**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**






x
                **QUARTERLY
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934**





For
      the
      quarterly period ended September 30, 2007





OR




o
                **TRANSITION
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934**




Commission
      file number 0-21982





**Allegro
      Biodiesel Corporation**


Incorporated
      pursuant to the Laws of Delaware




Internal
      Revenue Service -- Employer Identification No. 20-5748331





6033
      West
      Century Boulevard, Suite 1090, Los Angeles, California 90045


(310)
      670-2093




Check
      whether the issuer (1) 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 x No o





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes **** o No x





As
      of
      November 13, 2007, 21,715,539 shares of Common Stock were
      outstanding.





Transitional
      Small Business Disclosure Format. Yes o No x










**Allegro
      Biodiesel Corporation**




**Page****Part
                I -- FINANCIAL INFORMATION****Item
                1.**
            **Financial
                Statements**
            **3****Item
                2.**
            **Management's
                Discussion and Analysis or Plan of Operation**
            **10****Item
                3.**
            **Controls
                and Procedures**
            **15****Part
                II -- OTHER INFORMATION****Item
                5.**
            **Other
                Information**
            **16****Item
                6.**
            **Exhibits**
            **16****Signatures**
            
            **17**


2





**PART I
      -- FINANCIAL INFORMATION**





**ITEM
      I -- FINANCIAL STATEMENTS**


**ALLEGRO
      BIODIESEL CORPORATION**


**CONSOLIDATED
      BALANCE SHEET**


**SEPTEMBER
      30, 2007**


**(UNAUDITED)**


**Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              660,559Accounts
                  receivable, net
              
              
              584,543Inventory
              
              
              378,602Other
                  current assets
              
              
              246,040Total
                  current assets
              
              
              1,869,744Property
                  and equipment, net
              
              
              5,001,613Intangible
                  assets, net
              
              
              3,621,600Other
              
              
              25,896Deferred
                  income taxes
              
              
              362,560Total
                  assets
              
              $
              10,881,413**Liabilities
                  and Shareholders’ Equity**Current
                  liabilities:Notes
                  payable
              
              $
              150,000Accounts
                  payable
              
              
              790,546Accrued
                  expenses
              
              
              3,044,371Deferred
                  income taxes
              
              
              362,560Total
                  current liabilities
              
              
              4,347,477Notes
                  payable and line of credit
              
              
              2,867,379Total
                  liabilities
              
              
              7,214,856**Shareholders’
                  equity:**Convertible
                      preferred stock, $0.01 par value: 50,000,000 shares authorized
                      issued and
                      outstanding shares - 27,352,891
              
              
              300,481Common
                      stock, $0.01 par value: 150,000,000 shares authorized issued
                      and
                      outstanding shares - 21,314,802
              
              
              213,149Additional
                  paid-in capital
              
              
              315,125,015Accumulated
                  deficit
              
              
              (311,972,088
              )Total
                  shareholders’ equity
              
              
              3,666,557Total
                  liabilities & shareholders' equity
              
              $
              10,881,413




See
      accompanying Notes to Consolidated Financial Statements.





3





**ALLEGRO
      BIODIESEL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(UNAUDITED)**




**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Sales
              
              $
              1,396,297
              
              $
              126,281
              
              $
              7,111,114
              
              $
              126,281Cost
                  of sales, net of excise tax credits for the three and nine months
                  ended
                  September 30, 2007 of $378,431 and $631,539, respectively
              
              
              1,496,262
              
              
              150,222
              
              
              7,481,490
              
              
              150,222Gross
                  profit (loss)
              
              
              (99,965
              )
              
              (23,941
              )
              
              (370,376
              )
              
              (23,941
              )Operating
                  expenses:Selling,
                  general and administrative
              
              
              2,274,453
              
              
              22,216,802
              
              
              6,775,128
              
              
              22,415,182Amortization
                  of intangible assets
              
              
              226,350
              
              
              -
              
              
              679,050
              
              
              -Impairment
                  of goodwill
              
              
              19,978,894
              
              
              51,012,250
              
              
              19,978,894
              
              
              51,012,250Total
                  operating expenses
              
              
              22,479,697
              
              
              73,229,052
              
              
              27,433,072
              
              
              73,427,432Operating
                  income (loss)
              
              
              (22,579,662
              )
              
              (73,252,993
              )
              
              (27,803,448
              )
              
              (73,451,373
              )Interest
                  expense
              
              
              (97,750
              )
              
              (639,438
              )
              
              (239,006
              )
              
              (803,855
              )Interest
                  income
              
              
              9,336
              
              
              5,579
              
              
              60,833
              
              
              7,316Registration
                  rights
              
              
              -
              
              
              -
              
              
              (381,250
              )
              
              -Other,
                  net
              
              
              -
              
              
              125,116
              
              
              -
              
              
              140,100Loss
                  before income taxes
              
              
              (22,668,076
              )
              
              (73,761,736
              )
              
              (28,362,871
              )
              
              (74,107,812
              )Income
                  tax benefit (provision)
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              (22,668,076
              )
              
              (73,761,736
              )
              
              (28,362,871
              )
              
              (74,107,812
              )Dividends
                  on preferred stock
              
              
              (581,531
              )
              
              (28,500,000
              )
              
              (2,201,524
              )
              
              (28,500,000
              )Loss
                  available to common shareholders
              
              $
              (23,249,607
              )
              $
              (102,261,736
              )
              $
              (30,564,395
              )
              $
              (102,607,812
              )Net
                  loss per share, basic and diluted
              
              $
              (1.09
              )
              $
              (134.96
              )
              $
              (1.53
              )
              $
              (201.64
              )Weighted
                  average number of common shares under in per share
                  calculations
              
              
              21,296,424
              
              
              757,698
              
              
              19,972,254
              
              
              508,877




See
      accompanying Notes to Consolidated Financial Statements.




4




**ALLEGRO
      BIODIESEL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**Nine
                      Months Ended September 30,****2007**
                  
                  **2006**Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (28,362,871
                  )
                  $
                  (74,107,812
                  )Adjustments
                      to reconcile net loss to net cashDepreciation
                      and amortization
                  
                  
                  1,014,594
                  
                  
                  8,959Stock-based
                      compensation
                  
                  
                  2,733,467
                  
                  
                  21,506,591Accretion
                      of convertible notes payable and amortization of debt
                      discount
                  
                  
                  -
                  
                  
                  737,443Impairment
                      of goodwill
                  
                  
                  19,978,894
                  
                  
                  51,012,250Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  (69,812
                  )
                  
                  (30,571
                  )Inventory
                  
                  
                  278,643
                  
                  
                  (194,074
                  )Prepaid
                      expenses and other assets
                  
                  
                  23,785
                  
                  
                  56,590Accounts
                      payable
                  
                  
                  100,009
                  
                  
                  (167,135
                  )Accrued
                      expenses
                  
                  
                  135,683
                  
                  
                  87,266Net
                      cash used in operating activities
                  
                  
                  (4,167,608
                  )
                  
                  (1,090,493
                  )Cash
                      flows from investing activities:Capital
                      expenditures
                  
                  
                  (600,124
                  )
                  
                  (25,424
                  )Acquisition
                      of Vanguard Synfuels LLC, netof cash acquired
                  
                  
                  -
                  
                  
                  (18,538,953
                  )Net
                      cash used in investing activities
                  
                  
                  (600,124
                  )
                  
                  (18,564,377
                  )Cash
                      flows from financing activities:Net
                      proceeds from issuance of convertible preferred stock
                  
                  
                  -
                  
                  
                  28,240,000Proceeds
                      from issuance of promissory notes
                  
                  
                  640,000
                  
                  
                  300,000Issuance
                      of promissory note
                  
                  
                  (640,000
                  )
                  
                  -Proceeds
                      from repayment of issued promissory note
                  
                  
                  640,000
                  
                  
                  -Payments
                      on line of credit and notes payable
                  
                  
                  (790,000
                  )
                  
                  (759,988
                  )Net
                      cash provided by (used in) financing activities
                  
                  
                  (150,000
                  )
                  
                  27,780,012Net
                      increase (decrease) in cash and cash equivalents
                  
                  
                  (4,917,732
                  )
                  
                  8,125,142Cash
                      and cash equivalents at beginning of period
                  
                  
                  5,578,291
                  
                  
                  380,827Cash
                      and cash equivalents at end of period
                  
                  $
                  660,559
                  
                  $
                  8,505,969Supplemental
                      disclosure of cash flow information:Cash
                      paid during the period for interest
                  
                  $
                  91,637
                  
                  $
                  -Cash
                      paid during the period for income taxes
                  
                  $
                  300
                  
                  $
                  -Supplemental
                      disclosure of non-cash investing and financing activities:Issuance
                      of convertible preferred stock in connection with the acquisition
                      ofVanguard
                      Synfuels LLC
                  
                  $
                  -
                  
                  $
                  34,441,000Conversion
                      of convertible debt into common stock
                  
                  $
                  -
                  
                  $
                  750,000


See
      accompanying Notes to Consolidated Financial Statements.




5





**ALLEGRO
      BIODIESEL CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(UNAUDITED)**




**1.**
            **Business**





Allegro
      Biodiesel Corporation (“Allegro”, “we”, “us” or the “Company”) is a producer and
      distributor of biodiesel fuel. The Company owns an operating production facility
      in Pollock, Louisiana. The Company began production in April 2006, becoming
      the
      first operational producer of biodiesel in the state of Louisiana. The product
      is sold both unblended and blended with petroleum diesel, primarily to regional
      wholesale bulk fuel distributors and to the local Louisiana market.





*Talen's
      Marine & Fuel, Inc.*


On
      June
      22, 2007, the Company entered into a definitive agreement to acquire all of
      the outstanding stock of Talen's Marine & Fuel, Inc. ("Talen's"). The
      closing of
      the
      acquisition was contingent on our ability to secure not less than $30 million
      in
      financing for the acquisition on terms and conditions satisfactory to us. Due
      to
      the recent and unforeseen deterioration of conditions in the financial markets,
      the securing of such financing by us, in the timeline originally set forth
      in
      the definitive agreement, was not practicable.  As such, all parties agreed
      to terminate the Purchase Agreement effective October 18, 2007. However, should
      we be able to secure financing in the future, the parties may choose to re-visit
      purchase discussions at such time.





*Management's
      Plan of Operations*


During
      the first half of 2007, the biodiesel industry experienced a significant
      increase in the cost of soybean oil, with the price increasing 70% from $0.25
      per pound in September 2006 to the current price of over $0.42. Although we
      have
      been able to develop efficiency improvements in our production processes,
      feedstock is still the primary production cost. This increase has had a
      significant, negative effect on profit margins and cash flows and caused an
      impairment of goodwill associated with our production facility of $19.9 million.
      See Note 5. 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 have reduced our biodiesel production volume, administrative
      costs
      and our non-executive headcount from 19 to 7 employees. Furthermore, we amended
      our compensation arrangements with our management team effective October 15,
      2007, including a deferral of 50% of the monthly cash compensation payable
      to
      our senior executives, our management advisor, Ocean Park Advisors, LLC, and
      our
      non-executive directors, plus a 100% deferral of any bonuses, until a time
      in
      the future to be determined by the Board of Directors. For more information,
      please refer to our Current Reports on Form 8-K filed with the SEC on October
      18, 2007 and October 25, 2007.





These
      measures have significantly lowered our monthly cash operating expenses from
      an
      average of about $400,000 to approximately $150,000 per month while preserving
      our ability to manufacture biodiesel fuel. In addition to our cost reduction
      plan, we are actively pursuing strategic alternatives, including evaluating
      other biodiesel feedstock sources, new uses for our assets and infrastructure,
      as well as other strategic opportunities in the renewable energy
      sector.





As
      of
      September 30, 2007, the Company had negative working capital of
      $2,477,733.  Included as a reduction to working capital is $2,319,353 of
      accrued dividends which the Company may pay, at its option, in shares of Series
      A convertible preferred stock or in cash. Management believes its existing
      sources of liquidity should be sufficient to fund its operations, working
      capital and other financing requirements into the first quarter of 2008. 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.
      Unless additional financing is obtained, the Company may not be able to continue
      as a going concern. 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.





**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 2006 as reported in the Company's Form 10-KSB have been omitted. 
The results of operations for the three month and nine month periods ended
      September 30, 2007 and 2006 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-KSB for the year ended December 31, 2006.





The
      Company has identified certain significant accounting policies that it considers
      particularly important to the portrayal of its results of operations and
      financial position which may require the application of a higher level of
      judgment by the Company's management and, as a result, are subject to an
      inherent level of uncertainty.




6




*Accounting
      for Stock Options Issued to Consultants*


The
      Company measures its non-employee stock-based compensation under the Financial
      Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue
      No. 96-18
“*Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services*”.
      The
      fair value of the option issued or committed to be issued is used to measure
      the
      transaction, as this is more reliable than the fair value of the services
      received. The fair value is measured at the value of the Company's common stock
      on the date that the commitment for performance by the counterparty has been
      reached or the counterparty's services are performed. The fair value of the
      equity instrument is charged directly to operations and credited to
      additional paid-in capital.





*Equity
      Instruments Issued with Registration Rights Agreement*


The
      Company accounts for registration rights agreement penalties as contingent
      liabilities, applying the accounting guidance of Financial Accounting Standard
      No. 5, “Accounting for Contingencies” (“FAS 5”). This accounting is consistent
      with views established by the Emerging Issues Task Force in its consensus set
      forth in EITF 05-04 (view C) and FASB Staff Positions FSP EITF 00-19-2
“Accounting for Registration Payment Arrangements”, which was issued December
      21, 2006. Accordingly, the Company recognizes the damages when it becomes
      probable that they will be incurred and amounts are reasonably estimable. From
      April 13, 2007 to June 13, 2007, the Company incurred penalties under the
      registration rights agreement it entered into on September 20, 2006, for the
      late registration of shares underlying the Class A convertible preferred shares
      it issued in September 2006. The registration statement was declared effective
      on June 13, 2007. As of September 30, 2007, the Company accrued $381,250 for
      penalties associated with the late registration of such shares. See Note
      8.





*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.





The
      following is a summary of outstanding securities which have been excluded from
      the calculation of diluted net loss per share because the effect would have
      been
      antidilutive as of:


September
                  30,2007
              
              2006Common
                  stock options
              
              
              3,127,312
              
              
              3,127,312Common
                  stock warrants
              
              
              6,728,825
              
              
              11,642,866Convertible
                  preferred stock - Series A
              
              
              39,087,906
              
              
              37,561,583Convertible
                  preferred stock - Series B
              
              
              1,413,900
              
              
              2,722,400Convertible
                  preferred stock - Series H
              
              
              -
              
              
              11,110,00050,357,943
              
              
              66,164,161


**3.**
            **Note
                Receivable**





On
      June
      26, 2007, the Company loaned Talen's $640,000 pursuant to (i) a loan agreement
      with Talen's, Talen Landing II, Inc. and C. Raymond Talen, and (ii) a promissory
      note with Talen's. The loan was repaid to us on September 10, 2007. The proceeds
      of the loan were borrowed from a third-party, who was then repaid. See Note
      7.





**4.**
            **Inventories**





Inventories
      consist of the following at September 30, 2007:


Raw
                  materials
              
              $
              110,084Finished
                  goods
              
              
              268,518$
              378,602


**5.**
            **Goodwill**





In
      accordance with SFAS 142 ("FAS 142") “Goodwill and Other Intangible Assets”,
      goodwill is not amortized, and is tested for impairment at the reporting unit
      level annually or when there are any indications of impairment. A reporting
      unit
      is an operating segment for which discrete financial information is available
      and is regularly reviewed by management. The Company has one reporting unit,
      its
      Pollock, Louisiana, biodiesel production facility, to which goodwill is
      assigned.




7




FAS
      142
      requires a two-step approach to test goodwill for impairment for each reporting
      unit. The first step tests for impairment by applying fair value-based tests
      (described below) to a reporting unit. The second step, if deemed necessary,
      measures the impairment by applying fair value-based tests to specific assets
      and liabilities within the reporting unit. Application of the goodwill
      impairment tests require judgment, including identification of reporting units,
      assignment of assets and liabilities to each reporting unit, assignment of
      goodwill to each reporting unit, and determination of the fair value of each
      reporting unit. The determination of fair value for a reporting unit could
      be
      materially affected by changes in these estimates and assumptions. Due to the
      change in market conditions that negatively affected our profit margins and
      cash
      flows as discussed in Note 1 above, Allegro conducted goodwill impairment
      testing for its production facility as of September 30, 2007. As part of the
      first step, management considered three methodologies to determine the
      fair-value of this reporting unit.





1.
            Discounted
                cash flow methodology, which requires significant judgment to estimate
                the
                future cash flows and to determine the appropriate discount rates,
                growth
                rates, trends for commodity prices and other assumptions.


2.
            Orderly
                sale of assets process, which values the unit based on publicly-traded
                comparables using certain multiples of EBITDA.


3.
              Market
                  capitalization approach. Management does not believe this method
                  provides
                  an accurate representation of the fair value due to the significant
                  number
                  of shares of Series A convertible preferred stock that are not
                  included in
                  this measurement and the lack of trading volume in its stock.





The
      Company believes the asset sale valuation and discounted cash flow methods
      provide the most accurate representations of the fair value of its biodiesel
      production facility. In determining the future cash flows of the facility,
      management considered among other things, the current and projected prices
      for
      soybean oil (the primary cost input) and for diesel and biodiesel fuel. Since
      the acquisition of Vanguard in September 2006, the price of soybean oil has
      steadily increased from $1.90 to over $3.00 per gallon of biodiesel produced.
      As
      a result, the expected cash flows to be generated by the biodiesel production
      facility have been adversely affected, resulting in the impairment of goodwill.
      As a result of its analysis, an impairment to goodwill of $19,978,894 was
      recorded during the third quarter of 2007.





**6.**
            **Accrued
                Expenses**





Accrued
      expenses consist of the following at September 30, 2007:


Dividends
              
              $
              2,319,353Registration
                  rights penalties
              
              
              381,250Other
              
              
              343,768$
              3,044,371


**7.**
            **Line
                of Credit and Notes
                Payable**





The
      Company's wholly-owned subsidiary, Vanguard Synfuels, L.L.C. (“Vanguard”), is
      party to a credit agreement with First South Farm Credit, ACA (“First South”).
      On June 27, 2007, Vanguard entered into an amended and restated loan agreement
      with First South, replacing a binding letter of approval with First South
      relating to certain amendments to the original credit agreement that were
      approved in April 2007. The Company has provided a guarantee of Vanguard's
      performance of its obligations under the loan agreement in favor of First South.
      The amendments include a two year renewal of the $2,000,000 line of credit
      so
      that the outstanding principal balance is due July 1, 2009, and require Vanguard
      to achieve and maintain certain financial and non-financial covenants based
      on
      its working capital and net asset position, including maintaining an excess
      of
      total assets over total liabilities of not less than $1,500,000 by December
      31,
      2006, achieving a minimum working capital of $500,000 by December 31, 2007,
      and
      maintaining a cash flow coverage ratio of at least 1.25 to 1.00 by December
      31,
      2008. As of September 30, 2007, Vanguard was in compliance with these covenants.
      However, if current market trends (including rising commodity costs) continue
      without improvement, and in the absence of additional financing, Vanguard may
      become in violation of the minimum working capital covenant on December 31,
      2007. The amount outstanding under the First South line of credit at September
      30, 2007 was $1,667,379 and has been classified as long-term debt in the
      accompanying consolidated financial statements.





The
      First
      South term loan provides for borrowings of up to $1,500,000 which is secured
      by
      substantially all of the assets of Vanguard. Commencing January 1, 2007,
      Vanguard is required to make 10 annual principal payments of $150,000 each.
      The
      amount outstanding under the term loan at September 30, 2007 was
      $1,350,000.





On
      June
      28, 2007, the Company borrowed $640,000 from The Bel Fixed Income Portfolio
      pursuant to a promissory note. The proceeds of the loan were loaned to Talen's.
      The promissory note was secured by the Talen's loan documents. The note,
      together with accrued interest, was repaid on September 11, 2007.





**8.**
            **Preferred
                Stock**





*Registration
      Rights Agreement*


In
      connection with the issuance of the Series A convertible preferred stock on
      September 20, 2006, the Company was required to file a registration statement
      on
      Form SB-2 or Form S-3 with the Securities and Exchange Commission in order
      to
      register the resale of the Common Stock underlying the Series A preferred stock
      under the Securities Act. The Company filed that registration statement on
      December 13, 2006 and was required under the registration rights agreement
      to
      have that registration statement declared effective by the Securities and
      Exchange Commission (“SEC”) by April 12, 2007. The Company was required to pay
      the holders of the Series A convertible preferred stock an amount equal to
      $6,250 for each day subsequent to April 13, 2007 that the registration statement
      was not effective; provided, however, that the obligation of the Company to
      pay
      such penalties ceased on the earlier of September 20, 2008 or when the
      registration statement was declared effective, regardless of the number of
      shares included in the registration statement at that time. The registration
      statement was declared effective on June 13, 2007. Through September 30, 2007,
      the Company accrued $381,250 in registration rights penalties. The Company
      intends to satisfy this obligation through the payment of cash, stock or a
      combination thereof.




8




During
      the nine months ended September 30, 2007, 1,230,503 (including 69,242 shares
      issued for payment of accrued dividends) and 13,085 shares of Series A and
      Series B convertible preferred stock, respectively were converted into 1,621,747
      and 1,308,500 shares of common stock, respectively.





**9.**
            **Common
                Stock**





On
      June
      13, 2007, the Company issued 91,257 shares of common stock in satisfaction
      of
      $69,242 of accrued dividends on shares of Series A convertible preferred stock.
      Since the value of the shares issued (based on the closing stock price on the
      date of issuance) was greater than the amount due if such dividends were paid
      in
      cash, the Company recorded additional non-cash dividends of $446,263 during
      the
      nine months ended September 30, 2007.





*Exercise
      of Common Stock Warrants*


On
      January 25, 2007, Ocean Park Advisors, LLC elected to exercise certain of its
      warrants to purchase 4,827,921 shares of the Company's common stock via a
      cashless exercise, which resulted in the issuance of 3,765,097 common shares
      to
      Ocean Park Advisors.





*Stock
      Options*


On
      March
      14, 2007, the Company amended the expiration date of certain stock options
      granted on August 11, 2006 to purchase 361,243 common shares from March 15,
      2007
      to December 31, 2007. The Company accounted for this amendment in accordance
      with FAS 123(R) and recorded a charge of $41,618 to the statement of operations
      for the modification during the nine months ended September 30,
      2007.





On
      March
      14, 2007, the Company entered into a services agreement with PV Asset
      Management, LLC, a company controlled by Paul Galleberg, a member of the Board
      of Directors. Pursuant to the terms of that agreement, which was effective
      as of
      February 5, 2007, Mr. Galleberg performs management and consulting services
      for
      the Company. The term of the agreement extends through August 3, 2007. Mr.
      Galleberg was entitled to stock option grants on each of April 5, 2007, June
      5,
      2007, and August 5, 2007 of 91,666 shares of common stock, provided that no
      such
      options will be granted until the eleventh day after the effectiveness of a
      registration statement filed by the Company under the Securities Act of 1933
      after February 5, 2007. The options were fully vested on the respective date
      of
      grant, had a term of five years, and an exercise price equal to the fair market
      value of our common stock on the grant date. During the nine months ended
      September 30, 2007, the Company granted 183,332 stock options under this
      agreement. On August 1, 2007, the Company amended the agreement which rescinded
      183,332 options previously granted and cancelled the granting of the options
      which were scheduled to be granted on August 5, 2007. The Company also agreed
      to
      grant 274,998 stock options Mr. Galleberg at a later date to be determined
      by
      the Board of Directors, but in no case later than January 31, 2008. The Company
      has accounted for the compensation related to these options in accordance with
      EITF 96-18 and the change in terms of the stock option grants as a modification
      of the original grants. The Company will record an estimated cost for the
      modification at each reporting period until the exercise price and a final
      cost
      of the modification is known.





During
      the three and nine months ended September 30, 2007, the Company recorded stock
      compensation expense totaling $569,461 and $2,733,467,
      respectively.





**10.**
            **Supplemental
                Non-Cash Investing and Financing
                Activities**





During
      the nine months ended September 30, 2007, the Company converted $69,242 of
      accrued dividends on its Series A convertible preferred stock into 91,257 shares
      of common stock.


9


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





This
      quarterly report on Form 10-QSB of Allegro Biodiesel Corporation for the three
      months ended September 30, 2007 contains forward-looking statements, principally
      in this Section. 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 those listed in our registration statement on Form SB-2, file number
      333-139299, filed with the Securities and Exchange Commission, and 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 obtain
      additional financing for our operations; 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.





This
      discussion should be read in conjunction with our unaudited consolidated
      condensed financial statements and the notes thereto included in this Quarterly
      Report, our audited consolidated financial statements and notes thereto and
      Management's Discussion and Analysis or Plan of Operation contained in our
      Annual Report on Form 10-KSB for our fiscal year ended December 31,
      2006.





**Our
      Business**





We
      are a
      producer of biodiesel fuel, and own and operate a biodiesel production facility
      at a 320-acre site in Pollock, Louisiana (the “Pollock Facility”). The Pollock
      Facility has a current estimated production capacity of 12 million gallons
      of
      biodiesel per year. The Pollock Facility uses renewable agricultural-based
      feedstock to produce biodiesel. We are the first, and currently only,
      operational producer of biodiesel in Louisiana.





Our
      primary source of revenue is the sale of biodiesel, both in blended and
      unblended forms with petroleum-based diesel fuel. We produce biodiesel that
      meets or exceeds the ASTM D6751 specification, and sell fuel to wholesalers
      and
      local retail users who purchase pure biodiesel (known as B100) or blended diesel
      fuel, such as B20 (which is a blend of 20 percent biodiesel, and 80 percent
      petroleum-based diesel).





On
      June
      22, 2007, we entered into a definitive agreement to acquire all of the
      outstanding stock of Talen's Marine & Fuel, Inc. (“Talen’s”). The closing of
      the
      acquisition was contingent on our ability to secure not less than $30 million
      in
      financing for the acquisition on terms and conditions satisfactory to us. Due
      to
      the recent and unforeseen deterioration of conditions in the financial markets,
      the securing of such financing by us, in the timeline originally set forth
      in
      the definitive agreement, was not practicable. As such, all parties agreed
      to
      terminate the Purchase Agreement effective October 18, 2007. However, should
      we
      be able to secure financing in the future, the parties may choose to re-visit
      purchase discussions at such time.





**Trends
      and Factors Affecting Our Business**





Our
      sales
      are dependent on the volume and price of the biodiesel fuel we sell. The selling
      prices we realize for our biodiesel are closely linked to market prices of
      petroleum-based diesel fuel, the supply and demand for biodiesel, as well as
      the
      tax incentives offered by federal and state governments for the production
      and
      blending of alternative fuels. The wholesale price of petroleum diesel
      historically has been highly volatile in both the short and long-term. For
      example, during 2006, wholesale petroleum-based diesel prices in the Gulf Coast
      have ranged from a low of approximately $1.65 to a high of approximately $2.45.
      During the first nine months of 2007, the average price per gallon in the Gulf
      Coast region of the United States ranged between $1.55 and $2.35, respectively.
      The changes in diesel prices since the summer of 2006 has led to similar
      changes in the price of biodiesel over that period, which in turn negatively
      affected our sales, profit margins and cash flows and resulted in an impairment
      of goodwill associated with the Pollock Facility of $19.9 million. See Note
      5 to
      the financial statements.





Our
      gross
      margin is driven by the cost of feedstock (primarily soybean oil) and other
      chemical inputs used in our production of biodiesel fuel. Soybean oil is the
      primary input used and is our single largest expense. We purchase feedstock
      and
      other inputs both on the spot market and pursuant to fixed, short-term supply
      agreements. The price for refined soybean oil has been steadily increasing
      since
      the beginning of 2006, and increased to approximately $3.00 per gallon as of
      September 30, 2007, as compared to approximately $1.90 per gallon in the third
      quarter of 2006. This increase in soybean oil prices also has had a significant,
      negative effect on our profit margins and cash flows. In addition, we have
      experienced price fluctuations in other inputs such as sodium methylate and
      methanol.




10




Due
      to
      the rising costs of our feedstock inputs (out of proportion to the increase
      in
      fuel prices), we have had to reduce our biodiesel production volume, which
      in
      turn has contributed to a reduction in our revenue. If current commodity price
      levels (e.g., for soybean oil and diesel fuel) persist into 2008, we will
      produce only very limited quantities of biodiesel product next year. As
      discussed above, as a result of the rising cost of our feedstock inputs, we
      recorded an impairment of our goodwill associated with the Pollock
      Facility of approximately $19.9 million during the third quarter of
      2007.





**Strategy**





In
      October 2007 we implemented a corporate cost-reduction plan intended to reduce
      our operating costs in response to these market conditions. In addition to
      reducing our biodiesel production volume, we have reduced our administrative
      costs, the number of our employees from 19 to 7, and reduced and deferred
      compensation to our management team and Board of Directors (as discussed in
      Note
      1 to the financial statements).





Throughout
      the year we have pursued measures to decrease the cost of feedstock and improve
      our operating efficiency. During the second quarter of 2007, we installed a
      methanol distillation system in order to reduce our methanol usage needs in
      the
      production of biodiesel. In April 2007, we introduced crude soybean oil
      feedstock into our biodiesel production process, which previously used more
      expensive refined soybean oil as the primary feedstock. In June 2007, we began
      exploring the use of pretreated animal tallow as an additional low-cost
      feedstock. In addition, we are pursuing other lower-cost modes of transport
      (such as freight by river barge, instead of rail or truck) for inbound supplies
      as well as outbound finished product.





In
      addition to our cost reduction initiatives, we are also actively pursuing
      strategic alternatives, including evaluating other biodiesel feedstock sources,
      new uses for our assets and infrastructure, as well as other strategic
      opportunities in the renewable energy sector. And as appropriate (i.e. with
      a
      re-alignment of commodity prices), in the future we may increase our production
      capacity from 12 million currently to 20 million gallons, but any such increase
      would be subject to our obtaining additional financing and market
      conditions.





**Critical
      Accounting Policies**





*Estimates*


Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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 consolidated
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. By their nature, these estimates and judgments are subject
      to an inherent degree of uncertainty. We review our estimates on an on-going
      basis, including those related to sales allowances, the allowance for doubtful
      accounts, inventories and related reserves, long-lived assets, income taxes,
      litigation and stock-based compensation. We base our estimates on our historical
      experience, knowledge of current conditions and our beliefs of what could occur
      in the future considering available information. Actual results may differ
      from
      these estimates, and material effects on our operating results and financial
      position may result.





We
      believe the following critical accounting policies involve our more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements.





*Revenue
      Recognition*


We
      generate our revenues from the sale of biodiesel fuel and recognize revenue
      when
      the following fundamental criteria are met:


·
              persuasive
                  evidence that an arrangement
                  exists;
  ·
              the
                  products and services have been
                  delivered;
  ·
              selling
                  prices are fixed and determinable and not subject to refund or
                  adjustment;
                  and
  ·
              collection
                  of amounts due is reasonably
                  assured.




Delivery
      occurs when goods are shipped and title and risk of loss transfer to the
      customer, in accordance with the terms specified in the arrangement with the
      customer. Revenue recognition is deferred in all instances where the earnings
      process is incomplete. We provide for sales returns and allowances in the same
      period as the related revenues are recognized. We base these estimates on our
      historical experience or the specific identification of an event necessitating
      a
      reserve. To the extent actual sales returns differ from our estimates; our
      future results of operations may be affected. Should changes in conditions
      cause
      management to determine that these criteria are not met for certain future
      transactions, revenue recognized for any reporting period could be adversely
      affected.





We
      record
      revenues from the sale of unblended biodiesel fuel based on market prices we
      are
      able to charge. For buyers of unblended fuel who are certified blenders
      registered with the IRS, they can pursue amounts available under federal
      incentive programs (currently $1.00 per gallon) related to the blending of
      biodiesel fuel with petroleum diesel.





We
      also
      sell blended biodiesel fuel to buyers not certified as blenders with the IRS.
      Sales of blended fuel to such customers are also based on market prices. Upon
      the sale of blended biodiesel fuel, we (not the buyer) may be eligible to
      collect certain amounts under federal incentive programs (currently $1.00 per
      gallon). When all requirements of the applicable incentive program have been
      met, generally occurring at the time of sale of blended fuel, we record a
      reduction to cost of sales for the amount of credits we are to
      receive.




11




*Accounting
      for Non-Employee Stock-Based Compensation*


We
      measure compensation expense for its non-employee stock-based compensation
      under
      the Financial Accounting Standards Board (FASB) Emerging Issues Task Force
      (EITF) Issue No. 96-18, “ *Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* ”.
      The
      fair value of the option issued or expected to be issued is used to measure
      the
      transaction, as this is more reliable than the fair value of the services
      received. The fair value is measured at the value of our common stock on the
      date that the commitment for performance by the counterparty has been reached
      or
      as the services are performed. In the case of the issuance of stock options,
      we
      determine the fair value using the Black-Scholes option pricing model. The
      fair
      value of the equity instrument is charged directly to operations and
      credited to additional paid-in capital.





*Equity
      Instruments Issued with Registration Rights Agreement*


We
      account for these penalties as contingent liabilities, applying the accounting
      guidance of SFAS No. 5, “Accounting for Contingencies”. This accounting is
      consistent with views established by the Emerging Issues Task Force (EITF)
      in
      its consensus set forth in EITF 05-04 (view C) and FASB Staff Positions FSP
      EITF
      00-19-2 “Accounting for Registration Payment Arrangements”, which was issued
      December 21, 2006. Accordingly, we recognize the damages when it becomes
      probable that they will be incurred and amounts are reasonably estimable. As
      of
      September 30, 2007, we accrued $381,250 for estimated penalties associated
      with
      the late registration of the shares pursuant to a registration rights agreement.
      See Note 8 to the financial statements.





*Goodwill
      and Acquired Intangible Assets*


In
      accordance with SFAS 142 (FAS 142) “Goodwill and Other Intangible Assets”,
      goodwill is not amortized, and is tested for impairment at the reporting unit
      level annually or when there are any indications of impairment. A reporting
      unit
      is an operating segment for which discrete financial information is available
      and is regularly reviewed by management. The Company has one reporting unit,
      its
      Pollock, Louisiana, biodiesel production facility, to which goodwill is
      assigned.





FAS
      142
      requires a two-step approach to test goodwill for impairment for each reporting
      unit. The first step tests for impairment by applying fair value-based tests
      (described below) to a reporting unit. The second step, if deemed necessary,
      measures the impairment by applying fair value-based tests to specific assets
      and liabilities within the reporting unit. Application of the goodwill
      impairment tests require judgment, including identification of reporting units,
      assignment of assets and liabilities to each reporting unit, assignment of
      goodwill to each reporting unit, and determination of the fair value of each
      reporting unit. The determination of fair value for a reporting unit could
      be
      materially affected by changes in these estimates and assumptions. Due to the
      change in market conditions that negatively affected our profit margins and
      cash
      flows as discussed in Note 1 above, Allegro conducted goodwill impairment
      testing for its production facility as of September 30, 2007. As part of the
      first step, management considered three methodologies to determine the
      fair-value of this reporting unit.





1.
            Discounted
                cash flow methodology, which requires significant judgment to estimate
                the
                future cash flows and to determine the appropriate discount rates,
                growth
                rates, trends for commodity prices and other assumptions.


2.
            Orderly
                sale of assets process, which values the unit based on publicly-traded
                comparables using certain multiples of EBITDA.


3.
            Market
                capitalization approach. Management does not believe this method
                provides
                an accurate representation of the fair value due to the significant
                number
                of shares of Series A convertible preferred stock that are not included
                in
                this measurement and the lack of trading volume in its stock.





The
      Company believes the asset sale valuation and discounted cash flow methods
      provide the most accurate representations of the fair value of its biodiesel
      production facility. In determining the future cash flows of the facility,
      management considered among other things, the current and projected prices
      for
      soybean oil (the primary cost input) and for diesel and biodiesel fuel. Since
      the acquisition of Vanguard Synfuels, LLC ("Vanguard")  in September 2006,
      the price of soybean oil has steadily increased from $1.90 to over $3.00 per
      gallon of biodiesel produced. As a result, the expected cash flows to be
      generated by the biodiesel production facility have been adversely impacted,
      resulting in the impairment of goodwill. As a result of its analysis, an
      impairment to goodwill of $19,978,894 was recorded during the third quarter
      of
      2007.





**Results
      of Operation**





Immediately
      prior to our acquisition of Vanguard on September 20, 2006 (the “Vanguard
      Acquisition”), we were considered a “shell company” (as defined by the
      Securities and Exchange Commission) with our business activities primarily
      focused on raising additional financing and the pursuit of a strategic
      transaction. We were previously involved with the development, production and
      distribution of medical devices since our inception. All such operations were
      discontinued during 2005, and we did not resume operations until the completion
      of the Vanguard Acquisition on September 20, 2006. The following discussion
      for
      the three and nine months ended September 30, 2006 includes the results of
      operation of Vanguard from September 20, 2006 through September 30, 2006. The
      discussion of the three and nine month periods ended September 30, 2007, include
      the results of operations of Vanguard as of the beginning of those respective
      periods. As a result, we believe that a comparison of our financial results
      for
      the three month and nine month periods ended September 30, 2007, to the three
      and nine month periods ended September 30, 2006, is not meaningful.





12





**Three
      Months Ended September 30, 2007 Compared to the Three Months Ended September
      30,
      2006**





*Sales*


As
      a
      result of the addition of revenue from the Vanguard Acquisition, sales for
      the
      third quarter of 2007, compared to the comparable period in 2006, increased
      to
      $1,396,297 from $126,281.





*Gross
      Profit (Loss)*


For
      the
      third quarter of 2007 our gross loss was $99,965, compared to a gross loss
      of
      $23,941 for the same period during 2006. Our gross loss as a percentage of
      sales, or gross margin, was negative 7% in the third quarter of 2007. The gross
      margin for the third quarter of 2007 was impacted by increasing feedstock costs
      as discussed above under the caption “Trends and Factors Affecting Our
      Business.”.





*Selling,
      General and Administrative Expenses*


Selling,
      general and administrative expenses were $2,274,453 for the third quarter of
      2007, compared to $22,216,802 for the same period in 2006. Included in selling,
      general and administrative expenses in the third quarter of 2007 was $569,461
      of
      non-cash stock based compensation expense, $91,749 of depreciation expense
      and
      $682,690 of abandoned acquisition costs incurred in connection with our proposed
      acquisition of Talen’s. During the third quarter of fiscal 2006, we incurred
      $20,851,974 of non-recurring stock-based compensation incurred in connection
      with the Vanguard Acquisition.





*Amortization
      of Intangible Assets*


For
      the
      third quarter of 2007 our amortization of intangible assets was $226,350,
      compared to $0 for the same period in 2006. The increase resulted from the
      Vanguard Acquisition.





*Impairment
      of Goodwill*


As
      of the
      end the third quarter of 2007, we performed a goodwill impairment test relating
      to the Pollock Facility which resulted in an impairment to the goodwill
      associated with such facility of $19,978,894. See Note 5 to the financial
      statements. During the third quarter of 2006, we recorded an impairment of
      goodwill of $51,012,250 on “day one” of the Vanguard Acquisition.





*Interest
      Expense*


Interest
      expense for the third quarter of 2007 related to principal amounts outstanding
      under our credit agreement with First South Farm Credit, ACA. During the third
      quarter of 2006, we had $750,000 of outstanding principal balances under
      convertible promissory notes which were subsequently cancelled and converted
      into common stock in connection with the Vanguard Acquisition.





For
      the
      third quarter of 2007 we incurred interest expense of $97,750 under the First
      South credit agreement, compared to $639,438 for the same period in 2006.
      Interest expense for the third quarter of 2006 primarily included non-cash
      accretion for the $750,000 convertible notes described above.





*Interest
      Income*


Interest
      income for the third quarter of 2007 was $9,336 compared to $5,579 for the
      same
      period in 2006.





*Other
      Income*


Other
      income was $0 during the third quarter of 2007 compared to $125,116 during
      the
      same quarter of 2006. The increase resulted from the Vanguard
      Acquisition.





*Preferred
      Stock Dividends*


During
      the third quarter of 2007, dividends relating to our Series A convertible
      preferred stock totaled $581,531, compared to $28,500,000 for the comparable
      period in 2006. The dividend in 2006 resulted from a beneficial conversion
      feature on our Series A convertible preferred stock.





**Results
      of Operation for the Nine Months Ended September 30, 2007 Compared to the Nine
      Months Ended September 30, 2006**





*Sales*


As
      a
      result of the addition of revenue from the Vanguard Acquisition, sales for
      the
      first nine months of 2007, compared to the comparable period in 2006, increased
      from $126,281 to $7,111,114.





*Gross
      Profit (Loss)*


For
      the
      first nine months of 2007 our gross loss was $370,376, as compared to a gross
      loss of $23,941 for the same period during 2006. Our gross loss as a percentage
      of sales, or gross margin, was negative 5% for the first nine months of 2007.





*Selling,
      General and Administrative Expenses*


Selling,
      general and administrative expenses were $6,775,128 for the first nine months
      of
      2007, compared to $22,415,182 for the same period in 2006. Included in selling,
      general and administrative expenses in 2007 was $2,733,467 of non-cash stock
      based compensation expense, $261,708 of depreciation expense, and $682,690
      of
      abandoned acquisition costs incurred in connection with our proposed acquisition
      of Talen’s. During the 2006 period, we incurred $20,851,974 of non-recurring
      stock-based compensation incurred in connection with the Vanguard
      Acquisition.





13





*Amortization
      of Intangible Assets*


During
      the first nine months of 2007 our amortization of intangible assets was
      $679,050, compared to $0 for the same period in 2006. The increase resulted
      from
      the Vanguard Acquisition.





*Impairment
      of Goodwill*


As
      of the
      end of the third quarter of 2007, we performed a goodwill impairment test
      relating to the Pollock Facility which resulted in an impairment to the goodwill
      associated with such facility of $19,978,894. During the third quarter of 2006,
      we recorded an impairment of goodwill of $51,012,250 on “day one” the Vanguard
      Acquisition.





*Interest
      Expense*


Interest
      expense for the first nine months of 2007 primarily related to principal amounts
      outstanding under our credit agreement with First South Farm Credit, ACA. During
      the first nine months of 2006, we had $750,000 of outstanding principal balances
      under convertible promissory notes which were cancelled in September 2006 and
      converted into common stock in connection with the Vanguard
      Acquisition.





For
      the
      first nine months of 2007 we incurred interest expense of $239,006 compared
      to
      $803,855 for the same period in 2006. Interest expense for the first nine months
      of 2006 included $737,443 of non-cash accretion for the $750,000 convertible
      notes described above.





*Interest
      Income*


Interest
      income for the first nine months of 2007 was $60,833 compared to $7,316 for
      the
      same period in 2006. The increase resulted from higher average cash balances
      during the 2007 period.





*Registration
      Rights Penalties*


Penalties
      payable under our Series A convertible preferred stock registration rights
      agreement were $381,250 during the first nine months of 2007 as compared to
      $0
      for the same period in 2006. See Note 8 to the financial statements.





*Other
      Income*


Other
      income for the first nine months of 2007 was $0, compared to $140,100 during
      the
      same period of 2006. During the 2006 period, we entered into creditor settlement
      agreements for the reduction of certain accounts payable.





*Preferred
      Stock Dividends*


During
      the first nine months of 2007, dividends totaled $2,201,524, compared to
      $28,500,000 for the comparable period in 2006. During 2007, we issued 91,257
      shares of common stock in satisfaction of $69,242 of accrued dividends which
      resulted in the recording of additional non-cash dividends of $446,263. The
      dividend in the first nine months of 2006 resulted from a beneficial conversion
      feature on our Series A convertible preferred stock.





**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 Farm Credit,
      ACA (“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. In addition, commensurate with
      our
      level of production operations, we will require working capital for purchases
      of
      soybean oil and other inputs necessary for biodiesel production. At September
      30, 2007, our cash and cash equivalents totaled $660,559, and we had negative
      working capital of $2,477,733. Included as a reduction to our working capital
      is
      $2,319,353 of accrued dividends which we may pay, at our option, in shares
      of
      Series A convertible preferred stock or in cash. The payment of such dividends
      may result in substantial dilution to our existing common
      shareholders.





At
      September 30, 2007, we had $3,017,379 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. The amount
      outstanding under the note payable and line of credit is $1,350,000 and
      $1,667,379, respectively. As of September 30, 2007, we were in compliance with
      all applicable covenants under the agreement. However, if current market trends
      (including rising commodity costs) continue without improvement, and in the
      absence of additional financing, Vanguard may become in violation of the minimum
      working capital covenant on December 31, 2007.





On
      June
      28, 2007, we borrowed $640,000 from The Bel Fixed Income Portfolio (“Bel”) which
      we in turn loaned to Talen's in connection with the proposed acquisition
      discussed below. The note due to Bel bore interest at a fixed rate of 12% per
      annum, with principal and accrued interest due on or before December 28, 2007.
      On September 11, 2007, Talen’s repaid the amounts owed to us. In turn, we repaid
      the amounts owed to Bel.





On
      June
      22, 2007, we entered into a definitive agreement to acquire Talen's. We expected
      to pay approximately $22,900,000 in cash and assume approximately $19,100,000
      in
      third-party debt at the closing of the acquisition. The final purchase price
      was
      subject to adjustment for changes in working capital and debt. In order to
      fund
      the purchase of Talen's, we were required to obtain no less than $30 million
      of
      debt and/or equity financing for the acquisition. Due
      to
      the recent and unforeseen deterioration of conditions in the financial markets
      discussed previously in this report, the securing of such financing in the
      timeline originally set forth was not practicable. As such, all parties agreed
      to terminate the Purchase Agreement effective October 18, 2007. However, should
      we be able to secure financing in the future, the parties may choose to
      re-engage in discussions about a business combination.





14





On
      July
      9, 2007, the Governor of the State of Louisiana signed into law a change in
      the
      requirements for a tax surety bond from us against our collection of motor
      fuels
      sales taxes. The change reduced the required amount of the bond from $2,000,000
      to $50,000. Such bond has been posted by us, and as of the date of this report,
      no further action is presently required.





We
      believe that our existing sources of liquidity, along with cash expected to
      be
      generated from product sales, will be sufficient to fund our operations,
      anticipated capital expenditures, working capital and other financing
      requirements into the first quarter of 2008. We are currently seeking additional
      financing to fund our business. Due to the increases in the price of soybean
      oil, our primary input in the production of our biodiesel, we cannot assure
      you
      that such financing will be available to us on favorable terms, or at all.
      If we
      cannot obtain such financing, we will be forced to further curtail our
      operations, and we may become unable to satisfy our obligations to our
      creditors. In such an event we will need to enter into discussions with our
      creditors to settle, or otherwise seek relief from, our obligations.





*Operating
      Activities*


Cash
      used
      in operating activities was $4,167,608 for the nine months of fiscal 2007,
      compared to cash used of $1,090,493 for the same period in fiscal 2006.
      Operating cash flows for the nine months of fiscal 2007 reflect our net loss
      of
      $28,362,871, offset by changes in working capital of $468,308 and non-cash
      expenses (depreciation, amortization of intangible assets, impairment of
      goodwill and stock-based compensation) of $23,726,955. The change in working
      capital requirements is primarily related to decreases in inventory levels
      and
      increases in our accrued expenses, primarily resulting from the accrual of
      dividends on our preferred stock.





Operating
      cash flows for the nine months of fiscal 2006 reflect net losses of $74,707,812
      and working capital requirements, offset by non-cash interest expense of
      $737,443, non-cash stock based compensation of $21,506,591 and the “day one”
impairment of goodwill relating to our acquisition of Vanguard of
      $51,102,250.





*Investing
      Activities*


Cash
      used
      in investing activities was $600,124 for the nine months of fiscal 2007,
      primarily due to equipment purchases to upgrade our plant. For the comparable
      period of fiscal 2006, cash used in investing activities was $18,564,377 and
      consisted of our acquisition of Vanguard for $18,538,953 and the purchase of
      equipment of $25,424.





*Financing
      Activities*


Cash
      used
      in financing activities was $150,000 for the nine months of fiscal 2007,
      compared to cash provided of $27,780,012 for the comparable period of fiscal
      2006. During the nine months of fiscal 2007, we received proceeds of $640,000
      from the loan from Bel discussed above which we in turn loaned to Talen's in
      connection with our proposed acquisition of Talen’s. Talen’s repaid the amounts
      owed to us and we, in turn, repaid the amounts owed to Bel. We also made a
      scheduled principal payment of $150,000 under our term loan with First South.
      During fiscal 2006, we issued $300,000 of convertible promissory notes which
      were subsequently converted into common stock in connection with the Vanguard
      Acquisition. We also raised, net of fees, $28,240,000 through the issuance
      of
      our Series A convertible preferred stock which was used to purchase Vanguard
      and
      for general corporate purposes.





**Off
      Balance Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.




**ITEM
      3. CONTROLS AND PROCEDURES**





(a)  Evaluation
      of disclosure controls and procedures.





As
      of
      September 30, 2007, we carried out an evaluation, under the supervision and
      with
      the participation of management, including our Chief Financial 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, the Chief Financial
      Officer concluded that our disclosure controls and procedures were effective
      as
      of September 30, 2007 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 September 30, 2007 that materially affected or are reasonably
      likely to materially affect our internal control over financial
      reporting.




15




**PART
      II -- OTHER INFORMATION**




**ITEM
      5. OTHER INFORMATION**





On
      November 13, 2007, we notified the former members of Vanguard of our demand
      for
      indemnification under the Contribution Agreement we entered into with them
      on
      September 20, 2007, and of our claim upon the escrow deposit under the Escrow
      Agreement we entered into with them on the same date. In our letter, we allege
      that the former members of Vanguard made certain misrepresentations with respect
      to the closing balance sheet of Vanguard, dated September 15, 2006 namely
      overstating inventory assets and understanding current liabilities. The total
      amount of our claim is approximately $1.23 million, not all of which is payable
      in cash. Under the terms of the relevant agreements, we have demanded that
      the
      escrow agent release to us $905,993 in cash and 619,063 shares of our common
      stock from the escrow deposit. Two of the former members of Vanguard, Darrell
      Dubroc and Tim Collins, are currently officers and directors of Allegro. We
      have
      not yet received a response from the former Vanguard members to our demand
      letter, and we can make no assurances as to the final amount, if any, of funds
      that will be released to us from the escrow account.





**ITEM
      6. EXHIBITS** ****


Exhibit
                  31.1
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002Exhibit
                  31.2
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002Exhibit
                  32.1
              Certification
                  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002Exhibit
                  32.2
              Certification
                  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002




16




**ALLEGRO
      BIODIESEL CORPORATION**


**SIGNATURES**





In
      accordance with 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 CORPORATIONDate:
              November 13, 2007
            By:
            /s/ Heng
                ChukHeng
                Chuk
              Chief
                Financial Officer (and Duly Authorized Officer)





17