UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q








[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2010


or


[   ]
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 000-52852





BIOFUELS POWER CORPORATION


(Exact name of registrant as specified in its charter)





TEXAS
56-2471691(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification

No.)25211 Grogan’s Mill Road Suite 465The Woodlands, Texas
77380(Address of principal executive offices)
(zip code)





Registrant’s telephone number, including area code (281) 364-9500





Securities Registered pursuant to Section 12(g) of the Act


Common Stock, par value $0.001 per share





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


Yes X   No __





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes __   No __





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer

Accelerated filerNon-accelerated filer

Smaller reporting company
X





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





Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.





Title of Class
Outstanding at November 20, 2010Common Stock, $0.001 Par Value
30,859,594 Shares





TABLE OF CONTENTS





PART I
FINANCIAL INFORMATION
PAGEITEM 1
Financial StatementsBalance Sheets as of September 30, 2010 and December 31, 2009
F-1Unaudited Consolidated Condensed Statements of Operations
F-2for the nine months ended September 30, 2010 and 2009Unaudited Consolidated Condensed Statements of Cash Flow
F-3for the nine months ended September 30, 2010 and 2009Unaudited Consolidated Statement of Stockholders' Equity
F-4for the nine months ended September 30, 2010Notes to Unaudited Consolidated Condensed Financial Statements
F-5 - F-10ITEM 2
Managements’ Discussion and Analysis of Financial Condition and Plan of Operation
3ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
4ITEM 4
Controls and Procedures
4PART II
OTHER INFORMATIONITEM 1
Legal Proceedings
6ITEM 1A
Risk Factors
6ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds
6ITEM 3
Defaults Upon Senior Securities
6ITEM 4
Submission of Matters to a Vote of Security Holders
6ITEM 5
Other Information
6ITEM 6
ExhibitsSIGNATURES
7








BIOFUELS POWER CORPORATIONCONSOLIDATED BALANCE SHEETSeptember 30, 2010 and December 31, 2009September 30


December 31,2010


2009ASSETS

(Unaudited)


(Audited)Current AssetsCash and cash equivalents

$
1,612


$
1,696Accounts receivable


-


$
272,000Prepaid expenses


5,660



5,660Total Current Assets


7,272



279,356Property and equipment, net


2,809,497



3,491,692Total Assets

$
2,816,769


$
3,771,048LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable


1,441,728



1,317,632Deposits


25,000



25,000Notes payable, unsecured


30,065



30,065Notes payable, secured


2,823,965



2,812,000Interest payable


909,488



524,007Total Current Liabilities


5,230,246



4,708,704Long Term DebtNotes payable, unsecured


191,250



191,250Total Liabilities


5,421,496



4,899,954Stockholders' EquityCommon stock, $001 par value, 50,000,000 shares authorized;30,859,594 and 30,859,594 shares issued and outstanding,respectively


30,860



30,860Additional paid in capital


12,435,089



12,435,089Minority interest


90,640



122,504Accumulated deficit


(15,161,316
)


(13,717,359
)Total Stockholders Equity


(2,604,726
)


(1,128,906
)$
2,816,770


$
3,771,048See accompanying notes to consolidated financial statements


F-1


BIOFUELS POWER CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONSFor the nine months ended September 30, 2010 and 2009Nine Months Ended September 30,2010

2009RevenueSales

$
-

$
-Cost of sales


-


-Gross profit (deficit)


-


-Selling, general and administrative expenses


1,090,340


1,917,431Operating loss


(1,090,340
)

(1,917,431
)Other Income:Gain (loss) on disposition of fixed assets


-


(249,035
)Interest expense


(385,482
)

(332,134
)Total other income (loss), net


(385,482
)

(581,169
)Net Loss before minority interest


(1,475,821
)

(2,498,600
)Minority interest


31,864


85,379Net income (loss)

$
(1,443,957
)
$
(2,413,221
)Basic and diluted net loss per common share

$
(0.05
)
$
(0.08
)Weighted average common shares outstanding -basic and diluted


30,859,594


30,848,604See accompanying notes to consolidated financial statements











F-2


BIOFUELS POWER CORPORATIONUNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWSFor the nine months ended September 30, 2010 and 2009Nine Months Ended September 30,2010


2009Cash flows from operating activities:Net loss

$
(1,443,957
)

$
(2,413,221
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


738,686



1,044,735Expenses related to issuance of common stock for limited partnership






-Stock issued for services


-



-Change in derivative liability






-Realized loss on sales of marketable securities


-



-Loss on abandonment of leasehold inmprovements


-



390,949Minority interest


(31,864
)


(85,379
)Amortization of deferred compensation


-



-Bad debt expense






-Changes in operating assets and liabilities:Accounts receivable


272,000



(272,000
)Tax rebate rerceivable






-Prepaid expenses






-Inventory


-



-Accounts payable


124,096



192,438Deposit


-



25,000Accrued interest payable


385,481



318,508Accrued expenses and other, net


1,414



9,934Net Cash provided (used) in operating activities


45,857



(789,036
)Cash flow from investing activities:Purchase of property and equipment


(234,717
)


(1,343,977
)Proceed from sale of fixed assets


178,528



618,880Purchase of marketable securities






-Proceeds from sale of marketable securities






-Proceeds from liquidation of restricted certificate of deposit






-Purchase of certificate of deposit


-



(12,829
)Net cash provided by (used in) investing activities


(56,189
)


(737,926
)Cash flows from financing activities:Net proceeds from sale of common stock


-



20,000Net proceeds from notes


10,250



1,622,065Retirement of notes


-



(100,000
)Net cash provided by financing activities


10,250



1,542,065Net increase (decrease) in cash and cash equivalents


(83
)


15,103Cash and cash equivalents, beginning of period


1,696



9,691Cash and cash equivalents, end of period

$
1,613


$
24,794See accompanying notes to consolidated financial statements
 F-3
 BIOFUELS POWER CORPORATIONCONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYFor the nine months ended September 30, 2010AdditionalCommon Stock

Paid In

Minority

AccumulatedShares

Amount

Capital

Interest

Deficit


TotalBalance atDecember 31, 2009


30,859,594

$
30,860

$
12,435,089

$
122,504

$
(13,717,359
)

$
(1,128,906
)Net loss


-


-


-


(31,864
)

(1,443,957
)


(1,475,822
)Balance atSeptember 30, 2010


30,859,594

$
30,860

$
12,435,089

$
90,640

$
(15,161,315
)

$
(2,604,726
)See accompanying notes to consolidated financial statements
             F-4


BIOFUELS POWER CORPORATION


NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(Information with respect to events occurring after December 31, 2009 is unaudited)





1.  Summary of Significant Accounting Policies





Basis of Presentation The accompanying interim unaudited consolidated condensed financial statements have been prepared without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  These unaudited consolidated condensed financial statements should be read in conjunction with the audited financial statements and notes thereto of Biofuels Power Corp. (the "Company") for the year ended December 31, 2009.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the respective full year.





The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for a complete presentation of annual financial statements.





BackgroundBiofuels Power Corp. (“BPC”), a Texas corporation, was incorporated in 2004 as Aegis Products, Inc.  The Company is a distributed energy company that is pioneering the use of biodiesel to fuel small electric generating facilities that are located in close proximity to end-users.  BPC’s first power plant is currently located near Houston, Texas in the city of Oak Ridge North.  During February 2007, BPC began generating and selling its power through Fulcrum Power to Centerpoint Energy.





Aegis Products, Inc. was incorporated in Texas on January 20, 2004 as a wholly owned subsidiary of Texoga Technologies Corp. (“Texoga”).  Effective December 31, 2004, Aegis was spun off from Texoga through a share distribution to the Texoga shareholders with 87 owners receiving a total of 14,512,380 shares.  During 2006, the Texoga BioFuels 2006-1 and 2006-2 partnerships were established and each raised $3.5 million to develop biofueled power projects in the Houston, Texas area.  Texoga began serving as the general partner and on November 6, 2006, Texoga transferred its general partner role to Aegis which simultaneously changed its name to Biofuels Power Corp.





During 2007 BPC created a wholly owned subsidiary, Alternative Energy Consultants, LLC (“AEC”).  AEC will engage in the business of designing and building of standardized biodiesel refineries.





ConsolidationIn accordance with ASC 810, formerly FIN 46(R), which requires the consolidation of certain variable interest entities, these unaudited consolidated condensed financial statements include the accounts of BPC, Texoga BioFuels 2006-1, Ltd, (“TBF-1”) and Texoga BioFuels 2006-2, Ltd. (“TBF-2”).  BPC, TBF-1 and TBF-2 are referred to collectively as the “Company”.  For presentation purposes, the equity interests of the limited partners in TBF-1 and TBF-2 have been reflected as minority interest shareholders.  The unaudited consolidated condensed financial statements also include the accounts of Alternative Energy Consultants, LLC, which is a wholly owned subsidiary of BPC.  All material intercompany transactions have been eliminated in consolidation.





Use of Estimates and AssumptionsThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) 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 revenues and expenses during the reported periods.  Actual results could materially differ from those estimates.





Cash and Cash EquivalentsThe Company considers any highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.





Revenue RecognitionRevenue, which began to be recorded during 2007, is recognized when the electricity produced is provided to the electric grid maintained by the Electric Reliability Council of Texas (ERCOT).  A power sales agreement is in place with Fulcrum Power, a Qualified Scheduling Entity (QSE) for ERCOT.  Electric sales into ERCOT may only be made through the scheduling of a QSE, which also receives payment from ERCOT for all sales in a process called “settlement.”  Initial settlement takes place eight days after the date of sale with subsequent adjustments at 60 days and 180 days after the sale, if needed.  To date, the Company has not experienced any material settlement adjustments and it does not anticipate material settlement adjustments in the future.  All of the sales from the Company’s Oak Ridge North facility are made into the ERCOT Balancing Energy Market.  Such sales are priced by ERCOT for each 15-minute interval of each hour of each day.  The price for all balancing energy dispatched in a given interval is the highest bid of any electricity dispatched by ERCOT in that interval.  The price per megawatt is determined at the time of the sale.  ERCOT bills each utility company purchaser, collects the money due under a formal settlement process and remits the proceeds to the QSE scheduling the electricity actually purchased.  The QSE pays the power generator when it receives payment from ERCOT.  The Company pays Fulcrum Power a monthly fee for services that are not directly related to the revenue the Company receives from sales of electricity.


F-5


Biodiesel Tax Credits and Renewable Identification NumbersBiodiesel is classified as a renewable fuel that is eligible for Federal credits of $1.00 per gallon for biodiesel manufactured from virgin agricultural products and $0.50 per gallon for biodiesel produced from non-virgin oils and fats.  While these credits have been extended on a yearly basis in the past, there is no assurance that they will be extended for this year.





Under the recently enacted federal Renewable Fuel Standard, major oil companies are required to own a small percentage of renewable fuel gallons for every gallon of petroleum fuel produced.  These companies purchase Renewable Identification Numbers to comply with this mandate.  We have begun the process of qualifying our type of fuel for RINs so that they could be purchased by oil companies.  RINs have recently traded at a price of approximately $0.75 per gallon.





Accounts ReceivableAccounts receivable consist primarily of amounts due from certain companies for the sale of power to the electric grid.  An allowance for doubtful accounts is provided, when appropriate, based on past experience and other factors which, in management’s judgment, deserve current recognition in estimating probable bad debts.  Such factors include circumstances with respect to specific accounts receivable, growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions.  As of September 30, 2010 and December 31, 2009 the Company had no trade accounts receivable, but did have $-0- and $272,000 accounts receivable, respectively, for prepaid amounts on the H. O. Clark property.





InventoryInventories are stated at the lower of cost or market and consists of -0- gallons of processed fuel stock and -0- gallons of unprocessed fuel stock at September 30, 2010.  Cost is determined using the first-in first-out (“FIFO”) method.





Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation.  Expenditures for normal repairs and maintenance are charged to expense as incurred.  Fixed assets are depreciated using the straight-line method for financial reporting purposes over their estimated useful life of 3 to 5 years.  The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss is included in operations.





Impairment of Long-Lived AssetsOn March 20, 2009, the Company purchased a 79-acre tract in Harris County, Texas which was formerly the site of a Houston Lighting & Power generating facility, and currently has an existing connection to the CenterPoint grid.  The Company has moved its turbine generators to the newly acquired facility.  As of September 30, 2010 the Company has $1,165,887 of acquisition cost.  The assets have not been put into operation therefore no depreciation expense is reflected in these financial statements.





Income TaxesThe Company uses the liability method in accounting for income taxes.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value. The Partnership’s taxable income or loss for any period is included in the tax returns of the individual partners and, therefore, the Partnership does not provide for federal income taxes.





Fair Value of Financial Instruments The Company includes fair value information in the notes to financial statements when the fair value of its financial instruments is different from the book value.  When the book value approximates fair value, no additional disclosure is made.  Fair value estimates of financial instruments are based on relevant market information and may be subjective in nature and involve uncertainties and matters of significant judgment.  The Company believes that the carrying value of its assets and liabilities approximates the fair value of such items.  The Company does not hold or issue financial instruments for trading purposes.





Concentration of Credit RiskFinancial instruments which subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable.  The Company maintains its cash and cash equivalents with major financial institutions selected based upon management’s assessment of the banks’ financial stability.  Balances periodically exceed the $100,000 federal depository insurance limit.  The Company has not experienced any losses on deposits.  Accounts receivable generally arise from sales of power to the electric grid. Collateral is generally not required for credit granted.  The Company will provide allowances for potential credit losses when necessary.





Recently Issued Accounting PronouncementsIn September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, which was primarily codified in FASB Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures.This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  This statement did not require any new fair value measurements.   The adoption of SFAS 157 did not have a material impact on the Company’s financial condition or results of operations.





ASC 825, formerly FASB’s SFAS No. 159, The Fair Value for Financial Assets and Financial Liabilities, became effective for the Company on January 1, 2008.  SFAS 159 establishes a fair value option that permits entities to choose to measure eligible financial instruments and certain other items at fair value at specific election dates.  A business entity shall report unrealized gains and losses on items for which the fair value options have been elected in earnings at each subsequent reporting date.  For the six months ended June 30, 2010, there were no applicable items on which the fair value option was elected.


F-6


Stock Based Compensation – The Company recognizes stock-based compensation in accordance with the fair value recognition provisions of ASC 718, formerly SFAS No. 123 (R), “Share-Based Payment.”  ASC 718 generally requires share-based payments to employees, including grants of employee stock options and other equity awards, to be recognized in the statement of operation based on their fair values.  Thus, the Company records compensation expense for all share-based awards granted, based on the grant date fair value estimated in accordance with the provisions of ASC 718.





The Company adopted ASC 718 using the modified prospective method, which requires that compensation expense for the portion of awards for which the requisite service has not yet been rendered and that are outstanding as of the adoption date be recorded over the remaining service period.  Prior to the adoption of ASC 718, the Company had no share-based compensation arrangements.  Accordingly, no prior periods have been restated, the impact of ASC 718is not presented, and no pro forma amounts are presented had the company recognize stock-based compensation in accordance with ASC 718.





Net Loss Per Share – ASC 260, formerly SFAS No 128 “Earnings Per Share” requires presentations of basic earnings or loss per share and diluted earnings or loss per share.  Basic income (loss) per share (“Basic EPS”) is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share (“Diluted EPS”) are similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would occur if dilutive securities at the end of the applicable period were exercised.  There were no potentially dilutive securities at September 30, 2010 so dilutive earnings per share equals basic earnings per share.





Use of estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reporting period.  Actual results could differ from these estimates.





In December 2007, the FASB issued ASC Topic 805 (previously SFAS 141 (R)), Business Combinations.  This standard broadens the guidance for business combinations and extends its applicability to all transactions and other events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations.  The acquirer is no longer permitted to recognize a separate valuation as of the acquisition date for loans and other assets acquired in a business combination.  It also requires acquisition-related costs and restructuring costs that the acquirer expected but was not obligated to incur expense separately from other business combination.  It also expands on required disclosures to improve the ability of the users of the financial statements to evaluate the nature and financial effects of business combinations.  This standard was effective for the first annual reporting period on or after December 31, 2008.  Management adopted these provisions on January 1, 2009, and there were no transactions that created an impact on the Company’s financial condition or results of operations.





In December 2007, the FASB issued ASC 810-10-65-1, (previously SFAS No. 160), Non-controlling Interest in Consolidated Financial Statement.This standard requires that a non-controlling interest in a subsidiary be reported separately within equity and the amount of consolidated net income specifically attributable to the non-controlling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurements of any non-controlling equity investment retained in a deconsolidation.  This standard was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Management adopted the provisions of this standard on January 1, 2009, without a material impact on the Company’s financial condition or results of operation.





The company has adopted ASC 815, formerly SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities.”  The new standard is intended to improve financial reporting about 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.  It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early applications encouraged.  The Company does not expect ASC 815 to have a material impact on the preparation of its consolidated financial statements.


F-7


In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Cash Settlement).  FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversions (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s non-convertible debt borrowing rate when interest cost is recognized in subsequent periods.  FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  The Company will adopt FSP APB 14-1 beginning in January 1, 2009, and this standard must be applied on a retroactive basis.  The adoption of this standard is not expected to impact the Company’s consolidated financial position and results of operations.





The company has adopted ASC 105, formerly FASB 168, The Hierarchy of Generally Accepted Accounting Principles.This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted principles in the United States for non-governmental entities.  The adoption of this standard did not have a material impact on the preparation of these consolidated financial statement.





Also in June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,which was primarily codified in FASB ASC Topic 250, Earnings Per Share.This guidance provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and are required to be included in the computation of earnings per share pursuant to the two-class method.  The two-class method of computing earnings per share includes an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends, whether paid or unpaid, and participation rights in undistributed earnings.  All prior period earnings per share data presented are required to be adjusted retrospectively to conform to this statement.  We adopted this guidance beginning January 1, 2009.  The adoption did not impact our earnings (loss) per share for the years ended December 31, 2009 and 2008.





In June 2008, the FASB ratified the consensus reached by the EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,which was primarily codified in FASB ASC Topic 815, Derivatives and Hedging.This guidance clarifies the determination of whether equity-linked instruments (or embedded features) such as our convertible notes or warrants to purchase our common stock, are considered indexed to our own stock, which would qualify as a scope exception.  We adopted the new provisions of FASB ASC 815 beginning January 1, 2009.  The adoption did not have a material impact on our consolidated financial statements.





The company has adopted ASC 860, formerly FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises)about Transfers of Financial Assets and Interest in Variable Interest Entities” (“FSP FAS 140-4 and FIN(R)-8”).  FSP FAS 140-4 and FIN 46(R) to require additional disclosures regarding transfers of financial assets and interest in variable interest entities.  FSP FAS 140-4 and FIN 46(R) is effective for interim or annual reporting periods ending after December 31, 2008.  The adoption of FSP FAS 140-4 and FIN 46(R) did not have an impact on the Company’s consolidated financial position and results of operations.





In May 2009, the FASB issued SFAS No 165, Subsequent Events,which was primarily codified in FASB ASC Topic 855, Subsequent Events.This statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued.  We adopted this statement beginning April 1, 2009.  The adoption of this statement did not impact our consolidated results of operations or financial position since it requires additional disclosures only.  See Note 8 to the consolidated financial statements.





In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting standards ASC 105-10 (previously SFAS No. 168), The FASB Accounting Standards Codification TMand Hierarchy of Generally Accepted Accounting Principles.With the issuance of ASC 105-10, the FASB Accounting Standards Codification (“the codification” or “ASC”)becomes the single source of authoritative U.S. accounting and reporting standards applicable for all nongovernmental entities.  Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  This change is effective for financial statements issued for interim or annual periods ended after September 15, 2009.  Accordingly, all specific references to generally accepted accounting principles (GAAP) refer to the Codification.





2.  Going Concern





During the nine months ended September 30, 2010, the Company has experienced negative financial results as follows:





2010Accumulated deficit at December 31, 2009

$
(13,717,359Net loss for nine months ended September 30, 2010


(1,443,958
)Accumulated deficit at September 30, 2010

$
(15,161,316
)Cash flows provided in operating activity

$
45,856


F-8


Management has developed specific current and long-term plans to address its viability as a going concern as follows:






The Company is attempting to raise funds through debt and/or equity offerings.  If successful, these additional funds will be used to provide working capital. Subsequent to September 30, 2008, the Company has entered into a Stock Purchase Agreement as described above that provided working capital and the capital to purchase the 79-acre H.O. Clarke property in Harris County, Texas.  Other efforts are on going to raise funds through debt and/or equity offerings.






In the long-term, the Company believes that cash flows from growth in its operations will provide the resources for continued operations.






The Company is also pursuing other strategic initiatives including a merger or sale of the Company, as opportunities are available.





There can be no assurance that the Company will have the ability to implement its business plan and ultimately attain profitability.  The Company’s long-term viability as a going concern is dependent upon three key factors, as follows:






The ability of the Company to control costs and increase revenues.
The ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations.





3.  Property and Equipment





Property and equipment consisted of the following at September 30, 2010:





2010Power generating equipment

$
3,705,193Machinery and equipment


132,220Capitalized Cost - Humble


20,03879 acres, Harris County, TX – HO Clarke


1,165,887Less accumulated depreciation


(2,213,841
)Total property and equipment, net

$
2,809,497





Depreciation expense for the nine months ended September 30, 2010 was $738,686 and for the nine months ended September 30, 2009 depreciation expense was $1,044,735. All depreciation is included in Selling, General and Administrative expenses.





4.  Notes Payable





As of September 30, 2010, there are three remaining notes payable of $191,250 due to the former limited partners of TBF-1.  These notes bear interest at 12.5% due semi-annually.  Principal is due in full in forty-eight months from the execution date of the note.  The notes are not collateralized.





On August 20, 2008, the Company entered into a Securities Purchase Agreement with accredited investors for the purchase of the Company’s convertible promissory notes in the aggregate amount of up to $2,900,000 bearing interest at 18% per annum, payable on or before August 19, 2010, and extended on a month to month basis.  As of September 30, 2010, the Company has received $2,823,965.





The Securities Purchase Agreement contains provisions that if qualified financing is not secured by the maturity date, the Company will be required to issue warrants to the note holders resulting in a valuation of $5,000,000 provided that the strike price is $0.75.  In addition, the note holder has the right, but not the obligation, to convert all or a portion of the principal and accrued interest outstanding under its note into shares of common stock.





We have evaluated these features of our convertible promissory notes and determined that they meet the definition of embedded derivatives as defined by ASC 815, formerly SFAS 133, “Accounting for Derivatives and Hedging Activities”, and have recorded derivative liabilities of $-0- for December 31, 2009, and $-0- as of September 30, 2010.


F-9


5.  Stockholders’ Equity





During the nine months ended September 30, 2010, the company issued no shares of its common stock.





6.  Commitments and Contingencies





Contractual obligations





We have contractual obligations that may affect our financial condition. The following table summarizes our significant contractual obligations as of the date of this report:





Total


Less than 1 year


1 to 3 years


3 to 5 yearsCorporate office lease

$
677,820


$
140,238


$
510,600


$
26,982Generating facility leases


5,000



5,000



-0-



-0-Total

$
682,820


$
145,238


$
510,600


$
26,982





The Company is currently negotiating with its landlords to terminate the existing leases as the Company relocates to the H. O. Clark property.





Litigation





No current litigation.





7.  Related Party Transactions





From August 28, 2008 through June 30, 2009, thirteen (13) shareholders of the Company have participated in loans to the Company totaling $2,823,965 under a Stock Purchase agreement for the purposes of providing funds for capital expenditures and for working capital.





In January 2009, the Company’s Chief Executive Officer began to make advances for working capital and as of September 30, 2010 the balance of the unsecured note payable is $30,065.





8.  Subsequent Events





On August 20, 2008, the Company entered into a Securities Purchase Agreement with accredited investors for the purchase of the Company’s convertible promissory notes in the aggregate amount of up to $2,900,000 bearing interest at 18% per annum, payable on or before August 19, 2010.  As of the date of this report, the notes have been extended on a month to month basis.





9.
Fair Value Measurements





The Company ASC 820, formerly SFAS 157 “Fair Value Measurements” .  SFAS 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.  SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:





Level 1.
Observable inputs such as quoted prices in active markets for identical assets or liabilities;Level 2.
Inputs, other than quoted prices included within Level 1, that are observable either directly or indirectly; andLevel 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.




F-10


ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSES OF FINANCIAL CONDITION





The following discussion of the financial condition and plan of operations contains forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this annual report on Form 10-K.





Financial condition, liquidity and capital resources





At September 30, 2010, we had $2,816,769 in total assets and $5,421,496 in total liabilities, resulting in a stockholders’ equity (Deficit) of $(2,604,726). Our net working capital deficit at September 30, 2010 was ($5,222,974), which is a decrease in working capital since December, 31, 2009 of $793,626.





During the nine months ended September 30, 2010, we incurred a net loss of ($1,443,957), which included $738,686 in non-cash depreciation expense. For the nine months ended September 30, 2009, we incurred a net loss of ($2,413,221), which included $1,044,735 in non-cash depreciation expense





During the nine month period ended September 30, 2010, we had no revenues.  Management decided not to incur the cost of operating the power plants for the following reason:  the effort to finalize the acquisition of the H.O. Clarke property.  All of these factors caused management to focus on the future expansion of the H.O. Clarke property and not on current operations.





We believe our available resources, together with our anticipated operating revenue and the anticipated proceeds of certain planned short-term borrowings, will be sufficient to pay our anticipated operating expenses for a period of three to six months from the date of this quarterly report on Form 10-Q. Our available resources are not sufficient to pay all of our anticipated capital costs and we are presently seeking additional financing. We believe we will need at least $10 million in additional capital to finance our planned facility expansions and future acquisitions. Capital requirements are difficult to plan for companies like ours that are developing novel business models. We expect that we will need additional capital to pay our day-to-day operating costs, finance our feedstock and fuel inventories, and finance additions to our infrastructure, pay for the development of additional generating facilities and the marketing of our green electricity. We intend to pursue additional financing as opportunities arise.





Our ability to obtain additional financing will be subject to a variety of uncertainties. The inability to raise additional funds on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations. If we are unable to obtain additional capital when required, we would be forced to scale back our planned expenditures, which would adversely affect our growth prospects.





As a result of our limited operating history, our operating plan and our growth strategy are unproven and we have limited insight into the long-term trends that may impact our business. There is no assurance that our operating plan and growth strategy will be successful or that we will be able to compete effectively, achieve market acceptance for green electricity or address the risks associated with our existing and planned business activities.





Plan of Operation





During the nine months ending September 30, 2010, we incurred $1,090,340 in selling, general and administrative expenses for a net loss of ($1,443,957).  There was no operating income for this period as we completed the purchase of the H. O. Clarke power plant from NRG Energy.  We purchased this 79 acre site on March 20, 2009 for a price of $1,350,000.  This acquisition includes 79 acres of land at the intersection of South Main Street and Hiram Clarke Road, together with all infrastructure, equipment, buildings and other improvements.





The H. O. Clarke property is adjacent to a 500 MW switchyard operated by CenterPoint Energy and has ready access to the Texas ERCOT grid.  This decommissioned power plant was originally operated by Houston Lighting and Power with a total of 268 MW of gas fired steam generation until the 1980s.  An additional 78 MW of gas fired turbines were added to the distribution system as peaking units and were last used in 2004.  These peaking units have been removed from the site but the interconnection equipment remains.  We plan to evaluate the steam turbines for reuse and scrap the equipment that has no future utility.  We do not have sufficient financial resources to restore operation to this power plant and there can be no assurance that suitable financing will be available when needed.  If we are not able to attract adequate financing, we may have to delay or abandon plans for all or part of the recommissioning of this site.


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The key to this site is its central location inside the nation’s fourth largest city and the opportunity to build a model Urban Renewable Power Plant.  We plan to form the Houston Clean Energy Park on this site to introduce a variety of renewable technologies for clean power.  Planned elements include biofueled electric generation, low emission gas turbine power generation and renewable syngas generation.  Future projects could include biomass and solar energy.





The facility has adjacent natural gas line access, fuel storage and pipelines and distribution system access as well as transmission power connection.  We plan to move certain of our biofueled generation assets to the site for connection to the distribution grid and study the feasibility of adding larger scale baseload equipment to the transmission grid in the future.  We feel that this site offers a unique opportunity to provide baseload and peaking power to the ERCOT transmission and distribution systems over time. There can be no assurances, however, that future contract prices for green electricity will provide sufficient revenue to offset our anticipated operating expenses.





We believe our Company has a unique market focus, is well positioned demographically and is operationally efficient. Many retail electric providers are actively seeking “green energy” for sale to environmentally conscious residential and commercial customers who are willing to pay more for electricity produced from renewable energy resources. Our expertise in the field and our innovative approach to green energy distinguish our Company from its competitors. Nevertheless, there is a possibility that new competitors, who could be better capitalized than our Company, could seize upon our business model and produce electricity more efficiently, which might allow them to capture a significant share of our target market.





Until we are able to negotiate contracts that provide for a significant green energy premium, we intend to rely on equity financing to cover our current and anticipated operating losses. We need additional capital and intend to take advantage of financing opportunities as they arise. There is no assurance that our current financial resources and the proceeds of any future financing activities will be sufficient to pay our operating costs.





Off-balance Sheet Arrangements





We have no off-balance sheet arrangements.





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





We are a smaller reporting issuer as defined in Item 10 of Regulation S-K and are not required to report the quantitative and qualitative measures of market risk specified in Item 305 of Regulation S-K.





ITEM 4.
CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





We maintain disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to management, including our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure.





In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. While the design of our disclosure controls and procedures is adequate for our current needs and anticipated future conditions, there can be no assurance that our current design will succeed in achieving its stated goals under all possible future conditions. Accordingly we may be required to modify our disclosure controls and procedures in the future.


-4-


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2008. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded the design of our system of disclosure controls and procedures was not effective as of those dates to ensure that material information relating to our Company would be made known to them and that our system of disclosure controls and procedures was operating to provide a reasonable level of assurance that information required to be disclosed in our reports would be recorded, processed, summarized and reported in a timely manner.  These conclusions were based on the identification of the following material weaknesses:





·
We did not maintain an effective control environment including sufficient personnel with the requisite knowledge of Generally Accepted Accounting Principles (GAAP) and the rules and regulations established by the SEC and appropriate policies and procedures relative to the Company’s accounting finance and information technology functions;·
Inadequate controls over the process for the identification and implementation of the proper accounting for complex and non-routine transactions, particularly as they relate to hedge investments, financing and related party transactions;·
We did not properly segregate duties and restrict access to accounting systems and data, spreadsheets used for critical calculations were not properly controlled, agreements and contracts were not always promptly provided to the accounting function, and assets were not always properly safeguarded; and·
We do not have a comprehensive set of policies and procedures, related to corporate governance, accounting, human resources, and other significant matters.





·
We added or are initiating the following additional controls to the Company’s internal control over financial reporting, which we expect will improve such internal control subsequent to the date of the assessment and earlier assessments that also concluded internal controls were not effective. These changes are:





·
We have retained a qualified independent consultant to assist our Chief Financial Officer and accounting staff in matters relating to the identification and implementation of proper accounting procedures and provide guidance on financial reporting issues that apply to the Company;·
We performed additional analysis and other procedures in order to identify weaknesses in order to develop an adequate system of disclosure and financial controls,·
We are continuing to restructure certain departmental responsibilities as they relate to the financial reporting function,·
We have changed our accounting software package in order to provide stricter controls for our accounting functions and internal controls.·
We have retained a qualified Chief Financial Officer.





As a result of these changes, management believes that all material weaknesses have been remediated.





Management’s Report on Internal Control over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our system of internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements and the reliability of financial reporting.  Because of their inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.





Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based on that assessment, we believe that as of September 30, 2008, our internal control over financial reporting is effective.





Beginning with our Annual Report on Form 10-K for the year ending December 31, 2008, management’s report on internal control over financial reporting must contain a statement that our independent registered public accountants have issued an attestation report on management’s assessment of such internal controls and conclusion on the operating effectiveness of those controls, unless the SEC extends the compliance date for such auditor attestation.





Changes in Internal Control Over Financial Reporting





There was no change in our internal control over financial reporting that occurred during our third quarter ended March 31, 2010 that materially affected, or is likely to materially affect, our internal control over financial reporting.


-5-


Limitations on the Effectiveness of Internal Controls





Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.





PART II – OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGSThere is no current litigation.ITEM 1A.    RISK FACTORS





We are a smaller reporting issuer as defined in Regulation S-K and are only required to report material changes from the risk factors previously disclosed in our report on Form 10-K for the year ended December 31, 2007.





ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





NONE





ITEM 3.
DEFAULTS UPON SENIOR SECURITIESNONEITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNONE.ITEM 5.
OTHER INFORMATIONNONE.ITEM 6.
EXHIBITS





(a)
EXHIBITS31.1
Certification of Alan Schaffner, Managing Director Pursuant to Rule 13a-14(a)31.2
Certification of Richard J. DeGarmo, Managing Director Pursuant to Rule 13a-14(a)31.3
Certification of Sam H. Lindsey, Jr., Chief Financial Officer Pursuant to Rule 13a-14(a)32.1
Statement of Alan Schaffner, Managing Director Pursuant to Section 1350 of Title 18 of the United States Code32.2
Statement of Richard J. DeGarmo, Managing Director Pursuant to Section1350 of Title 18 of the United States Code32.3
Statement of Sam H. Lindsey, Jr., Chief Financial Officer Pursuant to Section1350 of Title 18 of the United States Code(b)
REPORTS ON FORM 8-KNONE


-6-


SIGNATURES





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





BIOFUELS POWER CORPORATION








/s/ Rich DeGarmoRich DeGarmo, Managing DirectorDated: November 22, 2010/s/ Sam H. Lindsey, Jr.Sam H. Lindsey, Jr., Chief Financial OfficerDated: Novem 22, 2010





































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