UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





(Mark
One)





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31,
2007





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.)10003
      Woodloch Forest Drive, Suite 900The
      Woodlands, Texas
            
            77380(Address
      of principal executive offices)
            
            (zip
      code)Registrant’s
      telephone number, including area code
            (281)
      364-9500





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


Common
Stock, par value $0.01 per share





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.
            Yes
      ___
            No
      XIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act.
            Yes
      ___
            No
      XIndicate
      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
      ___
            No
      XIndicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K.
            
            þ





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. (Check one):





Large
      accelerated filer
            o
            
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            
            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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.





There has
never been a public market for our stock. Based on the most recent price
received by us in connection with private placement transactions, the aggregate
market value of the 24,665,585 shares of common stock held by non-affiliates was
$36,998,377 at March 31, 2008.





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 March 31, 2008Common
      Stock, $0.001 Par Value
            
            31,265,561
      Shares





No
documents are incorporated by reference in this Form 10-K.









TABLE
OF CONTENTS





PART
I





ITEM
      1
            Business
            5ITEM
      1A
            Risk
      Factors
            17ITEM
      1B
            Unresolved
      staff comments
            24ITEM
      2
            Properties
            24ITEM
      3
            Legal
      Proceedings
            25ITEM
      4
            Submission
      of Matters to a Vote Of Security Holders
            25





PART
II





ITEM
      5
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            26ITEM
      6
            Selected
      Financial Data
            31ITEM
      7
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            31ITEM
      7A
            Quantitative
      and Qualitative Disclosures About Market Risks
            35ITEM
      8
            Financial
      Statements and Supplementary Data
            35ITEM
      9
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            36ITEM
      9A
            Controls
      And Procedures
            36





PART
III





ITEM
      10
            Directors,
      Executive Officers and Corporate Governance
            38ITEM
      11
            Executive
      Compensation
            41ITEM
      12
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            44ITEM
      13
            Certain
      Relationships and Related Transactions, and Director
      Independence
            45ITEM
      14
            Principal
      Accounting Fees and Services
            47





PART
IV





ITEM
      15
            Exhibits,
      Financial Statement Schedules
            47Signatures
            48








CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





“Forward-looking” statements have
been included throughout this report on Form 10-K. These statements arise most
frequently in connection with our attempt to predict future events. The words
“may,” “will,” “expect,” “believe,” “plan,” “intend,” “anticipate,” “estimate,”
“continue,” and similar expressions, as well as discussions of our strategy, are
intended to identify forward-looking statements. Although we believe that these
forward-looking statements are based on reasonable assumptions, we can give no
assurance that our expectations will in fact occur and caution that actual
results may differ materially from those in the forward-looking statements. The
important factors listed in the section entitled “Risk Factors,” as well as any
cautionary language in this report on Form 10-K, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations described in any forward-looking statements. You should be
aware that the occurrence of the events described in this Report on Form 10-K
could have an adverse effect on our business or financial condition. You should
also be aware that the “forward-looking” statements are subject to a number of
risks, assumptions and uncertainties, such as:





·
            Our
      early stage of development, our brief operating history and our rapidly
      evolving business plan which make our prospects difficult to
      evaluate;·
            Our
      need to raise substantial capital to finance our planned expansion, our
      history of significant operating losses and our inability to provide any
      assurances that our planned operations will be
  profitable;·
            Our
      history of significant related party transactions with former affiliates
      that may give rise to conflicts of interest, result in significant losses
      to our company or otherwise impair investor confidence;·
            Our
      reliance on part-time executive officers who are engaged in other
      activities and will face conflicts of interest in allocating their time
      among various interests;·
            Our
      need to obtain a premium price for green electricity, successfully execute
      our growth strategy in a rapidly evolving market and develop ancillary
      sources of revenue;·
            Our
      exposure to substantial volatility in the market prices for agricultural
      commodities used as biodiesel feedstock and our inability to fully hedge
      against commodity price changes which may cause our results of operations
      to fluctuate;·
            Our
      exposure to a variety of risks associated with the construction,
      permitting and operation of biodiesel fueled electric power generating
      facilities;·
            Our
      dependence on tax incentives, governmental subsidies and environmental
      policies and the risk that incentive that presently favor the use of
      biodiesel for power generation may change·
            Our
      inability to rely on pricing as a principal competitive advantage and our
      need to focus our marketing efforts primarily on environmental
      benefits;·
            Our
      ability to satisfy our future capital requirements and react to business
      opportunities;·
            The
      absence of a public market for our common stock and the time, effort and
      expense associated with any effort to develop and active, stable and
      sustained trading market; and·
            Other
      factors including those detailed in this report on Form 10-K under the
      heading “Risk Factors.”





You should not unduly rely on
forward-looking statements, which speak only as of the date of this report on
Form 10-K. Except as required by law, we are not obligated to publicly release
any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the forward-looking statements in
this report.





-4-


ITEM
1— BUSINESS





History:
Our former parent, Texoga Technologies Corporation, was incorporated in Texas in
1996 and spent eight years working to develop and commercialize several
technologies and businesses including:





·
            An
      eight-year effort to conduct live-fire testing and obtain military
      procurement contracts for Deto-Stop, an explosion preventing aluminum mesh
      fuel tank filler that is used in battle tanks, armored personnel carriers
      and other military vehicles throughout Europe, but has not been adopted
      for use in U.S. military vehicles;·
            A
      five-year effort to develop manufacturing systems for biodiesel, a
      non-toxic and biodegradable substitute for petroleum-based diesel that has
      significant potential in military and offshore oil and gas
      applications;·
            A
      two-year effort to obtain Forest Service and civilian contracts for a
      specialty fire fighting vehicle known as the “Jumbo Firefighting Tank”
      that is built on the chassis of a demilitarized Leopard I battle tank;
      and·
            Ancillary
      efforts to develop markets for other safety-related technologies and
      equipment for use primarily in military and oil and gas
      operations.





By early 2004, Texoga had made
significant progress in its testing program and procurement negotiations for
Deto-Stop; built a 10 million gallon per year biodiesel refinery in Conroe,
Texas; and bought a fleet of eight demilitarized Leopard I chassis for
conversion into Jumbo Firefighting Tanks. In January 2004, Texoga incorporated
three subsidiaries for the purpose of segregating its business initiatives into
discrete operating units:





·
            Our
      company, which was originally named Aegis Products, Inc., was organized to
      continue the testing and commercialization of the Deto-Stop
      system.·
            Safe
      Renewables, Inc. (“SRC”), which was originally named Safe Fuels, Inc., was
      organized to operate the biodiesel refinery and continue the development
      and commercialization of biodiesel production systems.·
            Armored
      Technologies, Inc. (“ATI”) was organized to pursue the commercialization
      of the Jumbo Firefighting Tank and ancillary safety
      technologies.





By late 2004, after Texoga had raised a
cumulative total of $5.2 million in equity from private placements to accredited
investors, its board of directors concluded that Texoga and its subsidiaries
would be better able to finance their activities as stand-alone companies,
rather than as members of a consolidated group. Therefore, Texoga’s board of
directors decided to restructure Texoga’s operations and spin off its three
subsidiaries to Texoga’s shareholders effective December 31, 2004. Since
December 31, 2004, Texoga, our company and our two former sister companies have
operated as separate entities, but cooperated in numerous respects including the
sharing of office facilities and certain administrative staff and the joint
development of certain projects. Immediately after the spin-offs, Texoga, our
company, SRC and ATI were each owned proportionally by 100 shareholders who
originally invested in Texoga. Since the spin-offs, our company has issued
approximately 16.4 million shares to investors who have no substantial interest
in Texoga, SRC or ATI; and SRC has issued approximately 11 million shares to
investors who have no substantial interest in Texoga, ATI or our company. The
following table identifies the individuals who are directors or officers of our
company, or 5% beneficial owners of our common stock, who also serve as
directors or officers of, or have substantial beneficial ownership interests in,
Texoga, SRC or ATI.





Our
      Company
              (31,265,561 total shares)
            Texoga
              (14,906,830 total shares)
            SRC
              (28,461,945 total shares)
            ATI
              (14,906,830
      total shares)Shares
            Percent
            Shares
            Percent
            Shares
            Percent
            Shares
            PercentDavid
      Holland
            3,077,500
            9.8%
            3,077,500
            20.6%
            3,077,500
            10.8%
            3,077,500
            20.6%Mahesh
      Kanojia
            1,605,000
            5.1%
            1,605,000
            10.8%
            2,355,000
            8.3%
            1,605,000
            10.8%Fred
      O’Connor
            400,000
            1.3%
            199,734
            1.3%
            100,000
            0.4%
            100,000
            0.7%Robert
      Wilson
            200,000
            0.6%
            200,000
            1.3%
            100,000
            0.4%
            100,000
            0.7%Rich
      DeGarmo
            100,000
            0.3%
            
            0.0%
            871,000
            3.1%
            
            0.0%









-5-


The
following table identifies all directors, officers, consultants and
professionals who have significant responsibilities to our company and also have
significant responsibilities to Texoga, SRC or ATI.





Our
    Company
            Texoga
            SRC
            ATIMahesh
      Kanojia
            Consultant
            Director
            Consultant
            DirectorJohn
      Petersen
            Legal
      Counsel
            Legal
      Counsel
            Legal
      Counsel
            Legal
      CounselSteven
      McGuire
            Consultant
            President
            Consultant
            PresidentRich
      DeGarmo
            Director
            —
            President
            —





We believe our company is not directly
or indirectly controlled by or under common control with Texoga, SRC or ATI.
Accordingly, we believe our company is not properly classified as an “affiliate”
of Texoga, SRC or ATI under applicable SEC rules. Our company is, however,
closely related to Texoga, SRC and ATI because all four entities were originally
part of Texoga and the core group of 100 original Texoga shareholders
collectively own approximately 47.6% of our shares; approximately 52.4% of SRC’s
shares; and all of Texoga’s and ATI’s shares.





From inception through mid-2006, we
engaged in a largely unsuccessful effort to complete live fire testing and
obtain military procurement contracts for the Deto-Stop explosion prevention
system. In December 2006, we changed our name to Biofuels Power Corporation,
assumed control over two partnerships described below that were organized and
syndicated by Texoga during 2006, raised approximately $1.5 million in equity
from the sale of common stock and reformulated our business plan to focus on
building and operating distributed electrical generating plants in the
metropolitan Houston area that are fueled by biodiesel and renewable
diesel.





Texoga Biofuels Partners 2006-I
(“TBP-I”), a Texas limited partnership, was syndicated by Texoga in April 2006
and raised $3.5 million from the private sale of 3,500 units of limited
partnership interest to 36 accredited investors. After paying selling
commissions of 10% to M1 Energy Capital Securities LLC, the net capital of TBP-I
was $3,150,000. TBP-I provided the principal financing for a biodiesel fueled
electric power generating facility in Oak Ridge North, Texas. In December 2006,
Texoga assigned its general partner interest in TBP-I to us with the written
consent of a 2/3 majority of the limited partners. While we assumed all of
Texoga’s rights and obligations as general partner of TBP-I, we did not issue
any securities or pay any consideration to Texoga in connection with the
assignment. After assuming our role as general partner of TBP-I, we offered to
exchange shares of our common stock for TBP-I units. Since December
2006, we have issued 4,417,500 shares of our common stock to purchase 2,245
TBP-I units; purchased 500 TBP-I units for cash; and purchased the remaining 755
TBP-I units for convertible subordinated notes. At the date of this annual
report on Form 10-K, we have acquired all 3,500 TBP-I units, dissolved the
partnership and assumed direct ownership of the Oak Ridge North
facility.





Texoga Biofuels Partners 2006-II
(“TBP-II”), a Texas limited partnership, was syndicated by Texoga in August 2006
and raised $3.5 million from the private sale of 3,500 units of limited
partnership interest to 45 accredited investors. After paying selling
commissions of 10% to M1 Energy Capital Securities LLC, the net capital of TBP-I
was $3,150,000. TBP-II provided substantial financing for a biodiesel
fueled electric power generating facility in Montgomery County Texas. In
December 2006, Texoga assigned its general partner interest in TBP-II to us with
the written consent of a 2/3 majority of the limited partners. While we assumed
all of Texoga’s rights and obligations as general partner of TBP-II, we did not
issue any securities or pay any consideration to Texoga in connection with the
assignment. After assuming our role as general partner of TBP-II, we offered to
exchange shares of our common stock for TBP-II units. Since December 2006,
we have issued 4,318,326 shares of our common stock to purchase 3,050 TBP-II
units. On the date of this annual report on Form 10-K, we own a 10% general
partner interest in TBP-II, together with 87.1% of the limited partner
interests.





The exchange of TBP-II units for shares
of our common stock has not changed the structure of TBP-II or adversely
impacted the rights of its limited partners. However, as the beneficial owner of
87.1% of the limited partner interests, we have voting control over the
partnership and are entitled to receive the same distributions the original
limited partners would have received. Under the applicable agreements, the
holders of the TBP-II units that we do not own are entitled to receive 12.9% of
any federal tax credits generated by our Montgomery County facility until they
receive cumulative distributions of $900,000. Thereafter, they will be entitled
to receive 1.9% of any federal tax credits generated by our Montgomery County
facility until we exercise the buy-out rights specified in the partnership
agreement. Our consolidated financial statements reflect the rights of the
TBP-II  limited partners as a minority interest. In light of our
current ownership of 87.1% of the limited partnership interests, we do not
expect the minority interests to have a material impact on our future net
income.





-6-


None of the limited partners of TBP-I
or TBP-II had any relationship with our company, Texoga, SRC or ATI on the dates
of their original investments. In October 2007, Alan Schaffner, a former limited
partner of TBP-I and TBP-II who exchanged his units for shares of our common
stock was appointed to our board of directors.





We issued $641,750 in convertible
subordinated notes to acquire 755 TBP-I units. At the date of this annual report
on Form 10-K, the holders of $450,500 in notes have exercised their conversion
rights and we have issued 600,665 shares of common stock in exchange for the
notes. The $191,250 in remaining notes are unsecured and subordinated to all
future senior indebtedness, including bank debt; bear interest at the rate of
12.5% per year, payable quarterly; and are due on the fourth anniversary of the
issue date. If our common stock is trading on a national securities exchange or
the OTC Bulletin Board on the due date and satisfies certain volume and market
price requirements, we will have the option, with payee partner consent, to
either pay the principal in cash, or issue shares of the Company’s common stock
valued at $3 per share.





The following organization chart is a
graphic depiction of the ownership relationships between our company, TBP-I and
TBP-II, Texoga, SRC, ATI and the original Texoga shareholders.







Unless we tell you otherwise,
references to “our company,” “we,” “us,” and “our” refer collectively to our
company, the partnership that we manage as general partner and our recently
formed subsidiary Alternative Energy Consultants, LLC. Our executive office is
located at 10003 Woodloch Forest Drive, Suite 900, The Woodlands, Texas 77380.
Our telephone number is 281-364-9500.





Introduction:
The delivery of useful energy to industrial, commercial and residential
buildings in the United States has evolved over many decades into a complex and
inherently inefficient dual-pronged system:





·
            Electricity
      for lighting, refrigeration, communications and electrical equipment comes
      almost exclusively from centralized power plants that serve users through
      a complex transmission and distribution grid; and·
            On-site
      heating systems that typically use oil or natural gas to fuel boilers and
      furnaces generally provide space heating, hot water and industrial process
      heat.





This
dual-pronged energy delivery system has persisted despite a general recognition
that the cogeneration of electricity and heat, a practice known as “combined
heat and power,” or “CHP,” can be significantly more energy efficient. With the
exception of large-scale industrial applications like oil refining and
petrochemical and paper manufacturing, CHP has not attained general acceptance.
Even with technical improvements, the electric power industry discharges roughly
twice the energy in the form of heat than it delivers to users in the form of
electricity. While on-site heating systems usually have better thermal
efficiency than centralized power plants, they too suffer from significant heat
loss. These inefficiencies in centralized power plants and on-site heating
systems are a major contributor to rising atmospheric CO2 levels. We
believe political and economic pressures to limit the use of fossil fuels will
favor the use of alternative energy technologies.





-7-


We
are pioneering the use of biodiesel and renewable diesel to fuel small-scale
distributed electrical power generating plants that include ancillary heating
and cooling facilities and are located in close proximity to the end-users they
serve. We use the term “Integrated Energy Systems,” or “IES,” to describe these
facilities. We believe Integrated Energy Systems can reduce demand on the
nation's utility grid, increase energy efficiency, reduce air pollution and
greenhouse gas emissions, protect against power outages, and, in many cases,
significantly reduce total energy costs for end-users.





We began producing electricity and
selling power into the ERCOT grid in 2007. We did not begin producing
electricity and selling power into the Entergy grid until 2008. Accordingly our
revenues to date from power sales have been limited. While we own and operate
equipment for the refining, blending and reprocessing of biodiesel, we are not
engaged in the business of manufacturing biodiesel for sale to others and we
only refine, blend and reprocess biodiesel for use in our generating facilities.
We believe our refining, blending and reprocessing equipment is sufficient
for our current and anticipated needs.





Biodiesel is a diesel fuel substitute
that is made from 100% renewable raw materials such as plant oils and animal
fats and has almost the same energy density (120,000 BTUs per gallon) as
petroleum-based diesel (132,000 BTUs per gallon). Renewable diesel is a broader
class of diesel fuel substitutes that are derived from 100% renewable plant and
animal sources, including certain byproducts that remain after agricultural
products are processed into foods, cosmetics and other products. In this annual
report on Form 10-K, we use the term “off-spec” to describe biodiesel that is
made from fats and oils that solidify at cooler temperatures and is not suitable
for transportation applications, and renewable diesel that satisfies the
technical requirements of various Federal and State programs that encourage the
production and use of renewable fuels.





The process that transforms raw plant
oils and animal fats into biodiesel is called transesterification. The reaction
is accomplished through a relatively simple process of mixing lye and methanol
with raw plant oil or animal fat; separating the resulting biodiesel (90%) and
glycerin (10%) using conventional gravity separation; and removing any free
methanol and water by passing the finished biodiesel through a high-temperature
evaporator. Biodiesel production does not create toxic byproducts. Since the
carbon dioxide released when biodiesel is burned was removed from the air during
production of the feedstock, biodiesel is a “carbon neutral” fuel that does not
contribute to the accumulation of Atmospheric CO2. Biodiesel
also emits fewer ancillary pollutants such as unburned hydrocarbons, sulfates,
carbon monoxide and soot. Biodiesel is the only alternative fuel that complies
with the health effects testing requirements of the 1990 Clean Air Act
Amendments.  It is also is the only alternative fuel that runs in any
conventional, unmodified diesel engine. Other benefits of biodiesel
include:





·
            Reduced
      fire risk because the flash point of biodiesel is higher than
      petroleum-based diesel;·
            Reduced
      environmental risk because biodiesel is non-toxic and
      biodegradable;·
            Reduced
      reliance on limited natural resources like coal, oil and natural
      gas;·
            Reduced
      competition for uncertain imported energy supplies; and·
            Significant
      long-term benefits for agriculture and the domestic
    economy.


Biodiesel
can be stored anywhere that petroleum-based diesel fuel is stored. It is safer
to handle and transport because biodiesel is biodegradable and has a higher
flashpoint (260°F) than petroleum-based diesel (130°F). Biodiesel can also
extend the life of diesel engines because it is more lubricating than
petroleum-based diesel fuel, while fuel consumption, power output, and engine
torque are relatively unaffected.





Business:
The initial focus of our business is on an eight-county region surrounding
Houston, Texas that is generally referred to as the Houston-Galveston-Brazoria
Eight Hour Ozone Non-Attainment Area (the “HGB”). The HGB has chronic air
quality problems because of the density of petrochemical plants and other heavy
industry. As a result, the Texas Commission on Environmental Quality (the
“TCEQ”) has adopted a variety of source control regulations and strategies to
combat air pollution and improve air quality within the HGB.





-8-


We
believe the use of biodiesel and renewable diesel in IES facilities can increase
air quality in the HGB and provide needed additional generating capacity without
adversely impacting the petrochemical and other industries that are the economic
lifeblood of the region. We also believe the collateral benefits of our strategy
to use biodiesel and renewable diesel in distributed IES facilities, as compared
with centralized generating plants, include:





·
            Rapid
      response to changing demand requirements at a low cost per megawatt (“MW”)
      of installed capacity;·
            Reduced
      demand for generation, transmission and distribution upgrades in congested
      electric service areas and rapidly growing markets;·
            Increased
      grid stability from IES facilities located in close proximity to
      end-users;·
            Reduced
      reliance on fossil fuels for heating and cooling and lower toxic emissions
      than coal or petroleum fueled generators;·
            Relative
      insensitivity to fuel prices due to high overall efficiencies achieved at
      IES facilities, including the use of waste heat to operate absorption type
      air conditioning systems (displacing electric-powered refrigeration during
      periods of peak summer demand); and·
            First
      mover advantages from producing green electricity in the 4th largest
      metropolitan area in the country.





Operations:
Our current operations are conducted at two sites in Montgomery County, Texas.
Both of our facilities are located approximately 35 miles north of downtown
Houston; are within one mile of I-45, the major north-south highway from Houston
to Dallas; and are in close proximity to The Woodlands, a 35,000 household
master-planned community that has been the best-selling residential community in
Texas since 1990.





At
the date of this annual report on Form 10-K, we have:





·
            Leased
      a 1/2-acre industrial site from the City of Oak Ridge North on a 44-month
      renewable ground lease; built a 3,000 square foot building and control
      room; and installed a biodiesel fueled generating plant that has 15,000
      gallons of heated fuel storage and uses three Caterpillar diesel
      generators with a combined capacity of approximately 5
  MW;·
            Leased
      a 1.5 acre industrial site in an unincorporated area of Montgomery County
      on the outskirts of The Woodlands, Texas; built a 2,200 square foot
      building and control room; and installed a biodiesel fueled generating
      plant that has 25,000 gallons of heated fuel storage and uses a General
      Electric Combustion Gas Turbine generator with a rated capacity of just
      under 10 MW;·
            Commenced
      additional site preparation at our Montgomery County facility for a second
      biodiesel fueled generating plant that will use a boiler system in
      conjunction with a Westinghouse steam turbine to generate approximately
      2.5 MW;·
            Purchased
      a heat recovery steam generator (“HRSG”) system that will recover waste
      heat from our existing diesel turbine and use that waste heat to power a
      companion steam generator, thereby adding up to 10 MW of additional
      generating capacity without increasing our fuel costs;
  and·
            Commenced
      planning for ancillary systems to collect waste heat from our generators
      and use that waste heat to provide space heating, air conditioning and
      industrial process heat to customers who operate in close proximity to our
      facilities.





Our Oak Ridge North facility uses
reciprocating diesel engines to power its generators and has the most stringent
fuel quality requirements. While the Oak Ridge North facility has heated fuel
storage systems and can use biodiesel made from animal fats and other oils that
are not suitable for use in transportation fuel because they solidify in cooler
weather, the engines require a high quality biodiesel fuel that meets ASTM
standards. Initially, all of the biodiesel used in our Oak Ridge North facility
was refined by SRC. Recently, we have identified a number of other
biodiesel refiners who produce off-spec products that meet ASTM standards but
are not suitable for use in transportation applications. Since many of these
refiners have more advantageous feedstock supply contracts than SRC, they
are frequently able to offer a more competitive price than SRC. In order to
maximize our gross income from power generating activities, we intend to
opportunistically purchase off-spec biodiesel for our Oak Ridge North facility
from the lowest cost producer.





-9-


Our Montgomery County Facility uses a
diesel turbine to power its generator and has greater flexibility to use either
off-spec biodiesel or certain types of renewable diesel that have appropriate
energy content and meet the fuel requirements for the turbine. Initially, all of
the biodiesel used in our Montgomery County facility was refined by SRC.
Recently, we have identified a number of biodiesel refiners and other industrial
processors of plant oils and animal fats that produce finished products or
byproduct streams that are suitable for use as turbine fuel. Since the biodiesel
producers frequently have more advantageous feedstock supply contracts than SRC
and the industrial processors are typically selling byproduct streams, they
are frequently able to offer a more competitive price than SRC. In order to
maximize our gross profit from power generating activities, we intend to
opportunistically purchase off-spec biodiesel and renewable diesel for our
Montgomery County facility from the lowest cost producer.





Our
planned boiler systems will be able to use off-spec biodiesel, renewable diesel,
gasified glycerin, natural gas and other petroleum products to generate heat for
our steam turbines. We believe the ability to burn a variety of fuels and adjust
our fuel mix in response to market conditions will increase our ability to
opportunistically purchase suitable fuel from a wide variety of sources,
minimize our fuel costs and maximize our gross income from IES
activities.





We
completed the necessary shakedown testing, performance evaluations and emissions
testing at our Oak Ridge North facility in February 2007. The Oak Ridge North
facility was then connected to the Electric Reliability Council of Texas
(“ERCOT”) grid and placed in service. ERCOT serves the deregulated electricity
market for 75% of the State of Texas. Our Oak Ridge North facility was the first
generating plant in the United States to deliver electricity to the grid running
entirely on biodiesel. We completed the necessary shakedown testing, performance
evaluations and emissions testing at our nearby Montgomery County facility in
December 2007. The Montgomery County facility was then was connected to the
Entergy Gulf States grid and placed in service. Entergy services 2.7 million
utility customers in Texas, Arkansas, Louisiana and Mississippi and is
interconnected with the nationwide Federal Energy Regulatory Commission (“FERC”)
grid. We believe the ability to sell electricity to customers in two major
electric power grids will facilitate our planned growth.





We currently operate our Oak Ridge
North and Montgomery County facilities as “peaking plants,” which means that we
operate the facilities during periods of peak demand when the price for
electricity is high and suspend our operations during low-demand periods when
electricity prices are lower. In light of the relatively high cost biodiesel and
renewable diesel, we continuously monitor our expected revenue from power sales
and suspend operations when the value of the electricity we produce would be
less than the cost of the fuel we consume. Under normal conditions, we expect to
operate our facilities for approximately six hours per day during the winter and
for up to 18 hours per day during the summer.





Our
power generation operations are conducted at fixed locations using a variety of
generator technologies. As a result, we can and do:





·
            Use
      exhaust gasses to heat storage tanks for biodiesel made from less
      expensive feedstock including animal fat and high pour point plant oils
      that are not suitable for use in transportation fuel;
  and·
            Use
      off-spec biodiesel that results from processing errors made by new
      entrants in the biodiesel industry who have not yet optimized their
      equipment, systems and processes.





When our
planned boiler and steam turbine is installed and operational, we intend to
evaluate the potential for gasifying glycerin and other by-products of biodiesel
production, and using
those byproductstogether with readily available biomass, to satisfy all
or part of the fuel requirements for the boiler system.





Our
Montgomery County facility is adjacent to a 30 million gallon per year biodiesel
refinery operated by our former sister company SRC. The site is served by an old
Union Pacific rail spur that requires an extension and upgrade, but will allow
us to receive bulk shipments by rail. It is also adjacent to a 250-acre tract of
undeveloped land that is zoned for industrial use. In cooperation with the
Houston Advanced Research Center and several development partners, we have
applied for a DOE grant to develop the nation’s first green energy industrial
park on the adjacent tract, and use the waste heat from our Montgomery County
facility to provide IES to future tenants. If our plans to develop a new
industrial park are realized, that development should allow us to create a
significant supplemental income stream from the waste heat that would otherwise
be lost, but has substantial value for industrial heating and
refrigeration.





-10-


We
have identified a number of inactive electric generating and cogeneration
facilities in the HGB that are owned by others but may be available for lease or
purchase. We believe that the HGB presents significant potential for the
acquisition of IES facilities and for operating partnerships with owners of
established cogeneration facilities.





Biodiesel Supply
and Production:Biodiesel can be manufactured from almost any plant oil
or animal fat. However, the physical characteristics of the resulting fuel
depend in large part on the physical characteristics of the original feedstock.
Plant oils like soy and cottonseed that remain liquid over a wide temperature
range are converted into biodiesel that remains liquid over a wide temperature
range and can be easily used in transportation. Animal fats and plant oils that
solidify at cooler temperatures produce biodiesel that solidifies at cooler
temperatures. As a result, biodiesel made from these types of oils is generally
not desirable for use in automobiles, trucks and other transportation
applications where the fuel will be exposed to cooler weather
conditions.





Biodiesel and renewable diesel are
classified as renewable fuels that are eligible for refundable federal credits
of $1.00 per gallon for fuels manufactured from new plant oils, fats and other
virgin agricultural productsand $0.50 per gallon for
fuels produced from non-virgin oil and fats. For fuels used in transportation,
the credit is claimed as an offset against the federal excise tax for motor
fuels. For fuels used in IES and other off-road applications, the credit is paid
directly by the federal government. Our business plan depends on the continued
availability of tax incentives and other governmental subsidies. If the subsidy
regime is modified in a way that significantly curtails the amount of available
subsidies, the negative impact on our company could be substantial.





The
cost of feedstock depends largely on whether the feedstock has an alternate use,
either for cooking oil or as food for people or animals. Virgin plant oils like
soybean oil that have significant value in the food market are generally far
more expensive than other feedstock materials like tallow that have limited
value in the food market. Over the last year, for example, soybean oil has
traded in the range of $0.33 to $0.52 per pound, while tallow and yellow grease
have traded in the range of $0.20 to $0.33 per pound. The following graph has
been derived from data published by Jacobson Fats & Oils Bulletin and shows,
for the period from January 2006 through February 2008, the average monthly
prices for the principal fats and oils we use for biodiesel
feedstock.





-11-









Biodiesel
requires approximately eight pounds of feedstock for each gallon of finished
fuel. It also requires ancillary raw materials (principally methanol and lye)
that cost an average $0.25 per gallon of finished fuel. At current feedstock
prices, biodiesel can be more expensive than petroleum-based diesel. While
various credits and agricultural support payments improve the economics of
biodiesel production, it is difficult to profitably produce biodiesel at current
feedstock prices. The following table provides summary information on the
various classes of feedstock that are used for biodiesel, the flexibility of
feedstock supplies, and the relative cost of finished biodiesel produced from
each class of feedstock.





FEEDSTOCK
            COST
            SUPPLY
      FLEXIBILITY
            BIODIESEL
      COSTVirgin
      plant oils:
              Soy,
      palm, canola, corn, etc.
            High:
              $0.40-$0.55 per lb
            Fixed:
      Dependent on annual
            $2.70
      to $3.90 per gallon after tax creditsVirgin
      animal fats:
              Lard, tallow, poultry fat, fish oil
            Moderate:
              $0.25-$0.35
      per lb
            Fixed:
      Dependent on meat, poultry and fish production
            $2.40
      to $2.80 per gallon after tax creditsRecycled
      feedstock:
              Used restaurant and trap grease
            Low:
              $0.20-$0.30
      per lb
            Fixed:
      Dependent on restaurant fryer activity
            $1.60
      to $2.00 per gallon after tax
credits


Source:
      Jacobsen Fats and Oils Bulletin.





IES is a stationary activity, meaning
that IES facilities are built in a fixed location with the intention of
operating from that location for years. In a fixed location, it is a simple
matter to use exhaust gases to heat storage tanks and fuel lines. Since we have
the ability to heat our fuel systems and fuel costs are the most expensive
component of our overall operating costs, we plan to use biodiesel made from
less desirable feedstock supplies like beef tallow, pork tallow, chicken fat and
palm oil whenever possible. We believe our ability to use biodiesel made from
feedstock sources that are not suitable for transportation fuel will help us to
control our fuel costs and maximize our gross profit contribution from power
generating activities.





During most of 2007, we bought the
biodiesel we required from SRC. Over the last few months, principally in
response to rising feedstock prices, we have developed several reliable supply
channels for off-spec biodiesel and renewable diesel produced by others. This
category includes biodiesel that has been produced for use as transportation
fuel and rejected by potential purchasers because it solidifies at cooler
temperatures; biodiesel that was improperly processed and contains one or more
impurities that would not be acceptable in transportation applications; and
certain byproduct streams from industrial processing of plant oils and animal
fats that meet all applicable standards for renewable diesel under Federal and
State programs. Our recent experience has demonstrated that we can use off-spec
ASTM grade biodiesel in our Oak Ridge North facility and use either off-spec
biodiesel or renewable diesel in our Montgomery County facility with minimal or
no reprocessing. In general the cost of off-spec biodiesel and renewable diesel,
before tax credits, compares favorably with the cost of the cheapest
transportation grade biodiesel after tax credits.





-12-


We
intend to opportunistically purchase off-spec biodiesel and renewable diesel in
the open market. Since there are numerous producers of biodiesel that are
encountering difficulties in their efforts to sell off-spec products into the
transportation market and a wide variety of industrial processors of plant oils
and animal fats that generate byproduct streams that qualify as renewable
diesel, we believe that competition among potential suppliers of off-spec
biodiesel and renewable diesel is intense. We have encountered no difficulties
in sourcing and procuring adequate fuel supplies from third-party vendors in
recent months and we do not anticipate difficulties in obtaining adequate fuel
supplies in the future. Nevertheless, our experience in the off-spec biodiesel
and renewable diesel markets is limited and we have not entered into long-term
contracts with any suppliers. Accordingly, we cannot provide any assurance that
sufficient quantities of off-spec biodiesel and renewable diesel will be
available at attractive prices and in quantities sufficient to serve our future
needs.





As a back-up to our activities in the
off-spec biodiesel and renewable diesel markets, we have negotiated a long-term
requirements-based supply relationship with SRC that gives us the right to buy
up to 1.6 million gallons of biodiesel per month. We are not obligated to
purchase any biodiesel from SRC. If we elect to have SRC process fuel for us
under the tolling contract, we will provide all required raw materials to SRC
and pay a processing fee of $0.50 per gallon. SRC will then process our raw
materials and deliver the finished biodiesel to us. Our contract with SRC is
sufficient to fuel up to 40 MW of IES capacity.





Electric Power in
Texas:The generation, distribution and sale of electricity in Texas is
managed by ERCOT, which operates the high voltage transmission and distribution
grid and manages the deregulated market for approximately 75% of the State.
Unlike other regions in the United States, the ERCOT grid functions as a single
regulated system instead of as a network of cooperating utility companies. While
the high voltage transmission and distribution of electricity are regulated, the
production and retail sale of electricity are deregulated.





Within
the ERCOT system, there are over 100 power generating companies (“PGCs”) that
own facilities for the generation of electricity, approximately 130 certified
retail electric providers (“REPs”) that sell electricity to end-users and
approximately 180 registered power marketers (“RPMs”) that act as wholesale
intermediaries between the PGCs and REPs. Under Texas law, only RPMs and REPs
can purchase electricity from PGCs and sell to retail end-users. REPs are not
allowed to own generating facilities, so all retail electricity is purchased in
the competitive ERCOT wholesale marketplace. Most electric power in ERCOT is
sold under bilateral contracts, but long-term contracts of two years or more are
very rare. Much of the electricity generated is sold in very short-term
contracts and roughly 5% is sold in a daily “balancing market” based on bids
submitted the previous evening. Most wholesale electric prices are indexed in
some way to natural gas prices. For all but the periods of very low system load,
gas units (which constitute 72% of the generating capacity in ERCOT) are the
marginal units and are dispatched on their relative efficiency of converting
natural gas to electricity. As a consequence, ERCOT wholesale prices closely
track the price of natural gas in Texas, even for generators not fueled by gas.
Municipal utilities, state power authorities and electrical cooperatives are not
required to participate in the competitive retail electric market, although some
of these do purchase power in the competitive wholesale market.





As a PGC
in the ERCOT system, we have the option of selling our electricity:





·
            under
      a short-term contract with an end-user;·
            under
      a long-term contract with an end-user;·
            to
      an RPM or REP for the balancing energy price that is established every 15
      minutes;·
            to
      an RPM or REP for the day-ahead price that is established on a daily
      basis;





We can
also pre-sell all or part of our electricity in the ERCOT futures
market.





-13-


Operating
Revenues:The annual average wholesale producer’s price for electricity
in Texas is approximately $65 per megawatt-hour, or “MWh.” During the summer
months and other peak demand periods, producer’s prices increase to highs of
$180 per MWh.  In addition to the sale of wholesale electrical power,
we receive an IRS Excise Tax Rebate of up to $1.00 per gallon for renewable fuel
that we use to generate electricity.





Our Oak Ridge North facility burns an
average of 85 gallons of biodiesel for each MWh of electricity that it generates
and fuel consumption at our Montgomery County facility currently averages 135
gallons per MWh. To avoid a situation where our fuel costs exceed our operating
revenue, we must purchase fuel on opportunistic terms; carefully monitor the
balance between fuel costs and electricity value; and restrict generating
operations to peak demand periods when the value of the electricity we produce
is greater than the cost of the fuel we consume. Our current practice of
operating during peak price periods and remaining idle when prices are lower
does not fully utilize our generating capacity and our business model will not
be successful in the long-run unless we can realize a premium price for our
electricity and generate significant ancillary revenues. As our business
matures, we hope to derive additional operating revenue from a variety of
sources including:





·
            Federal Excise Tax Rebate
      (FETR)Biodiesel and renewable diesel produced from virgin oils and
      fats and used as a fuel are entitled to a $1.00 per gallon rebate ($0.50
      for non virgin oils and fats) from the Federal Government in the form of
      an Excise Tax Rebate.  IRS Form 720 is a quarterly report that
      allows registered blenders to request the rebate.·
            Green Electricity Premium
      (GEP)Electricity
      produced from biodiesel is classified as “green” electricity because the
      carbon dioxide released when biodiesel is burned was removed from the air
      during production of the feedstock. While we have not done so to date, we
      believe we may be able to obtain higher prices from end-users that are
      willing to pay a significant premium for the goodwill associated with
      environmentally conscious energy policies.·
            Heating and Air Conditioning
      Services (HACS) Waste heat produced by our generating plants is
      currently vented to the atmosphere and lost. Nevertheless, we believe our
      waste heat has substantial economic value to commercial and industrial
      concerns that operate in close proximity to our plants and can use our
      waste heat to satisfy their heating and air conditioning requirements. We
      plan to purchase and install a combination of heat collection and
      adsorption cooling equipment on each of our generating plants and to sell
      HACS to customers in the immediate vicinity of our plants. We believe the
      potential value of our planned HACS may equal or exceed the initial value
      of our power generation revenue.·
            Renewable Energy Credits
      (REC)RECshave been mandated
      as part of Texas’ deregulation of the electric utility industry.
      Generating facilities are granted RECs in direct proportion to the MWh of
      renewable energy produced from sources such as hydro, wind, solar, biogas
      and renewable fuels. In turn, all retail electric providers in Texas are
      required to hold RECs based on the level of their annual retail sales in
      the state. RECs trade separately from the produced electricity and have an
      independent value determined by market forces. Since 2003, RECs in Texas
      generally have traded in the $10 to $13 per MWh range, although recent
      trading data implies a softening of demand and concomitant reduction in
      REC value.·
            Emission Reduction Credits
      (ERC)The HGB Mass
      Emission Cap & Trade program was adopted in December 2000. The program
      is managed by the TCEQ and establishes emission caps for the HGB. The
      emissions covered by the program include nitrous oxide; volatile organic
      compounds; carbon monoxide; sulfur dioxide; and particulates. Since
      biodiesel, or biodiesel combined with additives or catalytic converters,
      can reduce emissions in each of the covered emissions classes and all of
      our current and planned operations will be conducted within the HGB, we
      may be able to generate substantial emission reduction
      credits.·
            Greenhouse Gas Credits
      (GGC)Large quantities
      of CO2, a
      “greenhouse gas” that is widely believed to be a principal cause of global
      warming, are produced whenever hydrocarbons are used for fuel. At present,
      there are no Federal, State or local regulations that restrict the
      production of CO2 or
      other greenhouse gases. Nevertheless, increased awareness of global
      warming and other problems associated with greenhouse gas emissions is
      driving efforts throughout the industrialized world to regulate and
      restrict future CO2emissions. If CO2emission standards are adopted, biodiesel is likely to become a
      preferred fuel because it is carbon neutral. It is presently impossible to
      predict whether CO2reduction initiatives will be adopted in the State of Texas, when
      such initiatives might be adopted or the potential value of any future
      carbon reduction credits that may be available to us.







-14-


Our Oak
Ridge North facility was connected to the ERCOT grid in February 2007 and our
Montgomery County facility was connected to the Entergy grid in December 2007.
At the date of this annual report on Form 10-K, neither facility has had a
sufficient operating history to be classified as a “base load” facility. To be
classified as a base load facility, a power generating plant is typically
required to demonstrate reliable power generation for a period of six to nine
months. Until our Oak Ridge North and Montgomery County facilities are
classified as base load facilities, it will be difficult for us to negotiate
contracts with  s that provide for a GEP because we will not be able
to assure potential customers that our generating facilities will be able to
meet their requirements.





There
is no assurance that our plans to augment our revenue from electricity sales
with the incentives described above will be successful. Even if we realize
substantial ancillary revenues from these sources and others, there is no
assurance that our revenues will ever exceed our operating costs or that we will
be able to generate operating profits on a sustained basis. If we are unable to
significantly increase our operating revenue or significantly reduce our fuel
costs, our business will fail.





Sales and
Marketing: We began generating electricity at our Oak Ridge North
facility in February 2007. Our power marketing activities for electricity
generated at the Oak Ridge North facility are conducted by Fulcrum Power
Services, LP, an ERCOT RPM that receives a flat fee of $6,000 per month from us.
Currently, our electricity is sold into the ERCOT grid for the balancing
energy price, which is determined every 15 minutes based on prevailing supply
and demand considerations. The balancing energy price typically ranges from lows
of $20 per MWh to highs of $180 per MWh, and averages approximately $65 per MWh
on an annual basis.





We began generating electricity and
selling power from Montgomery Country facility in January 2008. Within the
Entergy service territory we can only sell to electric cooperatives, municipal
electric systems or private electric utilities.  Our Montgomery County
facility is a qualified small power producer under federal law and is therefore
entitled to sell its output for the prevailing price, which electric utilities
are required to pay. Entergy is currently purchasing the output of our
Montgomery County facility under the small power producer tariff on file with
the FERC. Texas already has retail competition within the territory served by
ERCOT grid and has statutory authority to extend that retail competition to
Entergy’s territory under transition plans now being studied by the Public
Utility Commission. The applicable pricing under Entergy’s small power producer
tariff is generally comparable to ERCOT pricing.





While we believe we will be able to
negotiate a significant GEP when our generating facilities have established a
track record for reliability and performance, we are unable to predict the
amount of the potential GEP or the period of time that we will be required to
sell our electricity at the lower balancing energy price before we can enter
into an end-user contract. Since the balancing energy price is significantly
lower than the price we hope to realize over the long term, delays in obtaining
an end-user contract or less favorable terms than we presently anticipate may
adversely impact our current and future operating performance.





Since we are not yet able to sell green
electricity under long term contracts, we cannot specifically identify the
principal potential markets or likely customers for green electricity. However,
we believe that green electricity will be attractive to industrial users that
need to reduce their overall air pollution profile, environmentally conscious
consumers that want to make a tangible contribution to air quality, and retail
stores, restaurants and other commercial establishments that want to project an
environmentally conscious image to the general public.





Newly formed
subsidiary:In August 2007, we organized a subsidiary limited liability
company named Alternative Energy Consultants, LLC (“AEC”), which will engage in
the business of designing and building standardized biodiesel refineries and IES
facilities for our company and third parties. Our ultimate goal for AEC is to
develop an engineering staff for the design work; a fabrication division to
manufacture key components; and a field staff to provide procurement,
construction and operating services. AEC’s initial designs are based on
modifications to the SRC refinery and our Oak Ridge North and Montgomery County
facilities. As we develop additional experience in the development and
construction of new IES facilities, those designs will also be made available to
third parties through AEC.





-15-


Competition:In the electric power markets, we compete with all major utilities that
provide power to the ERCOT and Entergy grids, and a variety of small power
producers including CHP facilities, wind farms and solar power installations.
While we operate our Oak Ridge North and Montgomery County facilities as peak
load plants, we will have limited ability to secure bilateral contracts for sale
of our electricity. Until we are able to sell green electricity under long-term
contracts, we will operate in a largely non-competitive market segment
consisting of small electricity generators who can either produce electricity
and sell it for the prevailing price or refrain from producing and selling
electricity. If, as and when we are able to market green electricity to
end-users, our principal method of competition will be to emphasize the
environmental benefits of our electricity as compared with electricity produced
from coal fired plants and other sources.





Most of our competitors have greater
financial resources and lower fuel costs than we do; are able to produce
electricity for a lower cost per MWh than we can; and are better able to
withstand periods of low electricity prices without suffering negative cash flow
from generating activities. In the markets for green and renewable electricity,
we will compete primarily with wind farms and solar power installations,
which offer the same renewable and clean power advantages that we do while
incurring significantly lower operating costs.





At present substantially all CHP
facilities located within the ERCOT and Entergy territories are facilities that
provide heat and power to a single end-user. We are not aware of any plans to
install facilities like ours that are designed to provide integrated energy
services to multiple customers. If we are successful in our efforts to develop a
green energy industrial park on an adjacent property, we expect to have a
captive market for our electric power and ancillary heat and cooling services.
Since our planned industrial park will be one of a handful of sites between
Houston and Dallas that have ready rail access, we believe it will be an
attractive location for a wide variety of potential tenants. However, there can
be no assurance that we will be able to attract tenants that have substantial
requirements for electricity, heating and cooling. Under the circumstances,
there is no assurance that we will ever be able to compete
effectively.





Regulatory
Compliance:All phases of designing, constructing and operating biodiesel
powered facilities for the generation of electricity are subject to
environmental regulation by various federal and state government agencies,
including, but not limited to, the EPA, the Texas Commission on Environmental
Quality (“TCEQ”) and other agencies in each jurisdiction where our existing and
proposed facilities are located. Environmental laws and regulations relating to
exhaust emissions, air and water quality and the discharge of pollutants in
general are extensive and have become progressively more stringent. Since
biodiesel is non-toxic and biodegradable, and emissions from the combustion of
biodiesel are lower than emissions from the combustion of other liquid
fuels, we have not been required to incur substantial costs to ensure compliance
with applicable environmental laws and regulations. Nevertheless, applicable
laws and regulations are subject to change, which could be made retroactively.
Violations of environmental laws and regulations or permit conditions can result
in substantial penalties, injunctive orders compelling installation of
additional controls, civil and criminal sanctions, permit revocations and/or
facility shutdowns. If significant unforeseen liabilities arise for corrective
action or other compliance, our sales and profitability could be adversely
affected.





Our
current and planned operations require licenses, permits and in some cases
renewals of these licenses and permits from various governmental authorities.
Our ability to obtain, amend, comply with, sustain, or renew such licenses and
permits on acceptable, commercially viable terms are subject to change, as,
among other things, the regulations and policies of applicable governmental
authorities may change. Our inability to obtain, amend to conform to our
operations, or extend a license or a loss of any of these licenses or permits
may have a material adverse effect on our business, financial condition and
results of operations.





Failure
to comply with government regulations could subject us to civil and criminal
penalties, require us to forfeit property rights and may affect the value of our
assets or our ability to conduct our business. We may also be required to take
corrective actions, including, but not limited to, installing additional
equipment, which could require us to make substantial capital expenditures. We
could also be required to indemnify our employees in connection with any
expenses or liabilities that they may incur individually in connection with
regulatory action against them. These could result in a material adverse effect
on our business, financial condition and results of operation. To date, our
expenditures for regulatory compliance have not been material, but we expect the
cost of regulatory compliance to increase as our business develops.





-16-


Research and
Development, Patents and Intellectual Property: During the last two
years, we have no material expenditures for activities that are properly
classified as research and development. We do not own any patents and our
business plan is not based on intellectual property other than the know-how and
experience of our directors, officers and key employees.





Employees: We have nine
employees at the date of this annual report on Form 10-K including a two-member
management and business development team, two administrative employees, an
operations engineer and four operations employees. We also use part-time
independent contractors to perform a variety of specialized services. Over the
next twelve months, we plan to hire six additional employees for our engineering
and management teams. We are not subject to any collective bargaining agreements
and believe our relations with our employees are good.  For
construction of facilities, the company uses outside construction firms and
subcontract labor to supplement our workforce.





Exchange
Act Registration, Periodic Reporting and Audited Financial
Statements





We
have registered our common stock under the Securities Exchange Act of 1934 and
are required to file annual and quarterly reports, proxy statements and other
reports with the SEC. All reports and other filings we make with the SEC will be
available on our corporate website at www.biofuelspower.com. We presently expect
the costs of operating as a public company to increase our annual operating
expense by $200,000 to $300,000.





ITEM
1A — RISK FACTORS





Our
business involves a high degree of risk. The following risk factors should be
considered carefully in addition to the other information contained in this
annual report on Form 10-K.





We
are an early stage company, our business is evolving and our prospects are
difficult to evaluate.





From
inception through mid-2006, we engaged in an unsuccessful effort to negotiate
military procurement contracts for an explosion preventing aluminum mesh fuel
tank filler. In December 2006, we changed our name to Biofuels Power
Corporation, raised approximately $1.5 million in new capital and assumed
operational and legal responsibility for two partnerships that were organized by
Texoga during 2006. This change in focus required us to establish purchasing and
power distribution capabilities that we did not need in earlier periods. It has
also significantly increased the amount of capital required for fuel inventories
and increased our exposure to upstream commodity price and downstream power
price fluctuations. We have no material operating history that you can rely on
in connection with an investment decision. Our prospects must be carefully
considered in light of our history, our high capital costs, our exposure to
commodity and power price fluctuations and the other risks, uncertainties and
difficulties that are typically encountered by companies that are implementing
novel business models. Some of the principal risks and difficulties we expect to
encounter include our ability to:





·
            Raise
      substantial capital to finance our planned expansion, together with the
      losses we expect to incur as we begin a period of rapid
      growth;·
            Install
      our planned HACS facilities and design and build new IES facilities while
      maintaining effective control over the cost of new
    facilities;·
            Reduce
      the risk of commodity price swings and optimize the value of the GEP and
      HACS we produce through price hedging, forward contracts and similar
      activities;·
            Develop,
      implement and maintain financial and management control systems and
      processes to control the cost of our power generating
      activities;·
            Develop,
      implement and maintain systems to ensure compliance with a variety of
      governmental and quasi-governmental rules, regulations and
      policies;·
            Adapt
      and successfully execute our rapidly evolving and inherently unpredictable
      business plan and respond to competitive developments and changing market
      conditions;·
            Attract,
      retain and motivate qualified personnel; and·
            Manage
      each of the other risks identified in this annual report on Form
      10-K.





-17-


Because
of our lack of operating history and our early stage of development, we have
limited insight into trends and conditions that may exist or might emerge and
affect our business. There is no assurance that our business strategy will be
successful or that we can or will successfully address these risks.




The
auditors report on our financial statements includes a going concern
qualification.
 
 For the years ended December 31, 2007
and 2006, we incurred net losses of ($3,531,327) and ($396,914) respectively. At
December 31, 2007, we had approximately $1.3 million in working capital and our
accumulated deficit was ($3,963.758. Therefore, the independent auditors’ report
on our financial statements for the year ended December 31, 2007 contains a
fourth explanatory paragraph that our financial statements have been prepared
assuming that our company will continue as a going concern and that our history
of operating losses and negative cash flow raise substantial doubt about that
assumption.


We have significant weaknesses in our
system of internal controls that could subject us to regulatory scrutiny or
impair investor confidence, which could adversely effect our business and our
stock price.





Section 404 of the Sarbanes-Oxley
Act of 2002 requires companies to do a comprehensive evaluation of their
internal controls. At present, our system of internal controls does not satisfy
all applicable regulatory requirements. Future efforts to bring our system of
internal controls into compliance with Section 404 and related regulations
will likely require the commitment of significant financial and managerial
resources. If we fail in that effort, we could be subject to regulatory scrutiny
or suffer a loss of investor confidence, which could adversely affect our
business and our stock price.





We have engaged in significant related
party transactions with former affiliates that may give rise to conflicts of
interest, result in significant losses to our company or otherwise impair
investor confidence, which could adversely effect our business and our stock
price.





We have engaged in significant related
party transactions with Texoga and SRC, which are both former affiliates of our
company. The principal related party transactions during 2006 and 2007 include
our prepaid purchases of approximately 208,000 gallons of biodiesel from SRC in
2006 and our purchases of 152,000 additional gallons of biodiesel from SRC
during 2007, that collectively represented approximately 90% percent of the
biodiesel we purchased for use in power generation activities; and approximately
$407,000 we paid on behalf of Texoga and SRC in 2007, which represents their
respective participations under a rent sharing arrangement for the office space
that all three companies use as their principal executive office. While we are
not controlled by or under common control with Texoga or SRC; the commonality of
ownership between the three companies is declining; and all related party
transactions must be approved by the disinterested members of our board of
directors; related party transactions in general have a higher potential for
conflicts of interest than third-party transactions, could result in significant
losses to our company and may impair investor confidence, which could adversely
effect our business and our stock price.





All
our officers are part-time employees who are engaged in other activities and
will face conflicts of interest in allocating their time among their various
interests.





Our CEO,
Fred O’Connor presently serves as the Mayor of Oak Ridge North, Texas and also
serves as a part-time employee of our company. Similarly, our CFO, Robert
Wilson, is actively engaged in other business activities. While neither of our
officers are engaged in activities that are competitive with our business, they
will both face conflicts of interest in allocating their time among their
various interests. To the extent that material conflicts of interest arise,
those conflicts may have a material adverse impact on our business or stock
price. We plan to hire a full-time CEO and a full time CFO, but can offer no
assurance respecting the availability of suitably experienced executive
officers, the amount of time required to complete our planned executive search,
or the terms of any future employment agreement a newly hired executive officer
will require.





-18-


Over the long-term, we must obtain a
premium price for our green electricity or our business will fail.





The
annual average commercial price for electricity in Texas is approximately $65
per MWh. During the summer and other periods of peak demand, average prices
increase to highs of $180 per MWh. If our net fuel costs after available tax
rebates exceed our revenue from electricity sales we will lose money. Over the
long term, we will not be able to profitably use biodiesel as fuel to generate
power unless we are able to obtain a premium price for “green electricity.” We
believe a variety of industrial, commercial and individual end-users will be
willing to pay a significant premium for a reliable source of green electricity,
but we have no end-user contracts at the date of this annual report on Form 10-K
and will not be able to negotiate such contracts until we establish our
reliability as a power producer. There is no assurance that our plans to augment
our revenue from electricity sales with ancillary revenue from GEPs, HACS, RECs,
ERCs and GGCs will be successful. Even if we realize substantial ancillary
revenues from these sources and others, there is no assurance that our revenues
will ever exceed our operating costs or that we will be able to generate
operating profits on a sustained basis. If we are unable to significantly
increase our operating revenue or significantly reduce our fuel costs, our
business will fail.





Our
growth strategy may not be executed as planned which could adversely impact our
financial condition and results of operations.





There
can be no assurance that our rapidly evolving and inherently unpredictable
growth strategy will be successful. For example, there can be no assurance that
“green electricity” generated from alternative fuels will command a meaningful
premium in the marketplace. Likewise, there can be no assurances that
potential HACS customers will be willing to pay a reasonable price for HACS
services. Similarly, there can be no guarantee that our investment in biodiesel
fueled IES facilities will not be adversely impacted as a result of
unanticipated changes in available technologies, fossil fuel prices or
environmental regulatory policies. Execution of our growth strategy, if
achieved, may take longer than expected or cost more than expected. Our growth
strategy is dependent upon many variables, including, but not limited to,
market, legislative and regulatory dynamics. Any change to any of these dynamics
could affect the execution our growth strategy, including causing management to
change its strategy.





The
operation and maintenance of IES facilities involves significant risks that
could adversely affect our results of operations and financial
condition.





The
operation and maintenance of IES facilities involves many risks, including
start-up risks, breakdown or failure of facilities, lack of sufficient capital
to maintain the facilities, the dependence on a specific fuel source or the
impact of unusual or adverse weather conditions or other natural events, as well
as the risk of performance below expected levels of output, efficiency or
reliability, the occurrence of any of which could result in lost revenues and/or
increased expenses. Our existing facilities in Oak Ridge North and Montgomery
County were built with used equipment. Even if our equipment is maintained in
accordance with good engineering practices, it may require significant
expenditures to maintain adequate levels of efficiency and reliability. The risk
of increased maintenance and capital expenditures is exacerbated by our current
practice of running only during peak demand periods to maximize our revenues.
Our ability to successfully and timely complete capital improvements to existing
facilities or other capital projects is contingent upon many variables and
subject to substantial risks. Should any such efforts be unsuccessful, our
company could be subject to additional costs and/or the write-off of its
investment in the project or improvement.





We
expect to incur substantial losses in the future as we expand our operations,
build new facilities and develop new markets for our green
electricity.





We
commenced generating activities at our 5 MW facility in Oak Ridge North, Texas
in February 2007 and commenced generating activities at our 10 MW Montgomery
County facility in January 2008. We expect to incur substantial losses in the
future as we expand our operations, build new facilities and develop new markets
for our green electricity. We believe our losses will be highest during winter
months of the year when electricity prices are at their lowest. Even during the
summer months, however, we do not expect our operations to be profitable unless
we are able to negotiate a substantial GEP or develop substantial ancillary
revenue from other sources. Accordingly, we expect to generate recurring losses
until we can establish our reliability as a power producer and negotiate
end-user contracts that provide premium prices for green electricity.
Moreover:





·
            we
      will incur substantial additional costs for procurement, marketing and
      administrative overhead as we retain new management and hire suitable
      operating personnel;·
            we
      will incur substantial additional depreciation and amortization costs
      associated with new facilities and those costs may be significantly
      greater than the per unit costs we have incurred to date;
    and·
            our
      activities as an active power producer will expose our company to
      commodity price risks on both the fuel we use and the electricity we
      generate.







-19-


In
combination, the foregoing costs and expenses will likely give rise to
substantial near-term operating losses and may prevent our company from
achieving profitability for an extended period of time. We expect to rely on
equity financing to fund our operating losses and other cash requirements until
we are able to negotiate a GEP and develop ancillary sources of revenue. If our
net losses continue, we will experience negative cash flow, which will hamper
current operations and prevent our company from expanding. We may be unable to
attain, sustain or increase profitability on a quarterly or annual basis in the
future, which could require us to scale back or terminate our
operations.





The
market prices for feedstock are highly volatile and subject to increasing
pressure from alternative fuel producers, which may cause our results of
operations to fluctuate.





The
principal raw materials used in the production of biodiesel are commodities that
are subject to substantial price variations due to factors beyond our control.
Commodity prices are determined from minute to minute based on supply and demand
and can be highly volatile. As more producers enter the biodiesel business,
competition for available feedstock supplies is expected to increase. There can
be no assurances that our hedging activities will effectively insulate us from
future commodity price volatility or that the value of the feedstock we use will
not exceed the value of the electricity we generate. In the event that we are
unable to pass increases in the price of raw materials to our customers, our
operating results will suffer. We cannot predict the future price of our
biodiesel feedstock and any material price increases will adversely affect our
operating performance.





Our
activities cannot be fully hedged against changes in commodity prices and our
hedging procedures may not work as planned or hedge counterparties may default
on their obligations to us.





We
cannot fully hedge the risk associated with changes in feedstock and electricity
prices. To the extent that we have un-hedged positions, fluctuating commodity
and power prices can materially impact our results of operations and financial
position. To manage our financial exposure to commodity and energy price
fluctuations, we will routinely enter into contracts to hedge portions of our
feedstock requirements and may enter into contracts to hedge portions of
our generating capacity. As part of this strategy, we may enter into fixed-price
forward purchase and sales contracts, futures, financial swaps and option
contracts traded in the over-the-counter markets or on exchanges. Although we
intend to devote a considerable amount of management time and effort to the
establishment of risk management procedures as well as the ongoing review of the
implementation of these procedures, the procedures in place may not always be
followed or may not always function as planned and we cannot eliminate all the
risks associated with these activities. As a result of these and other factors,
we cannot precisely predict the impact that risk management decisions may have
on our business, results of operations or financial position.





To
the extent that we engage in hedging and risk management activities, our company
will be exposed to the risk that counterparties that owe us money or commodities
as a result of market transactions will not perform their obligations. Should
the counterparties to these arrangements fail to perform, we might be forced to
make alternative hedging arrangements or honor the underlying commitment at
then-current market prices. In such event, we might incur losses in addition
to amounts, if any, already paid to the counterparties. ERCOT market
participants are also exposed to risks that another ERCOT market participant may
default in its obligations to pay ERCOT for power taken, in which case such
costs, to the extent not offset by posted security and other protections
available to ERCOT, may be allocated to various non-defaulting ERCOT market
participants, including our company.





In
connection with our hedging and risk management activities, we may be required
to guarantee or indemnify our performance relating to such activities. We might
not be able to satisfy all of these guarantees and indemnification obligations
if they were to come due at the same time. In addition, reductions in credit
quality or changes in the market prices could increase the cash collateral
required to be posted in connection with hedging and risk management activities,
which could materially impact our liquidity and financial position.





-20-


We
are dependent on tax incentives and other governmental subsidies.





Our
business plan depends on the continued availability of tax incentives and other
governmental subsidies. If the Federal and/or State government decide to modify
the subsidy regime in a way that significantly curtails the amount of available
subsidies, the impact on our company could be substantial. While we believe the
existing tax incentives and other governmental subsidies are not likely to
change rapidly; there is no assurance that future incentives will be comparable
with current incentives. Even with current incentives, there can be no
assurance that our business will be profitable. The repeal or a material
reduction of the tax incentives and other subsidies would materially impact our
revenue and could force us to suspend or terminate operations.





The
repeal or modification of environmental laws favoring the use of biodiesel for
power generation could reduce the demand for our green electricity and cause our
sales and profitability to decline.





In
areas like the HGB that suffer from persistent air quality problems, the use of
biodiesel as fuel for electric generators can permit users to significantly
reduce their regulated emissions without requiring exotic pollution control
equipment and other expensive modifications to existing facilities. Most
industrial users of electricity require a reliable supply at a predictable cost
and are unwilling to accept the inherent risk of supply-chain disruptions that
accompany a new fuel like biodiesel or new production facilities like ours.
Therefore, we believe we will be unable to earn a significant market position in
the industrial power market until we can conclusively demonstrate our ability to
reliably produce and deliver green electricity in the volumes required by
industrial users. Since we believe the combination of tax incentives and
environmental regulations make biodiesel-fueled electricity particularly
attractive to industrial users, we believe the repeal or substantial amendment
of federal and state air quality regulations could have a detrimental effect on
our business and adversely affect our operating performance.





We
will not be able to offer direct performance or price advantages to end-users
and our marketing efforts will be based primarily on environmental
benefits.





Electricity
is a fungible commodity and green electricity has no performance advantages over
electricity generated from nuclear, coal or gas-fired plants. Therefore, our
only competitive advantages are indirect benefits from reduced emissions. While
emission reduction benefits can have substantial value to end-users who are
subject to regulatory compulsion to reduce their air quality footprint, that
value can be difficult to quantify. If we are unable to identify environmentally
conscious end-users who believe that the benefits of green electricity outweigh
the premium price that we must obtain, our business will not be
successful.





Introducing
green electricity to the market is time consuming and expensive and may not
ultimately result in an operating profit.





To
achieve profitable operations, we must convince potential customers that green
electricity generated from renewable fuels is worth a premium price. The cost
associated with the introduction of green products can be very high and new
product lines often generate substantial losses for an extended period of time
before making a meaningful contribution to administrative overhead. There is no
assurance that our green electricity will command a premium price in the market
or that our marketing activities will be successful or profitable. Even if
we are ultimately successful, delays, additional expenses and other factors may
significantly impair our potential profitability and there is no assurance that
our company will ever generate an operating profit.





Violations
of environmental regulations could subject our company to severe penalties and
adversely affect our sales and profitability.





The
generation of electricity in biodiesel-fueled facilities is subject to
regulation by various federal and state government agencies, including, but not
limited to the EPA, the TCEQ and other agencies in each jurisdiction where our
existing and proposed facilities are located. Environmental laws and regulations
that affect our operations, and that are expected to affect our planned
operations, are extensive and have become progressively more stringent.
Applicable laws and regulations are subject to change, which could be made
retroactively. Violations of environmental laws and regulations or permit
conditions can result in substantial penalties, injunctive orders compelling
installation of additional controls, civil and criminal sanctions, permit
revocations and/or facility shutdowns. If significant unforeseen liabilities
arise for corrective action or other compliance, our sales and profitability
could be adversely affected.





-21-


We
may be unable to obtain commercially reasonable terms on construction contracts
for our planned power generation facilities.





We
served as our own contractor for our Oak Ridge North and Montgomery County
facilities and performed all necessary engineering, procurement and construction
work in-house or using third-party consultants. We have recently created a
wholly-owned subsidiary named Alternative Energy Consulting LLC (AEC) to manage
our engineering, procurement and construction work and perform comparable
services for third parties. We presently own 100% of AEC, although our
percentage interest is expected to decline as it hires additional staff and
expands its operations. We plan to rely on AEC in connection with planned
future expansion of our generating capacity. If we are not able to obtain
commercially reasonable terms from AEC for any future acquisition and
construction projects, our operations and planned growth could be adversely
affected.





We
may need to increase cost estimates for the acquisition or construction of
future IES facilities.





The
cost of engineering, procurement and construction for new IES facilities could
increase significantly and there is no assurance that the final cost of any IES
facilities we establish in the future will not be materially higher than
anticipated. There may be design changes, material cost escalations or budgetary
overruns associated with the construction of future plants. Any significant
increase in the estimated construction cost of the plants could delay our
ability to generate revenues or reduce the amount of revenues
realized.





Various
risks associated with the construction of our planned generating facilities may
adversely affect our sales and profitability.





We
may experience delays in the construction of our planned 10 MW CGT generating
facility and any additional power generation facilities that we decide to build
or acquire in the future. We may also encounter defects in materials and/or
workmanship in connection with such projects. Any defects could delay the
commencement of operations of the facilities, or, if such defects are discovered
after operations have commenced, could halt or discontinue operation of a
particular facility indefinitely. In addition, construction projects often
involve delays in obtaining permits and encounter delays due to weather
conditions, the provision of materials or labor or other events. In addition,
changes in political administrations at the federal, state or local levels
that result in policy change towards biodiesel or our project in
particular, could cause construction and operation delays. Any of these events
may adversely affect our sales and profitability.





We
will be a small player in an intensely competitive industry and may be unable to
compete.





The
electric power industry in Texas is large and intensely competitive. Potential
end-users of our electricity are generally dependent on their power supplies and
unlikely to accept our company as a reliable supplier until they are satisfied
that our operations will not materially impair the reliability or efficiency of
their operations. Therefore, we believe that potential end-users will be
unlikely to sign a contract with us until they have completed an extensive and
complex internal analysis. As a result, we anticipate a lengthy sales cycle and
there can be no assurance that end-users will conclude that electricity
generated by us is an acceptable alternative.





We
intend to offer generous equity compensation packages to our management and
employees.





As
a key component of our growth strategy, we intend to offer generous equity
compensation packages to our management and employees. We believe such
compensation packages will allow us to provide substantial incentives to our
executives and employees while minimizing our cash outflow. Nevertheless, we
will be required to account for the fair market value of compensatory stock
issuances as operating expenses. The non-cash expenses arising from future
incentive transactions are expected to materially and adversely affect our
future operating results.





-22-


We
may issue additional shares of common stock or derivative securities that will
dilute the percentage ownership interest of our existing shareholders and may
dilute the book value per share of our common stock and adversely affect the
terms on which our company may obtain additional capital.





Our
authorized capital includes 50,000,000 shares of common stock.  The
Board of Directors has the authority, without action by or vote of our
shareholders, to issue all or part of the authorized shares of common and
preferred stock for any corporate purpose, including equity-based incentives
under existing and future incentive stock plans. We are likely to seek
additional equity capital in the future as we develop our business and expand
our operations. Any issuance of additional shares of common stock or derivative
securities will dilute the percentage ownership interest of our shareholders and
may dilute the book value per share of our common stock. Additionally, the
exercise or conversion of derivative securities could adversely affect the terms
on which our company can obtain additional capital. Holders of derivative
securities are most likely to voluntarily exercise or convert their derivative
securities when the exercise or conversion price is less than the market price
for the underlying common stock. Holders of the securities will have the
opportunity to profit from any rise in the market value of our common stock or
any increase in our net worth without assuming the risks of ownership of the
underlying shares of our common stock.





While
we anticipate that our Common Stock will be quoted on the OTC Bulletin Board, we
cannot assure you that our Common Stock will be eligible for quotation or will
continue to be so quoted in the future. We will need to devote substantial time,
effort and expense to developing and maintaining an active, stable and sustained
trading market.





There is no public market for our
common stock and there can be no assurance that such a market will develop in
the future. While we anticipate that our securities will be quoted on the OTC
Bulletin Board, we cannot assure you that our securities will be eligible for
quotation or that an OTCBB quotation, if obtained, will be successfully
maintained. An active, stable and sustained public trading market having the
desired characteristics of depth, liquidity and orderliness will depend on the
presence in the marketplace of willing buyers and sellers of our common stock at
any given time. This presence will depend on the individual decisions of
investors and general economic and market conditions over which we have no
control. Since there are over 10,000 public companies in the U.S. and most
purchasers of small company securities do so because the issuer has come to
their attention through a conscious market development effort, we believe we
will need to devote substantial time, effort and expense to developing and
maintaining an active trading market for our stock. If we fail to devote
adequate time and resources to that effort, any market that does develop is
likely to be short-lived and volatile.





We
will not be required to comply with all of the requirements of the
Sarbanes-Oxley Act of 2002 because we will not be quoted or listed on the Nasdaq
or a national securities exchange and quotation of our shares on the OTC
Bulletin Board will limit the liquidity and price of our securities more than if
our securities were so quoted or listed.





Because our securities are not quoted
on or expected to qualify for quotation on the Nasdaq or any other national
securities exchange, we are not subject to all of the corporate governance
requirements of the Sarbanes-Oxley Act of 2002, such as independent director
standards and audit committee requirements. While we may choose to voluntarily
adopt some of the requirements of Sarbanes-Oxley, you may not have all of the
corporate governance protection afforded to investors in companies listed on
Nasdaq or a national exchange. Quotation of our securities on the OTC Bulletin
Board will limit the liquidity and price of our securities more than if our
securities were quoted or listed on Nasdaq or a national exchange.





Under Rule 144, as recently amended by
the SEC, the substantial bulk of our common stock is eligible for unrestricted
resale into the public markets and future sales of large numbers of shares into
a limited trading market or the perception that those sales could occur may
cause our stock price to decline.





Fewer
than 20% of our outstanding shares are owned by directors, officers and
affiliates of our company and the substantial bulk of our remaining shares have
been outstanding for more than six months. Under Rule 144, as recently amended
by the SEC, all shares held by non-affiliates that have been issued and
outstanding for more than one year are presently eligible for resale. Commencing
90 days after the effective date of our Form 10 registration statement, all
shares held by non-affiliates that have been issued and outstanding for more
than six months will be eligible for resale. Future sales of large numbers of
shares into a limited trading market or the concerns that those sales may occur
could cause the trading price of our common stock to decrease or to be lower
than it might otherwise be. If an active, stable and sustained trading market
does not develop, the market price for our shares will decline and such declines
are likely to be permanent.





-23-


Our
common stock will probably be subject to the “penny stock” rules which would
make it a less attractive investment.





SEC
rule 3a51-1 defines a “penny stock” as any equity security that is not listed on
the NASDAQ system or a national securities exchange and has an inside bid price
of less than $5 per share. Our common stock will probably be subject to the
penny stock rules. Before effecting a transaction that is subject to the penny
stock rules, a broker-dealer must make a determination respecting the
suitability of the purchaser; deliver certain disclosure materials to the
purchaser and receive the purchaser’s written approval of the transaction.
Because of these restrictions, most broker-dealers refrain from effecting
transactions in penny stocks and many actively discourage their clients from
purchasing such securities. Therefore, both the ability of a broker-dealer to
recommend our common stock and the ability of holders of our common stock to
sell their shares in the secondary market are likely to be adversely affected.
Until the inside bid price of our stock exceeds $5 per share, the penny stock
rules will decrease market liquidity and make it difficult for you to use our
stock as collateral.





We
are unlikely to pay dividends for the foreseeable future.





We
have never declared or paid cash dividends and we do not expect to pay cash
dividends in the foreseeable future. While our dividend policy will be based on
the operating results and capital needs of our business, we believe any future
earnings will be retained to finance ongoing operations and the expansion of our
business.





ITEM
1B — UNRESOLVED STAFF COMMENTS





We filed a voluntary registration
statement on Form 10-SB on January 11, 2008 for the purpose of registering our
common stock under Section 12(g) of the Securities Exchange Act of 1934. In
response to comments we received from the staff of the SEC, we amended our
registration statement under cover of Form 10 on March 3, March 31, and April 7,
2008. We have been advised by telephone that the staff of the SEC has no further
comments on our Form 10 registration statement, but that our Form 10
registration statement will not be formally cleared until this annual report on
Form 10-K has been filed by us and reviewed by the staff.





ITEM
2 — PROPERTIES





Our
executive office is located at 10003 Woodloch Forest Drive, Suite 900, The
Woodlands, Texas 77380. Our telephone number is 281-364-9500. In January 2007,
we entered into a lease sharing arrangement with Texoga and SRC.  The
master lease is a ten-year operating lease for 16,384 square feet of Class A
office space that provides for monthly rental payments of approximately $43,000
for the initial year with escalation each year thereafter until expiration in
March 2017.  In connection with the execution of the master lease,
Texoga established a letter of credit in favor of the lessor in the amount of
$855,000 with a major financial institution that was fully collateralized by a
certificate of deposit that was transferred to us when we assumed operational
control over TBP-I and TBP-II.  The letter of credit serves as a
guarantee of the entire rent due under the master lease, including amounts
payable by Texoga and SRC.  Texoga and SRC are each obligated to
contribute their proportional share of the security for the letter of credit
when it comes up for renewal.  If either company is unable to do so, a
portion of our security deposit will effectively serve as a guarantee of their
rental obligations. Under the terms of the rent sharing arrangement, we are
required to pay $9,388 per month for the 3,579 square feet of office space used
by us. Our lease
sharing arrangement with Texoga and SRC was based on an assumption that both
companies would be able to pay their proportional share of the future lease
costs. Since Texoga and SRC were unable to pay their share of the lease costs in
2007 and we cannot predict whether they will be able to perform in the future,
we have commenced negotiations for a sublease  of the office space
that will, if successfully concluded, eliminate our long-term lease obligations
and result in the return of our security deposit.





In
addition to our executive office facilities, we have:





·
            leased
      a 1/2-acre industrial site in the City of Oak Ridge North, Texas and
      installed a biodiesel fueled reciprocating diesel power plant that has a
      rated capacity of approximately 5 MW;·
            leased
      a 1.5 acre industrial site in an unincorporated area of Montgomery County
      and installed a biodiesel fueled diesel turbine power plant that has a
      rated capacity of approximately 10 MW;·
            purchased
      a HRSG system that will recover waste heat from our existing diesel
      turbine and use that waste heat to power a companion steam generator,
      thereby adding up to 10 MW of additional generating capacity without
      increasing our fuel costs; and·
            commenced
      additional site preparation at our Montgomery County facility and are
      preparing to install a biodiesel fueled boiler and steam turbine system
      that will have a rated capacity of approximately 2.5
  MW.







-24-


Oak Ridge North
Facility:
Our Oak Ridge North facility is situated on a 1⁄2 acre parcel of land that we
leased from the City of Oak Ridge North in 2007. Our ground lease provides for a
monthly rental of $3,500, an initial term of 44 months and two 5-year renewal
terms. We have built a 3,000 square foot metal building on the site that houses
three 1.6 MW Caterpillar diesel generators, 15,000 gallons of heated fuel
storage tanks, a generator control room and a 5 MW interconnection substation to
the ERCOT grid through Centerpoint Energy. Our total capital investment in the
Oak Ridge North facility was approximately $2.5 million, including $750,000 in
facility and $1,750,000 in equipment. We believe we will need to make additional
capital investments of approximately $800,000 to purchase and install suitable
waste heat collection equipment, adsorption chillers and delivery equipment to
convert our Oak Ridge North generating plant into a fully functional
IES.





Montgomery County
Facility: Our Montgomery County facility is situated on a 1.5-acre parcel
of land that that we leased from an unaffiliated landlord in 2007. Our ground
lease provides for a monthly rental of $2,200, an initial term of 5 years and
two 5-year renewal terms. We have built a 2,200 square foot metal building on
the site that houses our generator control room. We have installed a 10 MW Frame
5 General Electric Combustion Gas Turbine and 25,000 gallons of heated fuel
storage on the site, along with two 500,000-gallon storage tanks that will hold
feedstock supplies and finished biodiesel for our turbine. We are presently
installing a 10 MW interconnect to the Entergy grid. Our total capital
investment to date in the Montgomery County facility is approximately $2.7
million, including $900,000 in facilities costs and $1,800,000 in equipment. We
believe we will need to make additional capital investments of approximately
$2,000,000 to purchase and install suitable waste heat collection equipment,
adsorption chillers and delivery equipment to convert our Montgomery County
generating plant into a fully functional IES.





We
believe the costs we have incurred and plan to incur for the acquisition,
installation and pre-operational testing of our power generating facilities
compares favorably with the costs typically incurred for comparable distributed
generation facilities. While capital costs for distributed generating facilities
frequently range between $1 and $2 million per MW of installed capacity, our
average capital cost per MW of installed capacity is approximately $370,000 at
the date of this annual report on Form 10-K and we expect our average capital
cost per MW of installed capacity to be less than $300,000 per MW when the HRSG
and steam turbine systems have been installed.





Biodiesel
Processing Equipment:In addition to our generating facilities, we own
certain biodiesel processing and storage equipment that we purchased for
approximately $800,000 in cash and presently use to refine, blend and reprocess
off-spec biodiesel we purchase from unrelated third parties. The biodiesel
processing equipment is installed in the SRC refinery adjacent to our Montgomery
County facility and is clearly marked to show our ownership interest. SRC has
expressed an interest in purchasing a portion of our biodiesel processing
equipment; however we cannot predict whether or when SRC may have sufficient
resources to complete the proposed purchase.








ITEM
3 — LEGAL PROCEEDINGS





We are not a party to any material
litigation, and we are not aware of any pending or threatened litigation against
us that could have a material adverse affect on our business, operating results
or financial condition.





ITEM
4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





We have not submitted any matters for a
stockholders vote during the fourth quarter of 2007 or the first quarter of
2008.





-25-


PART
II








ITEM5—
            MARKET FOR
      REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES.





Market
Information





There
has never been a market for our common stock and we do not presently qualify for
listing on a national securities exchange. The securities of public companies
that do not qualify for listing on a national securities exchange are either
quoted on the OTC Bulletin Board or listed in the Pink Sheets. The markets for
OTC Bulletin Board and Pink Sheet securities are frequently illiquid and
volatile. We have been advised that GLB
Trading, Inc.,a FINRA registered brokerage firm that acts as an OTCBB
market maker, intends to apply for the quotation of our common stock on the OTC
Bulletin Board. We are presently unable to estimate the amount of time that will
be required to complete the OTCBB application process. If we are unable to
obtain an immediate OTCBB quotation, our common stock will trade on the Pink
Sheets until the OTCBB application is approved.





Holders





As
of March 31, 2008, there were 295 holders of record of our common stock,
including 100 original Texoga Shareholders; 58 former holders of TBP-I and
TBP-II units that exchanged their units for shares of our common stock; 58
shareholders who purchased shares in our private placements; 54 shareholders who
purchased outstanding shares from our shareholders and 24 employees who received
shares of our stock in compensatory transactions. See "Security Ownership of
Certain Beneficial Owners and Management" for information on the holders of our
common stock. Also see "Description of Registrant’s Securities to be Registered"
for a description of our outstanding and issued capital stock.





Dividends





We have never paid cash dividends on
our common stock and do not intend to pay cash dividends in the foreseeable
future. Our company is not likely to pay cash dividends for an extended period
of time, if ever. You should not subscribe to purchase our shares if you require
current income from your investments.





2007
Stock Incentive Plan





Subject
to stockholder approval at our next annual meeting, our Board of Directors has
adopted an incentive stock plan for the benefit of our employees. Under the
terms of the plan, we are authorized to grant incentive awards for up to
2,000,000 shares of common stock. No incentive awards are outstanding at the
date of this annual report on Form 10-K. When we are eligible to do so, we
intend to file a registration statement under the Securities Act on Form S-8 to
register the securities included in and authorized by our 2007 Incentive Stock
Plan.  That registration statement is expected to become effective
upon filing.  Shares covered by the registration statement will
thereupon be eligible for sale in the public market, subject in certain cases to
vesting and other plan requirements.





The
plan provides for the grant of incentive awards to full-time employees,
non-employee directors and consultants. Within the limits of the plan, the
post-acquisition company will have absolute discretion in deciding who will
receive awards and the terms of such awards. The plan authorizes the creation of
incentive and/or non-qualified stock options, shares of restricted and/or
phantom stock and stock bonuses. In addition, the plan will allow us to grant
cash bonuses payable when an employee is required to recognize income for
federal income tax purposes because of the vesting of shares of restricted stock
or the grant of a stock bonus.





The Compensation Committee will
administer the plan; decide which employees will receive incentive awards; make
determinations with respect to the type of award to be granted; and make
determinations with respect to the number of shares covered by the award. The
Compensation Committee will also determine the exercise prices, expiration dates
and other features of awards. The Compensation Committee will be authorized to
interpret the terms of the plan and to adopt any administrative procedures it
deems necessary. The Compensation Committee may not, however, increase the
number of shares subject to the plan; materially increase the benefits accruing
to holders of incentive awards; or materially modify the eligibility
requirements. All decisions of the Compensation Committee will be binding on all
parties. We will indemnify each member of the Compensation Committee for good
faith actions taken in connection with the administration of the
plan.





-26-


The following table provides
information as of December 31, 2007 with respect to the shares of our common
stock that may be issued under our existing equity compensation
plans.





Plan Category
            
            Number
      of
                Securities
      to be
                Issued
      Upon
                Exercise
      of
                Outstanding
                Options, Warrants
                and
      Rights
            
            
            Weighted
                Average
      Exercise
                Price
      of
                Outstanding
                Options, Warrants
                and
      Rights
            
            
            Number
      of Securities
                Remaining Available
                For
      Future Issuance
                Under
      Equity
                Compensation
      PlanEquity
      compensation plans
              approved
      by security holders
            
            
            0
            
            
            
            -
            
            
            2,000,000
      (subject to
              shareholder
      approval)Equity
      compensation plans
              not
      approved by security holders
            
            
            0
            
            
            
            -
            
            
            
            0Total
            
            
            0
            
            
            
            -
            
            
            2,000,000
      (subject to
              shareholder
      approval)





Securities
Eligible for Resale





Rule
144Under
Rule 144, as recently amended by the SEC, all shares held by non-affiliates that
have been issued and outstanding for more than one year are presently eligible
for resale and commencing 90 days after the effective date of our registration
statement on Form 10, all shares held by non-affiliates that have been issued
and outstanding for more than six months will be eligible for resale. Future
sales of large numbers of shares into a limited trading market or the concerns
that those sales may occur could cause the trading price of our common stock to
decrease or to be lower than it might otherwise be. If an active, stable and
sustained trading market does not develop, the market price for our shares will
decline and such declines are likely to be permanent





Rule 701
Under Rule 701, as currently in effect, shares of common stock acquired in
compensatory transactions by employees of privately held companies may be resold
by persons, other than affiliates, beginning 90 days after the date of the
effectiveness of this annual report on Form 10-K, subject to manner of sale
provisions of Rule 144, and by affiliates in accordance with Rule 144 without
compliance with its one-year minimum holding period.





Combined
On the date of this annual report on Form 10-K, we had 31,265,561 shares
outstanding, including 24,175,022 shares held by persons who are not directors,
officers or affiliates of our company.  Of this total:





·
            21,374,720
      shares held by non-affiliates have been outstanding since February 28,
      2007 and are presently eligible for resale pursuant to Rule
      144;·
            450,000
      shares were issued to non-affiliates pursuant to Rule 701 in November 2007
      and will be eligible for resale commencing 90 days after the effectiveness
      of our pending Form 10 registration statement; and·
            1,983,269
      shares were issued to non-affiliates between February 28, 2007 and
      September 10, 2007, and will become eligible for resale pursuant to Rule
      144 commencing 90 days after the effectiveness of our Form 10 registration
      statement.







-27-


Recent
Sales Of Unregistered Securities





Set
forth below is information regarding common stock issued by our company during
2007 and the subsequent interim period.Also included is the
consideration, if any, we received and information relating to the section of
the Securities Act, or rule of the SEC, under which exemption from registration
was claimed.








-28-


First
Partnership Exchange Offer





In
December 2006, we became the general partner of:





·
            Texoga
      Biofuels Partners 2006-I, a limited partnership that was formed in April
      of 2006 and raised $3.5 million in private placement funds from a total of
      32 accredited investors: and·
            Texoga
      Biofuels Partners 2006-II, a limited partnership that was formed in August
      of 2006 and raised $3.5 million in private placement funds from a total of
      33 accredited investors





Immediately
thereafter, we offered to exchange shares of our common stock for all or any
part of the limited partnership interests in both partnerships. In connection
with the exchange offer, we agreed to issue 1,500 shares of common stock for
each unit tendered to us. A total of 2,245 units in TBP-I and 1,950 units in
TBP-II were ultimately tendered to us in exchange for 6,292,500 shares of
common stock. In connection with the exchange offer, M-1 Energy Capital
Securities received 186,887 shares of our common stock as partial compensation
for services rendered by that firm.





The
first partnership exchange offer was directed solely to accredited investors who
had a pre-existing business relationship with our company by virtue of their
ownership of interests in limited partnerships managed by our company. In
connection with the first partnership exchange offer, all limited partners of
TBP-I and TBP-II were provided disclosure documentation that was appropriate for
an offering restricted to accredited investors; afforded the opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering; afforded the opportunity to obtain such additional information and
documentation as they deemed necessary to verify the accuracy of information
furnished; and afforded the opportunity to obtain any additional information
they considered material to their investment decisions. The first partnership
exchange offer was affected without any advertising or general solicitation. A
total of 42 accredited investors accepted the first partnership exchange offer.
In connection with each exchange of partnership units for shares of our common
stock, the purchaser provided detailed responses to a written questionnaire that
gave our company reasonable cause to believe that the investor was in fact an
“accredited investor,” as defined in Rule 501 of Regulation D. All
certificates representing shares issued in exchange for partnership units were
imprinted with a restrictive legend to the effect that the shares were not
transferable by the holders thereof in the absence of an effective registration
statement under the Securities Act, or an available exemption therefrom. The
first partnership exchange offer was effected in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.





Second Partnership
Exchange Offer





In March 2007, after our Oak Ridge
North facility was completed and placed in service, we offered to purchase all
remaining TBP-I units for $850 per unit, which would be payable at the holder’s
option either in cash or in convertible subordinated notes. We ultimately
purchased 500 TBP-I units for cash and purchased an additional 755 TBP-I units
for $641,750 in convertible subordinated notes. At the date of this annual
report on Form 10-K, four holders of $450,500 in notes have exercised their
conversion rights and exchanged their notes for 600,665 shares of our common
stock.





The second partnership exchange offer
was directed solely to accredited investors who had a pre-existing business
relationship with our company by virtue of their ownership of interests in a
limited partnership managed by our company. In connection with the second
partnership exchange offer, all limited partners of TBP-I were provided
disclosure documentation that was appropriate for an offering restricted to
accredited investors; afforded the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering; afforded the
opportunity to obtain such additional information and documentation as they
deemed necessary to verify the accuracy of information furnished; and afforded
the opportunity to obtain any additional information they considered material to
their investment decisions. The second partnership exchange offer was affected
without any advertising or general solicitation. A total of 7 accredited
investors accepted the second partnership exchange offer. In connection with
each exchange of partnership units for convertible subordinated notes, the
purchaser provided detailed responses to a written questionnaire that gave our
company reasonable cause to believe that the investor was in fact an “accredited
investor,” as defined in Rule 501 of Regulation D. All certificates
representing convertible subordinated notes issued in exchange for partnership
units were imprinted with a restrictive legend to the effect that the
convertible subordinated notes were not transferable by the holders thereof in
the absence of an effective registration statement under the Securities Act, or
an available exemption therefrom. The second partnership exchange offer was
effected in reliance on the exemption from registration set forth in Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The subsequent conversion of $450,500 in notes into shares of our common stock
was exempt under Section 3(a)(9) of the Securities Act.





-29-


Third
Partnership Exchange Offer





In November 2007, after the principal
construction of our Montgomery County facility was completed, we offered to
exchange shares of our common stock for all remaining TBP-II units. In
connection with the exchange offer, we agreed to issue 1,267 shares of common
stock for each unit tendered to us. A total of 1,100 TBP-II units were
ultimately tendered to us in exchange for 1,393,326 shares of our common
stock.





The third partnership exchange offer
was directed solely to accredited investors who had a pre-existing business
relationship with our company by virtue of their ownership of interests in a
limited partnership for which we served as general partner. In connection with
the third partnership exchange offer, all limited partners of TBP-II were
provided disclosure documentation that was appropriate for an offering
restricted to accredited investors; afforded the opportunity to ask questions
and receive answers concerning the terms and conditions of the offering;
afforded the opportunity to obtain such additional information and documentation
as they deemed necessary to verify the accuracy of information furnished; and
afforded the opportunity to obtain any additional information they considered
material to their investment decisions. The third partnership exchange offer was
affected without any advertising or general solicitation. A total of 12
accredited investors accepted the third partnership exchange offer. In
connection with each exchange of partnership units for shares of our stock, the
purchaser provided detailed responses to a written questionnaire that gave our
company reasonable cause to believe that the investor was in fact an “accredited
investor,” as defined in Rule 501 of Regulation D. All certificates
representing shares issued in exchange for partnership units were imprinted with
a restrictive legend to the effect that the convertible subordinated notes were
not transferable by the holders thereof in the absence of an effective
registration statement under the Securities Act, or an available exemption
therefrom. The third partnership exchange offer was effected in reliance on the
exemption from registration set forth in Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.





Sale
of Common Stock for Cash





During
the period from November 2006 through March 2008, we sold 6,490,237 shares of
our common stock to accredited investors for cash. The offer was directed solely
to accredited investors who each had a pre-existing business relationship with
our company or M1-Energy Capital Securities and D.E. Wine Investments, the
broker-dealers we retained to act as selling agents. All potential investors
were provided disclosure documentation that was appropriate for an offering
restricted to accredited investors; afforded the opportunity to ask questions
and receive answers concerning the terms and conditions of the offering;
afforded the opportunity to obtain such additional information and documentation
as they deemed necessary to verify the accuracy of information furnished; and
afforded the opportunity to obtain any additional information they considered
material to their investment decisions. The offer and sale of our shares was
affected without any advertising or general solicitation. A total of 58
accredited investors purchased shares of our common stock for
cash.  All certificates representing shares sold for cash were
imprinted with a restrictive legend to the effect that the shares were not
transferable by the holders thereof in the absence of an effective registration
statement under the Securities Act, or an available exemption therefrom. The
sale of our securities for cash was effected in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder





-30-


Issuance
of Common Stock in Compensatory Transactions





On November 1, 2007, we issued a total
of 1,250,000 shares of common stock to a total of 24 individuals who are
directors, officers and employees of, or principal consultants to our company,
including 60,000 shares that were subsequently forfeit when the grantees
resigned from our board of directors. The total number of grant shares
represented less than 5% of the total number of common shares outstanding before
the grants. Each recipient of grant shares signed a written agreement that
described the terms of the grant and was provided information about the risks
associated with our securities, audited financial statements for the year
ended December 31, 2006 and unaudited financial statements for the six months
ended June 30, 2007. Each recipient of grant shares was also afforded the
opportunity to ask questions and receive answers concerning the terms and
conditions of the grant; and to obtain such additional information and
documentation as they deemed necessary to verify the accuracy of information
furnished, or material to their investment decisions. All shares were
distributed to the recipients as outright grants and no cash consideration was
paid by any recipient. All stock grants were 50% vested on the issue date and
the remaining 50% will vest ratably at the rate of 5% per month over the next 10
months. The distribution of compensatory shares was affected without any
advertising or general solicitation and all of the purchasers are employees of
or consultants to our company. None of the shares were issued in connection with
the offer or sale of securities in a capital-raising transaction, or for the
purpose of directly or indirectly promoting or maintaining a market for our
shares, which are not presently traded on any market. All certificates
representing shares issued to employees and consultants were imprinted with a
restrictive legend to the effect that the shares were not transferable by the
holders thereof in the absence of an effective registration statement under the
Securities Act, or an available exemption therefrom. The issuance was effected
in reliance on the exemption from registration set forth in Rule
701.





Purchases
of Equity Securities





We have never purchased any shares of
our common stock and we are not likely to purchase any shares in the foreseeable
future. Our founders have not repurchased any shares of our common stock and are
not likely to do so in the foreseeable future.





ITEM 6—SELECTED FINANCIAL
DATA.





We are a smaller reporting issuer as
defined in Item 10 of Regulation S-K and are not required to report the selected
financial data specified in Item 301 of Regulation S-K.








ITEM
7 — MANAGEMENT’S
DISCUSSION AND ANALYSIS 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





In
December 2006, we became the general partner of TBP-I and TBP-II; sold
approximately 2 million shares of our common stock for approximately $1.5
million in cash; recorded 1,050,000 shares of common stock as unissued in
exchange for 700 units of limited partnership interest in TBP-I; and issued
870,000 shares of common stock in exchange for 580 units of limited partnership
interest in TBP-II. Since December 31, 2006, we have acquired all of the
remaining TBP-I units and dissolved the partnership. We have also acquired 2,470
additional TBP-II units and presently own a 87.1% majority of the outstanding
TBP-II units. In accordance with FIN 46(R), which requires the consolidation of
certain variable interest entities, our consolidated financial statements for
the years ended December 31, 2007 and 2006 include the accounts of TBP-I and
TBP-II, and reflect the limited partner interests held by others as a long-term
liability. During 2007, we sold approximately 4 million additional shares of our
common stock for approximately $3 million in cash. The following table provides
summary balance sheet information as of December 31, 2007 and 2006, and is
based on the audited annual financial statements included elsewhere in this
annual report on Form 10-K.




-31-





December
      31, 2007
            
            
            December
      31, 2006ASSETSCash
      and cash equivalents
            
            $
            1,089,308
            
            
            $
            2,703,535Investments
      in future’s contracts, at fair value
            
            
            
            
            
            
            2,094,400Other
      current assets
            
            
            644,188
            
            
            
            476,970Property
      and equipment, net
            
            
            5,753,535
            
            
            
            2,353,843Certificate
      of deposit pledged as leasehold security
            
            
            889,823
            
            
            
            855,776Total
      assets
            
            $
            8,376,854
            
            
            $
            8,484,524LIABILITIESCurrent
      Liabilities
            
            
            393,129
            
            
            $
            226,246Notes
      Payable
            
            
            191,250
            
            
            
            -Interests
      of limited partners in TPB-I and TBP-II
            
            
            544,195
            
            
            
            5,449,667Total
      liabilities
            
            $
            1,128.574
            
            
            $
            5,674,913STOCKHOLDERS
      EQUITYCommon
      stock,
      18,314,116 outstanding at December 31, 2006 and 30,306,390 shares
      outstanding at December 31, 2007
            
            $
            30,306
            
            
            $
            18,314Additional
      paid in capital
            
            
            11,776,732
            
            
            
            2,700,598Unissued
      common stock
            
            
            
            
            
            
            787,500Subscription
      receivable
            
            
            
            
            
            
            (492,050
            )Accumulated
      other comprehensive income
            
            
            
            
            
            
            226,681Deferred
      compensation
            
            
            (595,000
            )Retained
      earnings (deficit)
            
            
            (3,963,758
            )
            
            
            (432,432
            )Total
      Stockholders equity
            
            $
            7,248,280
            
            
            $
            2,808,611






-32-


Plan
of Operation





We
began selling electricity from our 5 MW facility in Oak Ridge North, Texas in
February 2007 and commenced commercial sales of electricity from our 10 MW
Montgomery County facility in January 2008. During the year ended December 31,
2007, we received $212,499 in revenue from our generating facilities, $60,000 in
design consulting service revenue, incurred $827,809 in fuel and direct
operating costs resulting ina
gross loss of ($555,010). After deducting $4.7 million in selling,
general and administrative expenses, we had a net operating loss of ($5.2
million). During 2007 we liquidated cash flow hedge investments and realized
$2.9 million in non-recurring investment gains. We also received $75,368
in net interestincome. After adjusting for the minority interests of the
limited partners in TBP-II, our net loss for the year ended December 31, 2007
was ($3,531,327).





We plan
to operate our Oak Ridge North and Montgomery County facilities as peaking
plants until we are able to negotiate suitable end-user contracts for the sale
of green electricity. Based on prevailing electric prices in Texas, we believe
we will be able to operate our facilities for at least six hours per day during
the winter months and for up to 18 hours per day during the summer months.
Accordingly, our revenues will be cyclical and our performance will vary
significantly from quarter to quarter. Since our single largest operating
expense will be fuel costs, which have been highly variable during recent
months, there is no assurance that we will ever attain
profitability.





We own a 2.5 MW steam turbine generator
but cannot put the turbine in service until we buy a suitable boiler, complete
project engineering, build out the new system and conduct necessary shakedown
testing. We are presently conducting a technical and mechanical evaluation of
several used boilers that appear suitable for our purposes and can be acquired
for less than $100,000. After we purchase a suitable boiler, we anticipate a
lead time of six months to complete all necessary installation and testing
activities. The total estimated future costs associated with our planned
acquisition of a boiler and the installation of our 2.5 MW turbine are
approximately $500,000. We plan to finance the boiler acquisition and turbine
installation with our currently available capital resources.





-33-


We have recently purchased a HRSG that
can increase our generating capacity by approximately 10 MW without increasing
our fuel costs. In order to install the HRSG and put our planned secondary heat
recovery system in service, we will need to buy a suitable steam turbine with a
rated capacity of 10 to 15 MW, complete project engineering, build out the new
system and conduct necessary shakedown testing. We are presently conducting a
technical and mechanical evaluation of a used steam turbine that appears
suitable for our purposes and can be acquired for less than $1 million. Once we
purchase a suitable turbine, we anticipate a lead time of nine to twelve months
to move the HRSG and steam turbine to our Montgomery County site and complete
all necessary installation and testing activities. The total estimated future
costs associated with our planned acquisition of a steam turbine and the
installation of the secondary heat recovery system are approximately $2.5
million. We do not have sufficient financial resources to complete our planned
acquisition and installation of the secondary heat recovery system 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 our
plans to install the secondary heat recovery system.





In combination, we believe our existing
and proposed facilities will give us sufficient corporate mass to make credible
sales presentations to potential purchasers of green electricity and users of
HACS. There can be no assurances that future contract prices for green
electricity or HACS will provide sufficient revenue to offset our anticipated
operating expenses.





We
believe there are a large number of existing CHP facilities in the HGB region
that are not presently economic because of natural gas prices. We are evaluating
a number of inactive facilities as potential acquisition targets and actively
seeking additional potential acquisitions. Our business strategy is to acquire
or build electric generating facilities that will be powered by biodiesel fuel.
We believe the heat and power generated by those facilities can then be used to
satisfy industrial demand within the HGB while significantly reducing the air
quality footprint of industrial concerns that may contract to purchase our
electricity. In many cases, we believe the cost savings from industrial plant
pollution control upgrades will more than offset the premium that we will be
required to charge for green electricity generated from alternative
fuels.





We
believe our company has a unique market focus, is well positioned
demographically and is operationally efficient. Many REPs 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 GEP, 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 until we can negotiate a significant GEP,
or that any GEP we negotiate will be sufficient to offset all of our operating
costs.





Liquidity
and capital resources





During the years ended December 31,
2007 and 2006, we incurred net losses of ($3,531,327) and ($396,914)
respectively. We had $1,733,496 in current assets and $393,129 in current
liabilities at December 31, 2007, leaving us a working capital balance of
$1,340,367. In the absence of approximately $2.9 million in total hedging
activity gains, we would have had a substantial working capital deficit. Since
commodity price hedging is an inherently speculative activity and the commodity
markets have shown tremendous price volatility over the last 12 months, we can
provide no assurances that our current and future hedging activities will not
give rise to losses rather than gains.





We believe our available resources,
together with our anticipated operating revenue, will be sufficient to pay our
anticipated operating expenses for a period of at least six months from the date
of this annual report on Form 10-K. 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 $20 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, 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.





-34-


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.





Contractual
obligations





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





Total
            
            
            Less
      than
              1 year
            
            
            1
      to 3
              years
            
            
            3
      to 5
              years
            
            
            More than
              5 yearsCorporate
      office lease
            
            $
            1,117,385
            
            
            $
            115,343
            
            
            $
            239,697
            
            
            $
            246,906
            
            
            $
            515,439Generating
      facility leases
            
            
            273,608
            
            
            
            74,288
            
            
            
            152,501
            
            
            
            46,819Employment
      contracts
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
            
            $
            1,390,993
            
            
            $
            189,631
            
            
            $
            392,198
            
            
            $
            293,725
            
            
            $
            515,439





We are presently negotiating a sublease
of the office space that will, if the sublease is successfully consummated,
eliminate our future rental obligations and result in the release of the
associated security deposit to us





Off-balance
Sheet Arrangements





We have no off-balance sheet
arrangements.






ITEM
7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
 We are a
smaller reporting issuer as defined in Item 10 of Regulation S-K and are not
required to report the selected financial data specified in Item 305 of
Regulation S-K.





ITEM
8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Financial Statements for the Year
Ended December 31, 2007:





Report
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheet as of December 31, 2007 and 2006
              F-3Consolidated
      Statement of Operations for the years ended December 31, 2007 and
      2006
              F-4Consolidated
      Statement of Stockholders' Equity for the years ended December 31, 2007
      and 2006
              F-5Consolidated
      Statement of Cash Flows for the years ended December 31, 2007 and
      2006
              F-7Notes
      to Consolidated Financial Statements
              F-8





-35-


Report
of Independent Registered Public Accounting Firm
 
 
 
 To the
Board of Directors and Stockholders
 Biofuels
Power Corporation
 
 
 We have
audited the accompanying consolidated balance sheets of Biofuels Power
Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2006
and the related consolidated statements of operations, stockholders’ equity and
cash flows for the years ended December 31, 2007 and 2006.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Biofuels Power
Corporation and subsidiaries as of December 31, 2007 and 2006, and the results
of their operations and their cash flows for the years ended December 31, 2007
and 2006 in conformity with accounting principles generally accepted in the
United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 2 to the financial
statements, the Company has continued to generate net losses and is in a
negative cash flow position, which raises substantial doubt about its ability to
continue as a going concern.  Management’s plans in regards to these
matters are also described in Note 2.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 /s/ Ham,
Langston & Brezina LLP
 
 Ham,
Langston & Brezina LLP
 Certified
Public Accountants
 
 
 Houston,
Texas
 April 15,
2008
 
 
 F-2
 BIOFUELS
      POWER CORPORATIONCONSOLIDATED
      BALANCE SHEETDecember
      31, 2007 and 2006ASSETS2007
                
                
                2006Current
      AssetsCash
      and cash equivalents
                
                $
                1,089,308
                
                
                $
                2,703,535Investment
      in futures contract, at fair value
                
                
                -
                
                
                
                2,094,400Accounts
      receivable
                
                
                238,580
                
                
                
                -Accounts
      receivable - affliate
                
                
                3,680
                
                
                
                -Prepaid
      fuel cost
                
                
                -
                
                
                
                476,970Inventory
                
                
                401,928
                
                
                
                -Total
      current assets
                
                
                1,733,496
                
                
                
                5,274,905Property
      and equipment, net
                
                
                5,753,535
                
                
                
                2,353,843Investment
      in certificate, restricted
                
                
                889,823
                
                
                
                855,776Total
      Assets
                
                $
                8,376,854
                
                
                $
                8,484,524LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                
                
                329,423
                
                
                
                198,454Payable
      to affiliate
                
                
                27,792
                
                
                
                27,792Commissions
      payable
                
                
                21,650
                
                
                
                -Interest
      payable
                
                
                14,264
                
                
                
                -Total
      Current Liabilities
                
                
                393,129
                
                
                
                226,246Long
      Term LiabilitiesNotes
      payable
                
                
                191,250
                
                
                
                -Minority
      Interest
                
                
                544,195
                
                
                
                5,449,667Total
      Liabilities
                
                
                1,128,574
                
                
                
                5,675,913Stockholders'
      EquityCommon
      stock, $001 par value, 50,000,000 shares authorized;30,306,390
      and 18,314,116 shares issued and outstanding,respectively
                
                
                30,306
                
                
                
                18,314Additional
      paid in capital
                
                
                11,776,732
                
                
                
                2,700,598Unissued
      common stock
                
                
                -
                
                
                
                787,500Subscriptions
      receivable
                
                
                -
                
                
                
                (492,050
                )Accumulated
      other comprehensive income
                
                
                -
                
                
                
                226,681Deferred
      compensation
                
                
                (595,000
                )
                
                
                -Accumulated
      deficit
                
                
                (3,963,758
                )
                
                
                (432,432
                )Total
      Stockholders' Equity
                
                
                7,248,280
                
                
                
                2,808,611$
                8,376,854
                
                
                $
                8,484,524-
  See
accompanying notes to consolidated financial statements
 F-3
 
 BIOFUELS
      POWER CORPORATIONCONSOLIDATED
      STATEMENT OF OPERATIONSFor
      the years ended December 31, 2007 and 2006Year
      Ended December 31,2007
                
                
                2006RevenueSales
                
                
                $
                272,499
                
                
                $
                -Cost
      of sales
                
                
                
                827,509
                
                
                
                -Gross
      loss
                
                
                (555,010
                )
                
                
                -Selling,
      general and administrative expenses
                
                
                4,667,413
                
                
                
                940,220Operating
      loss
                
                
                (5,222,423
                )
                
                
                (940,220
                )Other
      Income:Gain
      on sale of equipment
                
                
                -
                
                
                
                18,300Gain
      on investment in futures contract
                
                
                2,930,948
                
                
                
                -Interest
      income
                
                
                101,113
                
                
                
                87Interest
      expense
                
                
                (25,745
                )
                
                
                -Total
      other income, net
                
                
                3,006,316
                
                
                
                18,387Net
      loss before minority interest
                
                
                (2,216,107
                )
                
                
                (921,833
                )Minority
      interest
                
                
                (1,315,220
                )
                
                
                524,919Net
      loss
                
                $
                (3,531,327
                )
                
                $
                (396,914
                )Basic
      and diluted net loss per common share
                
                $
                (0.15
                )
                
                $
                (0.03
                )Weighted
      average common shares outstanding - basicand
      diluted
                
                
                
                23,644,685
                
                
                
                14,803,778
 See
accompanying notes to consolidated financial statements.
 
 F-4
 BIOFUELS
POWER CORPORATION
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
 For
the years ended December 31, 2007 and 2006
 AccumulatedAdditional
              
              
              Unissued
              
              
              
              
              
              
              
              
              OtherCommon Stock
              
              
              Paid
      In
              
              
              Common
              
              
              Subscriptions
              
              
              Deferred
              
              
              Comprehensive
              
              
              AccumulatedShares
              
              
              Amount
              
              
              Capital
              
              
              Stock
              
              
              Receivable
              
              
              Compensation
              
              
              Income
              
              
              Deficit
              
              
              TotalBalance
      at December31,
      2005
              
              
              
              14,512,380
              
              
              $
              14,512
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (35,518
              )
              
              $
              (21,006
              )Issuance
      of commonstock
      for cash, net ofoffering
      cost
              
              
              1,955,669
              
              
              
              1,956
              
              
              
              1,317,894
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,319,850Issuaance
      of commonstock
      for equipment
              
              
              200,000
              
              
              
              200
              
              
              
              149,800
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              150,000Issuance
      of commonstock
      for services
              
              
              120,000
              
              
              
              120
              
              
              
              89,880
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              90,000Issuance
      of commonstock
      for subscriptionreceivable
              
              
              656,067
              
              
              
              656
              
              
              
              491,394
              
              
              
              
              
              
              
              (492,050
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of commonstock
      for limited part-nership
      interest
              
              
              870,000
              
              
              
              870
              
              
              
              651,630
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              652,500Unissued
      common stockfor
      limited partnershipinterest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              787,500
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              787,500Comprehensive
      income:Unrealized
      gain oncash
      flow hedge, netof
      minority interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              226,681
              
              
              
              
              
              
              
              226,681
   F-5
  Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (396,914
              )
              
              
              (396,914
              )Total
      comprehensiveincome
      (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (170,233
              )Balance
      at December31,
      2006
              
              
              
              18,314,116
              
              
              
              18,314
              
              
              
              2,700,598
              
              
              
              787,500
              
              
              
              (492,050
              )
              
              
              -
              
              
              
              226,681
              
              
              
              (432,432
              )
              
              
              2,808,611Issuance
      of commonstock
      for cash
              
              
              3,310,007
              
              
              
              3,310
              
              
              
              2,491,545
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,494,855Offering
      costs paidin
      cash & stock
              
              
              247,816
              
              
              
              248
              
              
              
              (392,587
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (392,339
              )Cash
      received forsubscription
      receivable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              492,050
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              492,050Issuance
      of commonstock
      for limited part-nership
      interest
              
              
              6,746,229
              
              
              
              6,746
              
              
              
              5,053,978
              
              
              
              (787,500
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,273,224Issuance
      of commonstock
      for notes payable
              
              
              353,592
              
              
              
              353
              
              
              
              256,245
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              256,598Issuance
      of commonstock
      to employees,officers
      & directors
              
              
              1,190,000
              
              
              
              1,190
              
              
              
              1,486,310
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,487,500Issuance
      of commonstock
      for services
              
              
              144,630
              
              
              
              145
              
              
              
              180,643
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              180,788Unvested
      portion ofcommon
      stock issuedto
      employees, officers&
      directors
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (595,000
              )
              
              
              
              
              
              
              
              
              
              
              (595,000
              )Comprehensive
      income:Change
      in unrealizedgain
      on cash flowhedge,
      net ofminority
      interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (226,681
              )
              
              
              
              
              
              
              (226,681
              )Net
      loss
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,531,327
              )
              
              
              (3,531,327
              )Total
      comprehensiveincome
      (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,758,008
              )Balance
      atDecember
      31, 2007
              
              
              30,306,390
              
              
              $
              30,306
              
              
              $
              11,776,732
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (595,000
              )
              
              $
              -
              
              
              $
              (3,963,758
              )
              
              $
              7,248,280
 See
accompanying notes to consolidated financial statements.
   F-6
 BIOFUELS
      POWER CORPORATIONCONSOLIDATED
      STATEMENT OF CASH FLOWSFor
      the years ended December 31, 2007 and December 31, 20062007
                
                
                2006Cash
      flows from operating activities:Net
      loss
                
                $
                (3,531,327
                )
                
                $
                (396,914
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                746,088
                
                
                
                58,332Expenses
      related to issuance of common stock for limited
partnershipinterest
                
                
                322,988
                
                
                
                160,000Stock
      issued for services
                
                
                1,073,288
                
                
                
                90,000Gain
      on investment in futures contract
                
                
                (2,930,948
                )
                
                
                -Minority
      interest
                
                
                1,315,220
                
                
                
                (524,919
                )Bad
      debt expense
                
                
                407,501
                
                
                
                256,726Gain
      (loss) on sale of fixed assets
                
                
                -
                
                
                
                (18,300
                )Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (242,259
                )
                
                
                -Prepaid
      fuel cost
                
                
                476,970
                
                
                
                (476,970
                )Inventory
                
                
                (401,928
                )
                
                
                -Accounts
      payable
                
                
                130,969
                
                
                
                51,304Accrued
      interest payable
                
                
                14,264
                
                
                
                -Net
      cash used in operating activities
                
                
                (2,619,174
                )
                
                
                (800,741
                )Cash
      flow from investing activities:Proceeds
      from sale of property and equipment
                
                
                -
                
                
                
                80,655Purchase
      of property and equipment
                
                
                (4,145,780
                )
                
                
                (2,317,972
                )Advances
      to affiliate
                
                
                (407,501
                )
                
                
                (256,726
                )Purchase
      of investment in futures contract
                
                
                (574,110
                )
                
                
                (844,000
                )Sale
      of futures contract
                
                
                4,349,058
                
                
                
                -Purchase
      of certificate of deposit
                
                
                (34,047
                )
                
                
                (855,776
                )Net
      cash used in investing activities
                
                
                (812,380
                )
                
                
                (4,193,819
                )Cash
      flows from financing activities:Net
      proceeds from sale of common stock
                
                
                2,594,566
                
                
                
                1,466,500Net
      proceeds (distributions) to/ from minority interests
                
                
                (777,239
                )
                
                
                6,230,867Net
      cash provided by financing activities
                
                
                1,817,327
                
                
                
                7,697,367Net
      (decrease) / increase in cash and cash equivalents
                
                
                (1,614,228
                )
                
                
                2,702,807Cash
      and cash equivalents, beginning of period
                
                
                2,703,535
                
                
                
                728Cash
      and cash equivalents, end of period
                
                $
                1,089,307
                
                
                $
                2,703,535Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                11,481
                
                
                $
                -Income
      taxes paid
                
                $
                -
                
                
                $
                -Non-cash
      investing and financing activities:Issuance
      of common stock for notes payable
                
                $
                256,599
                
                
                $
                -Issuance
      of common stock for limited partnership interests
                
                $
                4,273,224
                
                
                $
                652,500Issuance
      of common stock for subscription receivable
                
                $
                -
                
                
                $
                (492,050
                )Unrealized
      gain on cash flow hedge, including minority interest
    portion
                
                $
                226,681
                
                
                $
                1,256,400Issuance
      of common stock for purchase of equipment
                
                $
                -
                
                
                $
                150,000Unissued
      common stock for limited partnership interest
                
                $
                (787,500
                )
                
                $
                787,500Accrue
      accounts payable for offering costs
                
                $
                21,650
                
                
                $
                146,650
 See
accompanying notes to consolidated financial statements.
 F-7
 BIOFUELS
POWER CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.         Summary of Significant
Accounting Policies
 
 Background
 
 Biofuels
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
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.
 
 
 Consolidation
 
 In
accordance with FIN 46(R), which requires the consolidation of certain variable
interest entities, these consolidated 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 consolidated 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
Assumptions
 
 The
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
Equivalents
 
 The
Company considers any highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
 
 F-8
 Derivative Instruments and
Hedging
 
 The
Company uses derivatives to hedge against increases in the price of feedstock,
primarily soybean oils, used in the production of biodiesel.  All
derivative instruments are recorded as assets or liabilities on the balance
sheet at fair value.  Changes in the fair value of derivatives are
either recorded in the income statement or other comprehensive income, as
appropriate.  The gain or loss on derivatives designated as fair value
hedges and the offsetting loss or gain on the hedged item attributable to the
hedged risk are included in income in the period that changes in fair value
occur.  The effective portion of the gain or loss on derivatives
designated as cash flow hedges is included in other comprehensive income in the
period that changes in fair value occur and is reclassified to income in the
same period that the hedged item affects income.  The remaining gain
or loss in excess of the cumulative change in the present value of the cash
flows of the hedge item, if any, is recognized in income.  As of
December 31, 2007, the Company did not have any open hedge
contracts.
 
 Revenue
Recognition
 
 Revenue,
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 (8)
days after the date of sale with subsequent adjustments at sixty (60) days and
one hundred eighty (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 fifteen (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 is not directly related to the revenue the Company
receives from sales of electricity.
 
 Biodiesel Tax
Credits
 
 Biodiesel
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. During
the year ended December 31, 2007, the Company received $437,905 in Federal
credits.
 
 Accounts
Receivable
 
 Accounts
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 December 31, 2007 the Company had
trade accounts receivable of $$27,370 and Federal credits receivable of
$288,780. As of December 31, 2006 the Company had no accounts
receivable.
 
 Prepaid Fuel
Costs
 
 Prepaid
fuel costs at December 31, 2006 represent the prepayment of 208,000 gallons of
biodiesel from an affiliated company.  The Company took possession and
used these gallons to produce electricity during 2007.
 
 
 F-9
 Inventory
 
 Inventory
is stated at the lower of cost or market and consists of 35,368 gallons of
unprocessed fuel stock, and 163,221 gallons of processed fuel stock at December
31, 2007.  Cost is determined using the first-in first-out (“FIFO”)
method.
 
 Property and
Equipment
 
 Property
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 10 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
Asset
 
 Management
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
realizable.  If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s
carrying value amount to determine if an impairment of such asset is
necessary.  The effect of any impairment would be to expense the
difference between the fair value of such asset and its carrying
value.
 
 Income
Taxes
 
 The
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.
 
 Unissued Common
Stock
 
 The
Company records unissued common stock when it receives cash, services or limited
partnership conversion for common stock which has yet to be
issued.  Such unissued common stock is included in weighted average
shares outstanding for the calculation of the loss per share during the period
for which the cash was committed and services provided if there were no further
contingencies associated with the transaction and the unissued common stock was
entitled to participate in dividends. There were -0- and 1,050,000 shares of
unissued common stock as of December 31, 2007 and 2006
respectively.
 
 Loss Per Common
Share
 
 The
Company provides basic and dilutive loss per common share information for each
period presented.  The basic net loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding.  Diluted net loss per common share is computed by
dividing the net loss, adjusted on an "as if converted" basis, by the weighted
average number of common shares outstanding plus potential dilutive
securities.  For the year ended December 31, 2007 and 2006, the
Company did not have any potential dilutive securities.
 
 Stock-Based
Compensation
 
 On
January 1, 2006, the Company 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 would
begin recognizing expense on January 1, 2006 for the unvested portion of awards
granted before the adoption date expected to vest over the remaining vesting
period of the award. New awards granted after the adoption date will be expensed
ratably over the vesting period of the award.
 
 F-10
 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
Risk
 
 Financial
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
Pronouncements
 
 In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133 and
140”.  This Statement resolves issues addressed in Statement
133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets”.  This Statement permits
fair value re-measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement 133, establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives, amends Statement 140
to eliminate the prohibition on a qualifying special-purpose entity from holding
a derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument.  This statement is
effective for fiscal years beginning after September 15, 2006.  Its
adoption did not have a material impact on the Company’s financial condition or
results of operations.
 
 FASB
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 docifies 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 (F),
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.  Management does not believe the adoption
of SFAS 157 will have a material impact on the Company’s financial condition or
results of operations.
 
 F-11
 
 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
elected not to adopt the provisions of SFAS 159 at this time.
 
 In June
2006, FASB issued FIN 48, “Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109”, which clarifies the
accounting for uncertainty in income taxes recognized in financial statements in
accordance with FASB 109, “Accounting for Income
Taxes”.  FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings.  The adoptions of this
pronouncement did not have a material effect on the financial position or
results of operations of the Company.
 
 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 which 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 which shall be applied retrospectively for all periods presented.
The Company does not believe that the adoption of SFAS 160 would have a material
effect on its consolidated financial position, results of operations or cash
flows.
 
 F-12
 
 2.         Going
Concern
 
 During
the years ended December 31, 2007 and 2006, the Company has experienced negative
financial results as follows:
 
 2007
              
              
              2006Net
      loss
              
              $
              (3,531,327
              )
              
              $
              (396,914
              )Negative
      cash flows from operations
              
              
              (2,619,174
              )
              
              
              (800,741
              )Accumulated
      deficit
              
              
              (3,963,758
              )
              
              
              (432,432
              )
 
 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.·
              In
      the long-term, the Company believes that cash flows from growth in its
      operations will provide the resources for continued
      operations.·
              The
      Company is also pursuing other strategic initiatives including a merger or
      sale of the Company as opportunities are
  available.
 
 
 There can
be no assurance that the Company will have the ability to implement its business
plan and ultimately attain profitability.  The Company’s long-term
viability as a going concern is dependent upon three key factors, as
follows:
 
 ·
              The
      Company’s ability to obtain adequate sources of debt or equity funding to
      meet current commitments and fund the continuation of its business
      operations in the near term.·
              The
      ability of the Company to control costs and expand
    revenues.·
              The
      ability of the Company to ultimately achieve adequate profitability and
      cash flows from operations to sustain its
  operations.
 
 
 3.         Hedge
Accounts
 
 In May
2006, TBF-1 invested $479,000 in a soybean commodity hedge and in August 2006,
TBF-2 invested $365,000 in a second soybean commodity hedge. At December 31,
2006, the net fair market value of the hedge accounts, as reported by the
brokerage firm that held the accounts, was $2,094,400 including unrealized gains
of $1,250,400. Since the two hedge accounts were a correlative hedge to protect
the price of feedstock used in the production of biodiesel is used as the fuel
in the Company’s renewable energy power plants, the unrealized gain, net of
minority interests, has been included in other comprehensive income in
stockholders’ equity. During February 2007 the hedge was closed and the Company
realized a gain of $1,705,918.
 
 In
February 2007, TBF-1 invested $286,420 in a cotton commodity hedge and TBF-2
invested $287,690 in a cotton commodity hedge. In July 2007, the Company closed
the hedge positions and realized a combined gain of $1,225,030.
 
 The
following table summarizes the changes in the hedge account balances during the
year ended December 31, 2007 and 2006:
 
 TBF-1
                Hedge
              
              
              TBF-2
                Hedge
              
              
              Combined
                HedgeHedge
      Investment in May 2006
              
              $
              479,000
              
              
              $
              365,000
              
              
              $
              844,000Market
      Value at December 31, 2006
              
              
              1,047,200
              
              
              
              1,047,200
              
              
              
              2,094,400Unrealized
      Gain at December 31, 2006
              
              $
              568,200
              
              
              $
              682,200
              
              
              $
              1,250,400Sale
      of Hedge in February 2007 (net)
              
              $
              1,097,628
              
              
              $
              1,452,290
              
              
              $
              2,549,918Realized
      Gain in February 2007
              
              
              618,628
              
              
              
              1,087,290
              
              
              
              1,705,918Hedge
      Investment in February 2007
              
              $
              286,420
              
              
              $
              287,690
              
              
              $
              574,110Sale
      of Hedge in July 2007 (net)
              
              
              900,204
              
              
              
              898,936
              
              
              
              1,799,140Realized
      Gain in July 2007
              
              $
              613,784
              
              
              $
              611,246
              
              
              $
              1,225,030Total
      Realized Gain
              
              $
              1,232,412
              
              
              $
              1,698,536
              
              
              $
              2,930,948
 
 F-13
 
 4.         Property and
Equipment
 
 Property
and equipment consisted of the following at December 31, 2007 and
2006:
 
 2007
              
              
              2006Power
      generating equipment
              
              $
              4,731,070
              
              
              $
              1,060,943Buildings
      and improvements
              
              
              1,106,996
              
              
              
              1,174,443Machinery
      and equipment
              
              
              720,729
              
              
              
              177,629Less
      accumulated depreciation
              
              
              (805,260
              )
              
              
              (59,172
              )Total
      property and equipment, net
              
              $
              5,753,535
              
              
              $
              2,353,843
 
 Depreciation
expense for the years ended December 31, 2007 and 2006 was $746,088 and $58,332
of which $417,144
and $0 is included in Cost of Sales, respectively.
 
 
 5.         Notes
Payable
 
 During
2007, the Company issued $456,450 of notes payable as payment for the purchase
of certain limited partnership interests.  Also during 2007, $265,200
of these notes payable were paid through the issuance of 353,592 shares of the
Company’s common stock valued at $.75 per share which was the fair value of the
common stock on the date of grant based on the cash price received for the
common stock in a private placement offering.
 
 As of
December 31, 2007, 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.
 
 
 6.         Income
Taxes
 
 Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.  Significant components of
the Company’s deferred tax assets and liabilities at December 31, 2007 and 2006
were as follows:
 
 2007
              
              
              2006Deferred
      tax assets:Receivable
      from affiliate
              
              $
              138,550
              
              
              $
              87,287Net
      operating loss carry-forwards
              
              
              132,596
              
              
              
              22,695Total
      deferred tax assets
              
              
              271,146
              
              
              
              109,982Valuation
      allowance
              
              
              (271,146
              )
              
              
              (109,982
              )Net
      deferred tax asset
              
              $
              -
              
              
              $
              -
 
 
 F-14
 The
difference between the income tax provision (benefit) in the accompanying
statement  of operations and the amount that would result if the U.S.
Federal statutory income tax rate of 34% were applied for the year-ended
December 31, 2007 and 2006, are as follows:
 
 2007
              
              
              2006Amount
              
              
              %
              
              
              Amount
              
              
              %Benefit
      for income tax at federalstatutory
      rate
              
              $
              (1,200,651
              )
              
              
              (34.0
              )
              
              $
              (134,951
              )
              
              
              (34.0
              )Income
      attributable to limited partners
              
              
              447,175
              
              
              
              12.7
              
              
              
              -
              
              
              
              -Stock
      based compensation
              
              
              364,918
              
              
              
              10.3
              
              
              
              -
              
              
              
              -Settlement
      expense
              
              
              109,816
              
              
              
              3.1
              
              
              
              -
              
              
              
              -Increase
      in valuation allowance
              
              
              161,164
              
              
              
              4.6
              
              
              
              103,584
              
              
              
              26.1Other
              
              
              117,578
              
              
              
              3.3
              
              
              
              31,367
              
              
              
              7.9$
              -
              
              
              
              0.0
              
              
              $
              -
              
              
              
              0.0
 
 As of
December 31, 2007, for U.S. federal income tax reporting purposes, the Company
has approximately $800,000 of unused net operating losses (“NOL's”) available
for carryforward to future years.  The benefit from carryforward of
such NOL's will expire during various years through 2027.  Because
United States tax laws limit the time during which NOL carryforwards may be
applied against future taxable income, the Company may be unable to take full
advantage of its NOL for federal income tax purposes should the Company generate
taxable income.  Further, the benefit from utilization of NOL
carryforwards could be subject to limitations due to material ownership changes
that may or may not occur in the Company.  Based on such limitations,
the Company has significant NOL’s for which realization of tax benefits is
uncertain.
 
 
 6.         Stockholders’
Equity
 
 The
Company entered into an investment banking contract with M1 Energy Capital
Securities, LLC (“M1 Energy”) of Chicago, Illinois to raise capital under a
Regulation D Private Placement Offering. M1 Energy raised $3,500,000 for TBF-1
and $3,500,000 for TBF-2. These offerings were to sell up to 3,500 Membership
Units (“Units”) to accredited investors at $1,000 per unit. The total cost paid
to M1 Energy of $777,239 was recorded as a reduction in the minority interest
liability.  M1 Energy also raised $3,926,355 through December 31, 2007
for a Private Placement for Biofuels Power Corp.  As compensation for
this service as of December 31, 2007, M1 Energy was paid $225,000 in cash and
was issued 247,816 shares of common stock with a value of $309,770 or $1.25 per
share which was the fair value of the common stock on the date of grant based on
the cash price received for the common stock in a private placement offering.
..
 
 Under the
terms of the Partnership agreements, the partners are entitled to receive 90% of
net cash flow from operations until they receive cumulative cash distributions
of $14 million.  Thereafter, the partners are entitled to receive 15%
of the net cash flow from operations until the Company exercises the buy-out
rights specified in the agreements.
 
 During
the period from formation of the Partnerships through 2007, market prices of
feedstocks used in the production of the biodiesel fuel used to power the
Company’s power generation facilities rose dramatically, making the Company’s
projected operations less profitable than originally intended.  In
response to the adverse market conditions for biodiesel feedstocks, in December
2006 the Company made an exchange offer (the “December 2006 Exchange Offer”) by
which all limited partners of the Partnerships were given the opportunity to
exchange Units of limited partner interests in the Partnerships for shares of
the Company’s common stock equivalent in value to the cash amount paid by such
limited partners for the original purchase of their respective
Units.  The basis of the December 2006 Exchange Offer was 1,500 shares
of Company common stock for each tendered Unit, the equivalent of $0.67 per
share.  As of December 31, 2006, limited partners in TBF-1 had
tendered 700 Units, and limited partners in TBF-2 had tendered 580 Units,
resulting in the Company being obligated to issue 1,920,000 shares of its common
stock of which 870,000 shares were issued as of December 31, 2006 and 1,050,000
issued in 2007.  Since the fair value of the common stock is $0.75 per
share, based on the cash price received for the common stock in a current
private placement, the Company has recorded the value of the excess shares
issued upon conversion of the limited partnership interests of $160,000 as
settlement expense in general and administrative expense in the accompanying
statement of operations for the year ended December 31, 2006.
 
 F-15
 On March
15, 2007 the Company made a second exchange offer (the “March 15, 2007 Exchange
Offer”) for Units of TBF-1 and TBF-2.  The basis of the March 15, 2007
Exchange Offer was to exchange one hundred Units of $100,000 original issuance
value for 1,500 shares of the Company’s common stock per unit, the equivalent of
$0.67 per share (or ratable portion  thereof) or to exchange such 100
units for a cash payment of $102,500 (or ratable portion thereof).  As
a result, the Company was required to pay $512,500 for the exchange of 500
partnership units.  During the year ended December 31, 2007, limited
partners in TBF-1 converted 2,045 partnership units at 1,500 shares per unit,
and 755 partnership units at 1,133 shares per unit resulting in the Company
issuing 2,918,160 shares to limited partners in TBF-1.
 
 In August
of 2007, the Company made a third exchange offer (the “August 2007 Exchange
Offer”) for all outstanding Units of TBF-2.  The basis of the August
2007 Exchange Offer was, following receipt by the limited partner of a
distribution by TBF-1 of current allocable income, as follows: a cash payment of
$100 from the Company plus, at the election of the tendering limited partner,
either (A), receipt of 1,133.33 shares of the Company’s common stock, valued at
$0.75 per share, which was subsequently changed to 1,267 shares per partnership
unit or (B) a promissory note made by the Company with a principal value of
$850, payable over four years with 12.5% annual interest.  In the case
of option (B), the Company has, with payee partner consent, the ability to repay
the principal in either cash or registered shares of Company common stock,
provided that the Company’s common stock is at the time of payment trading on a
public exchange or bulletin board quotation system and has achieved certain
trading volume requirements.  During the year ended December 31, 2007
limited partners in TBF-2 converted 1,370 partnership units at 1,500 shares per
unit, and 850 partnership units at 1,267 shares per unit resulting in the
Company issuing 3,131,661 shares to limited partners in TBF-2.
 
 Since the
fair value of the common stock is $0.75 per share, based on the cash price
received for the common stock in the current private placement, the Company has
recorded the value of the excess shares issued upon conversion of the limited
partnership interests of $322,988 as settlement expense in general and
administrative expense in the accompanying statement of operations for the year
ended December 31, 2007.
 
 As a
result of the December 2006 Exchange Offer, the March 15, 2007 Exchange Offer,
and the August 2007 Exchange Offer, the Company as of December 31, 2007 owns
3,500 Units of TBF-1 and 2,950 Units of TBF-2, representing 100% and 84% of the
outstanding Units of TBF-1 and TBF-2, respectively.
 
 During
November 2007, the Company issued 300,000 shares of its common stock to
employees of the Company, 950,000 shares were issued to officers and directors
of the Company (of which 60,000 shares were subsequently forfeited) and 144,630
shares were issued to consultants for services performed.  The shares
issued to employees, officers and directors vest at 50% upon issuance and 5% per
month thereafter. These shares were valued at $1.25 per share which was the fair
value of the common stock on the date of grant based on the cash price received
for the common stock in a private placement offering.  As a result,
the Company recorded $1,073,288 in selling, general and administrative expenses
and $595,000 in deferred compensation related to the issuance of this common
stock during 2007.
 
 7.         Commitments and
Contingencies
 
 Operating
Lease
 
 In
January 2007, the Company entered into a lease sharing arrangement with Texoga
and SRC, an affiliated company, for its office space.  The lease is a
ten-year operating lease which requires total monthly payments of approximately
$43,000 for the initial year with escalation each year thereafter until
expiration in March 2017.  In accordance with the rent sharing
arrangement, the Company is required to pay $9,388 per month for its share of
the rent.
 
 Per this
lease agreement, the Company was required to establish a letter of credit in the
amount of $855,000 with a major financial institution.  Collateral for
this letter of credit is the investment in certificates of deposit included in
the accompanying balance sheet.
 
 F-16
 On August
1, 2007 the Company entered into a ground lease agreement with the city of Oak
Ridge North for the location of the first power project. The lease is a
44-month-lease which requires monthly payments of $3,500 per
month.  The agreement contains options to renew the lease for two
consecutive five year terms.
 
 On May 1,
2007 the Company entered into a commercial lease agreement for the location of
the second power plant. The lease is a five year lease with an option for an
additional five year period.  The lease requires payments starting at
$ 2,620 per month and escalating no more than 4% per year
thereafter.
 
 Future
minimum rental payments required under non-cancelable lease agreements are as
follows:
 
 Turbine
              
              
              Corporate
              
              
              Oak
      Ridge
              
              
              AllYears
              
              Plant
              
              
              Office
              
              
              North
      Plant
              
              
              Leases2008
              
              $
              32,288
              
              
              $
              115,343
              
              
              $
              42,000
              
              
              $
              189,6312009
              
              
              33,579
              
              
              
              118,947
              
              
              
              42,000
              
              
              
              194,5272010
              
              
              34,922
              
              
              
              120,750
              
              
              
              42,000
              
              
              
              197,6732011
              
              
              36,319
              
              
              
              122,552
              
              
              
              10,500
              
              
              
              169,3722012
              
              
              -
              
              
              
              124,354
              
              
              
              -
              
              
              
              124,3542013
              
              
              -
              
              
              
              126,156
              
              
              
              -
              
              
              
              126,1562014
              
              
              -
              
              
              
              127,959
              
              
              
              -
              
              
              
              127,9592015
              
              
              -
              
              
              
              129,761
              
              
              
              -
              
              
              
              129,7612016
              
              
              -
              
              
              
              131,563
              
              
              
              -
              
              
              
              131,563$
              137,108
              
              
              $
              1,117,385
              
              
              $
              136,500
              
              
              $
              1,390,996
 
 Litigation
 
 The
Company does not have any litigation at this time.
 
 Fulcrum Power
Agreement
 
 In
January 2007, the Company entered into a three year Energy Management Agreement
with Fulcrum Power Services, L.P. (“Fulcrum”) whereby Fulcrum is to perform as
the Qualified Scheduling Entity for the Company’s power generating
facility.  Per the agreement, the Company is required to pay Fulcrum
$6,000 per month for the first year of the agreement with a 5% escalation in the
fee for each year thereafter.
 
 Tolling
Agreement
 
 BPC
entered into a tolling agreement with SRC on September 12, 2006 to process
biodiesel for its power projects for a price of $0.50 per
gallon.  This contract expires on December 31, 2008 but is extendable
for consecutive one-year terms.  During the year ended December 31,
2007, the Company purchased approximately 90% of its biodiesel under this
tolling agreement.
 
 
 8.         Related Party
Transactions
 
 During
2006, the Company sold certain assets to SRC for $80,655, resulting in a gain of
$18,300.
 
 During
2006, the Company prepaid for the purchase of 208,000 gallons of biofuel from
its affiliate, SRC for $476,970.
 
 During
2006, the Company advanced $256,725 to SRC to assist with
the  purchase of certain leasehold improvements and to pay for certain
operating costs.  These advances were recorded as a receivable from
affiliate.  As of December 31 2006 the Company has reserved the entire
$256,725 as an allowance for doubtful accounts due to the uncertainty of
collection.
 
 F-17
 
 During
the year ended December 31, 2007, the Company advanced $407,501 to Texoga and
SRC, which are both former affiliates.  These advances were recorded
as receivable from affiliate.  As of December 31, 2007, the Company
has reserved a cumulative total of $664,227 for advances during 2007 and 2006 to
Texoga and SRC as an allowance for doubtful accounts due to the uncertainty of
collection.
 
 During
the year ended December 31, 2007, the Company paid certain affiliated companies
approximately $306,000 for labor and equipment used in the build out of its
electric generator facilities.  In addition, the Company paid
approximately $177,000 to an affiliate for the purchase of
feedstock.
  The
Company's interim CFO is a principal with M-1 Energy.  See Note 6 for
transactions involving M-1 Energy.
 
 
 9.         Subsequent
Events
 
 During the first quarter of 2008, the Company received $148,000
for the sale of 100,333 shares under a Regulation D offering of its common
stock.
 
 In
February 2008, after completion of the power interconnect, the GE Frame 5(10MV)
turbine began generating power into the Entergy Texas Grid.





F-18


ITEM
9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE





NOT
APPLICABLE








ITEM
9A — CONTROLS AND PROCEDURES





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, and 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 December 31, 2007.
Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded the design of our system of disclosure controls and procedures
was not effective as of those dates to ensure that material information relating
to our Company would be made known to them and that our system of disclosure
controls and procedures was operating to provide a reasonable level of assurance
that information required to be disclosed in our reports would be recorded,
processed, summarized and reported in a timely manner.  These
conclusions were based on the identification of the following material
weaknesses:





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





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




-36-





·
            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 commenced the search for a qualified full time 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 December
31, 2007. 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 December 31, 2007, our internal control over financial reporting is
effective.





This annual report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to temporary SEC
rules that permit us to provide only management’s report in this annual report
on Form 10-K.





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 last fiscal year that
materially affected, or is likely to materially affect, our internal control
over financial reporting. Our auditor has not notified us that any material
weakness exists with respect to our internal financial controls.








-37-


PART
III





ITEM
10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Our Board of Directors presently
consists of three directors who are elected to serve for one-year terms at our
annual meeting of stockholders. The following table identifies our executive
officers and directors and specifies their respective ages and
positions.





Name
            Age
            Position
            Term
      ExpiresFred
      O’Connor
            68
            Director,
      Interim CEO
            2008
      Annual MeetingRobert
      Wilson
            51
            Interim
      CFOAlan
      Schaffner
            47
            Independent
      Director
            2008
      Annual MeetingRichard
      DeGarmo
            53
            Independent
      Director
            2008
      Annual Meeting





Fred
O’Connor has
served as a director of our company since inception and presently serves on a
part-time basis as our Interim Chief Executive Officer. Since 2003, Mr. O’Connor
has served as the Mayor of the City of Oak Ridge North, Texas and was
instrumental in our decision to locate our first biodiesel fueled generating
facility in that city. Mr. O’Connor was formerly President and CEO of Process
International Inc. performing design, construction, engineering, commissioning
and training for energy, environmental and petrochemical projects in Libya,
Costa Rica, Peru and the United Kingdom.  He was also formerly
Director of MC International out of Syria, specializing in international
business development and diplomatic relations. Mr. O’Connor is a 1960 graduate
of The University of Notre Dame where he earned a bachelors degree in sociology
with a minor in business.





Robert Wilsonhas served as part-time Chief Financial Officer of our company since
inception. Mr. Wilson also serves as the Chief Financial Officer and Operations
Principal for several broker dealers and investment banking firms. His duties
include compliance with NASD, SEC and NYSE rules and regulations, the design and
implementation of accounting and operations control procedures, representing
firms as an expert witness and with NASD examinations. He currently serves as a
director and audit committee chairman for American Security Resources, Inc. and
American Enterprise Development Corporation and as a consultant with The
Professional Directors Institute. Mr. Wilson is a CPA and has over fifteen years
of experience as the owner of a certified public accounting firm, was previously
a member of the NASD Board of Arbitrators and has several NASD and NYSE
licenses. Mr. Wilson has previously served as operations compliance manager of
the AIM Management Group, Vice President Compliance/Internal Audit of the Kemper
Securities Group and an auditor with Price Waterhouse. Mr. Wilson is a 1977
graduate of Houston Baptist University and pursued additional studies at
Georgetown University.





Alan Schaffner,
Esq.was
appointed to a newly created seat on our Board of Directors in October 2007. Mr.
Schaffner has been self-employed as an independent trader at the Chicago Board
of Trade for 20 years. He has extensive expertise in the agricultural futures
and options markets and specializes in relational derivative strategies and risk
mitigation.  Mr. Schaffner is a 1982 graduate of the University of
Wisconsin where he earned a degree in accounting, and a 1986 graduate of the
Chicago Kent College of Law where he earned a juris doctor degree. Mr. Schaffner
is a certified public accountant and a licensed attorney in
Illinois.





Richard
DeGarmo was appointed to a newly created seat on our Board of Directors
in October 2007. Mr. DeGarmo was appointed chief executive officer of SRC in
February 2008, previously served as chief technical officer of SRC from November
2006 through January 2008, and previously served for two years as SRC’s chief
executive officer. Mr. DeGarmo is a professional process engineer with 25 years
of international experience in design, construction and operation of process
plants, training of personnel, business development, filing of patents,
permitting, computer modeling and financial planning. Before joining SRC in
January 2005, Mr. DeGarmo served for five years as vice president of Global
Resource Recovery Organization, Inc. and was responsible for developing process
solutions for the disposal of organic wastes, biosolids, residual chemicals, and
industrial and agricultural waste. Mr. DeGarmo is a dual degree graduate of Ohio
State University where he earned a bachelors degree in agricultural sciences
(1977) and a Masters degree in agricultural engineering (1981). Mr. DeGarmo is a
registered professional engineer in Texas.





-38-


Key
Consultants





Steven S.
McGuire, the president of Texoga, serves as a part-time consultant to our
company. Mr. McGuire has served as Texoga’s chief executive officer since 1996
and was formerly Chairman, CEO or President of three energy and technology
companies that had operations in three countries and over 200 employees. Mr.
McGuire is a 1977 graduate of the University of Illinois, Champaign-Urbana (B.S.
Physics) and an active member of the Society of Petroleum Engineers and the
Society of Professional Well Log Analysts.





Board
Committees





The
Board of Directors has created an Audit Committee that presently consists of
Messrs. Schaffner and DeGarmo. Mr. Schaffner serves as chairman of the Audit
Committee. All members have a basic understanding of finance and accounting, and
are able to read and understand fundamental financial statements. The board has
determined that all members of our Audit Committee would meet the independence
requirements of the American Stock Exchange if such standards applied to our
company. The Board of Directors has also determined that based on education and
work history, Mr. Schaffner meets the definition of an “Audit Committee
Financial Expert” as established by the Securities and Exchange Commission. The
audit committee's responsibilities include:





·
            appointing,
      approving the compensation of, and assessing the independence of our
      independent auditor;·
            overseeing
      the work of our independent auditor and approving the release of reports
      from our independent auditor;·
            reviewing
      and discussing with management and our independent auditor our annual and
      quarterly financial statements and related disclosures;·
            monitoring
      our internal control over financial reporting, disclosure controls and
      procedures, and code of business conduct and ethics;·
            discussing
      our risk management policies;·
            establishing
      policies regarding hiring employees from our independent auditor and
      procedures for the receipt and retention of accounting related complaints
      and concerns;·
            meeting
      independently with our independent auditor and management;
    and·
            preparing
      the audit committee report required by SEC rules to be included in our
      proxy statements.


All
audit services and all non-audit services, except de minimis non-audit services,
must be approved in advance by the Audit Committee.





The
Board of Directors has created a Compensation Committee that presently consists
of Messrs. Schaffner DeGarmo. Mr. DeGarmo serves as chairman of the Compensation
Committee. The Board of Directors has determined that all members of the
Compensation Committee meet the independence requirements of the American Stock
Exchange if such standards applied to our company. The Compensation Committee's
responsibilities include:





·
            annually
      reviewing and approving corporate goals and objectives relevant to
      compensation of our chief executive officer;·
            determining
      the compensation of our chief executive officer;·
            reviewing
      and approving, or making recommendations to our Board of Directors with
      respect to, the compensation of our other executive
    officers;·
            overseeing
      an evaluation of our senior executives;·
            overseeing
      and administering our cash and equity incentive plans;
  and·
            reviewing
      and making recommendations to our board with respect to director
      compensation.







-39-


The
Board of Directors does not have a separate nominating committee, and has
determined that it is appropriate for the entire board to serve that function
for the time being. Accordingly, Mr. O’Connor will participate in decisions
respecting director nominees until an independent nominating committee is
established. With respect to director nominees, the Board of Directors will
consider nominees recommended by stockholders that are submitted in accordance
with our By-Laws.





Corporate
Governance





Our
Board of Directors believes that sound governance practices and policies provide
an important framework to assist them in fulfilling their duty to stockholders.
Our Board of Directors is working to adopt and implement many "best practices"
in the area of corporate governance, including separate committees for the areas
of audit and compensation, careful annual review of the independence of our
Audit and Compensation Committee members, maintenance of a majority of
independent directors, and written expectations of management and directors,
among other things.





Potential
Conflicts of Interest





Our
officers and directors are not full time employees of our company and are
actively involved in other business pursuits. Accordingly, they may be subject
to a variety of conflicts of interest. Since our officers and directors are not
required to devote any specific amount of time to our business, they will
experience conflicts in allocating their time among their various business
interests.





-40-


Our
officers and directors intend to comply with the requirements of Texas law, and
believe they can avoid most potential conflicts of interest.  If our
officers and directors are subjected to an irreconcilable conflict of interest,
they may elect to submit the issue for a vote of the disinterested stockholders,
but they are not required to do so.





Code
of Business Conduct and Ethics





The
Board of Directorshas adopted a Code of
Business Conduct and Ethics, which has been distributed to all directors,
officers, and employees and will be given to new employees at the time of hire.
The Code of Business Conduct and Ethics
contains a number of provisions that apply principally to our President, Chief
Financial Officer and other key accounting and financial personnel. A copy of
our Code of Business Conduct and Ethics can be found under the "Investor
Information" section of our website at www.biofuelspower.com. We intend to
disclose any amendments or waivers of our Code of Business Conduct and Ethics on
our website.





Indemnification
of Officers and Directors





Our
Articles of Incorporation allows us to indemnify our officers and directors to
the fullest extent permitted by Texas law. The indemnification provisions are
sufficiently broad to provide protection against monetary damages for breach or
alleged breach of their duties as officers or directors, other than in cases of
fraud or other willful misconduct. Our Articles of Incorporation also provide
that, subject to specific exclusions required under Texas law, our directors
will not have any personal liability to our company or our stockholders for
monetary damages arising from a breach of fiduciary duty. Our bylaws require us
to indemnify our officers and directors to the maximum extent permitted by Texas
law. In addition, our bylaws require us to advance expenses to our officers and
directors as incurred in connection with proceedings against them for which they
may be indemnified. The SEC believes the indemnification of directors, officers
and control persons for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is therefore
unenforceable.





ITEM
11 — EXECUTIVE COMPENSATION





Employment
Agreements





Fred O’Connor, our interim CEO and
Robert Wilson, our interim CFO are not full time employees and do not have
written employment agreements with our company. Messrs. O’Connor and Wilson are
entitled to receive monthly consulting fees of $6,000 and $4,000, respectively,
for the time they devote to our affairs. Messrs. O’Connor and Wilson are both
engaged in other activities that will limit the amount of time they can devote
to our affairs and may face conflicts of interest in allocating their available
time among their various interests. In addition to their restricted stock
grants and monthly consulting fees, Messrs. O’Connor and Wilson are entitled to
such bonuses as the compensation committee may approve, but are not entitled to
receive any other equity or non-equity incentive compensation, deferred
compensation, fringe benefits or other compensation. We are presently searching
for qualified individuals to assume the positions that are presently occupied by
Messrs. O’Connor and Wilson, but are unable to estimate the amount of time
it will take to identify suitable successors and negotiate appropriate
employment agreements and compensation terms.





The following table provides summary
information on the compensation paid to our interim CEO and interim CFO during
the year ended December 31, 2007.





Summary
      Compensation TableName
            Position
            Year
            
            Salary
            
            
            Bonus
            
            
            Vested
              stock
      awards
            
            
            All
      other
              compensation
            
            
            Total
              compensationFred
      O’Connor
            Interim
      CEO
            2007
            
            $
            42,800
            
            
            
            —
            
            
            $
            270,000
            
            
            
            —
            
            
            $
            312,800Robert
      Wilson
            Interim
      CFO
            2007
            
            $
            24,600
            
            
            
            —
            
            
            $
            90,000
            
            
            
            —
            
            
            $
            114,600







-41-


Cash
Compensation During 2007





We were inactive until December 2006
when we changed our name to Biofuels Power Corporation, assumed control over
TBP-I and TBP-II, and commenced the business activities described elsewhere in
this annual report on Form 10-K. Accordingly, we did not pay any direct or
indirect cash compensation to any of our officers or directors during the year
ended December 31, 2006.





Equity-based
Compensation During 2007





We did not issue any stock options or
other equity based compensation to any of our officers or directors during the
year ended December 31, 2006. On November 1, 2007, we issued a total of
1,250,000 shares of common stock to our directors, officers, principal
consultants and employees. All of stock grants were valued at $1.25 per share
for accounting purposes, an amount that represents our best estimate of the
current fair market value of our shares. Under the terms of the stock grants,
50% of the grant shares vested immediately and the remaining 50% vest ratably at
the rate of 5% per month over a period of 10 months from the date of grant. The
following table identifies the principal recipients of the stock grants and
summarizes the number and value of grant shares that have vested at March 31,
2008 and the number and value of grant shares that will vest over the next five
months:





Total
      Grant
            
            
            Vested
      Portion
            
            
            Future
      VestingName
            
            Position
            
            Shares
            
            
            Value
            
            
            Shares
            
            
            Value
            
            
            Shares
            
            
            ValueFred
      O’Connor
            
            Interim
      CEO
            
            
            300,000
            
            
            $
            375,000
            
            
            
            225,000
            
            
            $
            281,250
            
            
            
            75,000
            
            
            $
            93,750Robert
      Wilson
            
            Interim
      CFO
            
            
            100,000
            
            
            $
            125,000
            
            
            
            75,000
            
            
            $
            93,750
            
            
            
            25,000
            
            
            $
            31,250Alan
      Schaffner
            
            Director
            
            
            100,000
            
            
            $
            125,000
            
            
            
            75,000
            
            
            $
            93,750
            
            
            
            25,000
            
            
            $
            31,250Richard
      DeGarmo
            
            Director
            
            
            100,000
            
            
            $
            125,000
            
            
            
            75,000
            
            
            $
            93,750
            
            
            
            25,000
            
            
            $
            31,250Robert
      A. Webb
            
            Legal
      counsel
            
            
            100,000
            
            
            $
            125,000
            
            
            
            70,000
            
            
            $
            87,500
            
            
            Balance
      forfeit (1)J.
      Michael McGee
            
            Consultant
            
            
            100,000
            
            
            $
            125,000
            
            
            
            70,000
            
            
            $
            87,500
            
            
            Balance
      forfeit (1)Steven
      McGuire
            
            Consultant
            
            
            100,000
            
            
            $
            125,000
            
            
            
            75,000
            
            
            $
            93,750
            
            
            
            25,000
            
            
            $
            31,250Other
      employees and consultants
            
            
            350,000
            
            
            $
            437,500
            
            
            
            262,500
            
            
            $
            328,125
            
            
            
            87,500
            
            
            $
            109,375


(1)
            Effective
      March 1, 2008, Messrs Webb and McGee resigned from our board of directors
      and in connection therewith, 30,000 unvested grant shares owned by each of
      them were forfeit.





2008 Executive Compensation
Plan





This
section contains a prospective discussion of the material elements of
compensation that will be awarded to, earned by or paid to our three most highly
compensated individuals on a go-forward basis. These individuals, who have not
yet been retained by us, are referred to as the “Named Executive
Officers.”





Compensation
Decision-Making





The Compensation
CommitteeOur Compensation Committee exercises the Board of Directors’
authority concerning compensation of the executive management team, non-employee
directors and the administration of our stock-based incentive compensation
plans. The Compensation Committee will typically meet in separate sessions
independently of board meetings. The Compensation Committee will typically
schedule telephone meetings as necessary to fulfill its duties.  The
Chairman will typically establish meeting agendas after consultation with other
committee members and our CEO.





Role of Contracts
Establishing CompensationWhen we identify individuals to assume the
posts of Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer, we are likely to negotiate formal employment agreements that have terms
of three to four years and contain express provisions relating to annual
salaries, bonuses, equity incentives and other non-cash
compensation.  Our Compensation Committee will bear primary
responsibility for negotiating the terms of such agreements and passing on the
reasonableness thereof.





Role of
Executives in Establishing CompensationWe believe that our CEO and other
members of management will regularly discuss our compensation issues with
Compensation Committee members. In general, the Compensation Committee will have
the sole authority to establish salary, bonus and equity incentives for our CEO
in consultation with other members of the management team. Subject to
Compensation Committee review, modification and approval, we believe our CEO
will typically make recommendations respecting bonuses and equity incentive
awards for the other members of the executive management team.





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Other
Compensation PoliciesWith the assistance of the Compensation Committee
and our management team, we developed a number of policies and practices that we
plan to implement during 2008.  Consistent with our compensation
philosophies described below, our goal will be to provide executive officers
with a compensation program that is competitive with other opportunities that
were available to them.





We
do not have a pre-established policy or target for the allocation of incentive
compensation between cash bonuses and equity incentive
compensation.  The Compensation Committee will review surveys and
other information considered relevant to determine the appropriate level and mix
of incentive compensation for each executive officer and make a final decision
in consultation with the executive officer.  The portion of an
executive’s total compensation that is contingent upon the Company’s performance
will generally tend to increase commensurate with the executive’s position
within the Company.  This approach is designed to provide more
upside potential and downside risk for those senior positions.





For
2008, we will endeavor to ensure that a substantial amount of each Named
Executive Officer’s total compensation will be performance-based, linked to the
Company’s operating performance, and over the executive’s tenure, derived its
value from the market price of the Company’s common stock.





Our
benefit programs are generally egalitarian. Our Named Executive Officers will
not receive perquisites other than a monthly car allowance and participation
without cost in our standard employee benefit programs, including medical and
hospitalization insurance and group life insurance. We will attempt to ensure
that both cash and equity components of total compensation are tax deductible,
to the maximum extent possible.





Compensation
Program





Compensation
Program Objectives and PhilosophyOur compensation philosophy is to
maintain competitive pay practices that will help us attract, retain and reward
the highest performers who are capable of leading us in achieving our strategic
business objectives. To meet these goals, we use base salaries which are
typically determined by employment contracts, performance-based bonuses and
equity-based incentive awards, as appropriate, to reward and reinforce the
value added contributions and attainment of performance objectives that enable
us to meet our goals and create stockholder value. A significant element of our
executive compensation policy is and will continue to be equity-based in order
to emphasize the link between executive compensation and the creation of
stockholder value as measured by the equity markets.





We
do not use external benchmarking data or comparable peer groups to establish
competitive total compensation pay practices. We evaluate employees’
compensation on an annual basis and make changes accordingly.  We
target the overall pay structures to provide a reasonable level of assurance
that we will be able to retain the services of our principal executive
officers.





Compensation
Program DesignOur compensation program is designed to achieve our
objectives of attracting, retaining and motivating employees and rewarding them
for achievement that we believe will bring us success and create stockholder
value. These programs are designed to be competitive with other employment
opportunities that are available to our executives.  A significant
portion of the compensation for our Named Executive Officers includes equity
awards that have extended vesting periods. The purpose of these awards is to
serve as both a retention and incentive mechanism that will encourage recipients
to remain with our Company and create value for both the award recipient and our
stockholders.





Elements
of Compensation





Compensation
arrangements for the Named Executive Officers under our fiscal 2008 compensation
program will typically include four components: (a) a base salary; (b) a cash
bonus program; (c) the grant of equity incentives in the form of non-qualified
stock options; and (d) other compensation and employee benefits generally
available to all of our employees.





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2007
Stock Incentive Plan





Subject to stockholder approval at our
next annual meeting, our Board of Directors has adopted an incentive stock plan
for the benefit of our employees. Under the terms of the plan, we are authorized
to grant incentive awards for up to 2,000,000 shares of common stock. No
incentive awards are outstanding at the date of this annual report on Form
10-K.





The Compensation Committee will
administer the plan; decide which employees will receive incentive awards; make
determinations with respect to the type of award to be granted; and make
determinations with respect to the number of shares covered by the award. The
Compensation Committee will also determine the exercise prices, expiration dates
and other features of awards. The Compensation Committee will be authorized to
interpret the terms of the plan and to adopt any administrative procedures it
deems necessary. All decisions of the Compensation Committee will be binding on
all parties. We will indemnify each member of the Compensation Committee for
good faith actions taken in connection with the administration of the
plan.





All of the options and restricted
shares are subject to vesting requirements and the company has the right to
cancel or repurchase at cost all unvested stock options or restricted shares at
the time the recipient's employment or consulting relationship with the company
is terminated.





Director
Compensation





We
expect our Board members to be actively involved in various aspects of our
business ranging from relatively narrow Board oversight functions to providing
hands-on guidance to our executives with respect to matters within their
personal experience and expertise. We believe that the active involvement of all
Board members in our principal business and policy decisions will increase the
Board’s understanding of our needs and improve the overall quality of our
management decisions.





Only
independent directors will be compensated separately for service as Board
members. While each of our directors received restricted stock grants in
November 2007 as described above, none of our directors received any cash
compensation for services rendered in their capacity as directors during the
year ended December 31, 2007. Each of our independent directors will receive the
following compensation for the year ended December 31, 2008:





•
            A
      basic annual retainer of $10,000 for service as a Board
      member;•
            A
      supplemental retainer of $5,000 for service as Chairman of the Audit
      Committee;•
            A
      supplemental annual retainer of $2,500 for service as a committee
      member;and•
            Reimbursement
      for all reasonable travel, meals and lodging costs incurred on our
      behalf.





ITEM
12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
MATTERS





We had 31,265,561 shares of common
stock issued and outstanding on the date of this annual report on Form 10-K. We
have no outstanding convertible securities and no warrants or options that are
presently exercisable or will become exercisable within 60 days. The following
table sets forth information with respect to the beneficial ownership of our
common stock for each of our executive officers and directors; all of our
executive officers and directors as a group; and any other beneficial owner of
more than 5% of our outstanding common stock





Except
as indicated by footnotes, and subject to applicable community property laws,
each person identified in the table possesses sole voting and investment power
with respect to all common stock held by that person. The address of each named
beneficial owner, unless indicated otherwise by footnote, is 10003 Woodloch
Forest Drive, Suite 900, The Woodlands, Texas 77380.







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Shares
      Beneficially OwnedNumber
            PercentDavid
      S. Holland, Sr. (1)
            3,077,500
            9.8%Dr.
      Mahesh Kanojia (2)
            1,605,000
            5.1%Alan
      Schaffner
            1,161,668
            3.7%Fred
      O’Connor
            400,000
            1.3%Robert
      Wilson
            255,808
            0.8%Richard
      DeGarmo
            100,000
            0.3%Directors
      and officers as a group
            1,917,476
            6.1%


(1)
            David
      S. Holland, Sr. is a retired Pennzoil executive who provided substantial
      equity financing for Texoga in its early stages and ultimately became the
      largest stockholder of that
company.


(2)
            Dr.
      Mahesh Kanojia is the original founder of Texoga and the second largest
      stockholder of that company. From time to time, Dr. Kanojia serves as an
      unpaid consultant to our company.





There
are no agreements, arrangements or understandings that will result in a change
in control at any time in the foreseeable future.





Section
16(a) beneficial ownership reporting compliance





Based
solely on our review of the reports on Forms 3, 4, and 5 that were filed by our
officers during the year ended December 31, 2006, we have determined that John
L. Petersen, Sally A. Fonner, Rachel A. Fefer and Mark R. Dolan each failed to
file a Form 3 to report their initial beneficial ownership of our shares. Our
founders do not intend to file Form 4 to report their distributions of gift
shares until the entire gift share distribution is completed. At the date of
this report on Form 10-K, our founders have agreed to give a combined total of
224,000 gift shares to 448 family members, friends and business associates
selected by them.





Except as
set forth above, we are not aware of any director, officer or beneficial owner
of more than 10% of any class of our equity securities that failed to file the
forms required by Section 16(a) on a timely basis.





ITEM
13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE


In November 2006, we
agreed to become the general partner of and assume legal and operational
responsibility for TBP-I and TBP-II. Our appointment as successor general
partner of the two partnerships was submitted for the written consent of the
limited partners and subsequently approved by the requisite 2/3 majority of the
holders of limited partner interests on December 8, 2006 and January 12, 2007,
respectively. Amended certificates of limited partnership to reflect our
substitution as general partner were filed on January 14, 2007. In connection
with the assignment of Texoga’s general partner interest to us all contracts
necessary for the operation of the Oak Ridge North and Montgomery County
facilities were assigned to us and Texoga has no further interest in those
contracts. While we assumed all of Texoga’s rights and obligations as general
partner of TBP-I and TBP-II, we did not issue any securities or pay any
consideration to Texoga in connection with the assignments.  As
general partner of TBP-I and TBP-II, Texoga acted as the general contractor in
connection with the construction of the Oak Ridge North and Montgomery County
facilities. During 2007, we paid Texoga approximately $306,000 for construction
services, labor and equipment used in connection with the installation of our
Montgomery County facility. We believe the price and other material terms of our
transactions with Texoga were comparable to or more favorable than the price and
terms we could have negotiated with an unaffiliated third
party.





-45-







In
December 2006, we offered to exchange shares of our common stock for limited
partner interests in the partnerships. In connection with the exchange offering,
the partnership interests were valued at their $1,000 per unit cost to the
limited partners and our common stock was valued at $0.67 per share. Since
December 2006, we have issued 4,444,500 shares of our common stock to purchase
2,963 TBP-I units; 2,925,000 shares of our common stock to purchase 1,950 TBP-II
units; and 353,592 shares of common stock upon conversion of $265,200 of notes
we issued to purchase 312 TBP-I units. At the date of this annual report on Form
10-K, we have acquired all 3,500 units of limited partner interest in TBP-I and
dissolved the partnership. We have also acquired 2,950 units of limited
partnership interest in TBP-II which represents 84.2% of the total outstanding
units.





During 2006, we prepaid the cost of
208,000 gallons of biodiesel that we purchased SRC for approximately $477,000.
This fuel was delivered to us during 2007 and used in our preliminary facility
testing and power generation operations. During 2007, we purchased approximately
152,000 gallons of biodiesel from SRC that we used in our operations. While we
did not purchase any biodiesel from third parties during 2006, we purchased
42,000 gallons, or approximately 10% percent of our total fuel purchases, from
third parties in 2007. In light of our plans to use off-spec biodiesel and
renewable diesel when practicable, we expect our future fuel purchases from SRC
to be a significantly smaller percentage of our overall fuel purchases. We
believe the prices we paid for fuel purchased from SRC are comparable to the
prices we could have obtained in transactions with unrelated
parties.








In January 2007, we entered into a
lease sharing arrangement with Texoga and SRC that obligates Texoga to
contribute $18,940 per month to the cost of the leased space that houses the
executive offices for all three companies and obligates SRC to contribute an
additional $14,680 per month as its share of the costs. In connection with the
sublease, we pledged an $856,000 certificate of deposit as collateral security
for the future rental obligations. During the year ended December 31, 2007, we
received $58,040 from SRC, and the unpaid balances were carried as advances to
Texoga and SRC. Since Texoga and SRC are both related parties and the collection
of the unpaid balances is uncertain, we have fully impaired $345,400 of unpaid
rent reimbursements from Texoga and SRC in our financial statements for the year
ended December 31, 2007. We are presently negotiating a sublease of the office
space that will, if the sublease is successfully consummated, eliminate our
future rental obligations and result in the release of the associated security
deposit to us.





During
2007 we asked SRC to make additional plant improvements to increase the
efficiency of
our operations. In connection therewith, we advanced approximately $62,000 to
SRC to pay the cost of the required changes. Since SRC is a related party and
collection of this advance is uncertain, we have fully impaired these advances
to SRC in our financial statements for the year ended December 31, 2007.
  Robert
Wilson is an independent contractor who serves as the interim CFO of our
company. Mr. Wilson is also a principal of M1-Energy Capital Securities, LLC, an
NASD broker dealer that raised $7,000,000 in capital for TBP-I And TBP-II, and
received $700,000 in cash commissions in connection therewith. In connection
with our
partnership exchange offerings and our sales of common stock for cash, M-1
received aggregate cash compensation of $225,000, together with 392,446 shares
of our common stock, including 55,808 shares that were subsequently assigned to
Mr. Wilson.





M1 Energy Risk Management LLC is a
commodity advisory and brokerage firm that creates and manages customized
commodities hedging programs. In connection with the commodity hedging
activities described herein, M-1 Energy Risk Management received $107,750 in
fees during 2007. While Mr. Wilson has no direct or indirect interest in M1
Energy Risk Management, the owners of that company are co-owners with Mr. Wilson
of M1-Energy Capital Securities, LLC.





-46-


Director
Independence





The
Board of Directors has determined that two of our three directors would meet the
independence requirements of the American Stock Exchange if such standards
applied to our company. In the judgment of the board, Mr. O’Connor does not meet
such independence standards. In reaching its conclusions, the board considered
all relevant facts and circumstances with respect to any direct or indirect
relationships between the company and each of the directors, including those
discussed under the caption "Certain Relationships and Related Transactions."
The board determined that any relationships that exist or existed in the past
between the company and each of the independent directors were immaterial on the
basis of the information set forth in the above-referenced
sections.





ITEM
14. — PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit
and Audit-Related FeesThe aggregate fees billed to our company during
2007 by Ham, Langston & Brezina LLP for the audit of our financial
statements for the years ended December 31, 2006 and 2005 was $74,000. We were
not billed any fees for tax preparation services in 2006 or 2007. The
aggregate fees billed for other services related to interim financial
statements and the filing of various documents with the SEC provided by
Ham, Langston & Brezina LLP in 2006 or 2007 was $37,000.





ITEM
15. — EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K





(a)(1)           The
following is a list of the financial statements filed as part of this report on
Form 10-K.





Report
      of Independent Registered Public Accountant for the years ended December
      31, 2007 and 2006Balance
      Sheet as of December 31, 2007 and 2006Statement
      of Operations for the years ended December 31, 2007 and
    2006Statement
      of Changes in Stockholders’ Equity for the years ended December 31, 2007
      and 2006Statement
      of Cash Flow for the years ended December 31, 2007 and
2006Notes
      to Financial Statements





(a)(2)           The
following is a list of the financial statement schedules filed as part of this
report on Form 10-K.





None





-47-


(a)(3)           The
following is a list of the Exhibits filed as part of this report on Form
10-K:





ExhibitNumber
            Description3.1
            Articles
      of Incorporation of Aegis Products Inc. (currently Biofuels Power
      Corporation) dated January 11, 2004
            *3.2
            First
      Amendment to the Articles of Incorporation of Aegis Products Inc.
      (currently Biofuels Power Corporation)  dated December 1,
      2006
            *3.3
            Curative
      Amendment to the Articles of Incorporation of Biofuels Power Corp. dated
      November 12, 2007
            *3.4
            By-laws
      of Biofuels Power Corporation
            *4.1
            Form
      of Common Stock Certificate
            *4.2
            Form
      of 12.5% Senior Convertible Debenture Due 2011
            *10.1
            2007
      Stock Incentive Plan
            *10.2
            Ground
      Lease for 1/2-half acre parcel in Oak Ridge North Texas
            *10.3
            Ground
      Lease for 1.5 acre parcel in Montgomery County Texas
            *10.4
            Master
      Real Estate Lease for executive offices located at 10003 Woodloch Forest
      Drive, Suite 900, The Woodlands, Texas, 77380
            *10.5
            Rent
      Sharing Agreement for executive offices located at 10003 Woodloch Forest
      Drive, Suite 900, The Woodlands, Texas, 77380
            *10.6
            Limited
      Partnership Agreement of Texoga Biofuels Partners 2006-II, as
      amended
            *10.7
            Power
      Marketing Agreement with Fulcrum Power Services, LP,
            *10.8
            Interconnect
      Agreement With Centerpoint Energy for Oak Ridge North
    facility
            *10.9
            Interconnect
      Agreement With Entergy for Montgomery County facility
            *14.1
            Code
      of Business Conduct and Ethics
            *31.1
            Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(a)
            Exhibit 31.131.2
            Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a)
            Exhibit
      31.232.1
            Statement
      of Chief Executive Officer Pursuant to U.S.C. Title 18, Section
      1350
            Exhibit
      32.132.2
            Statement
      of Chief Financial Officer Pursuant to U.S.C. Title 18, Section
      1350
            Exhibit
      32.2


*           Incorporated
by reference to Form 10-SB Registration Statement filed January 11,
2008.





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the 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





By            /s/ Fred
O’Connor


Fred
O’Connor, Chief Executive Officer and Director


Date
April 15, 2008





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





By:  /s/
      Fred O’Connor
              Fred
      O’Connor
            Chief
      Executive Officer and Director
              (Principal
      Executive Officer)
            Date
      April 15, 2008By:  /s/
      Robert Wilson
              Robert
      Wilson
            Chief
      Financial Officer
              (Principal
      Financial Officer and
              Principal
      Accounting Officer)
            Date
      April 15, 2008By:  /s/
      Rich DeGarmo
              Rich
      Degarmo
            Director
            Date April
      15, 2008





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