UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-Q**




(Mark
      One)


x
              Quarterly
                  report pursuant Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 For
        the
        quarterly period ended March
        31, 2008


o
              Transition
                  report pursuant Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934


For
      the
      transition period from _______ to _______.




Commission
      file number 000-50907




**PURE
      BIOFUELS CORP.**




(Exact
      Name of Registrant as Specified in Its Charter)




**Nevada**
              (State
                of Incorporation)
            **47-0930829**
              (I.R.S.
                Employer Identification No.)


**9440
      Little Santa Monica Blvd., Suite**


**401
      Beverly Hills, CA 90210**


(Address
      of Principal Executive Offices) (Zip Code)




**1-310-402-5916**


(Registrant’s
      Telephone Number, Including Area Code)




**N/A**


(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (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 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 filer o
              Accelerated
                  filer oNon-accelerated
                  filer o
              Smaller
                  reporting company x


(Do
        not
        check if a smaller reporting company)




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 May
      20, 2008, the Company had 77,687,871 outstanding shares of common stock, par
      value $0.001.





**TABLE
      OF CONTENTS**


PART
                  I**-**Financial InformationItem
                  1.
              Unaudited
                  Financial Statements
              1Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              21Item
                  4.
              Controls
                  and Procedures
              30PART
                  II - OTHER INFORMATION
              30Item
                  1A.
              Risk
                  Factors
              30Item
                  6.
              Exhibits
              31SIGNATURES
              33







**PART
      I - FINANCIAL INFORMATION**




**Pure
      Biofuels Corp.**


(formerly
      Metasun Enterprises, Inc.)


(A
      Development Stage Company)





IndexConsolidated
                Balance Sheets at March 31, 2008 (Unaudited) and December 31,
                2007
            1Unaudited
                Consolidated Statements of Operations for the three monthsended
                March 31, 2008 and 2007 and for the period from date of inception
                (May 10,
                2006) to March 31, 2008
            2Unaudited
                Consolidated Statements of Stockholders’ Equity
            3Unaudited
                    Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 and for the period from
                    date of inception (May 10, 2006) to March 31, 2008
            4Notes
                to Consolidated Financial Statements (unaudited)
            5





**Item
      1. Financial Statements**


**PURE
                    BIOFUELS CORP.**(A
                    Development Stage Company)**CONSOLIDATED
                    BALANCE SHEETS**
 
 **March
                    31,**
                
                **December
                    31,****2008**
                
                **2007****ASSETS**
                
                (unaudited)CURRENT
                    ASSETSCash
                    and cash equivalents
                
                $
                5,009,625
                
                $
                2,991,104Restricted
                    cash
                
                
                -
                
                
                740,376Other
                    receivables
                
                
                505,769
                
                
                325,737Prepaid
                    expenses and other assets
                
                
                239,963
                
                
                516,406Due
                    from related parties
                
                
                21,286
                
                
                2,907TOTAL
                    CURRENT ASSETS
                
                
                5,776,643
                
                
                4,576,530VAT
                    RECEIVABLE
                
                
                4,233,336
                
                
                2,613,496PREPAYMENT
                    FOR EQUIPMENT PURCHASE
                
                
                -
                
                
                174,276PROPERTY
                    PLANT AND EQUIPMENT, net
                
                
                24,604,509
                
                
                15,842,898DEBT
                    ISSUANCE COSTS, net
                
                
                4,068,621
                
                
                3,926,340GOODWILL
                
                
                1,459,524
                
                
                1,337,288DEPOSIT
                    FOR ACQUISITION OF IMMOBILIARIA ALPHA
                
                
                218,135
                
                
                199,867TOTAL
                    ASSETS
                
                $
                40,360,768
                
                $
                28,670,695**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**CURRENT
                    LIABILITIESAccounts
                    payable and accrued expenses
                
                $
                5,116,147
                
                $
                1,918,980Due
                    to prior sharholders of Interpacific Oil
                
                
                -
                
                
                996,667Due
                    to related parties
                
                
                208,638
                
                
                208,638Convertible
                    promissory note
                
                
                -
                
                
                60,000TOTAL
                    CURRENT LIABILITIES
                
                
                5,324,785
                
                
                3,184,285CONVERTIBLE
                    NOTES, net of debt discount of $15,370,026
                
                
                239,974
                
                
                602,080LINE
                    OF CREDIT
                
                
                20,000,000
                
                
                16,400,000TOTAL
                    LIABILITIES
                
                
                25,564,759
                
                
                20,186,365MINORITY
                    INTEREST
                
                
                -
                
                
                -COMMITMENTS
                    AND CONTINGENCIES
                
                
                -
                
                
                -STOCKHOLDERS’
                    EQUITYPreferred
                    stock; $0.001 par value; 1,000,000 shares authorized, no shares
                    issuedCommon
                    stock; $0.001 par value; 250,000,000 sharesauthorized;
                    77,687,871 and 75,319,769 shares issued and outstanding
                
                
                77,688
                
                
                75,320Additional
                    paid-in capital
                
                
                39,427,744
                
                
                30,487,037Subscriptions
                    received in advance
                
                
                
                
                
                -Accumulated
                    other comprehensive loss
                
                
                (386,415
                )
                
                (199,791
                )Deficit
                    accumulated during the development stage
                
                
                (24,323,008
                )
                
                (21,878,236
                )TOTAL
                    STOCKHOLDERS’ EQUITY
                
                
                14,796,009
                
                
                8,484,330TOTAL
                    LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                40,360,768
                
                $
                28,670,695
 
 The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
  1
  PURE
                      BIOFUELS CORP.(A
                      Development Stage Company)**CONSOLIDATED
                      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
                      LOSS****FOR
                      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
                      AND****FOR
                      THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH 31,
                      2008**
 
 **For the period****from May 10, 2006****Three Months Ended**
                  
                  **Three Months Ended**
                  
                  **(date of inception)****March 31, 2008**
                  
                  **March 31, 2007**
                  
                  **to March 31, 2008**(unaudited)
                  
                  (unaudited)
                  
                  (unaudited)REVENUE
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -COST
                      OF REVENUE
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -GROSS
                      PROFIT
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -OPERATING
                      EXPENSESConsulting
                      fees
                  
                  
                  809,670
                  
                  
                  527,855
                  
                  
                  2,787,966General
                      and administrative
                  
                  
                  678,883
                  
                  
                  137,677
                  
                  
                  2,130,016Professional
                      fees
                  
                  
                  459,527
                  
                  
                  100,098
                  
                  
                  2,882,364Wages
                  
                  
                  1,020,101
                  
                  
                  205,587
                  
                  
                  6,247,847TOTAL
                      OPERATING EXPENSES
                  
                  
                  2,968,181
                  
                  
                  971,217
                  
                  
                  14,048,193LOSS
                      FROM OPERATIONS
                  
                  
                  (2,968,181
                  )
                  
                  (971,217
                  )
                  
                  (14,048,193
                  )OTHER
                      INCOME (EXPENSES):Interest
                      and financing costs
                  
                  
                  (997,626
                  )
                  
                  -
                  
                  
                  (12,351,812
                  )Other
                  
                  
                  3,301
                  
                  
                  -
                  
                  
                  (8,834
                  )Decrease
                      in accrued derivative liability
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,624,623Amortization
                      of debt discounts and debt issuance costs
                  
                  
                  (805,845
                  )
                  
                  -
                  
                  
                  (5,658,064
                  )Foreign
                      currency transaction gain
                  
                  
                  2,324,379
                  
                  
                  -
                  
                  
                  3,120,072TOTAL
                      OTHER EXPENSE
                  
                  
                  524,209
                  
                  
                  -
                  
                  
                  (10,274,015
                  )LOSS
                      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  (2,443,972
                  )
                  
                  (971,217
                  )
                  
                  (24,322,208
                  )PROVISION
                      FOR INCOME TAXES
                  
                  
                  800
                  
                  
                  -
                  
                  
                  800NET
                      LOSS
                  
                  $
                  (2,444,772
                  )
                  $
                  (971,217
                  )
                  $
                  (24,323,008
                  )OTHER
                      COMPREHENSIVE GAIN (LOSS):Foreign
                      currency translation adjustment
                  
                  
                  (186,624
                  )
                  
                  2,441
                  
                  
                  (386,415
                  )COMPREHENSIVE
                      LOSS
                  
                  $
                  (2,631,396
                  )
                  $
                  (968,776
                  )
                  $
                  (24,709,423
                  )NET
                      LOSS PER SHARE - BASIC AND DILUTED
                  
                  $
                  (0.03
                  )
                  $
                  (0.02
                  )
                  $
                  (0.43
                  )WEIGHTED AVERAGE COMMON EQUIVALENTSHARES
                      OUTSTANDING - BASIC AND DILUTED
                  
                  
                  77,027,825
                  
                  
                  62,159,000
                  
                  
                  56,106,504
 
 The
                      accompanying notes are an integral part of these consolidated
                      financial
                      statements
 
 2
  **PURE
                      BIOFUELS CORP.**(A
                      Development Stage Company)**CONSOLIDATED
                      STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                      PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH 31,
                      2008**(unaudited)
  **Deficit****Accumulated**
                    
                    **Accumulated****Additional**
                    
                    **Susbscriptions**
                    
                    **Other**
                    
                    **During
                        the**
                    
                    **Total****Common
                        Stock**
                    
                    **Paid-in**
                    
                    **Received**
                    
                    **Comprehensive**
                    
                    **Development**
                    
                    **Stockholders'****Shares**
                    
                    **Amount**
                    
                    **Capital**
                    
                    **In
                        Advance**
                    
                    **Loss**
                    
                    **Stage**
                    
                    **Equity****Balance,
                        May 10, 2006**
                    
                    
                    **1,000**
                    
                    **$**
                    **304**
                    
                    **$**
                    **-**
                    
                    **$**
                    **-**
                    
                    **$**
                    **-**
                    
                    **$**
                    **-**
                    
                    **$**
                    **304**Adustment
                        for change in par value
                    
                    
                    
                    
                    
                    (303
                    )
                    
                    303
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Recapitalization
                        transactions
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Shares
                        of Pure Biofuels Corp.
                    
                    
                    71,359,405
                    
                    
                    71,359
                    
                    
                    1,740,626
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,811,985Cancellation
                        of Metasun Software Corp. shares
                    
                    
                    (43,912,167
                    )
                    
                    (43,912
                    )
                    
                    43,912
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Recapitalization
                        Adjustment
                    
                    
                    29,999,970
                    
                    
                    29,999
                    
                    
                    (210,526
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (180,527
                    )Shares
                        acquired by legal parent
                    
                    
                    (1,000
                    )
                    
                    (1
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1
                    )Issuance
                        of common stock for cash, October 12, 2006 @ $0.75
                    
                    
                    3,853,547
                    
                    
                    3,854
                    
                    
                    2,886,306
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,890,160Issuance
                        of common stock for cash, November 10, 2006 @ $0.75
                    
                    
                    426,666
                    
                    
                    427
                    
                    
                    319,573
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    320,000Issuance
                        of common stock for cash, December 19, 2006 @ $0.75
                    
                    
                    404,998
                    
                    
                    405
                    
                    
                    303,344
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    303,749Finders
                        fee
                    
                    
                    
                    
                    
                    
                    
                    
                    (195,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (195,000
                    )Subscriptions
                        received in advance
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    96,277
                    
                    
                    
                    
                    
                    
                    
                    
                    96,277Net
                        loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,075,611
                    )
                    
                    (1,075,611
                    )**Balance,
                        December 31, 2006**
                    
                    
                    **62,132,419**
                    
                    
                    **62,132**
                    
                    
                    **4,888,538**
                    
                    
                    **96,277**
                    
                    
                    **-**
                    
                    
                    **(1,075,611**
                    **)**
                    
                    **3,971,336**Issuance
                        of common stock for cash, March 23, 2007 @ $0.75
                    
                    
                    303,009
                    
                    
                    303
                    
                    
                    156,440
                    
                    
                    (96,277
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    60,466Issuance
                        of common stock for debt issuance costs, April 25, 2007 @
                        $0.98
                    
                    
                    183,674
                    
                    
                    184
                    
                    
                    179,816
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    180,000Issuance
                        of common stock for cash, July 6, 2007 @ $0.60
                    
                    
                    50,000
                    
                    
                    50
                    
                    
                    29,950
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    30,000Issuance
                        of common stock for cash, July 12, 2007 @ $0.60
                    
                    
                    250,000
                    
                    
                    250
                    
                    
                    149,750
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    150,000Issuance
                        of common stock for cash, July 12, 2007 @ $0.60
                    
                    
                    250,000
                    
                    
                    250
                    
                    
                    149,750
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    150,000Issuance
                        of common stock for cash, July 20, 2007 @ $0.60
                    
                    
                    84,000
                    
                    
                    84
                    
                    
                    49,916
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    50,000Issuance
                        of common stock for cash, August 8, 2007 @ $0.60
                    
                    
                    416,667
                    
                    
                    417
                    
                    
                    249,583
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    250,000Issuance
                        of common stock with convertible debt, September 12, 2007
                        @
                        $0.50
                    
                    
                    11,000,000
                    
                    
                    11,000
                    
                    
                    5,489,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,500,000Stock
                        compensation expense for options issued to employees
                    
                    
                    -
                    
                    
                    
                    
                    
                    3,253,311
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,253,311Fair
                        value of warrants issued for debt issuance costs
                    
                    
                    -
                    
                    
                    
                    
                    
                    212,232
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    212,232Fair
                        value of warrants issued with convertible debentures
                    
                    
                    -
                    
                    
                    
                    
                    
                    507,647
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    507,647Beneficial
                        converstion feature associated with convertible debentures
                    
                    
                    -
                    
                    
                    
                    
                    
                    507,647
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    507,647Fair
                        value of warrants issued for debt extension (704,082
                        warrants)
                    
                    
                    -
                    
                    
                    
                    
                    
                    390,219
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    390,219Fair
                        value of warrants issued to consultant
                    
                    
                    -
                    
                    
                    
                    
                    
                    54,958
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    54,958Estimated
                        liquidated damages
                    
                    
                    -
                    
                    
                    
                    
                    
                    (25,200
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (25,200
                    )Existing
                        shares transferred to placement agents for financing
                    
                    
                    -
                    
                    
                    
                    
                    
                    4,152,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,152,000Repricing
                        of warrants
                    
                    
                    -
                    
                    
                    
                    
                    
                    41,697
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    41,697Transfer
                        to accrued derivative liability
                    
                    
                    -
                    
                    
                    
                    
                    
                    (5,907,893
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (5,907,893
                    )Issuance
                        of stock for financing costs
                    
                    
                    650,000
                    
                    
                    650
                    
                    
                    408,100
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    408,750Reclassification
                        of derivative liability to equity
                    
                    
                    -
                    
                    
                    -
                    
                    
                    15,549,576
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    15,549,576Foreign
                        currency translation adjustment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (199,791
                    )
                    
                    -
                    
                    
                    (199,791
                    )Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (20,802,625
                    )
                    
                    (20,802,625
                    )**Balance,
                        December 31, 2007**
                    
                    
                    **75,319,769**
                    
                    **$**
                    **75,320**
                    
                    **$**
                    **30,487,037**
                    
                    **$**
                    **-**
                    
                    **$**
                    **(199,791**
                    **)**
                    **$**
                    **(21,878,236**
                    **)**
                    **$**
                    **8,484,330**Stock
                        compensation expense for options issued to employees
                    
                    
                    -
                    
                    
                    -
                    
                    
                    632,358
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    632,358Issuance
                        of common stock for Inter Pacific Oil
                    
                    
                    2,166,667
                    
                    
                    2,167
                    
                    
                    994,500
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    996,667issuance
                        of common stock for services
                    
                    
                    15,000
                    
                    
                    15
                    
                    
                    5,835
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,850Conversion
                        of convertible debt
                    
                    
                    186,435
                    
                    
                    186
                    
                    
                    106,081
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    106,267Fair
                        value of warrants issued as part of financing agreement
                    
                    
                    -
                    
                    
                    -
                    
                    
                    573,628
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    573,628Repricing
                        of warrants
                    
                    
                    -
                    
                    
                    -
                    
                    
                    979,805
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    979,805Repricing
                        of convertible debt
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,481,833
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    5,481,833Fair
                        value of benefical conversion feature for convertible debt
                    
                    
                    -
                    
                    
                    -
                    
                    
                    166,667
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    166,667Foreign
                        currency translation adjustment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (186,624
                    )
                    
                    -
                    
                    
                    (186,624
                    )Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (2,444,772
                    )
                    
                    (2,444,772
                    )**Balance,
                        March 31, 2008**
                    
                    
                    **77,687,871**
                    
                    **$**
                    **77,688**
                    
                    **$**
                    **39,427,744**
                    
                    **$**
                    **-**
                    
                    **$**
                    **(386,415**
                    **)**
                    **$**
                    **(24,323,008**
                    **)**
                    **$**
                    **14,796,009**
 
 Effective
                      August 7, 2006, the Company effected a one and one-quarter
                      (1.25) for one
                      (1) forward stock split of the authorized, issued and outstanding
                      common
                      stock, without a change to the par value. All share amounts
                      have been
                      retroactively adjusted for all periods
                      persented
 
 The
                      accompanying notes are an integral part of these consolidated
                      financial
                      statements
 
 3
  **PURE
                      BIOFUELS CORP.**(A
                      Development Stage Company)**CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****FOR
                      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007****AND
                      FOR THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH
                      31,
                      2008****For
                      the period****Three
                      Months**
                  
                  **Three
                      Months**
                  
                  **from
                      May 10, 2006****Ended**
                  
                  **Ended**
                  
                  **(date
                      of inception)****March
                      31, 2008**
                  
                  **March
                      31, 2007**
                  
                  **to
                      March 31, 2008**(unaudited)
                  
                  (unaudited)
                  
                  (unaudited)CASH
                      FLOW FROM OPERATING ACTIVITIES:Net
                      loss
                  
                  $
                  (2,444,772
                  )
                  $
                  (971,217
                  )
                  $
                  (24,323,008
                  )Adjustment
                      to reconcile net loss to net cashprovided
                      by (used in) operating activities:Accrued
                      consulting fees
                  
                  
                  -
                  
                  
                  -
                  
                  
                  97,500Depreciation
                  
                  
                  10,876
                  
                  
                  3,670
                  
                  
                  56,510Stock
                      compensation expense for options issued to employees
                  
                  
                  632,358
                  
                  
                  -
                  
                  
                  4,229,952Fair
                      value of shares issued for services
                  
                  
                  5,850
                  
                  
                  -
                  
                  
                  5,850Fair
                      value of shares issued for financing costs
                  
                  
                  46,267
                  
                  
                  -
                  
                  
                  46,267Fair
                      value of warrants issued for services
                  
                  
                  -
                  
                  
                  -
                  
                  
                  54,958Fair
                      value of warrants issued for financing costs
                  
                  
                  573,628
                  
                  
                  -
                  
                  
                  963,847Effect
                      of warrant repricing
                  
                  
                  87,818
                  
                  
                  -
                  
                  
                  129,515Amortization
                      of debt discounts and debt issuance costs
                  
                  
                  805,845
                  
                  
                  -
                  
                  
                  5,658,064Non-cash
                      financing costs
                  
                  
                  -
                  
                  
                  -
                  
                  
                  9,755,635Change
                      in accrued derivative liability
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (4,624,623
                  )Non-cash
                      foreign currency transaction gain
                  
                  
                  (2,324,379
                  )
                  
                  -
                  
                  
                  (3,120,072
                  )Changes
                      in operating assets and liabilities:Other
                      receivable
                  
                  
                  72,152
                  
                  
                  (189,857
                  )
                  
                  (207,901
                  )Prepaid
                      expenses and deposits
                  
                  
                  273,496
                  
                  
                  159,315
                  
                  
                  53,651Due
                        from related party
                  
                  
                  (17,365
                  )
                  
                  (2,907
                  )
                  
                  (17,365
                  )Accounts
                      payable and accrued expenses
                  
                  
                  3,311,294
                  
                  
                  451,966
                  
                  
                  4,400,686Due
                      to related party
                  
                  
                  
                  
                  
                  -
                  
                  
                  (140,646
                  )Net
                      cash provided by (used in) operating activities
                  
                  
                  1,033,068
                  
                  
                  (549,030
                  )
                  
                  (6,981,180
                  )CASH
                      FLOW FROM INVESTING ACTIVITIES:Acquisition
                      of Interpacific Oil S.A.C.
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (700,000
                  )Deposit
                      paid on acquisition of Immobiliaria Alpha
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (199,867
                  )VAT
                      receivable
                  
                  
                  (1,323,315
                  )
                  
                  (129,277
                  )
                  
                  (4,001,039
                  )Net
                      cash acquired with acquisition
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,825,805Prepayment
                      for purchase of equipment
                  
                  
                  -
                  
                  
                  (549,629
                  )
                  
                  (174,276
                  )Purchase
                      of propety, plant and equipment
                  
                  
                  (7,074,246
                  )
                  
                  -
                  
                  
                  (21,296,380
                  )-Net
                      cash used in investing activities
                  
                  
                  (8,397,561
                  )
                  
                  (678,906
                  )
                  
                  (25,545,757
                  )CASH
                      FLOW FROM FINANCING ACTIVITIES:Due
                      to related parties, net
                  
                  
                  -
                  
                  
                  (31,333
                  )
                  
                  313Proceeds
                      from subscriptions received in advance
                  
                  
                  -
                  
                  
                  (96,277
                  )
                  
                  96,277Proceeds
                      from issuance of convertible debt
                  
                  
                  5,000,000
                  
                  
                  -
                  
                  
                  18,000,000Proceeds
                      from line of credit
                  
                  
                  3,600,000
                  
                  
                  -
                  
                  
                  20,000,000Increase
                      in restricted cash
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,000,000
                  )Interest
                      payment deducted from Restricted Cash
                  
                  
                  740,376
                  
                  
                  -
                  
                  
                  1,025,444Paydown
                      of covertible debt
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (3,000,000
                  )Paydown
                      of long term debt
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,200,000
                  )Payment
                      of offering costs
                  
                  
                  (100,000
                  )
                  
                  -
                  
                  
                  (2,636,799
                  )Proceeds
                      from the issuance of common stock
                  
                  
                  -
                  
                  
                  156,743
                  
                  
                  4,204,375Net
                      cash provided by financing activities
                  
                  
                  9,240,376
                  
                  
                  29,133
                  
                  
                  35,489,610Effect
                      of exchange rate changes on cash and cash equivalents
                  
                  
                  142,638
                  
                  
                  (8,678
                  )
                  
                  1,046,952NET
                      INCREASE (DECREASE) IN CASH ANDCASH
                      EQUIVALENTS
                  
                  
                  2,018,521
                  
                  
                  (1,207,481
                  )
                  
                  5,009,625CASH
                      AND CASH EQUIVALENTS, Beginning of period
                  
                  
                  2,991,104
                  
                  
                  1,261,974
                  
                  
                  -CASH
                      AND CASH EQUIVALENTS, End of period
                  
                  $
                  5,009,625
                  
                  $
                  54,493
                  
                  $
                  5,009,625SUPPLEMENTAL
                      DISCLOSURE OF CASH FLOW INFORMATION:Interest
                      paid
                  
                  $
                  
                  
                  $
                  -
                  
                  $
                  790,807Income
                      taxes paid
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -SUPPLEMENTAL
                      DISCLOSURE OF NON-CASH INVESTING AND FINANCING:Purchase
                      of land through long-term debt
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  1,200,000Shares
                      transferred to placements for financing
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  4,152,000Issuance
                      of common stock with convertible debenture
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  5,500,000Issuance
                      of warrants with convertible debenture
                  
                  $
                  
                  
                  $
                  -
                  
                  $
                  507,647Issuance
                      of warrants for debt extension
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  390,219Issuance
                      of common stock for debt issuance costs
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  180,000Issuance
                      of warrants for debt issuance costs
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  212,232Issuance
                      of convertible promissory note for debt issuance costs
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  60,000Issuance
                      of common stock for financing costs
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  408,750Increase
                      in accrued liability related to Interpacific Merger
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  932,104Issuance
                      of shares for purchase of Interpacific Oil S.A.C.
                  
                  $
                  996,667
                  
                  $
                  -
                  
                  $
                  996,667Issuance
                      of warrants as part of financing agreement
                  
                  $
                  573,628
                  
                  $
                  -
                  
                  $
                  573,628
 
 The
                      accompanying notes are an integral part of these consolidated
                      financial
                      statements
  4
  **Pure
            Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**




**Note
      1 - Organization and Basis of Presentation**





The
      unaudited consolidated financial statements have been prepared by Pure Biofuels
      Corp. (the “Company”), pursuant to the rules and regulations of the Securities
      Exchange Commission. The information furnished herein reflects all adjustments
      (consisting of normal recurring accruals and adjustments) which are, in the
      opinion of management, necessary to fairly present the operating results for
      the
      respective periods. Certain information and footnote disclosures normally
      present in annual consolidated financial statements prepared in accordance
      with
      accounting principles generally accepted in the United States of America have
      been omitted pursuant to such rules and regulations. These consolidated
      financial statements should be read in conjunction with the audited consolidated
      financial statements and footnotes included in the Company’s Annual Report on
      Form 10-K. The results for the three months ended March 31, 2008 are not
      necessarily indicative of the results to be expected for the full year ending
      December 31, 2008.





Organization
      and Line of Business




Pure
      Biofuels Corp. (formerly Metasun Enterprises, Inc., herein the “Company”) was
      incorporated in the State of Nevada on October 2, 2003 under the name Metasun
      Enterprises, Inc. Pursuant to a share exchange agreement (“Share Exchange
      Agreement”) dated July 26, 2006, the Company acquired 99.9% of the issued and
      outstanding common stock of Pure Biofuels del Peru SAC (“Peru SAC”), a private
      Peruvian corporation, in consideration for the issuance of 29,999,970 common
      shares. The Share Exchange Agreement occurred on September 15, 2006 (Date of
      Acquisition). As of the closing date, the former shareholders of Peru SAC held
      approximately 55% of the issued and outstanding common shares of the Company.
      The acquisition of Peru SAC, therefore, was recorded as a reverse acquisition
      for accounting purposes. Peru SAC was incorporated on May 10, 2006 under the
      laws of Peru and Peru SAC, the acquired entity, is regarded as the predecessor
      entity as of the Date of Acquisition. In accordance with the accounting rules
      for reverse acquisitions, the financial statements are presented as a
      continuation of Peru SAC and include the results of operations of Peru SAC
      since
      incorporation on May 10, 2006, and the results of operations of the Company
      since the Date of Acquisition.





The
      Company previously focused its business efforts on the development of software
      specializing in web applications using Microsoft TM technologies.
      In contemplation of the share exchange transaction with Peru SAC, the Company
      abandoned its original business plan and sold its investment in its previous
      subsidiary, Metasun Software Corp. (“Metasun”), and the related software
      business to two former shareholders in consideration for the cancellation of
      all
      shares of the Company’s common stock previously owned by them and the waiver and
      forgiveness of any outstanding amounts owed by the Company to them. As of the
      closing date of the Share Exchange Agreement, the Company commenced the business
      of the production, marketing and sale of clean burning biofuels focusing on
      Latin America. The Company’s shares trade on the OTC Bulletin Board under the
      symbol ‘PBOF’.





On
      August
      7, 2006, the Company completed a merger with its wholly-owned subsidiary, Pure
      Biofuels Corp., which was incorporated solely to effect the name change. As
      a
      result, the Company changed its name from “Metasun Enterprises, Inc.” to “Pure
      Biofuels Corp.” In addition, effective August 7, 2006, the Company effected a
      one and one-quarter (1.25) for one (1) forward stock split of the authorized,
      issued and outstanding common stock. As a result, the authorized share capital
      increased from 75,000,000 shares of common stock with a par value of $0.001
      to
      93,750,000 shares of common stock with a par value of $0.001. In November 2007,
      the Company increased it authorized shares of common stock from 93,750,000
      to
      250,000,000. All share amounts have been retroactively adjusted for all periods
      presented. During the period, the Company also changed its fiscal year-end
      from
      January 31 to December 31.





On
      December 4, 2007, the Company, Pure Biofuels del Peru S.A.C., a Peruvian
      corporation and 99.9% owned subsidiary of the Company, Interpacific Oil S.A.C.,
      a Peruvian corporation (“Interpacific”), and certain stockholders of
      Interpacific entered into an Agreement and Plan of Merger, pursuant to which
      Pure Biofuels del Peru will acquire all of the outstanding capital stock of
      Interpacific, with Pure Biofuels del Peru continuing as the surviving
      corporation. The merger was consummated contemporaneous with the signing and
      filing of the Merger Agreement as of such date with the Peruvian Public Registry
      in accordance with the relevant provisions of Peru law.


5





Development
      Stage Company and Going Concern





The
      Company is in the development stage since planned principal activities have
      not
      commenced and the Company has not generated any revenue. In a development stage
      company, management devotes most of its activities to developing a market for
      its products and services. These financial statements have been prepared on
      a
      going concern basis, which implies the Company will continue to realize its
      assets and discharge its liabilities in the normal course of business. The
      Company is unlikely to pay dividends or generate significant earnings in the
      immediate or foreseeable future. The continuation of the Company as a going
      concern and the ability of the Company to emerge from the development stage
      is
      dependent upon the continued financial support from its shareholders, the
      ability of the Company to obtain necessary equity and debt financing to continue
      operations and to generate sustainable revenue. There is no guarantee that
      the
      Company will be able to raise adequate equity or debt financing or generate
      profitable operations. For the three months ended March 31, 2008, the Company
      incurred a net loss of $2,444,772 and as of March 31, 2008, the Company has
      a deficit accumulated during the development stage of $24,323,008. These
      financial statements do not include any adjustments to the recoverability and
      classification of recorded asset amounts and classification of liabilities
      that
      might be necessary should the Company be unable to continue as a going concern.
      Management intends to raise additional funds through equity or debt
      financing.





Basis
      of Presentation





The
      accompanying consolidated financial statements include the accounts of Pure
      Biofuels Corp., and its subsidiaries as follows:




Subsidiary
            
            Place
                Incorporated
            
            % OwnedPure
                Biofuels del Peru S.A.C.
            
            
            Peru
            
            
            99.9Palma
                Indutrial S.A.C.
            
            
            Peru
            
            
            99.9Palma
                Industrial's five subsidiariesAceite
                Pucallpa S.A.C.
            
            
            Peru
            
            
            99.9Palmas
                de Oriente S.A.C.
            
            
            Peru
            
            
            99.9Palmas
                Tropicales S.A.C.
            
            
            Peru
            
            
            99.9Pucapalma
                S.A.C.
            
            
            Peru
            
            
            99.9Ecopalma,
                S.A.C.
            
            
            Peru
            
            
            99.9del
                Peru's subsidiary:Pure
                Biocarburantes, S.A.
            
            
            Argentina
            
            
            99.4





Minority
      interest has not been presented on the consolidated balance sheet due to
      accumulated losses which exceed the minority stockholders’ equity. In accordance
      with Accounting Principles Board Opinion No. 18, the minority interest has
      been
      written down to zero on the accompanying balance sheet. The Company is a
      development stage company as defined by Statement of Financial Accounting
      Standard (“SFAS”) No. 7, “Accounting and Reporting for Development Stage
      Enterprises”.





The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America.
      The Company’s subsidiaries use their local currencies, Peruvian Nuevos Soles
      (PEN) and the Argentinean Peso (ARS); however the accompanying consolidated
      financial statements have been translated and presented in United States Dollars
      ($).





**Note
      2 – Summary of Significant Accounting Policies**





Use
      of
      Estimates





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Significant areas requiring the use of management estimates relate to the
      determination of depreciation rates for equipment and future tax rates used
      to
      determine future income taxes. Actual results could differ from these estimates.


6





Cash
      and Cash Equivalents





Cash
      and
      cash equivalents include cash in hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.





Restricted
      Cash





Restricted
      cash consists of monies restricted by the Company’s lender. Under
      the
      Company's loan agreement the Company is required to establish an interest
      reserve account in the amount of $1,000,000 from the proceeds of the initial
      borrowing on the line of credit. The interest reserve will be used to fund
      interest payments charged on the line of credit until the reserve has been
      fully
      exhausted. As of March 31, 2008 and December 31, 2007, total restricted cash
      amounted to $0 and $740,376, respectively.





Property,
      Plant and Equipment





Property,
      plant and equipment are
      stated at historical cost and are depreciated using the straight-line method
      over their estimated useful lives. The useful life and depreciation method
      are
      reviewed periodically to ensure that the depreciation method and period are
      consistent with the anticipated pattern of future economic benefits.
      Expenditures for maintenance and repairs are charged to operations as incurred
      while renewals and betterments are capitalized. Gains and losses on disposals
      are included in the results of operations.





The
      Company provides for depreciation over the assets estimated lives as follows:





Computer Equipment
            
            
            4
                yearsFurniture and Miscellaneous
            
            
            10
                yearsBuilding Improvements
            
            
            10
                years





Goodwill
      and Impairment





The
      Company, through the acquisition of Interpacific Oil SAC, a Peruvian
      corporation, purchased goodwill in the amount of $1,337,288. In accordance
      with
      Statement of Financial Accounting Standards No.142, “Goodwill and Other
      Intangible Assets”, requires that goodwill and certain intangible assets be
      assessed annually for impairment using fair value measurement techniques.
      Goodwill is tested for impairment on an annual basis as of the end of the
      Company's fiscal year, or when impairment indicators arise. The Company
      evaluates the recoverability of intangible assets periodically and takes into
      account events and circumstances that indicated that impairment exists. The
      Company believes that, as of March 31, 2008, there was no significant impairment
      of its goodwill.





Long-Lived
      Assets





The
      Company applies the provisions of Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
      the Results of Operations for a Disposal of a Segment of a Business.” The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. In that event, a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of March 31, 2008 and December 31, 2007, there were no significant
      impairments of its long-lived assets.


7





Fair
      Value of Financial Instruments and Concentrations





On
      January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements.
      SFAS
      No. 157 defines fair value, establishes a three-level valuation hierarchy for
      disclosures of fair value measurement and enhances disclosures requirements
      for
      fair value measures. The carrying amounts reported in the balance sheets for
      receivables and current liabilities each qualify as financial instruments and
      are a reasonable estimate of fair value because of the short period of time
      between the origination of such instruments and their expected realization
      and
      their current market rate of interest. The three levels are defined as
      follow:




·
            Level
                1 inputs to the valuation methodology are quoted prices (unadjusted)
                for
                identical assets or liabilities in active
                markets.




·
            Level
                2 inputs to the valuation methodology include quoted prices for similar
                assets and liabilities in active markets, and inputs that are observable
                for the asset or liability, either directly or indirectly, for
                substantially the full term of the financial
                instrument.




·
            Level
                3 inputs to the valuation methodology are unobservable and significant
                to
                the fair value measurement.




As
      of
      March 31, 2008, the Company did not identify any assets and liabilities that
      are
      required to be presented on the balance sheet at fair value.





Concentration
      of credit risk





Cash
      includes cash on hand and demand deposits in accounts maintained within Peru,
      Argentina and the United States. Certain f inancial
      instruments, which subject the Company to concentration of credit risk, consist
      of cash. The Company maintains balances at financial institutions which, from
      time to time, may exceed Federal Deposit Insurance Corporation insured limits
      for the banks located in the Unites States. Balances at financial institutions
      within Peru and Argentina are not covered by insurance. As of March 31, 2008
      and
      December 31, 2007, the Company had deposits in excess of federally insured
      limits totaling $2,362,466 and $2,845,009, respectively. The Company has not
      experienced any losses in such accounts and believes it is not exposed to any
      significant risks on its cash in bank accounts.





Foreign
      Currency Transactions and Comprehensive Income




The
      reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries
      use their local currencies, the PEN,
      and
      the ARS as their functional currency. Assets and liabilities are translated
      using the exchange rates prevailing at the balance sheet date. Translation
      adjustments resulting from this process are included in accumulated other
      comprehensive loss in the statement of stockholders’ equity. Transaction gains
      and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred.




The
      Company recorded a translation loss of $186,624 and a translation gain of $2,441
      for the three months ended March 31, 2008 and 2007, respectively. Asset and
      liability amounts at March 31, 2008 and December 31, 2007 were translated at
      2.746 PEN to $1.00 USD and 2.997 PEN to $1.00 USD, respectively for the
      Company’s Peruvian subsidiary. Equity accounts were stated at their historical
      rate. The average translation rates applied to income statement accounts for
      the
      three months ended March 31, 2008 and 2007, 2.872 PEN and 3.184 PEN to $1.00
      USD, respectively. At March 31, 2008 and December 31, 2007 the exchange rate
      for
      the assets and liabilities of the Company’s Argentinean subsidiary was 3.13 ARS
      and 3.149 ARS to $1.00 USD, respectively. The average translation rate applied
      to the income statement accounts for the Company’s Argentinean subsidiary for
      three months ended March 31, 2008 was $3.149 ARS to $1.00 USD. Cash flows are
      also translated at average translation rates for the period. Therefore, amounts
      reported on the statement of cash flows will not necessarily agree with changes
      in the corresponding balances on the balance sheet.





Foreign
      Currency Transaction Gains and Losses





Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred. For the three months ended March 31, 2008
      and
      2007, the Company recorded net transaction gains of $2,324,379 and $0,
      respectively. This gain represents the foreign currency gain of borrowing $US
      dollars on the line of credit and converting them into Peruvian Nuevos Soles.
      Ultimate settlement of this debt will be in $US dollars. Historically, the
      Company has not entered any currency trading or hedging transactions, although
      there is no assurance that the Company will not enter into such transactions
      in
      the future.


8




Income
      Taxes





Income
      taxes are provided based upon the liability method of accounting in accordance
      with SFAS No. 109, “Accounting for Income Taxes”. Pursuant to SFAS No. 109 the
      Company is required to compute deferred income tax assets for net operating
      losses carried forward. The potential benefits of net operating losses have
      not
      been recognized in these financial statements because the Company cannot be
      assured it is more likely than not it will utilize the net operating losses
      carried forward in future years.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes”, during 2007. A tax position is recognized as a benefit only if it is
“more likely than not” that the tax position would be sustained in a tax
      examination, with a tax examination being presumed to occur. The amount
      recognized is the largest amount of tax benefit that is greater than 50% likely
      of being realized on examination. For tax positions not meeting the “more likely
      than not” test, no tax benefit is recorded. The adoption had no affect on the
      Company’s financial statements.





Basic
      and Diluted Losses Per Share





Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), “Earnings Per Share”. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Net earnings per share
      for
      all periods presented have been restated to reflect the adoption of SFAS No.
      128. Basic earnings per share is based upon the weighted average number of
      common shares outstanding. Diluted earnings per share is based on the assumption
      that all dilutive convertible shares and stock options were converted or
      exercised. Dilution is computed by applying the treasury stock method. Under
      this method, options and warrants are assumed to be exercised at the beginning
      of the period (or at the time of issuance, if later), and as if funds obtained
      thereby were used to purchase common stock at the average market price during
      the period. All warrants and options were excluded from the diluted loss per
      share due to the anti-diluted effect.





Stock-Based
      Compensation





On
      April
      27, 2007, our board of directors amended and restated the Company’s stock option
      plan (the “Plan”) to increase the number of available options from a total of
      18,000,000 to 21,000,000 options that enables it to grant options to employees,
      including its officers and directors, and its subsidiaries and other persons
      who
      contribute to the success of the Company.  The board of directors will
      administer the Plan. The Plan is subject to shareholder approval, which was
      obtained on November 19, 2007. The Company records stock-based compensation
      in
      accordance with SFAS No. 123R “Share Based Payments”, using the fair value
      method. The Company recognized $632,358 and $0 in share-based compensation
      expense for the three months ended March 31, 2008 and 2007, respectively.





Statement
      of Cash Flows





In
      accordance with Statement of Financial Accounting Standards No. 95, “Statement
      of Cash Flows,” cash flows from the Company’s operations are calculated based
      upon the local currencies. As a result, amounts related to assets and
      liabilities reported on the statement of cash flows will not necessarily agree
      with changes in the corresponding balances on the balance sheet.





Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about
      Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company’s management organizes segments within the company
      for making operating decisions and assessing performance. The Company has
      determined that it has three reportable segments, U.S., Peru and Argentina
      (See
      Note 13).


9


Reclassification





Certain
      reclassifications have been made to the 2007 financial statements to conform
      to
      the 2008 financial statement presentation. These reclassifications had no effect
      on net income or cash flows as previously reported.





Recent
      Pronouncements





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting
      enterprise accounts for the acquisition of a business. SFAS No. 141
      (Revised 2007) requires an acquiring entity to recognize all the assets acquired
      and liabilities assumed in a transaction at the acquisition-date fair value,
      with limited exceptions, and applies to a wider range of transactions or events.
      SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or
      after December 15, 2008 and early adoption and retrospective application is
      prohibited.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current conditions, the Company does not
      expect the adoption of SFAS 160 to have a significant impact on its results
      of
      operations or financial position.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”. This Statement permits entities to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS No. 159 is effective as of the beginning
      of an entity’s first fiscal year that begins after November 15, 2007. The
      Company adopted SFAS No. 159 on January 1, 2008. The Company chose not to elect
      the option to measure the fair value of eligible financial assets and
      liabilities.




In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed.
      Management is currently evaluating the effect of this pronouncement on financial
      statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”),
      which changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The Company has not
      determined the effect of the application of SFAS 161 on its consolidated
      financial statements.





**Note
      3 – VAT Receivable**





At
      March
      31, 2008 and December 31, 2007, the Company recognized a VAT (value added tax)
      receivable of $4,233,336 and $2,613,496, respectively in Peru. VAT is charged
      at
      a standard rate of 19% and the Company obtains income tax credits for VAT paid
      in connection with the purchase of capital equipment and other goods and
      services employed in its operations. The Company is entitled to use the credits
      against its Peruvian income tax liability or to receive a refund credit against
      VAT payable or sales. As the Company does not anticipate incurring either a
      Peruvian tax or a VAT liability during the next fiscal year, the receivable
      has
      been classified as a long-term asset.





**Note
      4 – Property, Plant and Equipment**





Property,
      plant and equipment consisted of the following at March 31, 2008 and December
      31,2007:




10








March 31,
              2008
            
            December 31,
              2007Land
            
            $
            3,684,427
            
            $
            3,375,818Plant
                under construction
            
            
            19,798,475
            
            
            11,708,162Building
                improvements
            
            
            157,973
            
            
            39,643Computer
                equipment and licenses
            
            
            876,823
            
            
            681,206Furniture
                and miscellaneous
            
            
            145,171
            
            
            81,17624,662,869
            
            
            15,886,005Accumulated
                depreciation
            
            
            (58,360
            )
            
            (43,107
            )Property,
                Plant and Equipment, net
            
            $
            24,604,509
            
            $
            15,842,898





Depreciation
      expense amounted to $10,876 and $3,670 for the three months ended March 31,
      2008
      and 2007, respectively. For the three months ended March 31, 2008 and 2007,
      interest capitalized to construction in progress amounted to $478,711 and $0,
      respectively.





During
      2008 and 2007, the Company had construction in progress related to the
      construction of the Company’s biodiesel refinery that will be completed during
      May 2008. Total estimated project completion costs for the project amounts
      to
      $22,300,000.





**Note
      5 – Convertible Debt**





On
      September 12, 2007, our Company entered into a securities purchase agreement
      (the “Purchase Agreement”), with Plainfield Special Situations Master Fund
      Limited (“PSSM”), Plainfield Peru I LLC (“LLCI”) and Plainfield Peru II LLC
      (“LLC II” and together with LLCI, “Plainfield”) pursuant to which the Company
      agreed to sell to the
      Plainfield (1)
      11,000,000 shares of the Company’s common stock (the “Shares”), (2) $10,000,000
      aggregate principal amount of our 10%/12% senior convertible PIK election notes
      due September 12, 2012, (the “Notes”), and (3) warrants (the “Warrants,” and,
      together with the Shares and the Notes, the “Securities”) to purchase up to
      56,938,245 shares of the Company’s
      common stock. The Notes are convertible into 16,666,667 shares of the Company’s
      common stock at the option of the holder of Notes at any time after November
      19,
      2007, the date when the
      Company obtained
      stockholder approval to increase the number of authorized shares of common
      stock
      of the Company
      from 93,750,000 to a number sufficient to support the issuance of the common
      stock underlying the Notes and the Warrants, and on or prior to September 12,
      2012, at a conversion price of $0.60 per share. The conversion price is subject
      to adjustment in accordance with the terms of the Purchase Agreement. Our
      Company will pay interest on the Notes semi-annually in arrears on March 15
      and
      September 15 of each year, commencing March 15, 2008. On
      March
      15, 2008, the Company issued a $610,000 aggregate principal amount of PIK
      Interest Notes. Subject
      to the conversion rights set forth below, the
      Company is obligated
      to pay 100% of the principal amount of the Notes, plus accrued and unpaid
      interest, in cash on September 12, 2012 (the “Maturity Date”), provided,
      however, that our Company may, at its option, may elect to pay interest on
      the
      Notes (i) entirely in cash, or (ii) entirely by issuing additional Notes with
      an
      effective interest rate of 12% (“PIK Interest”). The first payment of interest
      shall be paid in PIK Interest. The Notes are senior unsecured obligations of the Company
      and rank equally in right of payment to the
      Company’s future
      senior indebtedness. The Notes also restrict the Company and its subsidiaries from incurring indebtedness or other obligations, including
      creating liens, merging, selling assets, making dividends, distributions or
      investments, entering into transactions with affiliates, making capital
      expenditures, modifying charter documents and issuing capital stock in the
      future, in each case subject to certain exceptions. Furthermore, our Company
      agreed to take all necessary actions to cause Erich Reehl to be elected as
      a
      director of the board of directors or our Company.





On
      March
      26, 2008, the
      Company entered
      into a first amendment to the Purchase Agreement (the “Amended Purchase
      Agreement”) with Plainfield. The Amended Purchase Agreement amends the Purchase
      Agreement, pursuant to which the Company agreed to sell to Plainfield (i) the
      Shares, (ii) $10,000,000 aggregate principal amount of its 10%/12% senior
      convertible PIK election notes due September 12, 2012 (the “Original Notes”),
      and (iii) the Warrants to purchase up to 56,938,245 shares of common stock.
      Pursuant to the Amended Purchase Agreement, the
      Company agreed to sell to Plainfield $5,000,000 aggregate principal amount
      of
      its 10%/12% senior convertible PIK election notes due September 12, 2012, (the
      “Additional Notes”, and, together with the Original Notes, the “Notes”). The
      terms of the Additional Notes are substantially the same as the Original Notes
      except for the conversion price as described below.


11





The
      Additional Notes are convertible into 16,666,667 shares of common stock at
      the
      option of the holder of Additional Notes at any time after the Amendment Date
      and on or prior to September 12, 2012, at a conversion price of $0.30 per share.
      The conversion price is subject to adjustment in accordance with the terms
      of
      the Amended Purchase Agreement. Concurrent with the issuance of the Additional
      Notes, pursuant to the terms of the Amended Purchase Agreement, the conversion
      price of the Original Notes and $610,000 aggregate principal amount of PIK
      Interest Notes issued on March 15, 2008 as payment of interest on the Original
      Notes, was adjusted to $0.30.





The
      Company will pay interest on the Additional Notes semi-annually in arrears
      on
      March 15 and September 15 of each year, commencing September 15, 2008. Subject
      to the conversion rights set forth below, the
      Company is obligated to pay 100% of the principal amount of the Additional
      Notes, plus accrued and unpaid interest, in cash on September 12, 2012 (the
      “Maturity Date”), provided, however, that the
      Company may, at its option, may elect to pay interest on the Additional Notes
      (i) entirely in cash, or (ii) entirely by issuing additional Notes with an
      effective interest rate of 12% (“PIK Interest Notes”). The first payment of
      interest shall be paid in PIK Interest Notes.




The
      Additional Notes are senior unsecured obligations of our Company and rank
      equally in right of payment to our Company’s future senior indebtedness. The
      Additional Notes also restrict the
      Company and its subsidiaries from incurring indebtedness or other obligations,
      including creating liens, merging, selling assets, making dividends,
      distributions or investments, entering into transactions with affiliates, making
      capital expenditures, modifying charter documents and issuing capital stock
      in
      the future, in each case subject to certain exceptions.





If
      there
      is an event of default on the Additional Notes, the principal amount of the
      Additional Notes, plus accrued and unpaid interest may be declared immediately
      due and payable, subject to certain conditions set forth in the Additional
      Notes. These amounts automatically become due and payable in the case of certain
      types of bankruptcy or insolvency events involving our Company. It is an event
      of default under the Additional Notes if (i) our Company fails to pay accrued
      interest, principal amount or another amount with respect to the Notes when
      due;
      (ii) certain events of bankruptcy, insolvency or reorganization with respect
      to
      our Company specified in the Notes occur; (iii) our Company fails to pay when
      due any other indebtedness in excess of $100,000; (iv) any of the Transaction
      Documents (as defined in the Amended Purchase Agreement) shall cease to be
      in
      full force and effect; (v) our Company fails to make the payments on the
      Additional Notes required upon a Change of Control (as defined in the Purchase
      Agreement); (vi) certain judgments or decrees shall be entered against us or
      any
      of our subsidiaries in an amount exceeding $100,000; (vii) our Company defaults
      in the due performance or observance by it of any term, covenant or agreement
      contained in the Purchase Agreement; or (viii) any representation, warranty
      or
      statement made or deemed made by our Company in connection with the transaction
      shall prove to be untrue in any material respect on the date as of which made
      or
      deemed made.





Our
      Company also agreed to grant to Plainfield, within 90 days of the Additional
      Notes closing date (as defined in the Amended Purchase Agreement), security
      interests in such assets and Capital Stock of our Company’s Subsidiaries (as
      defined in the Purchase Agreement) as may be requested from time to time by
      Plainfield. Failure to grant such interests shall give rise to an immediate
      Event of Default pursuant to the Amended Purchase Agreement and the Loan
      Agreement.





At
      March
      31, 2008, total interest expense related to the convertible debentures amounted
      to $311,587.





**Note
      6 – Convertible Promissory Note**





On
      April
      19, 2007, the Company issued a convertible promissory note in the amount of
      $60,000 to the placement agent in the above mentioned Debenture. The note was
      due on June 18, 2007 and the Company has the option of converting the note
      into
      shares of the Company’s common stock at a conversion price of $0.94. The Company
      has currently not issued the 63,830 shares that were due upon the conversion
      of
      the note on June 19, 2007. The $60,000 note has been capitalized as debt
      issuance costs and is being amortized over the term of the Debenture. For
      the
      year ended December 31, 2007, the Company amortized $60,000, of the aforesaid
      debt issuance costs as other expense in the accompanying consolidated statements
      of operations. This promissory note was converted into 186,436 of the Company’s
      common stock in January 2008.





**Note
      7 – Line of Credit**





On
      September 12, 2007, the Company entered into a
      $20,000,000 Loan Agreement, between the Company, as Guarantor, and Pure Biofuels Del
      Peru
      S.A.C. and Palma Industrial S.A.C., each
      a
      99.9% owned subsidiary of the Company, various
      lenders and PSSM, as Administrative Agent.  The
      outstanding balance at March 31, 2008 and December 31, 2007 is $20,000,000
      and
      $16,400,000, respectively. Total interest expense for the three months ended
      March 31, 2008 and 2007 amounted to $590,783 and $0, respectively, which was
      capitalized in Property, Plant and Equipment. The interest is being capitalized
      to the assets under construction.




On
      March
      13, 2008, the Company, Pure Biofuels del Peru, and Palma Industrial entered
      into
      an agreement with Plainfield pursuant to which the Borrowers may draw down
      an
      additional $818,000 (the “Additional Loan”) under the Loan Agreement. Pursuant
      to the terms of the agreement, the Company reset the exercise price of
      Plainfield’s warrants to purchase 59,104,912 shares of the Company’s common
      stock from $0.60 to $0.30.




12





During
      2008, in connection with the additional issuance of the Line of Credit, the
      Company paid $54,000 in debt issuance costs which have been capitalized as
      debt
      issuance costs and are being amortized over the term of the Line of Credit.
      For
      the three months ended March 31, 2008 and 2007, the Company amortized a total
      of
      $35,153 and $0, respectively, of the debt issuance costs, related to the line
      of
      credit, as other expense in the accompanying consolidated statements of
      operations.





**Note
      8 – Accrued Derivative Liability**





As
      a
      result of the Company issuing the Notes and Warrants described in Note 5 above,
      it did not have enough authorized shares to satisfy the conversion of all the
      warrants and options outstanding during 2007. Therefore the outstanding options
      and warrants were recorded at fair value and shown as accrued derivative
      liability at the inception of the Note. The
      fair
      value of the outstanding options and warrants (excluding the 56,938,245 Warrants
      which were recorded as a derivative liability at issuance) of $5,907,893 was
      transferred from additional paid in capital to accrued derivative liability
      on
      September 12, 2007. The fair value of outstanding options and warrants was
      recorded as accrued derivative liability at each balance sheet date until
      November 19, 2007, the date the Company increased its authorized shares. The
      fair value was determined using
      the Black-Scholes option pricing model and the following
      assumptions:  term of 1 year, a risk free interest rate
      of 5.0%, a dividend yield of 0% and volatility of 114%. In addition,
      the fair value of the beneficial conversion feature associated with the Notes
      was also recorded as accrued derivative liability. The change in fair value
      of
      the accrued derivative liability from September 12, 2007 to November 19, 2007
      was $4,624,623 was reflected as an increase to other income in the statement
      of
      operations for the year ended December 31, 2007.





On
      November 19, 2007, the authorized shares were increased to 250,000,000 which
      provided enough authorized shares to satisfy the conversion of all the warrants
      and options outstanding. Therefore, the Company reclassified the derivative
      liability into equity at the fair value on the date of the increase in
      authorized shares. The fair value at the date of transfer was
      $15,549,576.





**Note
      9 – Related Party Transactions**





The
      Company entered into the following transactions with related
      parties:




a)
            On
                August 6, 2007, the Company entered into an integral service
                agreement with Ocean Marine SAC, a company controlled by certain
                officers
                of the Company, to provide certain advisory services related to use
                and
                handling of biodiesel to the Company. The agreement provides for
                a lumpsum
                payment of $309,166.37 retroactive from September 15, 2006 to June
                30, 2007 for the services rendered by Ocean Marine and a fee of $34,000
                per month to Ocean Marine from July 1, 2007 thru August 12, 2009.
                Total
                consulting expenses incurred under this agreement totaled $90,672
                for the
                three months ended March 31, 2008.





b)
            Plainfield
                is a related party as they are a major shareholder of the Company.
                See
                transactions with Plainfield in notes 5, 6, 7, 11 and
                15.





c)
            As
                of March 31, 2008 and December 31, 2007, the Company has loans due
                to
                shareholders in the amount of
                $208,638.




These
      transactions were recorded at the exchange amount which is the amount agreed
      to
      by the related parties.


13





**Note
      10 – Commitments**





**The
      Company entered into the following agreements:**





**a)**
            On
                June 22, 2007, our Company, Luis Goyzueta, David Clifton, Hiroshi
                Dejaeghere and Joy Clifton (Messrs. Goyzueta, Clifton, Dejaeghere
                and
                Clifton, together, the “Transferring Shareholders”) entered into an escrow
                agreement with U.S. Bank National Association, as the escrow agent,
                ARC
                Investment Partners, LLC, (“ARC”), Tapirdo Enterprises, LLC, (“Tapirdo”),
                and SGM Capital, LLC, (“SGM”), pursuant to which the Transferring
                Shareholders agreed to transfer (i) 3,000,000 shares of our Company’s
                common stock to ARC (ii) 2,000,000 shares of our Company’s common stock to
                Tapirdo and (iii) 1,000,000 shares of our Company’s common stock to SGM
                (collectively, the “Shares”) upon the Company entering into a financing
                transaction or series of transactions pursuant to which the Company
                plans
                to raise gross proceeds of at least $7.5 million. As a result of
                the
                closing of the $3 million financing on April 19, 2007, ARC, Tapirdo
                and
                SGM were entitled to their respective portions of 40% of the Shares.
                On
                July 10, 2007 the escrow agent transferred such shares. The value
                of the
                shares was $2,352,000 and has been recorded as debt issuance costs
                associated with the $3,000,000 convertible debenture**.**In
                addition as a result of the closing of the $30 million financing
                on
                September 12, 2007, ARC, Tapirdo and SGM were entitled to their respective
                portions of remaining 60% of the Shares. The value of the shares
                was
                $1,800,000 and has been recorded as debt issuance costs associated
                with
                the $10,000,000 convertible debenture**.**





b)
            The
                Company is required to pay the remaining $60,000 plus VAT in 2007,
                pursuant to an engineering contract between the Company and Polindustria
                with the orginal contract amount of $120,000. During the year ended
                December 31, 2007, the Company paid a total of $54,264 to Polindustria,
                comprised of $45,600 in payments and $8,664 in VAT. As of March 31,
                2008,
                the Company is required to pay the remaining $14,400 to
                Polindustria.





c)
            On
                August 13, 2007, Pure Biofuels del Peru entered into a services agreement
                with Ocean Marine S.A.C. (“Ocean Marine”), a Peruvian Corporation, whereby
                Ocean Marine agreed to render consulting, management and logistical
                support services to Pure Biofuels del Peru. Pursuant to the services
                agreement, Luis Goyzueta, our Chief Executive Officer and a director,
                will
                receive $130,000 aggregate salary per year,Gustavo
                Goyzueta, our Chief Financial Officer, will receive a salary of $90,000
                and Alberto Pinto, our Chief Operations Officer and a director, will
                receive a salary of $120,000. All of the foregoing compensation is
                payable
                retroactive to September 15, 2006. The term of this agreement is
                from
                August 13, 2007 through August 12,
                2009.





d)
            On
                September 4, 2007, the Company and each of Luis Goyzueta, our Chief
                Executive Officer, Gustavo Goyzueta, our Chief Financial Officer,
                Carlos
                Pinto, our Chief Operating Officer, Steven Magami, our President,
                and Adam
                Roseman, Chairman of the Board of Directors, amended the Nonstatutory
                Stock Option Agreement (the “Plan”) entered into between each of them and
                the Company on June 11, 2007, in order to (1) reduce the exercise
                price of
                shares issued under the Plan from $0.98 per share to the greater
                of (i)
                $0.60, or (ii) the Fair Market Value (as defined in the Plan) of
                the
                Company’s common stock on the date that the board of directors approves
                the amendment and (2) provide that none of the options may be exercised
                before the date on which we obtain shareholder approval of an amendment
                to
                the Company’s Articles of Incorporation to increase the number of
                authorized shares of common stock from 93,750,000 shares to at least
                250,000,000 shares.





e)
            On
                September 12, 2007, certainof
                our stockholders (the “Stockholders”) entered intoa
                voting agreement (the “Voting Agreement”) with PSSMand Plainfield. Pursuant to the Voting Agreement, the Stockholders
                agreed
                to vote all common stock of the Company beneficially owned by them
                at any
                regular or special meeting of the stockholders of the Company in
                favor of
                a proposal to (i) increase the number of authorized shares of common
                stock
                of the Company from 93,750,000 to a number sufficient to support
                the
                issuance of the common stock underlying the Notes (as defined below
                and
                including any Notes issued in lieu of interest thereon) (the date
                of such
                amendment, the “Amendment Date”) and the Warrants (as defined below) and
                (ii) delete Article 15 from the Articles of Incorporation of the
                Company.
                The Voting Agreement shall terminate upon the earlier of (i) stockholder
                approval of the actions set forth above, or (ii) January 31,
                2008.





f)
            On
                September 12, 2007, a stockholders agreement (the “Stockholders
                Agreement”) was executed among Luis Goyzueta, our Chief Executive Officer
                and a director, Plainfield and the Company. Under the Stockholders
                Agreement, Mr. Goyzueta agreed to vote or take any such other action
                as
                may be reasonably requested to cause an individual designated by
                Plainfield or any permitted transferee of more than 50% of the Notes
                (as
                defined below) held by Plainfield to be elected as a director of
                the
                Company. He further agreed to retain his voting rights and to notsell,
                dispose of or otherwise transfer record or beneficial ownership of
                any
                common stock unless the transferee agrees to abide by the terms of
                the
                Stockholders Agreement.


14





g)
            OnSeptember 12, 2007, the Company entered into a registration rights
                agreement (the “ARC Registration Rights Agreement”) with****ARC
                Investment Partners, LLC, Tapirdo Enterprises, LLC (an affiliate
                of Adam
      Roseman), and SGM Capital, LLC(an affiliate of Steven Magami) (collectively, the “ARC Holders”) in which
                the Company granted to each of the ARC Holders the right to request
                two
                demand registrations. In addition, the ARC Holders were granted certain
                shelf registration and piggyback registration rights.
              
              During
                the three months ended March 31, 2008, the Company entered into addition
                agreements with Plainfield. See Notes 5, 11 and 15 for summaries
                of these
                agreements.





**Leases**


h)
            On
                October 1, 2006, the Company entered into a lease for premises in
                Lima,
                Peru. Under the terms of the lease, the Company is required to make
                monthly payments of $6,013 for the first year. The monthly payment
                will
                increase by 3% annually until September 2009. The office lease contains
                certain rent escalation clauses over the life of the lease. The total
                amount of rental payments due over the lease term is being charged
                to rent
                expense on a straight-line method over the term of the lease.





i)
            On
                October 10, 2006, the Company entered into a lease for premises in
                Vancouver, British Columbia. Under the terms of the lease, the Company
                is
                required to make monthly payments of $3,000, plus applicable taxes,
                until
                October 2008. This lease was terminated during the year ended December
                31,
                2007.





j)
            On
                June 1, 2007, the Company entered into a lease for premises in Chorrilos,
                Peru. Under the terms of the lease, the Company is required to make
                monthly payments of $1,350 for the first year, $1,400 for the second
                year,
                and $1,500 for the third year until the expiration of the lease on
                May 31,
                2010.





k)
            On
                January 8, 2007, the Company entered into a lease for premises in
                Buenos
                Aires, Argentina. Under the terms of the lease, the Company is required
                to
                make monthly payments of approximately $2,000, plus applicable taxes
                until
                August 2007. On August 1, 2007 the Company entered into a new lease
                for
                the premises in Buenos Aires, Argentina. Under the terms of the lease,
                the
                Company is required to make monthly payments of $2,500 for the first
                year,
                $2,750 for the second year, and $3,025 for the third year until the
                expiration of the lease on July 31,
                2010.





During
      the three months ended March 31, 2008 and 2007, the Company had lease expense
      in
      the amount of $30,130 and $24,339, respectively.





The
      future minimum lease payments are as follows:





PERIOD ENDING
              MARCH 31,
            
            AMOUNT2009
            
            $
            113,1662010
            
            
            129,2512011
            
            
            108,3732012
                and thereafter
            
            
            40,740$
            391,530





**Note
      11– Stockholders’ Equity**





Common
      Stock




Effective
      August 7, 2006, the Company effected a one and one-quarter (1.25) for one (1)
      forward stock split of the authorized, issued and outstanding common stock,
      without a change to the par value. As a result, the authorized share capital
      increased from 75,000,000 shares of common stock with a par value of $0.001
      to
      93,750,000 shares of common stock with a par value of $0.001. On November 19,
      2007, the Company held a stockholders’ meeting and amended its articles of
      incorporation to increase the number of authorized common shares to 250,000,000
      and to authorize 1,000,000 shares of preferred stock, par value
      $0.001.


15





On
      March
      23, 2007, the Company completed a private placement of 303,009 units at $0.75
      per unit for total proceeds of $227,257. Each unit consists of one common share
      and one-half common share purchase warrant. Each whole warrant entitles the
      holder to purchase one common share in the capital of the Company for a period
      of one year at a price of $1.50 per share. The value of the warrants was
      calculated using the Black-Scholes pricing mode with the following assumptions:
      exercise price of $1.50; share price of $1.27; risk free interest rate of 4.69%;
      expected life of 1 year and a volatility rate of 103%.





On
      April
      25, 2007, the Company issued a total of 183,674 shares of common stock to the
      placement agent for the Debenture discussed in Note 6. The shares were valued
      at
      $180,000 and have been capitalized as debt issuance cost and are being amortized
      over the term of the Debenture. For
      the
      year ended December 31, 2007 the company amortized $180,000, of the aforesaid
      debt issuance costs as other expense in the accompanying consolidated statements
      of operations.





In
      June
      2007, the Company issued warrants to purchase 25,000 shares of common stock
      pursuant to a consulting agreement. The Company valued these warrants at $18,516
      using the Black Scholes model with the following factors: market price of $1.01;
      volatility of 92%; risk free rate of 5%; exercise price of $1.01; and an
      estimated life of 5 years. The fair value of the warrants has been expensed
      as
      consulting expense in the accompanying consolidated statements of
      operations.




In
      July
      2007, the Company issued warrants to purchase 50,000 shares of common stock
      pursuant to a consulting agreement. The Company valued these warrants at $28,680
      using the Black Scholes model with the following factors: market price of $0.75;
      volatility of 98%; risk free rate of 5%; exercise price of $1.01; and an
      estimated life of 5 years. The fair value of the warrants has been expensed
      as
      consulting expense in the accompanying consolidated statements of
      operations.




In
      July
      2007, the Company issued warrants to purchase 15,000 shares of common stock
      pursuant to a consulting agreement. The Company valued these warrants at $4,626
      using the Black Scholes model with the following factors: market price of $0.80;
      volatility of 96%; risk free rate of 5%; exercise price of $0.80; and an
      estimated life of 5 years. The fair value of the warrants has been expensed
      as
      consulting expense in the accompanying consolidated statements of
      operations.




In
      August
      2007, the Company issued warrants to purchase 15,000 shares of common stock
      pursuant to a consulting agreement. The Company valued these warrants at $3,136
      using the Black Scholes model with the following factors: market price of $0.51;
      volatility of 103%; risk free rate of 5%; exercise price of $0.51; and an
      estimated life of 5 years. The fair value of the warrants has been expensed
      as
      consulting expense in the accompanying consolidated statements of
      operations.




In
      addition, the Company also issued to the placement agent a total of 300,000
      warrants to purchase shares of the Company’s common stock. The Company valued
      these warrants at $212,232 using the Black Scholes model with the following
      factors: market price of $0.98; volatility of 92%; risk free rate of 5%;
      exercise price of $1.01; and an estimated life of 5 years. The fair value of
      the
      warrants has been capitalized as debt issuance cost and is being amortized
      over
      the term of the Debenture. For
      the
      year ended December 31, 2007 the company amortized $212,232, of the aforesaid
      debt issuance costs as other expense in the accompanying consolidated statements
      of operations.





The
      Maturity Date of the Debentures was extended to October 19, 2007. As a result,
      the interest on the note was increased to 18% and 704,082 warrants were issued
      with an exercise price of $0.60, the trading price of the stock on the date
      the
      loan was extended. The Company valued these warrants at $390,219 using the
      Black
      Scholes model with the following factors: market price of $0.75; volatility
      of
      99%; risk free rate of 5%; exercise price of $1.01; and an estimated life of
      5
      years. The fair value of the warrants has been expensed as other expense in
      the
      accompanying consolidated statements of operations.


16


In
      July
      and August 2007, the Company completed private placement offerings that resulted
      in the sale of an aggregate of 1,050,667 shares at $0.60 per shares for gross
      proceeds of $630,000. These private placement offerings contained an obligation
      for the Company to register these shares on a registration statement with the
      SEC. If the Company fails to register these shares on a timely basis it will
      be
      subject to liquidated damages of 1% per month for each month the shares are
      not
      registered. The Company has accrued $25,200 in liquidated damages associated
      with the issuance of these 1,050,667 shares. In addition, in connection with
      these private placement offerings the Company issued a total of 1,050,667
      warrants to purchase share of the Company’s common stock with an exercise price
      of $0.80 per share.





On
      September 12, 2007, the Company issued 11,000,000 shares in connection with
      a
      $10,000,000 Convertible Notes offering.





On
      September 12, 2007, the Company issued warrants to purchase 350,000 shares
      of
      common stock pursuant to consulting agreements. The Company valued these
      warrants at $75,136 using the Black Scholes model with the following factors:
      market price of $0.50; volatility of 109%; risk free rate of 5%; exercise price
      of $0.50; and an estimated life of 1 year. The fair value of the warrants has
      been expensed as consulting expense in the accompanying consolidated statements
      of operations.





During
      the fourth quarter of 2007, the Company issued a total of 650,000 shares of
      common stock valued at $408,750 i n
      consideration for the lender under the loan agreement and administrative agent
      entering into the waiver agreement .





On
      January 15, 2008, the Company issued 15,000 shares for consulting services
      in
      accordance with the consulting agreement. The consulting services were valued
      $5,850 and have been expensed as professional fees in the accompanying
      consolidated statements of operations.





On
      January 18, 2008, the Company entered into a Complete Settlement and Release
      Agreement with Wharton and Wharton Capital Markets, LLC pursuant to which the
      Company delivered to Wharton an aggregate of 186,435 shares of Common Stock
      in
      exchange for a $60,000 aggregate principal amount convertible promissory note
      and related accrued interest issued to Wharton by the Company on April 19,
      2007
      and in consideration of the complete settlement and release of any claims
      related to the April 18 Agreement. Notwithstanding the foregoing, no claims
      were
      released with respect to the future closing of any financial transaction between
      the Company and either Fusion Capital Partners, LLC or Alex Greystoke, or any
      of
      their respective affiliates, associates, successors or assigns.





On
      January 24, 2008 the Company issued warrants to purchase 2,289,272 shares of
      common stock pursuant to the Securities Purchase Agreement with Plainfield.
      The
      Company valued these warrants at $573,628 using the Black Scholes model with
      the
      following factors: market price of $0.40; volatility of 102%; risk free rate
      of
      2.9%; exercise price of $0.60; and an estimated life of 5 years. The fair value
      of the warrants has been expensed as financing expense in the accompanying
      consolidated statements of operations.





On
      January 26, 2008, the Company issued 2,166,667 shares pursuant to the purchase
      agreement of Interpacific Oil S.A.C. These shares were valued at
      $996,667.





On
      March
      13, 2008, pursuant to the financing agreement entered into with Plainfield,
      the
      Company reset the conversion price of Plainfield’s convertible notes into the
      Company’s common stock from $0.60 to $0.30. The difference in fair value between
      the value of the beneficial conversion feature at March 13, 2008 before the
      price was reset and the value of the beneficial conversion feature after the
      price was reset was $5,481,833. The aforesaid value was recorded as debt
      discount and will be amortized over the life of the note. The Company amortized
      $60,020 during the three months ended March 31, 2008 which is recorded as
      interest and financing costs in the accompanying consolidated statements of
      operations.





On
      March
      13, 2008, pursuant to the financing agreement entered into with Plainfield,
      the
      Company reset the exercise price of Plainfield’s warrants to purchase 59,104,912
      shares of the Company’s common stock form $0.60 to $0.30. The difference in fair
      value between the value of the warrants at March 13, 2008 before the price
      was
      reset and the value of the warrants after the price was reset was $2,423,951.
      However, the maximum discount that could be applied to the convertible notes
      is
      $891,987. The aforesaid value was recorded as debt discount and will be
      amortized over the life of the note. The Company amortized $9,766 during the
      three months ended March 31, 2008 which is recorded as interest and financing
      costs in the accompanying consolidated statements of operations. The Company
      also recorded as interest and financing costs $87,818 related to re-priced
      Plainfield warrants not recorded as discount.


17





On
      March
      13, 2008, pursuant to the financing agreement entered into with Plainfield,
      the
      Company recorded $166,667 as a beneficial conversion feature. The value of
      the
      beneficial conversion feature was based on $5,000,000 of convertible debt,
      $0.31
      market price of share, and $0.30 conversion price. The $166,667 was recorded
      as
      a debt discount and will be amortized over the life of the note. The Company
      amortized $511 during the three months ended March 31, 2008 which is recorded
      as
      interest and financing costs in the accompanying consolidated statements of
      operations.





Stock
      Options





In
      2006,
      the Company adopted a Stock Option and Award Plan (the “Plan”) initially
      reserving an aggregate of 18,000,000 shares of the Company’s common stock (the
“Available Shares”) for issuance pursuant to the exercise of stock options. The
      plan options were increased to 21,000,000 in April 2007, subject to shareholder
      approval which was obtained in November 2007.





The
      Plan
      provides for the granting at the discretion of the Board of Directors stock
      options, stock appreciation rights, stock awards, phantom stock, performance
      awards, and other stock-based awards. Participation in the plan is open to
      all
      employees, officers, and directors of, and other individuals providing bona
      fide
      services to or for the Company.




During
      June 2007, the Company granted, 14,000,000 common stock options exercisable
      at
      $0.98 per share to various employees and directors. The options expire in June
      2017. The Company has recorded wages expense in the amount of $632,358 and
      $0 to
      reflect the value of these options for the three months ended March 31, 2008
      and
      2007. The Company valued these options using the Black Scholes model with the
      following factors: market price of $0.93; volatility of 92%; risk free rate
      of
      5%; exercise price of $0.98; and an estimated life of 5 years. On September
      4,
      2007, the Company re-priced these options reducing the exercise price from
      $0.98
      to $0.60. The above mentioned expense includes the effect of the
      re-pricing.





On
      September 4, 2007, the Company and each of Luis Goyzueta, our Chief Executive
      Officer, Gustavo Goyzueta, our Chief Financial Officer, Carlos Pinto, our Chief
      Operating Officer, Steven Magami, our President, and Adam Roseman, our Former
      Chairman of the Board of Directors, amended the Nonstatutory Stock Option
      Agreement entered into between each of them and the Company on June 11, 2007,
      in
      order to (1) reduce the exercise price of shares issued under the Nonstatutory
      Stock Option Agreement from $0.98 per share to the greater of (i) $0.60, or
      (ii)
      the Fair Market Value (as defined in the Nonstatutory Stock Option Agreement)
      of
      the Company’s common stock on the date that the board of directors approves the
      amendment and (2) provide that none of the options may be exercised before
      the
      date on which we obtain shareholder approval of an amendment to the Company’s
      Articles of Incorporation to increase the number of authorized shares of common
      stock from 93,750,000 shares to at least 250,000,000 shares.




The
      following summarizes the stock options transactions for the three months ended
      March 31, 2008:




Number of
              Options
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
                Contractual
              Life
                (in
              years)
            
            Aggregate
              Intrinsic
              ValueOutstanding,
                December 31, 2007
            
            
            14,000,000
            
            $
            0.60
            
            
            9.45Granted
            
            
            -Exercised
            
            
            -Outstanding,
                March 31, 2008
            
            
            14,000,000
            
            $
            0.60
            
            
            9.20
            
            
            -Exercisable,
                March 31, 2008
            
            
            5,250,000
            
            $
            0.60
            
            
            9.20
            
            
            -




18


**Note
      12 – Warrants**




The
      following summarizes the stock purchase warrant transactions for the three
      months ended March 31, 2008:





Number of
              Warrants
            
            Weighted
              average
              exercise
              price
            
            Weighted
              average
              remaining
              contractual
              life (in years)Outstanding,
                December 31, 2007
            
            
            60,303,581
            
            $
            0.61Granted
            
            
            2,289,272
            
            $
            0.30Forfeited
            
            
            (151,505
            )
            $
            1.50Outstanding, March
                31, 2008
            
            
            62,441,348
            
            $
            0.61
            
            
            6.35





**Note
      13 – Segmented Information**





The
      Company’s operations are conducted in three reportable segments, U.S., Peru and
      Argentina. The net loss and net identifiable assets by reportable segments
      are
      as follows:




U.S.
            
            Peru
            
            Argentina
            
            TotalNet
                (loss) gain
            
            
            (2,970,490
            )
            
            599,780
            
            
            (74,062
            )
            
            (2,444,772
            )Property,
                plant and equipment.
            
            
            795,600
            
            
            23,793,978
            
            
            14,931
            
            
            24,604,509Total
                Assets
            
            
            1,916,866
            
            
            38,325,747
            
            
            118,155
            
            
            40,360,768





**Note
      14 – Acquisitions**





Inmobiliaria
      Alpha S.A.C.





On
      December 20, 2007, the Company, Palma Industrial S.A.C., a Peruvian corporation
      and 99.9% owned subsidiary of the Company, Inmobiliaria
      Alpha  S.A.C.,
      a
      Peruvian corporation (“Alpha”), and certain stockholders of Alpha entered into
      an Agreement and Plan of Merger, pursuant to which Palma Industrial will acquire
      all of the outstanding capital stock of Alpha, with Palma Industrial continuing
      as the surviving corporation. Of the total acquisition price of $3,850,000,
      as
      of December 31, 2007, approximately $200,000 has been provided to Alpha for
      a
      deposit on this acquisition. As of March 31, 2008, this agreement has expired.





**Note
      15 – Subsequent Events**





Acquisition
      of Inmobiliaria Alpha S.A.C.





The
      Company and Alpha are negotiating an extension of the Agreement of Plan of
      Merger which was scheduled to close on March 28, 2008. The Company estimates
      that an extension to May 30, 2008 would cost $50,000.





Plainfield
      Loan Agreement Amendment





On
      April
      18, 2008, the Company, as Guarantor, entered into a Second Amendment to Loan
      Documents (the “ Amendment ”)
      with
      Pure Biofuels Del Peru S.A.C. and Palma Industrial S.A.C., each a 99.9% owned
      subsidiary of the Company (the “ Borrowers ”)
      ,
      Plainfield Special Situations Master Fund Limited, as the Lender and
      Administrative Agent (“ Plainfield ”
or
      the
“ Administrative
      Agent ”)
      and
      the other credit parties thereto. The Amendment amends the loan agreement (the
“ Loan
      Agreement ”)
      and
      certain related documents (together with the Loan Agreement, the “ Loan
      Documents ”)
      entered into by the Company, the Borrowers and Plainfield on September 12,
      2007
      as amended by an amendment executed on March 13, 2008.





Pursuant
      to the terms of the Amendment, available borrowings under the Loan Agreement
      were increased by $17,346,939, such that the maximum aggregate principal amount
      of loans available under the Loan Agreement is $37,346,939. Prior to the
      execution of the Amendment, the Company had borrowed $20,000,000 under the
      Loan
      Agreement. On April 18, 2008, the Company borrowed an additional $4,413,265,
      on
      April 28, 2008, our Company borrowed an additional $4,120,746, on May 7, 2008,
      our Company borrowed an addition $3,437,075, and on May 19, 2008, our Company
      borrowed an additional $5,375,853 under the Loan Agreement.


19




Also
      pursuant to the Amendment, interest under the Loan Agreement from and including
      March 12, 2008 to but excluding October 1, 2008, shall accrue and be due and
      payable in four equal installments to be paid on October 1, 2008, November
      1,
      2008, December 1, 2008 and January 1, 2009.





Obligations
      under the Loan Agreement are secured by liens on substantially all of the assets
      of the Company, the Borrowers and each of the Borrowers’ subsidiaries. However,
      pursuant to the Amendment, Plainfield agreed to release any liens or security
      interests on inventory (including raw materials, finished product, byproducts
      and inventory in process) and accounts receivable and the proceeds therefrom
      of
      the Borrowers.





Under
      the
      terms of the Amendment, the Company and the Borrowers agreed to (1) implement
      a
      trust arrangement with respect to the Collateral (as defined in the Loan
      Agreement) within 120 days of the effective date of the Amendment, (2) if
      requested by Plainfield and/or Plainfield Peru I LLC and Plainfield Peru II
      LLC, affiliates of Plainfield (collectively, the “Purchaser”), recapitalize the
      debt and equity structure of the Borrowers and the other Credit Parties (as
      defined in the Loan Agreement) in order to cause the reduction of the amount
      outstanding under the Convertible Notes (as defined in the Loan Agreement),
      including, if requested by the Purchaser and/or Plainfield, any collateral
      secured pursuant to the Convertible Note Documents (as defined in the Loan
      Agreement) and/or the Amendment) and an increase in the amount outstanding
      under
      the Loans in a manner satisfactory to the Administrative Agent within 90 days
      of
      such request, (3) if requested by Plainfield and/or the Purchaser, have the
      Company issue warrants to Plainfield to purchase an amount of shares of the
      Company’s common stock in an amount when exercised equal to $17,346,939 divided
      by an exercise price per share of the Company’s common stock to be determined
      but no greater than $0.30 (the “ Warrant
      Issuance ”)
      and in
      connection with the Warrant Issuance there will be grants of certain equity
      to
      management based on performance measures to be mutually agreed upon by the
      Company and Plainfield within 90 days of such request, and (4) amend the
      Company’s articles of incorporation to increase its authorized common stock in
      an amount sufficient to support the issuance of the common stock underlying
      the
      Warrant Issuance (the “ Stock
      Authorization Amendment ”)
      within
      90 days of such request (or 120 days if the Securities and Exchange Commission
      reviews the preliminary proxy filed in connection therewith).





Upon
      the
      closing of the Loan Amendment, Plainfield and its affiliates will own (1)
      11,650,000 shares of the Company’s common stock; (2) warrants exercisable into
      59,227,517 shares of the Company’s common stock at an exercise price of
      approximately $0.30 per share and (3) $15,610,000 aggregate principal amount
      of
      notes convertible into 52,033,333 shares of the Company’s common stock at a
      conversion price of $0.30. If the Warrant Issuance were completed, Plainfield
      and its affiliates would also own warrants to purchase an amount of shares
      of
      the Company’s common stock equal to $17,346,939 at a maximum conversion price of
      $0.30, or a minimum of 57,823,130 shares. Plainfield is the sole lender and
      administrative agent under the Loan Agreement. In addition, two of the Company’s
      five current directors, including the Chairman of the Board, are affiliates
      of
      Plainfield and Plainfield has the right to designate up to a total of three
      directors to the Company’s Board of Directors, which the Company has agreed will
      consist of no more than six directors.




20




**Item
      2. Management’s Discussion and Analysis or Plan of Operation**




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our unaudited condensed
      consolidated financial statements and the notes thereto appearing elsewhere
      in
      this Quarterly Report on Form 10-Q.





**Forward-looking
      statements**





Some
      of
      the statements in this Quarterly Report on Form 10-Q constitute “forward looking
      statements”. These statements relate to future events or our future financial
      performance and involve known and unknown risks, uncertainties and other factors
      that may cause our or our industry’s actual results, levels of activity,
      performance or achievements to be materially different from any future results,
      levels of activity, performance or achievements expressed, implied or inferred
      by these “forward looking statements”. Such factors include, among other things,
      those listed under “Risk Factors” and elsewhere in our Annual Report on Form
      10-K for the year ended December 31, 2007. In some cases, you can identify
      “forward looking statements” by terminology such as “may,” “will,” “should,”
“could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of such terms
      and other comparable terminology.





Although
      we believe that the expectations reflected in the “forward looking statements”
are reasonable, we do not know whether we can achieve positive future results,
      levels of activity, performance, or goals. Actual events or results may differ
      materially. We undertake no obligation to update any of the “forward looking
      statements” after the date of this Quarterly Report on Form 10-Q to conform
      those statements to reflect the occurrence of unanticipated events, except
      as
      required by applicable law.





You
      should read this Quarterly Report on Form 10-Q and the documents that we
      reference herein and the documents we have filed as exhibits hereto and which
      we
      have filed with the Securities and Exchange Commission completely and with
      the
      understanding that our actual future results, levels of activity, performance
      and achievements may be materially different from what we expect. We qualify
      all
      of our forward looking statements by these cautionary statements.





***Plan
      of Operations***





**Overview**





We
      intend
      to construct and operate a 52.5 million gallon biodiesel production plant at
      a
      site near the Callao Port in Lima, Peru, or the Callao Port Facility, and
      operate a 10.0 million gallon biodiesel production plant that we acquired from
      Interpacific Oil, or Interpacific, or the Interpacific Facility, on December
      4,
      2007. Currently, we are a development stage company with no revenues from
      operations. To date, our efforts have been devoted principally to developing
      plans for the construction of the Callao Port Facility, engaging service
      providers and related activities. We anticipate that we will need an additional
      $8.9 million in financing in order to complete the Callao Port Facility and
      an
      additional $400,000 to complete testing of the Interpacific Facility. In
      addition, we will require working capital of approximately $50 million to fund
      the operation of the Callao Port Facility, which includes amounts for raw
      materials and related taxes, and approximately $4 million to fund the raw
      materials for the operation of the Interpacific Facility. There can be no
      assurance that we will be able to secure financing at terms that are favorable
      to us or at all.





In
      addition, we will seek to generate additional revenue by leasing to third
      parties the use of our storage tanks at the Callao Port Facility. There can
      be
      no assurance that we will be able to lease any unused storage tanks on terms
      that are favorable to us or at all.





The
      Callao Port Facility will have a design capacity of approximately 52.5 million
      gallons of biodiesel per year. In addition, we expect the plant will produce
      approximately 6.5 million gallons of crude glycerin each year. The plant will
      consist principally of a materials handling and storage area, a
      transesterification reactor in which the biodiesel is produced, a storage and
      loading area for biodiesel and glycerin, truck scales and an administrative
      office.


21





On
      December 4, 2007, we completed the acquisition of the Interpacific Facility,
      which opened in 2001 and was one of the first biodiesel production facilities
      ever constructed in Peru. We have expanded the Interpacific Facility from 7.2
      MMgy to 10 MMgy, making it one of the largest facilities in the
      region.





On
      January 23, 2008, we and our 99.9% owned subsidiary, Pure Biofuels del Peru
      S.A.C., a Peruvian corporation, entered into an amendment to the merger
      agreement (the “Amendment”) with Interpacific and certain Interpacific
      stockholders (the “Interpacific Stockholders”). Pursuant to the Amendment,
      $700,000 cash consideration and 2,166,667 shares of common stock payable to
      the
      Interpacific Stockholders in consideration of the merger is payable within
      three
      days of the execution of the Amendment instead of 90 days after closing, as
      contemplated by the merger agreement. To date, no other consideration has been
      paid pursuant to the merger agreement.





We
      will
      not generate revenue until we complete construction of the Callao Port Facility
      and begin production, which we are targeting for the second quarter of 2008
      and
      to commence full production capabilities by mid-2008, or until we begin
      production at the Interpacific Facility, which we are targeting to begin in
      June
      2008.





**Financings**





To
      date,
      we have had negative cash flows from operations and we have been dependent
      on
      sales of our equity securities and debt financing to meet our cash
      requirements.





*Loan
      Agreement*





In
      order
      to finance the construction of the Callao Port Facility, on
      September 12, 2007, we, as Guarantor, entered into a $20,000,000 loan agreement,
      (the “Loan Agreement”), with Pure Biofuels Del Peru S.A.C. and Palma Industrial
      S.A.C., each a 99.9% owned subsidiary of the Company (the “Borrowers”), the
      lender party thereto and Plainfield Special Situations Master Fund Limited,
      a
      Cayman Islands corporation, as Administrative Agent, or Plainfield.





On
      March
      13, 2008, we and the Borrowers entered into an agreement with Plainfield as
      lender and Administrative Agent. Pursuant to the Agreement, the Borrowers drew
      down the remaining $818,000 (the “Additional Loan”) under the Loan
      Agreement.





In
      consideration for Plainfield funding the additional money to us, the Borrowers
      agreed to (1) execute and deliver all amendments and reaffirmations of the
      Loan
      Agreement and related documents and take all such other actions as Plainfield
      requires in connection with the making of the Additional Loan; (2) reset the
      exercise price of Plainfield’s warrants to purchase 59,104,912 shares of the
      Company’s common stock from $0.60 to $0.30; (3) take all actions necessary to
      (a) increase the number of directors on the board of directors of our Company
      that are Plainfield designees from 1 to either 2 or 3, at the sole discretion
      of
      Plainfield Peru I LLC, a Delaware limited liability company (“LLCI”), and
      Plainfield Peru II LLC, a Delaware limited liability company (“LLCII” and
      together with LLCI, the “Purchaser”), (b) cause Christopher Wendell Tewell to be
      elected the chairman of the board of directors of our Company and (c) provide
      such designated directors with certain blocking rights they may specify; and
      (4)
      pay all costs and expenses paid or incurred by Plainfield in connection with
      the
      foregoing within five days following written notice from Plainfield of the
      amount so incurred or paid by Plainfield.





On
      April
      18, 2008, we, as Guarantor, entered into a Second Amendment to the Loan
      Agreement (the “Amendment”) with the Borrowers, Plainfield, as the Lender and
      Administrative Agent and the other credit parties thereto. The Amendment amends
      the Loan Agreement and certain related documents (together with the Loan
      Agreement, the “Loan Documents”).





Pursuant
      to the terms of the Amendment, available borrowings under the Loan Agreement
      were increased by $17,346,939, such that the maximum aggregate principal amount
      of loans available under the Loan Agreement is $37,346,939. Prior to the
      execution of the Amendment, the Company had borrowed $20,000,000 under the
      Loan
      Agreement. Under the Loan Agreement, our Company borrowed an additional
      $4,413,265 on April 18, 2008, an additional $4,120,746 on April 28, 2008, an
      additional $3,437,075 on May 7, 2008, and an additional $5,375,853 on May 19,
      2008.


22





Also,
      pursuant to the Amendment, interest under the Loan Agreement from and including
      March 12, 2008 to but excluding October 1, 2008, shall accrue and be due and
      payable in four equal installments to be paid on October 1, 2008, November
      1,
      2008, December 1, 2008 and January 1, 2009.





Obligations
      under the Loan Agreement are secured by liens on substantially all of the assets
      of our Company, the Borrowers and each of the Borrowers’ subsidiaries. However,
      pursuant to the Amendment, Plainfield agreed to release any liens or security
      interests on inventory (including raw materials, finished product, byproducts
      and inventory in process) and accounts receivable and the proceeds therefrom
      of
      the Borrowers.





Under
      the
      terms of the Amendment, our Company and the Borrowers agreed to (1) implement
      a
      trust arrangement with respect to the Collateral (as defined in the Loan
      Agreement) within 120 days of the effective date of the Amendment, (2) if
      requested by Plainfield and/or the Purchaser, recapitalize the debt and equity
      structure of the Borrowers and the other Credit Parties (as defined in the
      Loan
      Agreement) in order to cause the reduction of the amount outstanding under
      the
      Convertible Notes (as defined in the Loan Agreement), including, if requested
      by
      Plainfield, any collateral secured pursuant to the Convertible Note Documents
      (as defined in the Loan Agreement) and/or the Amendment) and an increase in
      the
      amount outstanding under the Loans in a manner satisfactory to Plainfield within
      90 days of such request, (3) if requested by Plainfield, have our Company issue
      warrants to Plainfield to purchase an amount of shares of our Company’s common
      stock in an amount when exercised equal to $17,346,939 divided by an exercise
      price per share of our Company’s common stock to be determined but no greater
      than $0.30 (the “Warrant Issuance”) and in connection with the Warrant Issuance
      there will be grants of certain equity to management based on performance
      measures to be mutually agreed upon by our Company and Plainfield within 90
      days
      of such request, and (4) amend our Company’s articles of incorporation to
      increase its authorized common stock in an amount sufficient to support the
      issuance of the common stock underlying the Warrant Issuance (the “Stock
      Authorization Amendment”) within 90 days of such request (or 120 days if the
      Securities and Exchange Commission reviews the preliminary proxy filed in
      connection therewith).





Upon
      the
      closing of the Amendment, Plainfield and its affiliates own (1) 11,650,000
      shares of our Company’s common stock; (2) warrants exercisable into 59,227,517
      shares of our Company’s common stock at an exercise price of approximately $0.30
      per share and (3) $15,610,000 aggregate principal amount of notes convertible
      into 52,033,333 shares of our Company’s common stock at a conversion price of
      $0.30. If the Warrant Issuance were completed, Plainfield and its affiliates
      would also own warrants to purchase an amount of shares of our Company’s common
      stock equal to $17,346,939 at a maximum conversion price of $0.30, or a minimum
      of 57,823,130 shares. Plainfield is the sole lender and administrative agent
      under the Loan Agreement. In addition, two of our Company’s five current
      directors, including the Chairman of the Board, are affiliates of Plainfield
      and
      Plainfield has the right to designate up to a total of three directors to our
      Company’s Board of Directors, which we have agreed will consist of no more than
      six directors.





*Convertible
      Debt*





On
      September 12, 2007, our Company entered into a securities purchase agreement
      (the “Purchase Agreement”), with Plainfield
      Special Situations Master Fund Limited (“PSSM”) and Plainfield Peru I LLC
      (“LLCI”) and Plainfield Peru II LLC (“LLC II” and together with LLCI,
“Plainfield”) ,
      pursuant to which the Company agreed to sell to the Plainfield (1) 11,000,000
      shares of the Company’s common stock (the “Shares”), (2) $10,000,000 aggregate
      principal amount of our 10%/12% senior convertible PIK election notes due
      September 12, 2012, (the “Notes”), and (3) warrants (the “Warrants,” and,
      together with the Shares and the Notes, the “Securities”) to purchase up to
      56,938,245 shares of our Company’s common stock. The Notes are convertible into
      16,666,667 shares of our Company’s common stock at the option of the holder of
      Notes at any time after November 19, 2007, the date when we obtained stockholder
      approval to increase the number of authorized shares of common stock of our
      Company from 93,750,000 to a number sufficient to support the issuance of the
      common stock underlying the Notes and the Warrants, and on or prior to September
      12, 2012, at a conversion price of $0.60 per share. The conversion price is
      subject to adjustment in accordance with the terms of the Purchase Agreement.
      Our Company will pay interest on the Notes semi-annually in arrears on March
      15
      and September 15 of each year, commencing March 15, 2008. On March 15, 2008,
      we
      issued a $610,000 aggregate principal amount of PIK Interest Notes. Subject
      to
      the conversion rights set forth below, we are obligated to pay 100% of the
      principal amount of the Notes, plus accrued and unpaid interest, in cash on
      September 12, 2012 (the “Maturity Date”), provided, however, that our Company
      may, at its option, may elect to pay interest on the Notes (i) entirely in
      cash,
      or (ii) entirely by issuing additional Notes with an effective interest rate
      of
      12% (“PIK Interest”). The first payment of interest shall be paid in PIK
      Interest. The Notes are senior unsecured obligations of our Company and rank
      equally in right of payment to our future senior indebtedness. The Notes also
      restrict us and our subsidiaries from incurring indebtedness or other
      obligations, including creating liens, merging, selling assets, making
      dividends, distributions or investments, entering into transactions with
      affiliates, making capital expenditures, modifying charter documents and issuing
      capital stock in the future, in each case subject to certain exceptions.
      Furthermore, our Company agreed to take all necessary actions to cause Erich
      Reehl to be elected as a director of the board of directors or our
      Company.


23





On
      March
      26, 2008, we entered into a first amendment to the Purchase Agreement (the
      “Amended Purchase Agreement”) with Plainfield. The Amended Purchase Agreement
      amends the Purchase Agreement, pursuant to which the Company agreed to sell
      to
      Plainfield (i) the Shares, (ii) $10,000,000 aggregate principal amount of its
      10%/12% senior convertible PIK election notes due September 12, 2012 (the
“Original Notes”), and (iii) the Warrants to purchase up to 56,938,245 shares of
      common stock. Pursuant to the Amended Purchase Agreement, our Company agreed
      to
      sell to Plainfield $5,000,000 aggregate principal amount of its 10%/12% senior
      convertible PIK election notes due September 12, 2012, (the “Additional Notes”,
      and, together with the Original Notes, the “Notes”). The terms of the Additional
      Notes are substantially the same as the Original Notes except for the conversion
      price as described below.





The
      Additional Notes are convertible into 16,666,667 shares of common stock at
      the
      option of the holder of Additional Notes at any time after the Amendment Date
      and on or prior to September 12, 2012, at a conversion price of $0.30 per share.
      The conversion price is subject to adjustment in accordance with the terms
      of
      the Amended Purchase Agreement. Concurrent with the issuance of the Additional
      Notes, pursuant to the terms of the Amended Purchase Agreement, the conversion
      price of the Original Notes and $610,000 aggregate principal amount of PIK
      Interest Notes issued on March 15, 2008 as payment of interest on the Original
      Notes, was adjusted to $0.30.





We
      will
      pay interest on the Additional Notes semi-annually in arrears on March 15 and
      September 15 of each year, commencing September 15, 2008. Subject to the
      conversion rights set forth below, our Company is obligated to pay 100% of
      the
      principal amount of the Additional Notes, plus accrued and unpaid interest,
      in
      cash on September 12, 2012 (the “Maturity Date”), provided, however, that our
      Company may, at its option, may elect to pay interest on the Additional Notes
      (i) entirely in cash, or (ii) entirely by issuing additional Notes with an
      effective interest rate of 12% (“PIK Interest Notes”). The first payment of
      interest shall be paid in PIK Interest Notes.





The
      Additional Notes are senior unsecured obligations of our Company and rank
      equally in right of payment to our Company’s future senior indebtedness. The
      Additional Notes also restrict our Company and its subsidiaries from incurring
      indebtedness or other obligations, including creating liens, merging, selling
      assets, making dividends, distributions or investments, entering into
      transactions with affiliates, making capital expenditures, modifying charter
      documents and issuing capital stock in the future, in each case subject to
      certain exceptions.





If
      there
      is an event of default on the Additional Notes, the principal amount of the
      Additional Notes, plus accrued and unpaid interest may be declared immediately
      due and payable, subject to certain conditions set forth in the Additional
      Notes. These amounts automatically become due and payable in the case of certain
      types of bankruptcy or insolvency events involving our Company. It is an event
      of default under the Additional Notes if (i) our Company fails to pay accrued
      interest, principal amount or another amount with respect to the Notes when
      due;
      (ii) certain events of bankruptcy, insolvency or reorganization with respect
      to
      our Company specified in the Notes occur; (iii) our Company fails to pay when
      due any other indebtedness in excess of $100,000; (iv) any of the Transaction
      Documents (as defined in the Amended Purchase Agreement) shall cease to be
      in
      full force and effect; (v) our Company fails to make the payments on the
      Additional Notes required upon a Change of Control (as defined in the Purchase
      Agreement); (vi) certain judgments or decrees shall be entered against us or
      any
      of our subsidiaries in an amount exceeding $100,000; (vii) our Company defaults
      in the due performance or observance by it of any term, covenant or agreement
      contained in the Purchase Agreement; or (viii) any representation, warranty
      or
      statement made or deemed made by our Company in connection with the transaction
      shall prove to be untrue in any material respect on the date as of which made
      or
      deemed made.


24





Our
      Company also agreed to grant to Plainfield, within 90 days of the Additional
      Notes closing date (as defined in the Amended Purchase Agreement), security
      interests in such assets and Capital Stock of our Company’s Subsidiaries (as
      defined in the Purchase Agreement) as may be requested from time to time by
      Plainfield. Failure to grant such interests shall give rise to an immediate
      Event of Default pursuant to the Amended Purchase Agreement and the Loan
      Agreement.





***Results
      of Operations***





Consulting
      fees were $809,670 for the three months ended March 31, 2008 compared to
      $527,855 for the three months ended March 31, 2007 for an increase of $281,815,
      or 53.4%. The increase in consulting fees is due to the construction of the
      Callao Port Facility and Interpacific Facility.





General
      and administrative expenses were $678,883 for the three months ended March
      31,
      2008 compared to $137,677 for the three months ended March 31, 2007 for an
      increase of $541,206, or 393.1%. The increase is due to increase costs as the
      Company is building internal infrastructure to support the operation of the
      plants that are being constructed.





Professional
      fees were $459,527 for the three months ended March 31, 2008 compared to
      $100,098 for the three months ended March 31, 2007 for an increase of $359,429,
      or 359.1%. The increase in fees is due to the increase in legal fees and
      accounting fees. The increase in legal fees is due to the financing agreements
      and acquisitions that we entered into since March 31, 2007.





Wages
      were $1,020,101 for the three months ended March 31, 2008 compared to $205,587
      for the three months ended March 31, 2007 for an increase of $814,514 , or
      396.2%. The increase in fees is due to the increase in employees as we continue
      to hire people as we continue to grow. Included in the wages is $632,358 of
      stock compensation expense that is being amortized over the vesting period
      of
      options that have been granted.





Interest
      and financing costs were $977,626 for the three months ended March 31, 2008
      compared to $0 for the three months ended March 31, 2007 for an increase of
      $977,626. The increase is directly related to the additional financing that
      we
      have received to construct our biodiesel plants. The interest and financing
      costs include both interest on the convertible debt and the fair market value
      of
      warrants issued as part of the financing agreements.





Amortization
      of debt discounts and debt issuance costs were $805,845 for the three months
      ended March 31, 2008 compared to $0 for the three months ended March 31, 2007,
      for an increase of $805,845. The increase is due to the costs associated with
      obtaining financing in order to construct the biodiesel plants. Included in
      the
      expense are amount related to debt issuance costs paid to third parties in
      order
      to secure financing as well as discounts on the debt related to beneficial
      conversion features and warrants associated with the debt.





Foreign
      currency transaction gains were $2,324,379 for the three months ended March
      31,
      2008 compared to $0 for the three months ended March 31, 2007, for an increase
      of $2,324,379. The increase is due to the line of credit which was denominated
      and payable in U.S. dollars. Because the U.S. dollar has declined in
      value compared to the Peruvian Soles, we need fewer Peruvian Soles to repay
      the
      line of credit.





**Organizational
      and Financing Costs**





We
      estimate that our organization and financing costs for the next twelve month
      period will be approximately $4,000,000. These costs will primarily consist
      of
      legal, administrative, compliance, and other expenses.





**Capital
      Equipment**





Our
      capital expenditures for the next twelve month period are expected to be
      approximately $5 million, which will be expended in the final stage of
      construction of our Callao Port Facility. We estimate such capital
      expenditures will be during this period in additional tanks and agricultural
      integration; however this financing has not been secured yet.


25





**Growth
      Initiatives: Research and Due Diligence**





We
      estimate that our research and due diligence costs for the next twelve month
      period will be approximately $2,000,000. These costs will primarily consist
      of
      feasibility studies to start our own feedstock plantations and facilities,
      in
      order to be self sufficient.





**Contingency**





We
      estimate that our contingency costs for the next twelve month period will be
      approximately $250,000. These costs will primarily consist of unexpected
      expenses due to evolving regulations in the industry.





**Employees**





We
      estimate that our employee and consultant compensation expenses for the next
      twelve month period will be approximately $6,000,000. These costs will primarily
      consist of wages and consulting contracts for hired professionals.





There
      are
      currently 30 employees pre-construction and we expect to have 70 employees
      post-construction of our processing plants. The post-construction employees
      will
      consist of plant operators and quality control personnel.





**Trends
      and Uncertainties**





Our
      ability to generate revenues in the future is dependent on whether we
      successfully complete construction of our Callao Port Facility and
      it
      begins operating, or until we begin production at the Interpacific Facility,
      which we are targeting to begin in June 2008. In
      addition to the aggregate of approximately $52.3 million of financing we
      received from Plainfield and the Purchaser since September 12, 2007, we expect
      that we will need to raise an additional $50.0 million as working capital in
      order to operate the Callao Port Facility.





There
      are
      no assurances that we will be able to obtain funds required for our continued
      operation. There can be no assurance that additional financing will be available
      to us when needed or, if available, that it can be obtained on commercially
      reasonable terms. If we are not able to obtain additional financing on a timely
      basis, we will not be able to meet our other obligations as they become due
      and
      we will be forced to scale down or perhaps even cease the operation of our
      business.





There
      is
      substantial doubt about our ability to continue as a going concern as the
      continuation of our business is dependent upon obtaining further long-term
      financing, completion of our proposed Callao Port Facility and Interpacific
      Facility and successful and sufficient market acceptance of our products once
      developed and, finally, achieving a profitable level of operations. The issuance
      of additional equity securities by us could result in a significant dilution
      in
      the equity interests of our current stockholders. Obtaining commercial loans,
      assuming those loans would be available, will increase our liabilities and
      future cash commitments.





***Liquidity
      and Capital Resources***





As
      of
      March 31, 2008, we had $5,009,625 in cash and cash equivalents. In addition,
      for
      the three months ended March 31, 2008, our cash provided by operating activities
      was $1,033,068 compared to our cashed used in operating activities of $549,030
      for the three months ended March 31, 2007. The cash provided by operating
      activities was comprised primarily of our net loss of $2,444,772 and our
      foreign currency transaction gain of $2,324,379 offset by an increase in
      accounts payable and accrued expenses of 3,311,294 and non cash expenses of
      $2,162,642 relating to primarily to warrants, options, and amortization of
      debt
      discounts and issuance costs. For the three months ended March 31, 2007, the
      cash used in operating activities of $549,030 was primarily due to our net
      loss
      of $971,217 offset by an increase in accounts payable and accrued expenses
      of
      $451,966





During
      the three months ended March 31, 2008 and 2007, we used $8,397,561 and $678,906
      in investing activities, respectively. For the three months ended March 31,
      2008
      and 2007, we used $7,074,246 and $0, respectively for the purchase of property,
      plant, and equipment. Our VAT credit increased by $1,323,315 and $129,277 for
      the three months ended March 31, 2008 and 2007, respectively.


26





During
      the three months ended March 31, 2008 and 2007, cash provided by financing
      activities was $9,240,376 and $29,133, respectively. During the three months
      ended March 31, 2008, we received $5,000,000 from the issuance of convertible
      debt and $3,600,000 from additional draw downs on our line of
      credit.





We
      began
      construction on our planned 52.5 million gallon biodiesel production plant
      at a
      site near the Callao Port in Lima, Peru in June 2007. We
      expect
      to complete construction of our Callao Port Facility in the second quarter
      of
      2008 and to commence full production capabilities by mid-2008.





In
      addition, we expect to complete testing of the Interpacific Facility in May
      2008
      and to commence ramp up production at an expected 25 percent capability in
      June
      and reach full production capabilities by July 2008.





In
      addition to the $30,000,000 financing completed on September 12, 2007, and
      the
      additional approximately $22.3 million obtained under amendments to the
      $30,000,000 financing, we will need additional financing of approximately $50
      million as working capital needed to operate our Callao Port Facility. The
      financing needed for our Interpacific facility has already been secured, both
      capital expenditures and working capital.





There
      are
      no assurances that we will be able to obtain further funds required for our
      continued operations. We intend to pursue various financing alternatives to
      meet
      our immediate and long-term financial requirements. There can be no assurance
      that additional financing will be available to us when needed or, if available,
      that it can be obtained on commercially reasonable terms. If we are not able
      to
      obtain additional financing on a timely basis, we will be unable to conduct
      our
      operations as planned, and we will not be able to meet our other obligations
      as
      they become due. In such event, we will be forced to scale down or perhaps
      even
      cease our operations.





**Going
      Concern**





We
      have
      suffered recurring losses from operations. The continuation of our Company
      as a
      going concern is dependent upon our Company attaining and maintaining profitable
      operations and raising additional capital. The financial statements do not
      include any adjustment relating to the recovery and classification of recorded
      asset amounts or the amount and classification of liabilities that might be
      necessary should our Company discontinue operations.





Due
      to
      the uncertainty of our ability to meet our current operating expenses and the
      capital expenses noted above, in their report on the annual financial statements
      for the year ended December 31, 2007, our independent auditors included an
      explanatory paragraph regarding concerns about our ability to continue as a
      going concern. Our financial statements contain additional note disclosures
      describing the circumstances that lead to this disclosure by our independent
      auditors





The
      continuation of our business is dependent upon us raising additional financial
      support. We anticipate that we will need an additional $8.9 million in financing
      in order to complete the Callao Port Facility and an additional $400,000 to
      complete testing of the Interpacific Facility. In addition, we will require
      working capital of approximately $50 million to fund the operation of the Callao
      Port Facility, which includes amounts for raw materials and related taxes,
      and
      approximately $4 million to fund the raw materials for the operation of the
      Interpacific Facility. There can be no assurance that we will be able to secure
      financing at terms that are favorable to us or at all. The issuance of
      additional equity securities by us could result in a significant dilution in
      the
      equity interests of our current stockholders. Obtaining commercial loans,
      assuming those loans would be available, will increase our liabilities and
      future cash commitments.





***Off-Balance
      Sheet Arrangements***





We
      do not
      maintain any off-balance sheet arrangements, transactions, obligations or other
      relationships with unconsolidated entities that would be expected to have a
      material current or future effect upon our financial condition or results of
      operations.


27


***Critical
      Accounting Policies***





**Basis
      of Presentation**





The
      consolidated financial statements include the accounts of our company and
      its
      99.99% owned subsidiaries, Pure Biofuels del Peru S.A.C. and Palma Industrial
      S.A.C., Palma Industrial’s 99.9% owned subsidiaries Aceite Pucallpa S.A.C.,
      Palmas de Oriente S.A.C., Palmas Tropicales, S.A.C., Pucapalma S.A.C. and
      Ecopalma, S.A.C. and Pure Biofuels del Peru’s 95% owned subsidiary, Pure
      Biocarburantes, S.A. All
      intercompany transactions and balances have been eliminated. We are a
      development stage company as defined by Statement of Financial Accounting
      Standard (“SFAS”) No. 7, “Accounting and Reporting for Development Stage
      Enterprises.” Our fiscal year end is December 31.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Significant areas requiring the use of management estimates relate to the
      determination of depreciation rates for equipment and future tax rates used
      to
      determine future income taxes. Actual results could differ from these
      estimates.





**Financial
      Instruments/Concentrations**





The
      fair
      value of our financial instruments which include cash, accounts payable and
      accrued liabilities, and due to related parties were estimated to approximate
      their carrying value due to the immediate or relatively short maturity of these
      instruments. The fair value of long term debt approximates its carrying value.
      Our operations are in Peru and virtually all of our assets and liabilities
      are
      giving rise to market risks from changes in foreign currency rates. The
      financial risk is the risk to our operations that arise from fluctuations in
      foreign exchange rates and the degree of volatility of these rates. Currently,
      we do not use derivative instruments to reduce our exposure to foreign currency
      risk.





**Property,
      Plant and Equipment**





Property,
      plant and equipment are recorded at cost. The Company provides for depreciation
      at the following annual rates:





Computer
                Equipment
            
            
            25% straight lineFurniture
                & Miscellaneous
            
            
            10% straight lineBuilding
                Improvements
            
            
            10% straight line





**Long-lived
      Assets**





In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets”, the carrying value of intangible assets and other long-lived
      assets is reviewed on a regular basis for the existence of facts or
      circumstances that may suggest impairment. We recognize impairment when the
      sum
      of the expected undiscounted future cash flows is less than the carrying amount
      of the asset. Impairment losses, if any, are measured as the excess of the
      carrying amount of the asset over its estimated fair value.





**Foreign
      Currency Translation**





Our
      functional and reporting currency is the U.S. dollar. Monetary assets and
      liabilities denominated in foreign currencies are translated using the exchange
      rate prevailing at the balance sheet date. Gains and losses arising on
      translation or settlement of foreign currency denominated transactions or
      balances are included in the determination of income. Foreign currency
      transactions are primarily undertaken in Peruvian Nuevos Soles and Argentinean
      Pesos. We have not, to the date of these financials statements, entered into
      derivative instruments to offset the impact of foreign currency
      fluctuations.


28





**Basic
      and Diluted Net Loss per Share**





We
      compute net loss per share in accordance with SFAS No. 128, “Earnings per Share”
which requires presentation of both basic and diluted earnings per share (EPS)
      on the face of the statement of operations. Basic EPS is computed by dividing
      net income (loss) available to common shareholders (numerator) by the weighted
      average number of common shares outstanding (denominator) during the period.
      Diluted EPS gives effect to all dilutive potential common shares outstanding
      during the period including stock options, using the treasury stock method,
      and
      convertible preferred stock, using the if-converted method. In computing diluted
      EPS, the average stock price for the period is used in determining the number
      of
      shares assumed to be purchased from the exercise of stock options or warrants.
      Diluted EPS excludes all potentially dilutive common shares if their effect
      is
      anti-dilutive.





**Stock-based
      Compensation**





We
      record
      stock-based compensation in accordance with SFAS No. 123R “Share Based
      Payments”, using the fair value method. On November 1, 2006, we approved a stock
      option plan (the “Plan”) that enables us to grant options to employees,
      including our officers and directors, and our subsidiaries and other individuals
      who contribute to our success. Our board of directors will administer the Plan
      whereby it may, from time to time, grant up to a total of 21,000,000 stock
      options. The stock options granted under the Plan shall vest and become
      exercisable at such time and such terms as our board of directors may determine
      at the time of the grant of the options. On April 27, 2007, our board of
      directors amended and restated the Plan. This plan was approved by our security
      holders on November 19, 2007.





The
      Company issued 14,000,000 stock options to employees and directors during the
      second quarter of 2007. The
      fair
      values of employee stock options are estimated for the calculation of the pro
      forma adjustments in the above table at the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions: expected volatility of 92%; average risk-free interest rate of
      5.0%; expected life of 5.0 years; no expected dividend yield; and amortized
      over
      the vesting period of three years. We recognized $632,358 in share-based compensation expense for the three months
      ended March 31, 2008.





***Recent
      Accounting Pronouncements***





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting
      enterprise accounts for the acquisition of a business. SFAS No. 141
      (Revised 2007) requires an acquiring entity to recognize all the assets acquired
      and liabilities assumed in a transaction at the acquisition-date fair value,
      with limited exceptions, and applies to a wider range of transactions or events.
      SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or
      after December 15, 2008 and early adoption and retrospective application is
      prohibited.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current conditions, the Company does not
      expect the adoption of SFAS 160 to have a significant impact on its results
      of
      operations or financial position.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”. This Statement permits entities to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS No. 159 is effective as of the beginning
      of an entity’s first fiscal year that begins after November 15, 2007. The
      Company adopted SFAS No. 159 on January 1, 2008. The Company chose not to elect
      the option to measure the fair value of eligible financial assets and
      liabilities.




In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed.
      Management is currently evaluating the effect of this pronouncement on financial
      statements.


29





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”),
      which changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The Company has not
      determined the effect of the application of SFAS 161 on its consolidated
      financial statements.





**Item
      4. Controls and Procedures**




Evaluation
      of Disclosure Controls and Procedures




As
      of
      March 31, 2008, we carried out an evaluation of the effectiveness of the design
      and operation of our “disclosure controls and procedures” (as defined in the
      Exchange Act Rules 13a-15(e) and 15d-15(e)) under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      our
      Chief Financial Officer.  Based upon that evaluation, we concluded that our
      disclosure controls and procedures are effective.




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms.  Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in our reports filed under the Exchange Act is
      accumulated and communicated to management to allow timely decisions regarding
      required disclosure.




During
      the quarter ended March 31, 2008, there were no changes in our internal control
      over financial reporting that have materially affected our internal control
      over
      financial reporting.





**PART
      II - OTHER INFORMATION**




**Item
      1A. Risk Factors**




Much
      of
      the information included in this quarterly report includes or is based upon
      estimates, projections or other “forward looking statements”. Such forward
      looking statements include any projections or estimates made by us and our
      management in connection with our business operations. While these
      forward-looking statements, and any assumptions upon which they are based,
      are
      made in good faith and reflect our current judgment regarding the direction
      of
      our business, actual results will almost always vary, sometimes materially,
      from
      any estimates, predictions, projections, assumptions or other future performance
      suggested herein.




Such
      estimates, projections or other “forward looking statements” involve various
      risks and uncertainties as outlined below. We caution the reader that important
      factors in some cases have affected and, in the future, could materially affect
      actual results and cause actual results to differ materially from the results
      expressed in any such estimates, projections or other “forward looking
      statements”.




Our
      common shares are considered speculative during the development of our new
      business operations. Prospective investors should consider carefully the risk
      factors set out in Item 1 from our annual report on Form 10-K for the year
      ended
      December 31, 2007, filed April 15, 2008.


30


**Item
      6. Exhibits** ******




**Exhibit No.**
            
            **Description
              of Exhibit**3.1
            
            Amended
                and Restated Articles of Incorporation (incorporated by reference
                from the
                Current Report on Form 10-K filed on April 15, 2008 (Commission File
                No.
                000-50903))3.2
            
            Amended
                and Restated Bylaws (incorporated by reference from the Current Report
                on
                Form 8-K filed on September 18, 2007 (Commission File No.
                000-50903))3.3
            
            First
                Amendment to Amended and Restated Bylaws of Pure Biofuels Corp.,
                dated as
                of March 26, 2008 (incorporated by reference from the Current Report
                on
                Form 8-K filed on April 1, 2008 (Commission File No.
                000-50903))4.1
            
            10%/12%
                Senior Convertible PIK Election Note, dated September 12, 2007, issued
                by
                Pure Biofuels Corp. to Plainfield Peru I LLC for the principal sum
                of
                $10,000,000 (incorporated by reference from our Quarterly Report
                on Form
                10-QSB filed November 14, 2007 (Commission File No.
                000-50903))4.2
            
            10%/12%
                Senior Convertible PIK Election Note, dated March 26, 2008, issued
                by Pure
                Biofuels Corp. to Plainfield Peru I LLC for the principal sum of
                $5,000,000.10.1
            
            Securities
                Purchase Agreement, dated September 12, 2007, by and among Pure Biofuels
                Corp., Plainfield Special Situations Mater Fund Limited, Plainfield
                Peru I
                LLC and Plainfield Peru II LLC (incorporated by reference from our
                Quarterly Report on Form 10-QSB filed November 14, 2007 (Commission
                File
                No. 000-50903))10.2
            
            First
                Amendment to Securities Purchase Agreement, dated as of March 26,
                2008, by
                and among Pure Biofuels Corp., Plainfield Peru I LLC and Plainfield
                Peru
                II LLC (incorporated by reference from the Current Report on Form
                8-K
                filed on April 1, 2008 (Commission File No. 000-50903))10.3
            
            Amended
                and Restated Stockholders Agreement, dated as of March 26, 2008,
                by and
                among Pure Biofuels Corp., Luis Goyzueta, Plainfield Peru I LLC and
                Plainfield Peru II LLC (incorporated by reference from the Current
                Report
                on Form 8-K filed on April 1, 2008 (Commission File No.
                000-50903))10.4
            
            Loan
                Agreement, dated September 12, 2007, by and among Pure Biofuels Corp.,
                Pure Biofuels del Peru S.A.C., Palma Industrial S.A.C., Lenders and
                Plainfield Special Situations Master Fund Limited (incorporated by
                reference from our Quarterly Report on Form 10-QSB filed November
                14, 2007
                (Commission File No. 000-50903))10.5
            
            Note
                dated September 12, 2007, issued by Palma Industrial S.A.C. to Plainfield
                Special Situations Master Fund Limited for the principal sum of
                $20,000,000 (incorporated by reference from our Quarterly Report
                on Form
                10-QSB filed November 14, 2007 (Commission File No.
                000-50903))10.6
            
            Note
                dated September 12, 2007 issued by Pure Biofuels del Peru S.A.C.
                to
                Plainfield Special Situations Master Fund Limited for the principal
                sum of
                $20,000,000 (incorporated by reference from our Quarterly Report
                on Form
                10-QSB filed November 14, 2007 (Commission File No.
                000-50903))10.7
            
            Agreement,
                dated as of March 13, 2008, by Pure Biofuels Corp., Pure Biofuels
                del Peru
                S.A.C. and Palma Industrial S.A.C. (incorporated by reference from
                the
                Current Report on Form 8-K filed on March 19, 2008 (Commission File
                No.
                000-50903))10.8
            
            Second
                Amendment to Loan Documents, dated as of April 18, 2008, by and among
                Pure
                Biofuels Corp., Pure Biofuels del Peru S.A.C., Palma Industrial S.A.C.,Plainfield
                Special Situations Master Fund Limited and the other Credit Parties
                thereto(incorporated by reference from the Current Report on Form 8-K filed
                on
                April 24, 2008 (Commission File No.
                000-50903))


31





10.9
            
            Note
                dated April 18, 2008, issued by Palma Industrial S.A.C. to Plainfield
                Special Situations Master Fund Limited for the principal sum of
                $17,346,93910.10
            
            Note
                dated April 18, 2008, issued by Pure Biofuels del Peru S.A.C. to
                Plainfield Special Situations Master Fund Limited for the principal
                sum of
                $17,346,93910.11
            
            Agreement
                and Plan of Merger, dated as of December 4, 2007, by and among Pure
                Biofuels Corp., Pure Biofuels del Peru S.A.C., Interpacific Oil S.A.C.,
                and certain Target Stockholders identified therein (incorporated
                by
                reference from the Current Report on Form 8-K filed on December 10,
                2007
                (Commission File No. 000-50903))10.12
            
            Amendment
                No. 1 to Agreement and Plan of Merger, dated as of January 23, 2007,
                by
                and among Pure Biofuels Corp., Pure Biofuels del Peru S.A.C., Interpacific
                Oil S.A.C., and certain Target Stockholders identified therein
                (incorporated by reference from the Current Report on Form 8-K filed
                on
                January 25, 2008 (Commission File No. 000-50903))10.13
            
            Complete
                Settlement and Release Agreement, dated as of January 18, 2008, by
                and
                among Wharton Capital Partners, Ltd. and Wharton Capital Markets,
                LLC and
                Pure Biofuels Corp. (incorporated by reference from the Current Report
                on
                Form 8-K filed on January 25, 2008 (Commission File No.
                000-50903))31.1
            
            Certification
                of the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            
            Certification
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32


**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.
  **PURE
                  BIOFUELS CORP.**Date:
                  May 20, 2008
              By:
              /s/
                  Luis GoyzuetaLuis
                  Goyzueta,
                Chief
                  Executive Officer and DirectorDate:
                  May 20, 2008
              By:
              /s/
                  Gustavo GoyzuetaGustavo
                  Goyzueta,
                Chief
                  Financial Officer
  33