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,
2009


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
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      No.)25211
      Grogan’s Mill Road Suite 465
              77380The
      Woodlands, Texas
              (zip
      code)(Address
      of principal executive offices) Registrant’s
telephone number, including area code  (281)
364-7590





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 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 16, 2009Common
      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, 2009 and December 31, 2008
            F-1Unaudited
      Consolidated Condensed Statements of Operations
            F-2for
      the three months and nine months ended September 30, 2009 and
      2008Unaudited
      Consolidated Condensed Statements of Cash Flow
            F-3for
      the nine-month period ended September 30, 2009 and 2008Unaudited
      Consolidated Statement of Stockholders' Equity
            F-4for
      the nine months ended September 30, 2009Notes
      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 CORPORATION

                                                            CONSOLIDATED
      BALANCE SHEET
                                                            September 30, 2009
      and December 31, 2008September
      30,
                                                        
                                                        
                                                        December
      31,2009
                                                        
                                                        
                                                        2008ASSETS
                                                        
                                                        (Unaudited)
                                                        
                                                        
                                                        (Audited)Current
      AssetsCash
      and cash equivalents
                                                        
                                                        $
                                                        24,794
                                                        
                                                        
                                                        $
                                                        9,691Accounts
      receivable
                                                        
                                                        
                                                        272,000Prepaid
      expenses
                                                        
                                                        
                                                        5,660
                                                        
                                                        
                                                        
                                                        5,660Inventory
                                                        
                                                        
                                                        99,291
                                                        
                                                        
                                                        
                                                        99,291Total
      Current Assets
                                                        
                                                        
                                                        401,745
                                                        
                                                        
                                                        
                                                        114,642Property
      and equipment, net
                                                        
                                                        
                                                        4,474,189
                                                        
                                                        
                                                        
                                                        5,181,527Total
      Assets
                                                        
                                                        $
                                                        4,875,934
                                                        
                                                        
                                                        $
                                                        5,296,169LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable
                                                        
                                                        
                                                        888,941
                                                        
                                                        
                                                        
                                                        696,503Deposits
                                                        
                                                        
                                                        25,000
                                                        
                                                        
                                                        
                                                        -Notes
      payable, unsecured
                                                        
                                                        
                                                        30,065Notes
      payable, secured
                                                        
                                                        
                                                        2,787,000
                                                        
                                                        
                                                        
                                                        1,295,000Interest
      payable
                                                        
                                                        
                                                        394,508
                                                        
                                                        
                                                        
                                                        75,647Total
      Current Liabilities
                                                        
                                                        
                                                        4,125,514
                                                        
                                                        
                                                        
                                                        2,067,150Long
      Term DebtNotes
      payable, unsecured
                                                        
                                                        
                                                        191,250
                                                        
                                                        
                                                        
                                                        191,250Derivative
      Liability
                                                        
                                                        
                                                        8,862
                                                        
                                                        
                                                        
                                                        8,862Total
      Liabilities
                                                        
                                                        
                                                        4,325,626
                                                        
                                                        
                                                        
                                                        2,267,262Stockholders'
      EquityCommon
      stock, $001 par value, 50,000,000 shares authorized;30,859,594
      and 30,839,594 shares issued and outstanding,respectively
                                                        
                                                        
                                                        30,848
                                                        
                                                        
                                                        
                                                        30,828Additional
      paid in capital
                                                        
                                                        
                                                        12,435,101
                                                        
                                                        
                                                        
                                                        12,415,122Minority
      interest
                                                        
                                                        
                                                        133,125
                                                        
                                                        
                                                        
                                                        218,504Accumulated
      deficit
                                                        
                                                        
                                                        (12,048,767
                                                        )
                                                        
                                                        
                                                        (9,635,547
                                                        )Total
      Stockholders Equity
                                                        
                                                        
                                                        550,308
                                                        
                                                        
                                                        
                                                        3,028,907$
                                                        4,875,934
                                                        
                                                        
                                                        $
                                                        5,296,169See
      accompanying notes to consolidated financial statements


F-1




BIOFUELS
      POWER CORPORATIONUNAUDITED
      CONSOLIDATED STATEMENT OF OPERATIONSFor
      the nine months ended September 30, 2009 and
    2008Three
      Months Ended
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        Nine
      Months EndedSeptember
      30,
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        September
      30,
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        September
      30,
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        September
      30,2009
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        2008
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        2009
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        2008RevenueSales
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        79,831
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        425,767Cost
      of sales
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        784,206
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        2,202,527Gross
      profit (deficit)
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (704,375
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (1,776,760
                                                                                                                                                                        )Selling,
      general and administrative expenses
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        629,616
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        861,951
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        1,917,431
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        3,008,429Operating
      loss
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (629,616
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (1,566,326
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (1,917,431
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (4,785,189
                                                                                                                                                                        )Other
      Income:Other
      income, net
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        4,605
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        38,492Unrealized
      loss on marketable securities
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (38,189
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (58,504
                                                                                                                                                                        )Realized
      loss on sale of marketable securities
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (2,753
                                                                                                                                                                        )Change
      in derivative liability
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (835,966
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (835,966
                                                                                                                                                                        )Gain
      (loss) on disposition of fixed assets
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (386,549
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (249,035
                                                                                                                                                                        )Interest
      expense
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (126,973
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (32,345
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (332,134
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (58,041
                                                                                                                                                                        )Total
      other income (loss), net
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (513,522
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (901,895
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (581,169
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (916,772
                                                                                                                                                                        )Net
      Loss before minority interest
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (1,143,138
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (2,468,221
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (2,498,600
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        (5,701,961
                                                                                                                                                                        )Minority
      interest
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        61,891
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        -
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        85,379
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        88,192Net
      income (loss)
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (1,081,247
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (2,468,221
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (2,413,221
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (5,613,769
                                                                                                                                                                        )Basic
      and diluted net loss per common share
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (0.04
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (0.08
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (0.08
                                                                                                                                                                        )
                                                                                                                                                                        
                                                                                                                                                                        $
                                                                                                                                                                        (0.18
                                                                                                                                                                        )Weighted
      average common shares outstanding -basic
      and diluted
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        30,848,604
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        30,824,041
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        30,848,604
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        
                                                                                                                                                                        30,772,841See
      accompanying notes to consolidated financial statements


F-2


BIOFUELS
      POWER CORPORATIONUNAUDITED
      CONSOLIDATED STATEMENT OF CASH FLOWSFor
      the nine months ended September 30, 2009 and
2008Nine
      Months Ended September 30,2009
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2008Cash
      flows from operating activities:Net
      loss
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        (2,413,221
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        (5,613,769
                                                                                                                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,044,735
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,064,197Expenses
      related to issuance of common stock for limited
partnership
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        12,501Stock
      issued for services
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        83,296Change
      in derivative liability
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        835,966Realized
      loss on sales of marketable securities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,753Unrealized
      loss on marketable securities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        58,504Loss
      on abandonment of leasehold inmprovements
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        390,949Minority
      interest
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (85,379
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (88,192
                                                                                                                                        )Amortization
      of deferred compensation
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        595,000Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (272,000
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (60,772
                                                                                                                                        )Tax
      rebate rerceivable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        29,450Prepaid
      expenses
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (5,660
                                                                                                                                        )Inventory
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        315,311Accounts
      payable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        192,438
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        441,698Deposit
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        25,000Accrued
      interest payable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        318,508Accrued
      expenses and other, net
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,934
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (33,278
                                                                                                                                        )Net
      Cash used in operating activities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (789,036
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (2,362,995
                                                                                                                                        )Cash
      flow from investing activities:Purchase
      of property and equipment
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (1,343,977
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (662,411
                                                                                                                                        )Proceed
      from sale of fixed assets
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        618,880Proceed
      from liquidation of restricted certificate of deposit
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        902,149Purchase
      of marketable securities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (806,597
                                                                                                                                        )Proceeds
      from sale of marketable securities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        200,000Purchase
      of certificate of deposit
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (12,829
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (12,326
                                                                                                                                        )Net
      cash provided by (used in) investing activities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (737,926
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (379,185
                                                                                                                                        )Cash
      flows from financing activities:Cash
      overdraft
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        22,869Net
      proceeds from sale of common stock
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        20,000
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        190,003Net
      proceeds from notes
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,622,065
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,440,000Retirement
      of notes
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (100,000
                                                                                                                                        )
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        -Net
      cash provided by financing activities
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,542,065
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,652,872Net
      increase (decrease) in cash and cash equivalents
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        15,103
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        (1,089,308
                                                                                                                                        )Cash
      and cash equivalents, beginning of period
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,691
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,089,308Cash
      and cash equivalents, end of period
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        24,794
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        -See
      accompanying notes to consolidated financial statements


F-3


BIOFUELS
      POWER CORPORATIONUNAUDITED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYFor
      the nine months ended September 30, 2009AdditionalCommon
      Stock
                                                    
                                                    
                                                    Paid
      In
                                                    
                                                    
                                                    Minority
                                                    
                                                    
                                                    AccumulatedShares
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    Capital
                                                    
                                                    
                                                    Interest
                                                    
                                                    
                                                    Deficit
                                                    
                                                    
                                                    TotalBalance
      at December 31, 2008
                                                    
                                                    
                                                    30,839,594
                                                    
                                                    
                                                    $
                                                    30,828
                                                    
                                                    
                                                    $
                                                    12,415,122
                                                    
                                                    
                                                    $
                                                    218,504
                                                    
                                                    
                                                    $
                                                    (9,635,547
                                                    )
                                                    
                                                    $
                                                    3,028,907Issuance
      of commonstock
      for cash
                                                    
                                                    
                                                    20,000
                                                    
                                                    
                                                    
                                                    20
                                                    
                                                    
                                                    
                                                    19,980
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    20,000Net
      loss
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (85,379
                                                    )
                                                    
                                                    
                                                    (2,413,221
                                                    )
                                                    
                                                    
                                                    (2,498,600
                                                    )Balance
      atSeptember
      30, 2009
                                                    
                                                    
                                                    30,859,594
                                                    
                                                    
                                                    $
                                                    30,848
                                                    
                                                    
                                                    $
                                                    12,435,102
                                                    
                                                    
                                                    $
                                                    133,125
                                                    
                                                    
                                                    $
                                                    (12,048,767
                                                    )
                                                    
                                                    $
                                                    550,308See
      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, 2008 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, 2008.  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, 2008 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 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.





Convertible
Debt Financing - Derivative Liabilities





The
Company reviews the terms of convertible debt and equity instruments issued to
determine whether there are embedded derivative instruments, including embedded
conversion options, which are required to be bifurcated and accounted for
separately as a derivative financial instrument. In circumstances where the
convertible instrument contains more than one embedded derivative instrument,
including the conversion option, that is required to be bifurcated, the
bifurcated derivative instruments are accounted for as a single, compound
derivative instrument. Also, in connection with the sale of convertible debt and
equity instruments, the Company may issue freestanding options or warrants that
may, depending on their terms, be accounted for as derivative instrument
liabilities, rather than as equity.


F-5


In
accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended, the convertible debt holder’s conversion right
provision, contained in the terms governing the convertible notes is not
clearly and closely related to the characteristics of the notes. Accordingly,
the feature qualifies as an embedded derivative instrument at issuance and,
because it does not qualify for any scope exception within SFAS No. 133, it
is required by SFAS No. 133 to be accounted for separately from the debt
instrument and recorded as a derivative instrument liability.





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.





Biodiesel Tax
CreditsBiodiesel 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.  The gallons
used are reported to the Federal government and the Company receives a payment
of $1.00 per gallon, which is accounted for as a direct offset to fuel prices
and included in the Company’s cost of sales.  At March 31, 2009, the
Company had Federal tax credits receivable of $-0-.  During the three
months ended March 31, 2009 and March 31, 2008, the Company received $-0- and
$53,957 respectively, in Federal credits.





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 March 31, 2009
and March 31, 2008 the Company had trade accounts receivable of $-0- and
$450,697 respectively.





InventoryInventories are stated
at the lower of cost or market and consists of 33,744 gallons of processed fuel
stock and 35,368 gallons of unprocessed fuel stock at June 30, 2009, and
December 31, 2008.  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 plans to
move its existing reciprocating generators and turbine generators to the newly
acquired facility as soon as feasible.  The affect of the relocation
would be the abandonment of existing leasehold improvements and other assets
having a cost in excess of $1,500,000 as of March 31, 2009.  There
would be a charge against net income at the time of the
relocation.  As of this report, the assets at the Company’s turbine
generating facility have been moved to the new site in Harris County resulting
in a charge against income of $390,949.00 for the abandonment of leasehold
improvements.





Negotiations
for the termination of the remaining lease have been undertaken and the effects
of those negotiations are unknown.




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.





(Loss)/Income Per
Common ShareThe Company provides
basic and dilutive (loss)/income per common share information for each period
presented.  The basic net loss per common share is computed by
dividing the net (loss)/income by the weighted average number of common shares
outstanding.  Diluted net (loss)/income per common share is computed
by dividing the net (loss)/income, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities.  For the nine months ended September 30, 2009 and
September 30, 2008, the Company did not have any potential dilutive securities.
See Stock Purchase agreements below.


F-6


Stock-Based
CompensationThe Company has adopted
Statement of Financial Accounting Standards 123(R) Share Based Payments (“SFAS
123(R)”), using the modified prospective method.  Under the modified
prospective method, the Company recognizes compensation expense over the vesting
period of the award.





SFAS
123(R) is a revision of SFAS 123,Accounting for Stock-Based
Compensation, and supersedes APB No. 25,Accounting for Stock Issued to
Employees.  Under SFAS 123(R), the cost of employee services
received in exchange for stock is measured based on the grant-date fair value
(with limited exceptions).  That cost is to be recognized over the
period during which an employee is required to provide service in exchange for
the award (usually the vesting period).  The fair value of immediately
vested shares is determined by reference to quoted prices for similar shares and
the fair value of shares issued subject to a service period is estimated using
an option-pricing model.  Excess tax benefits, as defined in SFAS
123(R) are recognized as addition to paid-in-capital.





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 PronouncementsFASB Statement of
Financial Accounting Standards No. 157,“Fair Value Measurements”
(“SFAS 157”), issued in September 2006, establishes a formal framework for
measuring fair value under GAAP.  It defines and codifies the many
definitions of fair value included among various other authoritative literature,
clarifies and, in some instances, expands on the guidance for implementing fair
value measurements, and increases the level of disclosure required for fair
value measurements.  Although SFAS 157 applies to and amends the
provisions of existing FASB and AICPA pronouncements, it does not, of
itself, require any new fair value measurements, nor does it establish valuation
standards.  SFAS 157 applies to all other accounting pronouncements
requiring or permitting fair value measurements, except for SFAS No. 123 (R),
share-based payment and related pronouncements, the practicability exceptions to
fair value determinations allowed by various other authoritative pronouncements,
and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue
recognition.  This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.  The adoption of SFAS 157 did not have a
material impact on the Company’s financial condition or results of
operations.





In
February 2007, the FASB issued SFAS 159,“The Fair Value Option for
Financial Assets and Financial Liabilities” which is an elective,
irrevocable election to measure eligible financial instruments and certain other
assets and liabilities at fair value on an instrument-by-instrument
basis.  The election may only be applied at specified election dates
and to instruments in their entirety rather than to portions of
instruments.  Upon initial election, the entity reports the difference
between the instruments’ carrying value and their fair value as a
cumulative-effect adjustment to the opening balance of retained
earnings.  At each subsequent reporting date, an entity reports in
earnings, unrealized gains and losses on items for which the fair value option
has been elected.  SFAS 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and is applied on a
prospective basis.  Early adoption of SFAS 159 is permitted provided
the entity also elects to adopt the provisions of SFAS 157 as of the early
adoption date selected for SFAS 159.  The company has decided not to
adopt SFAS 159.




In
December 2007, the FASB issued a revision and replacement of SFAS 141(“SFAS
141R”), “Business
Combinations” to increase the relevance, representational faithfulness,
and comparability of the information a reporting entity provides in its
financial reports about a business combination and its effects.  SFAS
141R replaces SFAS 141, “Business Combinations ” but retains the fundamental requirements of SFAS
141 that the acquisition method of accounting be used and an acquirer be
identified for all business combinations.  SFAS 141R expands the
definition of a business and of a business combination and establishes how the
acquirer is to: (1) recognize and measure in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquired company; (2) recognize and measure the goodwill
acquired in the business combination or a gain from a bargain purchase; and (3)
determine what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  SFAS 141R is applicable to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, and is to be applied
prospectively.  Early adoption is prohibited. SFAS 141R will impact
the Company only if it elects to enter into a business combination subsequent to
December 31, 2008.





In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51,” to
improve the relevance, comparability, and transparency of the financial
information a reporting entity provides in its consolidated financial
statements.  SFAS 160 amends ARB 51 to establish accounting and
reporting standards for noncontrolling interests in subsidiaries and to make
certain consolidation procedures consistent with the requirements of SFAS
141R.  It defines a noncontrolling interest in a subsidiary as an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements.  SFAS 160 changes the way
the consolidated income statement is presented by requiring consolidated net
income to include amounts attributable to the parent and the noncontrolling
interest.  SFAS 160 establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary that does not result in
deconsolidation.  SFAS 160 also requires expanded disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners of a subsidiary.  SFAS 160 is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  SFAS 160 shall be
applied prospectively, with the exception of the presentation and disclosure
requirements that shall be applied retrospectively for all periods
presented.  The Company does not believe that the adoption of SFAS 160
will have a material effect on its consolidated financial position, results of
operations or cash flows.


F-7


2. 
Going Concern





During
the nine months ended September 30, 2009, the Company has experienced negative
financial results as follows:





2009Accumulated
      deficit at December 31, 2008
              
              $
              (9,635,547
              )Net
      loss for nine months ended September 30, 2009
              
              $
              (2,413,221
              )Accumulated
      deficit at September 30, 2009
              
              $
              (12,048,767
              )Negative
      cash flows used in operating activities
              
              $
              (789,036
              )Accounts
      Payable over 90 days
              
              
              89.18%





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. The Company has entered into a Securities
      Purchase Agreement that provides working capital and the capital to
      purchase the H.O. Clarke property in Harris County, Texas (hereinafter
      described as Houston Clean Energy Park).  The Company also
      entered into a Subordination Agreement dated September 11, 2009 that
      provides for an additional $175,000 of working capital.  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 has retained Elm Capital to assist the Company in its efforts to
      raise capital for its business
development.




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:





            Raise
      additional debt or equity financing.
            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.





F-8


3. 
Property and Equipment





Property
and equipment consisted of the following at September 30, 2009:


2009Power
      generating equipment
              
              $
              5,612,177Buildings
      and improvements
              
              
              650,153Machinery
      and equipment
              
              
              168,004Capitalized
      Cost - Humble
              
              
              20,038Houston
      Clean Energy Park
              
              
              931,1707,381,542Less
      accumulated depreciation
              
              
              (2,907,353
              )Total
      property and equipment, net
              
              $
              4,474,189





Depreciation
expense for the nine months ended September 30, 2009 was $1,044,735 which was
included in Selling, General and Administrative expenses.  For the
nine months ended September 30, 2008, depreciation expense was $1,064,197 of
which $991,531 is included in cost of sales.





4. 
Notes Payable





As of
September 30, 2009, 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.  Subsequently this agreement was replaced by a similar
agreement dated March 10, 2009 in the aggregate amount of up to $2,555,000
bearing interest at 18% per annum, payable on or before March 10,
2010.  As of September 30, 2009, the Company has received
$2,555,000.  As of September 30, 2009, all interest due under the
agreement was accrued and reported as interest payable.





The
Company entered into a Subordination Agreement with accredited investors and the
holders of the Company’s Senior Notes in the aggregate amount of up to $175,000
bearing interest at 18% per annum, payable the date that the Senior Obligations
are fully paid.  As of September 30, 2009, the Company has received
$175,000.




We have
evaluated these features of our convertible promissory notes and determined that
they meet the definition of embedded derivatives as defined by SFAS 133, “Accounting for Derivatives and
Hedging Activities”, and have recorded derivative liabilities of $8,862
as of September 30, 2009.





5. 
Stockholders’ Equity





During
the nine months ended September 30, 2009, the company issued 20,000 shares of
its common stock for cash.  These shares were valued at $1.00 per
share which was the fair market value of the common stock on the date of grant
based upon the cash price received for the common stock in a private placement
offering.





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:


F-9




Total
                  
                  
                  Less
      than 1 year
                  
                  
                  1 to 3 years
                  
                  
                  3
      to 5 yearsCorporate
      office lease
                  
                  $
                  641,677
                  
                  
                  $
                  147,249
                  
                  
                  $
                  482,355
                  
                  
                  $
                  12,073Generating
      facility leases
                  
                  
                  12,000
                  
                  
                  
                  12,000
                  
                  
                  
                  -0-
                  
                  
                  
                  -0-Total
                  
                  $
                  653,677
                  
                  
                  $
                  159,249
                  
                  
                  $
                  482,355
                  
                  
                  $
                  12,073





The table
above reflects the amended and restated lease with Robinson Road,
LLC.   The Company is currently negotiating with the land owner
and anticipates terminating its lease and moving its equipment to the Houston
Clean Energy Park.





Other
Contingencies





The
Company has 5 items that are being evaluated as to the appropriateness of being
included in accounts payable.  If all 5 items are deemed to be valid
liabilities, the accounts payable would be increased by
$465,256.63.





Litigation





The
Company, along with four other plaintiffs filed a lawsuit against the landlords
of the Tamina power plant site seeking injunctive relief and claiming breach of
contract and other damages.  Subsequently, the defendants appealed and
filed counter-claims against the plaintiffs.  On July 21, 2009, the
Company dismissed its lawsuit against the landlords and began to move its power
plant assets to the H.O. Clarke site.




An
affiliate of the Company has been included in a lawsuit along with five other
defendants claiming damages of $60,085.54 for breach of a commission
agreement.  The Company is not a party to the commission agreement and
there are no claims specifically raised against the Company.




7. 
Related Party Transactions





From
August 28, 2008 through September 30, 2009, thirteen (13) shareholders of the
Company have participated in loans to the Company totaling $2,555,000 under a
Securities Purchase agreement for the purposes of providing funds for capital
expenditures and for working capital.  Additionally, these same
shareholders entered into the Subordination Agreement described above date
September 11, 2009





During
2009, the Company’s former Chief Executive Officer advanced the Company $30,065
in the form of a note payable.  The note payable is outstanding at
September 30, 2009.





8. 
Subsequent Events





Following
the acquisition of the Houston Clean Energy Park site, the Company has begun
dismantling and moving the Tamina Power Plant equipment to
Clarke.  This equipment will be reconnected into the Centerpoint
distribution grid as part of the Company’s proposed 50MW expansion at this new
site.  As of the date of this report, the Company has moved all of the
equipment located in Tamina.





As of the
date of this report, the Company has concluded its agreement with BTU Solutions
LLC for the relocation of equipment and site work to be performed by BTU
Solutions LLC as part of the agreement selling BTU Solutions LLC 25 acres of the
Houston Clean Energy Park.  The result of the completion of the
agreement will be an increase in the capitalized cost of the Houston Clean
Energy Park and a reduction of accounts receivable in the amount of
$272,000.





9.
            Fair
      Value Measurements




The
Company adopted Statement of Financial Accounting Standards No. 157 “Fair
Value Measurements” (“SFAS 157”) on January 1, 2008.  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


As of
September 30, 2009, the Company’s assets and liabilities that are measured at
fair value on a recurring basis include the following:





Fair
      Value Measurements UsingTotal
                  
                  Quoted Prices in
                    Active Markets
                    (Level 1)
                  
                  Significant
                    Other
                    Observable
                    Inputs
                    (Level 2)
                  
                  Significant
                    Unobservable Inputs
                    (Level 3)Derivative
      liability
                  
                  $
                  8,862
                  
                  —
                  
                  $
                  8,862
                  
                  —Warrant
      liability
                  
                  
                  —
                  
                  —
                  
                  
                  —
                  
                  —


ITEM 2
              MANAGEMENT’S
      DISCUSSION AND ANALYSES OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 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, 2009, we had $4,875,934 in total assets and $4,325,626 in total
liabilities, resulting in a stockholders’ equity of $550,308. Our net working
capital deficit at September 30, 2009 was ($3,723,769), which is a decrease in
working capital since December, 31, 2008 of ($1,771,261).
 
 During
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. For
the nine months ended September 30, 2009, we incurred a net loss of
($5,613,769), which included $690,797 in non-cash expenses relating to equity
issuance and compensation transactions and $1,064,197 in non-cash depreciation
expense.
 
 During
the nine month period ended September 30, 2009, we had no
revenues.  Management decided not to incur the cost of operating the
power plants for the following reasons: 1. continued high feedstock prices and
low power prices during 2009; and 2. dispute with landlord described in
litigation section above impeded the ability to operate existing facilities; and
3. the need to move and relocate certain operating assets; and 4. the effort to
finalize the acquisition of the Houston Clean Energy Park
property.  All of these factors caused management to focus on the
future expansion of the Houston Clean Energy Park 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, 2009, we incurred $1,917,431 in selling,
general and administrative expenses for a net loss of
($2,413,221).  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.  On April
22, 2009, the Company entered into an agreement with BTU Solutions, LLC to sell
25 acres of the H.O. Clarke site for $560,000 resulting in a gain on the sale of
$136,005.
 
 The
Houston Clean Energy Park (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.
 
 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.
 -3-
 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.
 
 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.
 -4-
 ·
              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 second quarter ended June 30, 2009 that materially affected, or is likely to
materially affect, our internal control over financial reporting.
  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.
 -5-
 PART
II – OTHER INFORMATION
 
 ITEM
      1.
              LEGAL
      PROCEEDINGSAn
      affiliate of the Company, along with four other plaintiffs filed a lawsuit
      against the landlords of the Tamina power plant site seeking injunctive
      relief and claiming breach of contract and other
      damages.  Subsequently, the defendants appealed and filed
      counter-claims against the plaintiffs.  On July 21, 2009, the
      Company dismissed its lawsuit against the landlords and began to move its
      power plant assets to the H.O. Clarke site.
                
                The
      Company has been included in a lawsuit along with five other defendants
      claiming damages of $60,085.54 for breach of a commission
      agreement.  The Company is not a party to the commission
      agreement and there are no claims specifically raised against the
      Company.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 Managing Director Pursuant to Rule 13a-14(a)31.2
              Certification
      of Managing Director Pursuant to Rule 13a-14(a)31.3
              Certification
      of Chief Financial Officer Pursuant to Rule 13a-13(a)32.1
              Statement
      of Managing Director Pursuant to Section 1350 of Title 18 of the United
      States Code32.2
              Statement
      of Managing Director Pursuant to Section 1350 of Title 18 of the United
      States Code32.3
              Statement
      of 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/
      Alan SchaffnerAlan
      Schaffner, Managing DirectorDated:
      November 20, 2009/s/
      Richard J. DeGarmoRichard
      J. DeGarmo, Managing DirectorDated:
      November 20, 2009
  /s/
      Sam H. Lindsey, Jr.Sam
      H. Lindsey, Jr., Chief Financial OfficerDated:
      November 20, 2009
    -7-