares of common stock for cancellation and the former director agreed to waive his prior loans to the Company amounting to $296,714.  There was a change in control resulting from this acquisition.  In accordance with SFAS No. 141, Accounting for Business Combinations, 4Rivers was the acquiring and surviving entity for accounting purposes. While the transaction is accounted for using the purchase method of accounting, in substance the transaction was a recapitalization of 4Rivers or the surviving entitys capital structure.



For accounting purposes, 4Rivers has accounted for the transaction as a reverse acquisition and 4Rivers will be the surviving entity as a publicly-traded company under the name Four Rivers BioEnergy Inc. ( FRBE or together with its subsidiaries, the Company). The Company did not recognize goodwill or any intangible assets in connection with this transaction.



Effective with the reverse merger, all previously outstanding common stock owned by 4Rivers shareholders were exchanged for the Companys common stock. The value of the Companys common stock that was issued to 4Rivers shareholders was the historical cost of the Companys net tangible assets, which did not differ materially from its fair value.



All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse acquisition as if the transaction had taken place as of the beginning of the earliest period presented.



4.

Plant under Construction



Costs relating to the specification and construction of the Companys bio-ethanol plant are being capitalized until the plant is operational, at which time depreciation will commence.



5.

Property and Equipment



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



|                 |  |      |           |                          |   |                |  |   |          
|---------------- |  | ---- | --------- | ------------------------ | - | -------------- |  | - | ---------
|                 |  | Cost |           | Accumulated
Depreciation |   | Net Book
Value
|Land             |  | $    | 6,116,281 |                          | $ | -              |  | $ | 6,116,281
|Office equipment |  |      | 12,452    |                          |   | -              |  |   | 12,452   
|Automobiles      |  |      | 48,132    |                          |   | 12,033         |  |   | 36,099   
|                 |  | $    | 6,176,865 |                          | $ | 12,033         |  | $ | 6,164,832





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The Company has acquired options to procure approximately 834 acres of land suitable for the development of the integrated bio-energy facility in a site located on the Tennessee River approximately 12 miles upriver of Paducah near Calvert City, Marshall County, Kentucky.  The aggregate consideration payable upon exercise of all of these options was approximately $11 million. The Company has exercised options for approximately 435 acres for a total purchase price of approximately $6 million.



In addition, the Company has placed $3.2 million in an escrow account with escrow agents for the purpose of acquiring 106 acres of river front property for the possible future development of a commercial port to facilitate the shipment in and out of raw materials and end products for third parties by river.. The Company has advised the proposed vendor of this land that it does not plan to continue with the proposed purchase, following a dispute with that vendor over the purchase price of the land which was to have been purchased under the terms of an option agreement. The Company expects the return of the escrow funds shortly and has formulated viable alternative plans to develop a port.



6.

Deferred Consideration



Deferred consideration comprises amounts payable in respect of land that was purchased on December 31 2007. Under the terms of the purchase contract, $1,500,000 was payable in cash on completion and $600,000 was deferred and is payable on or before December 31, 2009 at the option of the 4Rivers. The vendor of the land has an option to require that 39,275 shares of the Companys common stock be issued to it in lieu of the cash consideration. The vendors option can only be exercised on a one time basis, for the full amount and at any time after December 31, 2008.  Deferred consideration payable is classified as a current liability because it is reasonably foreseeable that the amount will be paid before December 31, 2008 since payment by that date cancels the vendors option to take shares in lieu of cash becoming capable of exercise.



7.

Due to Related Parties



Due to related parties comprises a bonus payable to certain directors and management.  The amount is non-interest bearing and has no specific payment terms.



8.

Automobile Loans



The automobile loans comprise loans secured by certain automobiles, bearing interest at 7.9% per annum and are repayable by aggregate principal and interest payments of $1,908 per month.



9.

Commitments and Contingencies



a)

License Agreement



The Company acquired an exclusive license to manufacture and distribute particular products from an arms-length private company. The initial term of the license is 50 years and consideration for the license was CDN$10,000 (US$8,230) (paid), and upon sale of product or the technology the Company is required to pay a royalty to the licensor equal to 5% of gross profits, which royalty is to be paid on a quarterly basis.





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b)

Registration Rights Agreement



Pursuant to the terms of the ongoing Private Placement (see note 1), the Company must file a registration statement within 30 days of the final closing of the private placement offering which is set for October 31, 2008.  The $2 million raised during the period is the initial closing.  In addition, should an event occur that prevents a registration statement from being timely filed or declared effective within an applicable time period (as detailed within the purchase agreement), the Company shall pay to each investor an amount equal to 1% of the number of shares of common stock purchased, per month after the said event has occurred, paid in arrears and in additional shares of common stock and or in cash until such time as the registration statement has been filed or declared effective as the case may be.



10.

Capital Stock



The Company is authorized to issue 100,000,000 shares of preferred stock of which two shares were issued and outstanding at July 31, 2008.



TheCompany filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada that was effective as of October 27, 2006 to increase the authorized common stock of the Company from 100,000,000 shares to 500,000,000 shares.



Also effective October 27, 2006, the Company conducted a 10-for-1 forward stock split of all of its issued and outstanding common stock as of the close of business on October 26, 2006.



On January 25, 2008, the shareholders of the Company approved a reverse split of the outstanding common stock at the rate of one share for 17 outstanding shares.  All references in the financial statements and notes to financial statements to numbers of shares and share amounts have been retroactively restated to reflect the reverse split, unless explicitly stated otherwise.



The reverse split applied to all issued and outstanding shares of common stock at the effective date of the reverse split. The Companys total number of authorized shares was not affected by the reverse split and remained as 500,000,000 shares in common stock and 100,000,000 shares in preferred stock.



On May 23, 2008, the Company announced that it intended raising additional cash through a private placement in order to actively pursue its acquisition strategy (see note 1).  Under the terms of this placement, the Company plans to sell additional shares for a maximum amount of up to $30,000,000 in gross proceeds (approximately $27,000,000 net of expenses).  On July 30, 2008, the Company had an initial closing of the private placement of $2,000,000 in gross proceeds for which it issued, pursuant to Regulation S, 131,061 shares of common stock to a strategic investor.  Pursuant to the terms of the private placement agreement, the Company must file a registration statement within 30 days of the final closing of the private placement offering which is set for October 31, 2008.  In addition, should an event occur that prevents a registration statement from being timely filed or declared effective within an applicable time period (as detailed within the purchase agreement), the Company shall pay to each investor an amount equal to 1% of the number of shares of common stock purchased, per month after the said event has occurred, paid in arrears and in additional shares of common stock and or in cash until such time as the registration statement has been filed or declared effective as the case may be.





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11.

Income Taxes



At July 31, 2008, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $2,827,000 expiring in the fiscal year 2027 that may be used to offset future taxable income.  The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized.  Components of deferred tax assets as of July 31, 2008 are as follows:



|                       |  |   |          
|---------------------- |  | - | ---------
|Non current:           |  |  
|Deferred tax asset     |  | $ | 989,500  
|Valuation allowance    |  |   | (989,500)
|Net deferred tax asset |  | $ | -        



12.

Land Options



The Company has placed $3.2 million in an escrow account with escrow agents for the purpose of acquiring 106 acres of river front property adjacent to the Kentucky site owned by the Company for the possible future development of a commercial port to facilitate the shipment in and out of raw materials and end products for third parties by river.  Based upon an independent survey the directors believe that the funds in escrow are sufficient to purchase the land, having calculated the payment due on the basis of the per acreage price set out in the option agreement and the results of an independent survey to calculate the area of the land plot.  The vendor has disputed the acreage of the surveyed area which is used to calculate the cost price of the land and is claiming that an additional $1 million would be payable to acquire the parcel of land. The Company is firmly of the opinion, on the advice of legal counsel and land surveyors, that the amount paid into escrow is accurate. Given the position taken by the proposed vendor of the land, the Company has advised the vendor that it does not plan to continue with the proposed purchase and has demanded the return of the escrow funds together with the original deposit made and reimbursement of its costs. The Company has formulated viable alternative plans to develop a port.



During the period, the Companys option to purchase approximately 257 acres of land expired on June 23, 2008.  On June 20, 2008, the Company entered into an amendment to the original agreement regarding the purchase of land.  Pursuant to the terms of the amended agreement, the original selling price was increased to $1,900,000, the closing date for completion was extended to January 2, 2009, and the Company made a non-refundable down-payment on the land purchase for $250,000 at the time of executing the agreement.  In addition, the Company must pay interest on the remaining balance due at a rate of 12% per annum until such time as the balance is paid. During the period, the Company has capitalized interest incurred or accrued on the remaining balance of approximately $21,000.  If the Company does not close the purchase on or before the closing date, the vendor has the right to retain the down-payment of $250,000, and the original land option fee of $25,000 originally paid into escrow.



13.

Farming related prepayments



Management of the Company has considered various ways in which to maximize the return of assets held prior to the full development and operation of the ethanol plant.  During the three month period ended July 31, 2008, the Company incurred certain costs amounting to $69,185 related to farming a portion of the land acquired and held in Kentucky, to grow soya bean.  The Company expects to be able to harvest the crop yield in or around late October/early November 2008; and is confident that off-take agreements and buyers will be found for the entire crop prior to harvest.  The revenue to be generated from the sale of the crop is not in the normal course of operations for the Company.  The Company has no intention to change its plan of operations, and views this farming activity as a strategic use of idle assets (prior to the plant being built).  Consequently, the costs incurred with the farming activities have been capitalized and included in prepaid expenses at July 31, 2008 until such time as revenues are generated at which time such capitalized costs will be expensed and netted against revenues.





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14.

Subsequent Events



On June 5, 2008, the Company entered into a letter of intent (LOI) to acquire the assets of Midwest Renewable Energy, LLC, (MRE), including the existing ethanol plant at Sutherland, Nebraska, which has a current operating capacity of approximately 28 million gallons per year (mgpy) and the partially constructed Phase II expansion project, which is expected to have an operating capacity of an additional 42.5 mgpy when construction is complete. Following the completion of initial due diligence, the Company has advised the management of MRE that it is not prepared to continue with the proposed acquisition on the initial terms of the LOI and remains in active discussions with MRE regarding possible alternative arrangements.



On September 10, 2008, the Company formally requested that monies currently held in escrow related to the 106 acres of river front property and which has been the subject of dispute (see note 12), be returned as the Company has advised the vendor that it does not plan to continue with the proposed purchase.  Accordingly, the sum of $2,856,432 being the initial sum deposited to escrow with the Companys attorney, (plus interest accrued whilst on deposit of approximately $24,000) will be returned to the Company bank account.  A further sum of $318,000 which was deposited in escrow with the vendors attorney has also been demanded and the Company fully expects that these funds to be returned in the next reporting period.





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Item 2. Managements Discussion and Analysis or Plan of Operations.



The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report.



Background



We were incorporated under the name Med-Tech Solutions, Inc. (MTSI) in the State of Nevada on May 28, 2004, and we changed the name on January 25, 2008 to Four Rivers BioEnergy Inc. (FRBE or together with its subsidiaries, the Company).  On March 26, 2007, the Company entered into an Acquisition Agreement (the Agreement) with The Four Rivers BioEnergy Company Inc., a Kentucky corporation (4Rivers), and all of the shareholders of 4Rivers to acquire 4Rivers by share purchase and share exchange.  Pursuant to the Agreement, MTSI acquired the entire issued and outstanding shares of common stock of 4Rivers in two stages: (a) on March 26, 2007, 15% was acquired in exchange for an investment by MTSI in cash into 4Rivers of $2,000,000; and (b) on December 4, 2007, the remaining 85% were acquired by the issuance of 2,392,059 shares of MSTIs common stock to the shareholders of 4Rivers.  On December 4, 2007, the Company raised $22,829,022, net of costs, by way of the placement of 1,657,881 shares of common stock.



In recent months, the Company has developed two primary objectives.  The Company, through its subsidiaries, plans to construct, own and manage a facility in Kentucky for the production of bio-ethanol and bio-diesel products and for the sale and distribution of such products and by-products. In addition, in view of the prevailing market conditions within the bio-energy industry, the Company is evaluating and intends to exploit the opportunities that may arise to acquire existing bio-energy facilities and related enterprises that are either overleveraged, not operating or operating inefficiently, incomplete or otherwise troubled.  The Company believes that with its internal expertise and know-how, it could complete, operate and/or improve those types of opportunities.



The Company has preserved much of the cash that it raised out of the financings described above, expenditure being mainly focused on land purchases in Kentucky. However, to maintain flexibility to enable it to execute its twin strategies it requires access to further cash and the Company announced on August 1, 2008 that it had raised $2 million ($1,567,500 net of costs) on July 30, 2008 by way of the first closing in an ongoing private placement of its common stock pursuant to Regulation S. After this financing the Company had cash balances at July 31, 2008 amounting to $12.7 million (excluding $3.2 million which is about to be released back to the Company from escrow). The Company will continue to explore routes to raise capital to provide it with maximum flexibility to enable it to execute against its strategy and to pursue a careful cash management strategy to maintain its flexibility.



Plan of Operations



Currently management is pursuing its business strategy on two active fronts: (a) it is continuing with the negotiation and specification of key contracts for the design, specification and construction of the proposed bio-energy facility in Kentucky and in the negotiation of debt, mezzanine and equity finance to support these plans, and (b) it has commenced a strategy to seek, evaluate and consummate acquisitions of bioenergy facilities and related assets that will help it develop its overall objective of becoming a significant company with in the industry.  To the latter end, it has begun various evaluations, entered into some preliminary negotiations and has held discussions with investment bankers and other professionals in respect of several possible target acquisitions.



FRBEs objective is to become a major producer in the bio-energy sector through a combination of making selective acquisitions of existing incomplete, underperforming and/or over geared plants which it will then complete, expand and improve, applying its capital and expertise to that end; and the development of its own green field site in Kentucky.





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Kentucky Facility



The plans for the Kentucky green field site are to develop, own and operate an approximately 130 MMGPY corn based dry mill fuel grade bio-energy plant with front end fractionation and a 35 MMGPY bio-diesel plant and other renewable bio-energy facilities (together, the Plant or the Bio Energy Plant).  FRBE intends that provision be made in the design to allow the Plants output to be increased; to be able to convert entirely or partially from natural gas to more attractive energy sources; and to introduce planned improvements by way of introducing new technology and processes which will improve the overall efficiency of the Plant and provide it with a competitive advantage.  The planned Plant is designed to use corn oil derived from the fractionation of food grade corn oil and/or use the corn oil along with vegetable oils such as soy oil and other vegetable oils and animal fats to produce fuel grade bio-diesel and will also produce other energy and animal feed co-products such as dried distillers grains ("DDG"). As the planned plant designs are negotiated and further developed, changes will be made to accommodate and take advantage of new technologies and concepts, but the core plan, to build a bio-energy facility that uses advanced technologies to improve its overall efficiency, remains central to our plan of operations.



The Company has acquired options to procure approximately 834 acres of land suitable for the development of the integrated bio-energy facility in a site located on the Tennessee River approximately 12 miles upriver of Paducah near Calvert City, Marshall County, Kentucky.  The aggregate consideration payable upon exercise of all of these options was approximately $11 million. The Company has exercised options for approximately 435 acres for a total purchase price of approximately $6 million.  In addition, the Company has placed $3.2 million in an escrow account with escrow agents for the purpose of acquiring 106 acres of river front property for the possible future development of a commercial port to facilitate the shipment in and out of raw materials and end products for third parties by river.  Based upon an independent survey the directors believe that the funds in escrow are sufficient to purchase the land, having calculated the payment due on the basis of the per acreage price set out in the option agreement and the results of an independent survey to calculate the area of the land plot.  The vendor has disputed the acreage of the surveyed area which is used to calculate the cost price of the land and is claiming that an additional $1 million would be payable to acquire the parcel of land. The Company is firmly of the opinion, on the advice of legal counsel and land surveyors, that the amount paid into escrow is accurate.  Given the position taken by the vendor, the Company has advised the vendor that it does not plan to continue with the proposed purchase and has demanded the return of the escrow funds which includes an original deposit of $318,000.



During the period, the Companys option to purchase approximately 257 acres of land expired on June 23, 2008.  On June 20, 2008, the Company entered into an amendment to the original agreement regarding the purchase of land.  Pursuant to the terms of the amended agreement, the original selling price was increased to $1,900,000, the closing date for completion was extended to January 2, 2009, and the Company made a non-refundable down-payment on the land purchase for $250,000 at the time of executing the agreement.  In addition, the Company must pay interest on the remaining balance due at a rate of 12% per annum until such time as the balance is paid. During the period, the Company has capitalized interest incurred or accrued on the remaining balance of approximately $21,000.  If the Company does not close the purchase on or before the closing date, the vendor has the right to retain the down-payment of $250,000, and the original land option fee of $25,000 originally paid into escrow.  The Company further expects to exercise its options to acquire a further 18 acres for a total consideration of approximately $260,000 which falls due on September 1, 2009 and such date may be extended by mutual agreement. The Company is also seeking to acquire further land on contiguous sites and is currently negotiating for approximately 11 acres of river front property for the possible future development of a commercial port to facilitate the shipment in and out of raw material and end product for third parties by river and several other smaller parcels of land which, whilst not essential, would improve still further the logistics of the overall site.





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The total funding requirement for the construction and initial operation of the Plant as currently contemplated is estimated to be approximately $400 million.  The estimated cost of the integrated bio-energy facility is approximately $270 million and the balance of $130 million is for infrastructure, working capital, fees and debt service.  The projected funding mix will be equity and debt, with the goal to be 40% equity and 60% debt. The Company has signed engagement letters with bankers, investment bankers and mezzanine finance providers to raise the capital to enable it to commence construction of the proposed Kentucky site and has been actively engaged in obtaining and improving the land, obtaining necessary permits and in the detailed specification and design of the plant.



The planned overall Plant design and, in particular, the integration of new technologies with a more traditional bio-energy plant, is innovative in the bio-energy industry and is expected to derive significant efficiencies.



Acquisitions



Currently the market for bio-energy is fragmented and most established producers use relatively small traditional plants which do not take advantage of innovations such as those that FRBE plans to deploy. Recent changes in market conditions, both in the markets for raw material input and in the oil industry generally, coupled with the prevailing uncertainties in the capital markets, are expected to place strains on the viability of many traditional plants and this represents an interesting opportunity for FRBE to selectively search for established bio-energy plants that have inherently good distribution logistics and access to adequate land for expansion and which offer the prospect of benefiting from the efficiencies developed by FRBE. In addition there are thought to be various economies of scale that make a selective acquisition  and roll up strategy in the bio-energy industry potentially interesting.



As a result of these factors, there have arisen in the bio-energy sector the opportunity to acquire various kinds of assets that can add to the development of the Company as a significant presence in the bio-energy business.  The Company believes there is an opportunity to exploit the situation, and has been examining several situations and engaged with investment bankers to assess opportunities.  The Company aims to seek a combination of making selective acquisitions of existing incomplete, underperforming and/or over geared plants which it will then complete, expand and improve, applying its capital and expertise to that end.



Financing



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





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Results of Operations



The following table summarizes the main items of expenditure for discussion in the results of operations for the three and nine month periods ended July 31, 2008 compared to the three and nine months ended July 31, 2007; and for the period from inception (March 9, 2007) to July 31, 2008.



|                         |                                  |         |                                  |   |                                 |  |                                 |           |                                            |   |         |  |   |          
|------------------------ | -------------------------------- | ------- | -------------------------------- | - | ------------------------------- |  | ------------------------------- | --------- | ------------------------------------------ | - | ------- |  | - | ---------
|                         | Three months
ended
July 31, 2008 |         | Three months
ended
July 31, 2007 |   | Nine months
ended
July 31, 2008 |  | Nine months
ended
July 31, 2007 |           | Inception
(March 9, 2007)
to July 31, 2008
|Net loss                 | $                                | 840,750 |                                  | $ | 393,122                         |  | $                               | 1,893,176 |                                            | $ | 559,862 |  | $ | 2,827,009
|Consulting expense       | $                                | 672,446 |                                  | $ | 285,706                         |  | $                               | 2,015,831 |                                            | $ | 416,295 |  | $ | 2,706,236
|Property and Equipment   | $                                | 549,709 |                                  | $ | -                               |  | $                               | 6,128,734 |                                            | $ | -       |  | $ | 6,176,865
|Plant under construction | $                                | 345,921 |                                  | $ |                                 |  | $                               | 1,870,490 |                                            | $ |         |  | $ | 2,473,282



The Company and its subsidiaries recorded a consolidated net loss of $840,750 and $1,893,176 for the three and nine month periods ended July 31, 2008, respectively, as compared to $393,122 and $559,862 for the three and nine month periods ended July 31, 2007, respectively; and for the period from inception (March 9, 2007) to July 31, 2008, it incurred a net loss of $2,827,009.



The main components of the recorded loss during the three and nine month periods ended July 31, 2008, were (a) consulting expense incurred from contractors and consultants who were engaged in the management of the business and which amounted to $672,446 and $2,015,831, respectively.  The charge in the nine month period included a one time discretionary bonus expense of $414,414 relating to exception performance by certain contractors and consultants which was approved by the Directors on November 1, 2007.  This compares to $285,706 and $416,295 for the three and nine month periods ended July 31, 2007, respectively. The consulting expense from inception (March 9, 2007) to July 31, 2008, amounted to $2,706,236; (b) off set by the interest income on money market deposits amounting to $71,327 and $367,952 for the three and nine month periods ended July 31, 2008, respectively, as compared to $10,078 and $16,331 for the three and nine month periods ended July 31, 2007, respectively. The total interest income for the period from inception (March 9, 2007) to July 31, 2008 amounted to $384,284.



The main components of the recorded loss for the period from inception (March 9, 2007) to July 31, 2008, principally comprised of consulting expense of $2,706,236 incurred from contractors and consultants and travel related expenses of $371,834, which off set by the interest income on money market deposit of $384,284 and a one time gain from the forgiveness of debt of $296,714 due to a former director of the Company in connection with the completion of the reverse merger transaction.



During the three and nine month periods ended July 31, 2008, the Company purchased property and equipment, comprised almost entirely of land and insignificant amount of equipment, costing $549,709 and $6,128,734, respectively ($5,528,374 in cash and $600,000 purchased on credit for the nine months ended July 31, 2008). There were no property and equipment purchases in the three and nine month periods ended July 31, 2007.  The Company incurred plant construction costs of $345,921 and $1,870,490 for the three and nine month periods ended July 31, 2008 mainly comprised of early stage development and feasibility work and studies and initial payments made under contracts associated with the construction and financing of the proposed plant.



In the period from inception (March 9, 2007) to July 31, 2008, the Company purchased property and equipment, comprised almost entirely of land and insignificant amount of equipment amounting to $6,176,865  ($5,576,865 in cash and $600,000 purchased on credit) and incurred plant construction costs of $2,473,282 . These purchases acquired on credit of $600,000 were financed by deferred consideration (which carries an option on the part of the vendor to call for settlement in shares of the Company, as further explained in the accompanying unaudited condensed consolidated financial statements).





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In addition, during the nine month period ended July 31, 2008, the Company deposited $3,204,433 with an escrow agent in respect of its proposed purchase of approximately 106 acres of land in the Kentucky site under the terms of a land purchase option agreement. Based upon an independent survey the directors believe that the funds in escrow are sufficient to purchase the land, having calculated the payment due on the basis of the per acreage price set out in the option agreement and the results of an independent survey to calculate the area of the land plot. The vendor has disputed the acreage of the surveyed area which is used to calculate the cost price of the land and is claiming that an additional $1 million would be payable to acquire the parcel of land. The Company is firmly of the opinion, on the advice of legal counsel and land surveyors, that the amount paid into escrow is accurate.



Liquidity and Capital Resources



Since inception, the Company has financed itself primarily by the sale of equity securities. The Company raised $22,829,022 (net of issuance costs) on December 4, 2007, $2,000,000 on March 26, 2007 and $2,000,000 ($1,567,500 net of costs) on July 30, 2008, by way of three separate private placements of shares of common stock. The total funds raised of $26,396,522 have been used principally as follows: (a) $5,576,865 to acquire land (this amount excludes $3,204,433 which is cash that has been placed in escrow pending the previously planned completion of land purchases, which, as explained in Part 1, Item 1 note 1 is now unlikely to occur, resulting in the expected return of the escrowed cash, which the Company will deposit such funds into its operating bank account; (b) $2,473,282 on plant and equipment (mainly plant construction costs), and (c) to fund the cost of operations. At July 31, 2008, the Company had available cash balances of $12,750,485 which are held on interest bearing bank accounts, plus, the $3.2 million of cash held in escrow and about to be released, as described above.



Because of the current economic climate in the United States, and the costs facing the bio-energy industry, there have appeared a number of opportunities to acquire assets for the production of bio-energy products, distribution and related businesses, some of which are in distressed situations.  Management is making itself aware of various acquisition opportunities as they become available, and from time to time, actively exploring those that present a complimentary or unique acquisition situation.  At the same time, the Company is continuing to pursue its proposed Kentucky facility and is also in the process of securing further funds and commitments for the proposed bio-energy project to be located in Kentucky.



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



Off-Balance Sheet Arrangements



There are currently no off-balance sheet arrangements.



Critical Accounting Policies and Estimates



Significant Accounting Policies



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





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



The Company has no revenues to date and is utilizing the capital that was raised by way of the private placements referred to above to commence initial work on a proposed Bio-Energy Plant to be constructed on land that has been purchased, or is under option to be purchased in Kentucky. All cost incurred in acquiring land, options and plant are capitalized and held in the consolidated balance sheet.



The acquisition of 4Rivers was accounted for as a reverse merger whereby 4Rivers is identified as the acquirer. The consolidated financial statements include the accounts of FRBE, 4Rivers, and The Four Rivers BioEthanol Company Limited.  All significant inter-company transactions and balances have been eliminated in consolidation.



The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern.  Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and retire its liabilities in other than the normal course of business and at amounts different from those in the accompanying financial statements.



Recent accounting pronouncements



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



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.  The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.   In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until the fiscal years beginning after November 15, 2008.   We have not yet determined the impact that the implementation of FSP 157-2 will have on our non-financial assets and liabilities which are not recognized on a recurring basis; however, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.





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



In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS No. 159").  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the FASBs long-term measurement objectives for accounting for financial instruments.  SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007, although earlier adoption is permitted. Management has not determined the effect that adopting this statement would have on the Company's consolidated financial position, results of operations or cash flows.



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



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



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





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



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



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



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



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





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



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



Item 3.  Controls and Procedures.



Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Companys reports filed or submitted under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Companys reports filed under the Exchange Act is accumulated and communicated to management, including  our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.



Evaluation Of Disclosure Controls And Procedures



As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are, as of the dates of the financial statements reflected in this Form 10-QSB, effective to ensure that the information required to be disclosed by us that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.



Changes In Internal Controls Over Financial Reporting



In connection with the evaluation of our internal controls, our principal executive officer and principal financial officer have determined that there have been no changes to our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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PART II  OTHER INFORMATION



Item 1. Legal Proceedings.



The Company is currently in dispute with the David Reed Revocable Trust (Reed Trust) in a suit filed at Marshall County, Kentucky.  The Company signed an option agreement to purchase approximately 106 acres of river front property adjacent to the Kentucky site owned by the Company for the possible future development of a commercial port to facilitate the shipment in and out of raw materials and end products for third parties by river.  Based upon an independent survey by the Company, Reed Trust   refused to close on the purchase claiming that the survey should include approximately 35 acres in addition that is actually underwater, extending to the mid-point of the Tennessee River. The additional acreage would add $1 million to the purchase price.  Given the position taken by Reed Trust, the Company has advised the vendor that it does not plan to continue with the proposed purchase and has demanded the return of the escrow funds which includes an original deposit amount of $318,000.  The Company believes in light of all facts that the deposit will be returned.  Additionally, the Company has formulated viable alternative plans to develop a port.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.



On May 23, 2008, the Company announced that it intended raising additional cash through a private placement in order to actively pursue its acquisition strategy.  Under the terms of this placement, the Company plans to sell additional shares for a maximum amount of up to $30,000,000 in gross proceeds (approximately $27,000,000 net of expenses).  On July 30, 2008, the Company had an initial closing of the private placement of $2,000,000 in gross proceeds for which it issued, pursuant to Regulation S, 131,061 shares of common stock to a strategic investor.  Pursuant to the terms of the placement agreement, the Company must file a registration statement within 30 days of the final closing of the private placement offering which is set for October 31, 2008.  In addition, should an event occur that prevents a registration statement from being timely filed or declared effective within an applicable time period (as detailed within the purchase agreement), the Company shall pay to each investor an amount equal to 1% of the number of shares of common stock purchased, per month after the said event has occurred, paid in arrears and in additional shares of common stock and or in cash until such time as the registration statement has been filed or declared effective as the case may be.  The securities being offered have not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the state and federal securities laws.



Item 3. Defaults Upon Senior Securities.



None.



Item 4. Submission of Matters to a Vote of Security Holders.



None



Item 5. Other Information.



None





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Item 6. Exhibits.



|        |  |                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                
|31.1    |  | Certification of the Companys Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrants Quarterly Report on Form 10-QSB for the quarter ended July 31, 2008.
|        |  |                                                                                                                                                                                                                            
|31.2    |  | Certification of the Companys Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrants Quarterly Report on Form 10-QSB for the quarter ended July 31, 2008.
|        |  |                                                                                                                                                                                                                            
|32.1    |  | Certification of the Companys Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.                       





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

| |                           
| | --------------------------
| | FOUR RIVERS BIOENERGY INC.





|                          |     |                                                                 
|------------------------- | --- | ----------------------------------------------------------------
|Date:  September 16, 2008 | By: | /s/ Gary Hudson                                                 
|                          |     | Name:  Gary Hudson
Title:  President and Chief Executive Officer
|                          |     |                                                                 
|Date:  September 16, 2008 | By: | /s/ Martin Thorp                                                
|                          |     | Name:  Martin Thorp
Title: Chief Financial Officer              





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