UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549









FORM
10-Q




þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE
      ACT OF 1934For
      the quarterly period ended March 31, 2008Oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE
      ACT OF 1934





Commission
file number 0-21982





ALLEGRO
BIODIESEL CORPORATION


(Exact
name of registrant as specified in its charter)




DELAWARE
            41-1663185(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification Number)6033
      West Century Blvd., Suite 1090
              Los
      Angeles, California 90045
            90045(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code:(310) 670-2093





(Not
applicable)


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




Indicate
by checkmark 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.





Yes    þ     
Noo




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





Large
      accelerated filero
            Accelerated
      filer                 
      oNon-accelerated
      filer      o
            Smaller
      reporting companyþ(Do
      not check if smaller reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12 b-2 of the Exchange Act).





Yeso      No    þ





As
of May 13, 2008, the registrant had 25,426,392 shares of Common Stock
outstanding.










PART I -- FINANCIAL
INFORMATION





ITEM
I -- FINANCIAL STATEMENTS


ALLEGRO
BIODIESEL CORPORATION


CONSOLIDATED
BALANCE SHEETS


(UNAUDITED)







March
      31, 2008
              
              
              December
      31, 2007AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              376,527
              
              
              $
              874,693Accounts
      receivable, net
              
              
              11,340
              
              
              
              71,312Inventory
              
              
              120,680
              
              
              
              130,621Note
      receivable
              
              
              250,000
              
              
              
              500,000Other
      current assets
              
              
              107,502
              
              
              
              152,658Total
      current assets
              
              
              866,049
              
              
              
              1,729,284Property
      and equipment, net
              
              
              2,872,379
              
              
              
              4,905,280Intangible
      assets, net
              
              
              -
              
              
              
              3,395,250Investments
              
              
              1,000,000
              
              
              
              1,000,000Other
              
              
              25,896
              
              
              
              25,896Total
      assets
              
              $
              4,764,324
              
              
              $
              11,055,710Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Line
      of credit and notes payable, net
              
              $
              2,872,379
              
              
              $
              3,967,545Accounts
      payable
              
              
              726,453
              
              
              
              793,102Accrued
      expenses
              
              
              4,048,751
              
              
              
              3,584,688Due
      to Ocean Park Advisors, LLC.
              
              
              166,452
              
              
              
              111,774Total
      current liabilities
              
              
              7,814,035
              
              
              
              8,457,109Shareholders’
      equity:Convertible
      preferred stock, $0.01 par value:50,000,000
      shares authorized - 26,242,222 and 26,712,969 sharesissued
      and outstanding shares at March 31, 2008 and December 31, 2007,
      respectively
              
              
              289,374
              
              
              
              294,082Common
      stock, $0.01 par value:150,000,000
      shares authorized - 25,426,393 and 23,161,906 sharesissued
      and outstanding shares at March 31, 2008 and December 31, 2007,
      respectively
              
              
              245,961
              
              
              
              223,311Additional
      paid−in capital
              
              
              317,033,269
              
              
              
              315,864,997Accumulated
      deficit
              
              
              (320,618,315
              )
              
              
              (313,783,789
              )Total
      shareholders’ equity
              
              
              (3,049,711
              )
              
              
              2,598,601Total
      liabilities & shareholders' equity
              
              $
              4,764,324
              
              
              $
              11,055,710


See
accompanying Notes to Consolidated Financial Statements.


-2-




ALLEGRO
BIODIESEL CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)






Three
      Months Ended March 31,2008
              
              
              2007Sales
              
              $
              55,014
              
              
              $
              1,843,174Cost
      of sales, net of excise tax credits at March 31, 2008 and 2007
      of  $0 and $79,534, respectively
              
              
              75,239
              
              
              
              2,084,981Gross
      loss
              
              
              (20,225
              )
              
              
              (241,807
              )Operating
      expenses:Selling,
      general and administrative
              
              
              809,514
              
              
              
              2,075,513Amortization
      of intangible assets
              
              
              -
              
              
              
              226,350Impairment
      charges
              
              
              5,443,586
              
              
              
              -Total
      operating expenses
              
              
              6,253,100
              
              
              
              2,301,863Operating
      loss
              
              
              (6,273,325
              )
              
              
              (2,543,670
              )Interest
      expense
              
              
              (124,217
              )
              
              
              (86,614
              )Interest
      income
              
              
              8,538
              
              
              
              38,836Registration
      rights
              
              
              -
              
              
              
              (237,500
              )Other,
      net
              
              
              135,574
              
              
              
              -Loss
      before income taxes
              
              
              (6,253,430
              )
              
              
              (2,828,948
              )Income
      taxes
              
              
              -
              
              
              
              -Net
      loss
              
              
              (6,253,430
              )
              
              
              (2,828,948
              )Dividends
      on preferred stock
              
              
              (581,096
              )
              
              
              (570,000
              )Net
      loss available to common shareholders
              
              $
              (6,834,526
              )
              
              $
              (3,398,948
              )Net
      loss per share, basic and diluted
              
              $
              (0.29
              )
              
              $
              (0.19
              )Weighted
      average number of common shares under in per share
      calculations
              
              
              23,433,434
              
              
              
              18,343,182





See
accompanying Notes to Consolidated Financial Statements.


-3-




ALLEGRO
BIODIESEL CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)







Three
      Months Ended March 31,2008
              
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (6,253,430
              )
              
              $
              (2,828,948
              )Adjustments
      to reconcile net loss to net cash from operating
    activities:Depreciation
      and amortization
              
              
              -
              
              
              
              305,586Impairment
      charges
              
              
              5,443,586
              
              
              
              -Gain
      on sale of equity interest in PAAL
              
              
              (125,000
              )Stock-based
      compensation
              
              
              110,674
              
              
              
              1,031,008Bad
      debt expense
              
              
              61,730
              
              
              
              -Creditor
      and note receivable settlements
              
              
              (7,974
              )
              
              
              -Accretion
      of convertible notes payable and amortization of debt
    discount
              
              
              49,834
              
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (1,758
              )
              
              
              43,682Inventory
              
              
              9,941
              
              
              
              344,423Prepaid
      expenses and other assets
              
              
              40,052
              
              
              
              (187,965
              )Accounts
      payable
              
              
              (23,570
              )
              
              
              (159,512
              )Due
      to Ocean Park Advisors, LLC.
              
              
              54,678
              
              
              
              -Accrued
      expenses
              
              
              (41,494
              )
              
              
              (15,712
              )Net
      cash used in operating activities
              
              
              (682,731
              )
              
              
              (1,467,438
              )Cash
      flows from investing activities:Capital
      expenditures
              
              
              (15,435
              )
              
              
              (182,470
              )Proceeds
      from sale of equity interest in PAAL
              
              
              125,000
              
              
              
              -Net
      cash provided by (used in) investing activities
              
              
              109,565
              
              
              
              (182,470
              )Cash
      flows from financing activities:Proceeds
      from repayment of issued promissory note
              
              
              225,000
              
              
              
              -Payments
      on line of credit and notes payable
              
              
              (150,000
              )
              
              
              (150,000
              )Net
      cash provided by (used in) financing activities
              
              
              75,000
              
              
              
              (150,000
              )Net
      decrease in cash and cash equivalents
              
              
              (498,166
              )
              
              
              (1,799,908
              )Cash
      and cash equivalents at beginning of period
              
              
              874,693
              
              
              
              5,578,291Cash
      and cash equivalents at end of period
              
              $
              376,527
              
              
              $
              3,778,383Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
              
              $
              150,012
              
              
              $
              91,637Cash
      paid during the period for income taxes
              
              $
              -
              
              
              $
              300Supplemental
      disclosure of non-cash investing and financing activities:Conversion
      of convertible debt into common stock
              
              $
              1,000,000
              
              
              $
              -Conversion
      of accrued dividends into common stock
              
              $
              521,548
              
              
              $
              -






See
accompanying Notes to Consolidated Financial Statements.


-4-




ALLEGRO
BIODIESEL CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2008


(UNAUDITED)





1.
            Business





Business


Through
the acquisition of Vanguard Synfuels, LLC (“Vanguard”) in September 2006,
Allegro Biodiesel Corporation (“Allegro”, “we,” “us” or “Company”) owns a
biodiesel production facility that uses renewable agricultural-based feedstock
(primarily soybean oil) to produce biodiesel fuel, which has been sold in both
blended and unblended form with petroleum diesel. The product has been sold
primarily to regional wholesale bulk fuel distributors and the local Louisiana
market. Vanguard was formed on April 28, 2003 (“Inception”) as a limited
liability company. Vanguard purchased assets from Farmland Industries'
bankruptcy trustee on July 31, 2003. These assets included 320 acres
of land, an ammonia plant which was shuttered in 2001, and existing plant
infrastructure. Vanguard converted the existing facility (the “Pollock
Facility”) into a biodiesel production facility. Vanguard began testing of
the Pollock Facility in early 2006, and commenced production and sales of
biodiesel in April 2006. Vanguard was a development-stage company prior to April
2006.





Management's
Plan of Operations


During
2007, the biodiesel industry experienced a significant increase in the cost of
soybean oil, with the price increasing from $0.25 per pound in September 2006 to
the current price of approximately $0.61. Although we have been able to develop
efficiency improvements in our production processes, feedstock is still the
primary production cost of biodiesel fuel. The increase in the cost of soybean
oil had a significant, negative effect on our profit margins and cash flows and
caused an impairment of goodwill associated with the Pollock Facility of $19.9
million during the third quarter of 2007. Given these economic conditions, in
October 2007 we adopted a company-wide cost reduction plan intended to reduce
our operating costs. Under this plan, we significantly reduced administrative
costs and our headcount from 19 to 7 employees. We also significantly reduced,
then halted production at the Pollock Facility during the fourth quarter of
2007.  Consequently, we did not make any material amount of biodiesel
during the first quarter of 2008. In order to resume production of biodiesel
again at the Pollock Facility, we will need to incur start-up expenses and at
least one week to bring the Facility back to production status. Due to the
halting of production and absence of sales, we deemed it appropriate to write
down our customer relationship intangible asset to $0 and the carrying value of
the Pollock Facility assets to the carrying value of the amount
outstanding under our credit agreement with First South Farm Credit, ACA.
See Note 3 “Impairment Charges”





We also
amended our compensation arrangements with our management team effective October
15, 2007, including deferring 50% of the monthly cash compensation payable to
our senior executives, our management advisor, Ocean Park Advisors, LLC, and our
non-executive directors, and 100% of any bonuses, until a time in the future to
be determined by our Board of Directors. These measures have significantly
lowered our monthly cash operating expenses from an average of about $400,000 to
approximately $150,000 per month.





DESPITE
THE STEPS WE HAVE TAKEN TO REDUCE OPERATING EXPENSES, IF COMMODITY PRICES DO NOT
IMPROVE IN THE IMMEDIATE FUTURE, OR WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING
OR COMPLETE A STRATEGIC TRANSACTION WITHIN THE NEXT SEVERAL WEEKS, WE WILL BE
FORCED TO FILE FOR BANKRUPTCY PROTECTION.





On
February 13, 2008, the Company entered into a binding letter agreement with a
group of investors (“Investor Group”) for the funding of Port Asset Acquisition,
LLC ("PAA"), an entity previously formed by Allegro for the purpose of acquiring
assets at the Port of Alexandria (the "Port Assets") and developing a liquid
terminal operation. The transactions contemplated by the agreement include: (i)
the purchase of 14.71 acres of real property, which includes tank storage, a
fuel terminal and an office building; (ii) the purchase of an additional 7
adjacent acres of real property from the City of Alexandria; and (iii) the lease
of riverfront property for a term of up to 40 years from the Alexandria Port
Authority.





In
exchange for an investment of $1,000,000 into PAA, the Investor Group received a
92.5% ownership interest of PAA and the Company retained a 7.5% ownership
interest. The Agreement granted the Company a 90-day call option to purchase the
equity interests of the Investor Group, subject to certain conditions. If the
Company does not exercise this option during its exercise period, the Investor
Group has the option to purchase the Company’s equity interest in PAA during the
same 90-day period for a purchase price ranging from $125,000 to $175,000
depending upon the time of exercise within the 90-day option
period.  On March 25, 2008, the Investor Group exercised its call
option resulting in the receipt of $125,000 in proceeds by the
Company.





Should
the Company exercise its call option, it will repay the Investor Group's
original $1,000,000 cash investment, plus an additional payment of $500,000 to
be allocated among all PAA members pro rata to their equity interests at the
time the option is exercised. The Company will also be required to repay any
seller financing to PAA outstanding at such time. Furthermore, if the Company
exercises the call option, it will be required to pay, Darrell Dubroc and Tim
Collins, two of its officers and directors, an aggregate of $250,000 in cash and
$200,000 in stock.




-5-




As of
March 31, 2008, Allegro had negative working capital of $6,947,986. Included as
a reduction to working capital is $3,374,636 of accrued dividends which the
Company may pay, at its option, convert into shares of its Series A convertible
preferred stock or in cash.





As of
December 31, 2007, the Company was in default of its working capital covenant
under its credit agreement and on March 27, 2007, a waiver from First South Farm
Credit ACA was obtained through September 1, 2008. Management believes its
existing sources of liquidity should be sufficient to fund its operations,
working capital and other financing requirements for only the next several
weeks. By that time, the Company will need additional debt and/or equity
financing to fund its business, which it is now actively seeking. Management
cannot assure you that such financing will be available to the Company on
favorable terms, or at all. Management is also in the process of evaluating
strategic opportunities which include the possible sale of Allegro to a third
party or a sale of the Pollock Facility.  IF COMMODITY PRICES DO NOT
IMPROVE OR THE COMPANY IS UNABLE TO OBTAIN ADDITIONAL FINANCING OR COMPLETE A
STRATEGIC TRANSACTION WITHIN THE NEXT SEVERAL WEEKS IT WILL BE FORCED TO FILE
FOR BANKRUPTCY PROTECTION. The consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities in the normal course of
business.  The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.





2.
            Basis
      of Presentation and Significant Accounting
  Policies





Basis
of Presentation


The
consolidated financial statements of Allegro are unaudited and have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information, pursuant to the
rules and regulations of the Securities and Exchange Commission. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal year
2007 as reported in the Company's Form 10-K have been omitted.  The results
of operations for the three month periods ended March 31, 2008 and 2007 are not
necessarily indicative of the results to be expected for the full year. All
accounts and intercompany transactions have been eliminated in consolidation. In
the opinion of management, the consolidated financial statements include all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Company's financial position, results of operations and cash flows.
These statements should be read in conjunction with the financial statements and
related notes which are part of the Company's Annual Report on Form 10-K for the
year ended December 31, 2007.





Net
Loss per Share


Basic
loss per share is calculated by dividing net loss by the weighted average common
shares outstanding during the period. Diluted net loss per share reflects the
potential dilution to basic EPS that could occur upon conversion or exercise of
securities, options or other such items to common shares using the treasury
stock method, based upon the weighted average fair value of our common shares
during the period. For each period presented, basic and diluted loss per share
amounts are identical as the effect of potential common shares is
antidilutive.





3.
            Impairment
      Charges





In
connection with its acquisition of Vanguard we acquired a customer relationship
intangible asset, with an assigned value of $4,527,000 on the date of
acquisition.  Given the substantial increase and volatility in soybean
oil prices and absence of sales from these customers during the past two fiscal
quarters, management evaluated the expected future cash flows for the intangible
asset pursuant to Statement of Financial Accounting Standards  No. 144
“Accounting for the Impairment or Disposal of Long-Lived
Assets”.  During the first quarter of 2008, management reduced the
carrying value of the intangible asset to $0, resulting in an impairment charge
of $3,395,250.





During
the first quarter of 2008, management evaluated the carrying value of its
biodiesel plant assets.  The Company analyzed the
following:




·
            expected
      future cash flows of the plant based on the historical prices, current and
      future prices of soybean oil;


·
            non-binding
      letters of intent to acquire the biodiesel plant assets;
    and


·
            the
      carrying value of the plant as compared to the amounts outstanding under
      the First South Farm Credit ACA (“First South”) credit agreement which is
      secured by substantially all of the assets of Vanguard, including the
      biodiesel plant assets .





Based
upon the evaluation of the above possible outcomes, management reduced the
carrying value of the biodiesel plant assets to the carrying value of the amount
outstanding under the First South credit agreement of $2,872,379, resulting in
an impairment charge of $2,048,336.





4.
            Note
      Receivable





On
February 25, 2008, the outstanding note was amended whereby a partial repayment
of principal by Community Power Corporation (“CPC”) to Allegro in the amount of
$225,000 and the forbearance of $25,000 of principal by Allegro was made. The
Company also waived the interest that had accrued on the repaid principal of
$250,000. The maturity date of the remaining amount outstanding under the note
of $250,000 has been extended to the earlier of either December 31, 2008, or the
date by which CPC receives at least $2,500,000 in equity or debt
financing.  As a result of the forgiveness of principal and interest,
the Company recorded a charge to operations.




-6-




5.
            Accrued
      Expenses





Accrued
expenses consist of the following at:





March
      31,
              
              
              December
      31,2008
              
              
              2007Dividends
              
              $
              3,374,636
              
              
              $
              2,844,342Registration
      rights penalties
              
              
              381,250
              
              
              
              381,250Lease
      termination costs
              
              
              88,310
              
              
              
              88,310Other
              
              
              204,555
              
              
              
              270,786$
              4,048,751
              
              
              $
              3,584,688




6.
            Line
      of Credit and Notes Payable





First
South Farm Credit, ACA ("First South")


The
Company is party to a credit agreement with First South that provides for
borrowings of up to $3,500,000 which includes a line of credit and a term loan.
On April 2, 2007, the Company received from First South a letter of approval by
its loan committee of certain amendments to the credit agreement. The amendments
include a two year renewal of the line of credit so that the outstanding
principal balance is now due on July 1, 2009 and requires the Company to achieve
and maintain certain financial and non-financial covenants based on Vanguard's
working capital and net assets position including achieving a minimum working
capital of $500,000, maintenance of an excess of total assets over total
liabilities of not less than $1,500,000 and the maintenance of a cash flow
coverage ratio of at least 1.25 to 1.00 by December 31, 2008. As of December 31,
2007, Allegro had negative working capital of $6,727,825.  Included as a
reduction to working capital is $2,844,342 of accrued dividends which we may
pay, at our option, in shares of Series A convertible preferred stock or in
cash. As of December 31, 2007, Vanguard failed to comply with a covenant under
its credit agreement with First South, relating to the maintenance of minimum
level of working capital of $500,000. On March 27, 2008, Vanguard received a
waiver of its non-compliance with this covenant from First South through
September 1, 2008 and an acknowledgement that the Company was no longer in
default of the credit agreement as of December 31, 2007. All amounts outstanding
under the credit agreement have been classified as a current liability in the
accompanying consolidated financial statements.





The
aggregate amount outstanding under the credit agreement at March 31, 2008 and
December 31, 2007 was $2,872,379 and $3,017,379 respectively. As of March 31,
2008, the amount available for borrowing under the credit agreement was
$0.  In January 2008, the Company made the contractual principal
payment on the loan of $150,000.





7.
            Common
      Stock





Stock
Options


On
January 29, 2008, the Company granted an aggregate of 454,998 stock options to
certain employees and consultants. Each stock option has an exercise price of
$0.35 which was equal to the closing stock price of the Company common stock on
the date of grant and were valued using the Black-Scholes option pricing
model.





Stock
based compensation for the three months ended March 31, 2008 and 2007 was
$110,674 and $1,031,008, respectively.





Issuance
of Common Stock


On
November 21, 2007, the Company issued a convertible promissory note to Monarch
Pointe Fund, Ltd. (“Monarch Pointe”), a fund managed by M.A.G. Capital, LLC
(“MAG”) for gross proceeds of $1,000,000.  On March 31, 2008, the
Company issued 1,577,113 shares of common stock at a conversion price of $0.65
per share as repayment on the note.  The conversion price was equal to
the agreed upon conversion price at the date of issuance of the
note.





During
the three months ended March 31, 2008, the Company converted $521,548 of accrued
dividends on its Series A convertible preferred stock into 687,374 shares of
common stock.





-7-





ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS





This
quarterly report on Form 10-Q of Allegro Biodiesel Corporation for the three
months ended March 31, 2008, contains forward-looking statements, principally in
this Section and “Business.” Generally, you can identify these statements
because they use words like “anticipates,” “believes,” “expects,” “future,”
“intends,” “plans,” and similar terms. These statements reflect only our current
expectations. Although we do not make forward-looking statements unless we
believe we have a reasonable basis for doing so, we cannot guarantee their
accuracy and actual results may differ materially from those we anticipated due
to a number of uncertainties, many of which are unforeseen, including, among
others, the risks we face as described in this filing. You should not place
undue reliance on these forward-looking statements which apply only as of the
date of this annual report. These forward-looking statements are within the
meaning of Section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended, and are intended to be
covered by the safe harbors created thereby. To the extent that such statements
are not recitations of historical fact, such statements constitute
forward-looking statements that, by definition, involve risks and uncertainties.
In any forward-looking statement where we express an expectation or belief as to
future results or events, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no assurance that the
statement of expectation of belief will be accomplished.





We
believe it is important to communicate our expectations to our investors. There
may be events in the future, however, that we are unable to predict accurately
or over which we have no control. The risk factors listed in this filing, as
well as any cautionary language in this annual report, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Factors that could cause actual results or events to differ materially from
those anticipated, include, but are not limited to: our ability to successfully
develop new products; the ability to obtain financing for product development;
changes in product strategies; general economic, financial and business
conditions; changes in and compliance with governmental healthcare and other
regulations; changes in tax laws; and the availability of key management and
other personnel.





Overview





We are in
the business of production and distribution of biodiesel fuel. We began
biodiesel fuel production and sales in April 2006, making us the first
operational producer of biodiesel in Louisiana. Our biodiesel fuel production
facility is located on a 320-acre site in Pollock, Louisiana (the “Pollock
Facility”). The Pollock Facility uses renewable agricultural-based feedstock
(primarily soybean oil) to produce biodiesel. During 2007, the biodiesel
industry experienced a significant increase in the cost of soybean oil, with the
price increasing from $0.25 per pound in September 2006 to the current price of
approximately $0.61. Although we have been able to develop efficiency
improvements in our production processes, feedstock is still the primary
production cost of biodiesel fuel. The increase in the cost of soybean oil had a
significant, negative effect on our profit margins and cash flows and caused an
impairment of goodwill associated with the Pollock Facility of $19.9 million
during the third quarter of 2007. Given these economic conditions, in October
2007 we adopted a company-wide cost reduction plan intended to reduce our
operating costs. Under this plan, we significantly reduced  our
operating expenses.  See Note 1 to the Consolidated Financial
Statements.  We also significantly reduced, and then halted,
production at the Pollock Facility during the fourth quarter of
2007.  Consequently, we did not make any material amount of biodiesel
during the first quarter of 2008.  WE NEED TO OBTAIN ADDITIONAL
FINANCING, OR COMPLETE A STRATEGIC TRANSACTION WITHIN THE NEXT SEVERAL WEEKS TO
CONTINUE OPERATIONS. IF WE ARE UNABLE TO DO SO, WE WILL BE FORCED TO FILE FOR
BANKRUPTCY PROTECTION.





Results
of Operations Three Months Ended March 31, 2008 Compared to the Three Months
Ended March 31, 2007





Sales


During
the first quarter of 2008, as compared to the first quarter of 2007, our sales
decreased to $55,014 from $1,843,174. The primary factor contributing to this
was the halt in production of biodiesel due to the cost of soybean oil described
above under the caption “Overview”. The revenue generated during the first
quarter of 2008 is attributable to sales of glycerin and biodiesel
inventory.





Gross
Loss


For the
first quarter of 2008 our gross loss was $20,225, compared to a gross loss of
$241,807 for the same period during 2007. The change resulted from not producing
biodiesel during the first quarter of 2008





Selling,
General and Administrative


Our
selling, general and administrative expenses include personnel costs, the costs
of corporate functions, accounting, transaction costs, legal, insurance,
consulting, information systems and non-cash stock-based
compensation.





Selling,
general and administrative expenses decreased to $809,514 in the first quarter
of 2008, from $2,075,513 in the first quarter of 2007. The decrease resulted
from the non-recurrence in the first quarter of 2008 of restructuring activities
implemented during the fourth quarter of 2007, and lower stock-based
compensation.





Impairment
Charges


In
connection with our acquisition of Vanguard we acquired a customer
relationship intangible asset, with an assigned value of $4,527,000 on the date
of acquisition.  Given the substantial increase and volatility in
soybean oil prices and absence of sales from the customers for which the
intangible asset resulted from, management evaluated the expected future cash
flows for the intangible asset pursuant to Statement of Financial Accounting
Standards  No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets”.  As a result, during the first quarter of 2008,
management reduced the carrying value of the intangible asset to $0, resulting
in an impairment charge of $3,395,250.




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During
the first quarter of 2008, management evaluated the carrying value of the
Pollock Facility's assets.  They analyzed the
following:




·
            expected
      future cash flows of the Facility based on the historical prices,
      current and future prices of soybean
oil;


·
            non-binding
      letters of intent to acquire the Facility's assets;
  and


·
            the
      carrying value of the Facility as compared to the amounts outstanding
      under the First South credit agreement which is secured by
      substantially all of the assets of Vanguard, including the Facility's
      assets.





Based
upon the evaluation of the above possible outcomes, management reduced the
carrying value of the Pollock Facility's assets to the carrying value of the
amount outstanding under the First South credit agreement of $2,872,379,
resulting in an impairment charge of $2,048,336.




We did
not incur impairment charges for the comparable period in 2007.





Amortization
of Intangible Assets


During
the first quarter of 2008, we did not incur amortization expense related to our
intangible assets due to the reduction of the carrying value of the assets to
$0. See “Impairment Charges.” During the first quarter 2007, amortization
expense related to our intangible assets was $226,350.





Interest
Expense


During
the first quarter of 2008, we incurred interest expense of $124,817 compared to
$86,614 during the first quarter of 2007.   The change was
attributable to non-cash interest expense related to the accretion of a debt
discount of $49,834, compared to $0 for the first quarter of 2007.





Interest
Income


During
the first quarter of 2008 we generated interest income of $8,538 compared to
$38,836 during the first quarter of 2007.  The decrease was
attributable to lower average cash balances resulting from the negative trends
in our business discussed above.





Registration
Rights Penalties


Penalties
payable under our Series A convertible preferred stock registration rights
agreement was $0 during
the first quarter of 2008, compared to $237,500 during the first quarter of
2007.  Such penalties ceased upon the effectiveness of our
registration statement in June 2007.





Other
Income


Other
income was $135,574 during the first quarter of 2008 as compared to $0 for the
same period in 2007.  During the first quarter of 2008, we received
$125,000 for the sale of our equity interest in an entity previously formed by
us for the purpose of acquiring assets at the Port of Alexandria and developing
a liquid terminal operation. See Note 1 to the Consolidated Financial
Statements.





Liquidity
and Capital Resources





Our
principal sources of liquidity consist of cash and cash equivalents, cash
generated from product sales, the issuance of equity securities, and amounts
available for borrowing under our credit agreement with First South. In addition
to funding operations, our principal short-term and long-term liquidity needs
have been, and are expected to be, the debt service requirements of our line of
credit and notes payable, capital expenditures and general corporate purposes.
At March 31, 2008, our cash and cash equivalents totaled $376,527, and we had
negative working capital of $6,947,986.





At March
31, 2008, we had $2,872,379 in bank debt outstanding under our credit agreement
with First South. The credit agreement provides for borrowings of up to
$3,500,000, which includes a line of credit and a term loan.  As of
December 31, 2007, Vanguard failed to comply with a covenant under the
credit agreement, relating to the maintenance of minimum level of working
capital of $500,000. On March 27, 2008, Vanguard received a waiver of its
non-compliance with this covenant from First South through September 1, 2008,
and an acknowledgement that Vanguard was no longer in default of the credit
agreement as of December 31, 2007. In the future, if Vanguard is unable to meet
the covenants under the credit agreement, First South may elect to exercise its
rights under the agreement and foreclose on the assets of Vanguard. On January
1, 2008, we made the contractual principal payment of $150,000 on the term
loan.





On
November 21, 2007, we issued a convertible promissory note to Monarch Pointe
Fund, Ltd. (“Monarch Pointe”), a fund managed by M.A.G. Capital, LLC (“MAG”) for
$1,000,000. The proceeds of this loan were used to make a minority investment in
CPC. The note was due on March 31, 2008, and was convertible into our
common stock at any time at either party’s election at a conversion price of
$0.65 per share. On March 31, 2008, we converted the principal of the note,
together with accrued interest, into 1,577,113 shares of our common
stock.




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We
believe that our existing sources of liquidity will be sufficient to fund our
operations, anticipated capital expenditures, working capital and other
financing requirements for only the next several weeks. We are currently seeking
additional financing to fund our business or a strategic transaction. We cannot
assure you that such financing or a strategic transaction can be obtained or
completed by us on favorable terms, or at all. IF COMMODITY PRICES DO NOT
IMPROVE OR WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING OR COMPLETE A STRATEGIC
TRANSACTION WITHIN THE NEXT SEVERAL WEEKS, WE WILL BE FORCED TO FILE FOR
BANKRUPTCY PROTECTION.


Operating
Activities


Cash used
in operating activities was $682,731for the first three
months of fiscal 2008, compared to cash used of $1,467,438 for the same period
in fiscal 2007. Operating cash flows for the first three months of fiscal 2008
reflect our net loss of $6,834,526 as discussed above, offset by changes in
working capital and $5,532,850 for non-cash expenses (primarily
the impairment charges discussed above under the section “Impairment
Charges,” and stock-based compensation).





Operating
cash flows for the three months of fiscal 2007 reflect our net loss of
$2,828,948, offset by working capital requirements of $24,916 and non-cash
expenses (depreciation, amortization of intangible assets and stock-based
compensation) of $1,336,594.





Investing
Activities


Cash
provided by investing activities was $109,565 for the first three months of
fiscal 2008 compared to cash used of $182,470 for the same period in fiscal
2007.  During the first quarter of 2008, we received proceeds from the
sale of our investment in PAA (see Note 1 to the Consolidated Financial
Statements) and significantly reduced our capital expenditures from the
comparable 2007 period due to the halt of production at the Pollock
Facility.





Financing
Activities


Cash
provided by financing activities was $75,000 for the first three months of
fiscal 2008, compared to cash used of $150,000 for the comparable period of
fiscal 2007. During the first quarter of fiscal 2008, we made a contractual
principal payment of $150,000 on our term loan with First South and received
$225,000 in proceeds from the repayment of a note receivable.





Off
Balance Sheet Arrangements





We have
no off-balance sheet arrangements.





ITEM
4. CONTROLS AND PROCEDURES





(a)  
      Evaluation of disclosure controls and
  procedures.





As of
March 31, 2008, we carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Principal
Financial and Accounting Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based
upon that evaluation, our Chief Executive Officer and Principal Financial and
Accounting Officer concluded that our disclosure controls and procedures were
effective as of March 31, 2008, to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.





(b)  
      Changes in internal controls over financial
  reporting.





There
were no changes in our internal controls over financial reporting during the
quarter ended March 31, 2008, that materially affected or are reasonably likely
to materially affect our internal control over financial reporting.







PART II — OTHER INFORMATION




Item
6. Exhibits





ExhibitNo.31.1
            
            Certification
      of the Chief Executive Officer and Chief Accounting Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
            
            Certification
      of the Chief Executive Officer and Chief Accounting Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002





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ALLEGRO
BIODIESEL CORPORATION





SIGNATURES





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





ALLEGRO
      BIODIESEL CORPORATIONBy:
            /s/ W.
      Bruce Comer
      IIIW.
      Bruce Comer III
              Chief
      Executive Officer (Principal Executive Officer and
              Principal
      Financial and Accounting Officer)Date:
      May 14, 2008






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