UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-Q**




(Mark
      One)


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


For
      the
      quarterly period ended September
      30, 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.)





**701
      Brazos Street, Suite 1050**


**Austin,
      TX 78707**


(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 (Do not check if a
                smaller reporting company)
            Smaller
                reporting company x




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




As
      of
      November 11, 2008, the Company had 172,374,699 outstanding shares of common
      stock, par value $0.001.








TABLE
      OF
      CONTENTS





Part
                I – FINANCIAL INFORMATION
            
            
            3Item
                1. Financial Statements
            
            
            3Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            
            
            35Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            
            51Item
                4. Controls and Procedures
            
            
            51PART
                II - OTHER INFORMATION
            
            
            51Item
                6. Exhibits
            
            
            51SIGNATURES
            
            
            52








**Part
        I** **–
        FINANCIAL INFORMATION**
 **Item
        1. Financial Statements**
  **PURE
        BIOFUELS CORP.**
 (A
        Development Stage Company)
 **CONSOLIDATED
        BALANCE SHEETS**
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007****ASSETS**
              
              (unaudited)CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              123,951
              
              $
              2,991,104Restricted
                  cash
              
              
              141,905
              
              
              740,376Other
                  receivables
              
              
              89,153
              
              
              325,737Inventory,
                  net
              
              
              1,739,256
              
              
              -Prepaid
                  expenses and other assets
              
              
              4,174,454
              
              
              516,406Due
                  from related parties
              
              
              124
              
              
              2,907TOTAL
                  CURRENT ASSETS
              
              
              6,268,843
              
              
              4,576,530VAT
                  RECEIVABLE
              
              
              6,838,175
              
              
              2,613,496PREPAYMENT
                  FOR EQUIPMENT PURCHASE
              
              
              -
              
              
              174,276PROPERTY
                  PLANT AND EQUIPMENT, net
              
              
              36,790,185
              
              
              15,842,898DEBT
                  ISSUANCE COSTS, net
              
              
              4,246,313
              
              
              3,926,340GOODWILL
              
              
              1,346,278
              
              
              1,337,288DEPOSIT
                  FOR ACQUISITION OF IMMOBILIARIA ALPHA
              
              
              -
              
              
              199,867TOTAL
                  ASSETS
              
              $
              55,489,794
              
              $
              28,670,695**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**CURRENT
                  LIABILITIESAccounts
                  payable and accrued expenses
              
              $
              8,424,569
              
              $
              1,918,980Due
                  to prior sharholders of Interpacific Oil
              
              
              -
              
              
              996,667Due
                  to related parties
              
              
              208,638
              
              
              208,638Convertible
                  promissory note
              
              
              -
              
              
              60,000TOTAL
                  CURRENT LIABILITIES
              
              
              8,633,207
              
              
              3,184,285CONVERTIBLE
                  NOTES, net of debt discount of $13,640,189 and $9,397,920 as of
                  September
                  30, 2008 and December 31, 2007, respectively
              
              
              2,886,411
              
              
              602,080LINE
                  OF CREDIT
              
              
              37,347,091
              
              
              16,400,000TOTAL
                  LIABILITIES
              
              
              48,866,709
              
              
              20,186,365MINORITY
                  INTEREST
              
              
              -
              
              
              -COMMITMENTS
                  AND CONTINGENCIES
              
              
              -
              
              
              -STOCKHOLDERS'
                  EQUITYPreferred
                  stock; $0.001 par value; 1,000,000 shares authorized, no shares
                  issued
              
              
              -
              
              
              -Common
                  stock; $0.001 par value; 250,000,000 shares authorized; 172,374,699
                  and
                  75,319,769 shares issued and outstanding as of September 30, 2008
                  and
                  December 31, 2007, respectively
              
              
              172,375
              
              
              75,320Additional
                  paid-in capital
              
              
              54,839,985
              
              
              30,487,037Accumulated
                  other comprehensive income (loss)
              
              
              116,338
              
              
              (199,791
              )Deficit
                  accumulated during the development stage
              
              
              (48,505,613
              )
              
              (21,878,236
              )TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              6,623,085
              
              
              8,484,330TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              55,489,794
              
              $
              28,670,695
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  3
  PURE
        BIOFUELS CORP.
 (A
        Development Stage Company)
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND**
 **FOR
        THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO SEPTEMBER 30,
        2008**
  **For the period****from May 10, 2006****Three Months Ended September 30,**
              
              **Nine Months Ended September 30,**
              
              **(Date of Inception)****2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **to September 30, 2008**(unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)REVENUE
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -COST
                  OF REVENUE
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -GROSS
                  PROFIT
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -OPERATING
                  EXPENSESConsulting
                  fees
              
              
              602,363
              
              
              967,451
              
              
              1,589,777
              
              
              1,982,212
              
              
              3,568,073General
                  and administrative
              
              
              2,512,602
              
              
              290,184
              
              
              3,597,038
              
              
              596,894
              
              
              5,048,171Professional
                  fees
              
              
              500,920
              
              
              761,759
              
              
              1,532,382
              
              
              1,285,141
              
              
              3,955,219Wages
              
              
              1,006,972
              
              
              972,530
              
              
              2,955,646
              
              
              3,793,500
              
              
              8,183,392TOTAL
                  OPERATING EXPENSES
              
              
              4,622,857
              
              
              2,991,924
              
              
              9,674,843
              
              
              7,657,747
              
              
              20,754,855LOSS
                  FROM OPERATIONS
              
              
              (4,622,857
              )
              
              (2,991,924
              )
              
              (9,674,843
              )
              
              (7,657,747
              )
              
              (20,754,855
              )OTHER
                  INCOME (EXPENSES):Interest
                  and financing costs
              
              
              (11,132,528
              )
              
              (10,593,099
              )
              
              (12,187,983
              )
              
              (10,665,996
              )
              
              (23,542,169
              )Increase
                  in accrued derivative liability
              
              
              -
              
              
              (15,492,252
              )
              
              -
              
              
              (15,492,252
              )
              
              4,624,623Other
              
              
              (126,404
              )
              
              448
              
              
              (283,430
              )
              
              (99
              )
              
              (295,565
              )Amortization
                  of debt discounts and debt issuance costs
              
              
              (1,198,575
              )
              
              (973,382
              )
              
              (3,155,987
              )
              
              (4,133,886
              )
              
              (8,008,206
              )Foreign
                  currency transaction loss
              
              
              (455,700
              )
              
              -
              
              
              (1,324,334
              )
              
              -
              
              
              (528,641
              )TOTAL
                  OTHER EXPENSE
              
              
              (12,913,207
              )
              
              (27,058,285
              )
              
              (16,951,734
              )
              
              (30,292,233
              )
              
              (27,749,958
              )LOSS
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              (17,536,064
              )
              
              (30,050,209
              )
              
              (26,626,577
              )
              
              (37,949,980
              )
              
              (48,504,813
              )PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              -
              
              
              800
              
              
              -
              
              
              800NET
                  LOSS
              
              $
              (17,536,064
              )
              $
              (30,050,209
              )
              $
              (26,627,377
              )
              $
              (37,949,980
              )
              $
              (48,505,613
              )OTHER
                  COMPREHENSIVE INCOME (LOSS):Foreign
                  currency translation adjustment
              
              
              304,750
              
              
              (6,796
              )
              
              316,129
              
              
              (4,711
              )
              
              116,338COMPREHENSIVE
                  LOSS
              
              $
              (17,231,314
              )
              $
              (30,057,005
              )
              $
              (26,311,248
              )
              $
              (37,954,691
              )
              $
              (48,389,275
              )NET
                  LOSS PER SHARE - BASIC AND DILUTED
              
              $
              (0.13
              )
              $
              (0.46
              )
              $
              (0.28
              )
              $
              (0.60
              )
              $
              (0.73
              )WEIGHTED
                  AVERAGE COMMON EQUIVALENT SHARES OUTSTANDING - BASIC AND
                  DILUTED
              
              
              134,443,562
              
              
              65,121,573
              
              
              96,525,314
              
              
              63,294,040
              
              
              66,599,541
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  4
  **PURE
        BIOFUELS CORP.**
 (A
        Development Stage Company)
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS' EQUITY**
 **FOR
        PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO SEPTEMBER 30,
        2008**
 (unaudited)
  **Deficit****Accumulated**
              
              **Accumulated****Additional**
              
              **Susbscriptions**
              
              **Other**
              
              **During the**
              
              **Total****Common Stock**
              
              **Paid-in**
              
              **Received**
              
              **Comprehensive**
              
              **Development**
              
              **Stockholders'****Shares**
              
              **Amount**
              
              **Capital**
              
              **In Advance**
              
              **Income**
              
              **Stage**
              
              **Equity****Balance,
                  May 10, 2006**
              
              
              **1,000**
              
              **$**
              **304**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **304**Adustment
                  for change in par value
              
              
              
              
              
              (303
              )
              
              303
              
              
              
              
              
              
              
              
              
              
              
              -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
                  conversion 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
              
              
              -
              
              
              -
              
              
              1,841,058
              
              
              -
              
              
              -
              
              
              -
              
              
              1,841,058Issuance
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              166,667Issuance
                  of common stock for cash, August 13, 2008 @ $0.35
              
              
              15,714,287
              
              
              15,714
              
              
              5,071,786
              
              
              -
              
              
              -
              
              
              -
              
              
              5,087,500Exchange
                  59,227,517 warrants for 78,033,765 shares of common stock
              
              
              78,033,765
              
              
              78,034
              
              
              9,089,016
              
              
              -
              
              
              -
              
              
              -
              
              
              9,167,050Exchange
                  1,408,164 warrants for 938,776 shares of common stock
              
              
              938,776
              
              
              939
              
              
              42,739
              
              
              -
              
              
              -
              
              
              -
              
              
              43,678Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              316,129
              
              
              -
              
              
              316,129Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (26,627,377
              )
              
              (26,627,377
              )**Balance,
                  September 30, 2008**
              
              
              **172,374,699**
              
              **$**
              **172,375**
              
              **$**
              **54,839,985**
              
              **$**
              **-**
              
              **$**
              **116,338**
              
              **$**
              **(48,505,613**
              **)**
              **$**
              **6,623,085**
 
 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 presented
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  5
  **PURE
        BIOFUELS CORP.**
 (A
        Development Stage Company)
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**
 **AND
        FOR THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO SEPTEMBER 30,
        2008**
  **For the period****Nine Months**
              
              
              **Nine Months**
              
              **from May 10, 2006****Ended**
              
              
              **Ended**
              
              **(date of inception)****September 30, 2008**
              
              
              **September 30, 2007**
              
              **to September 30, 2008**(unaudited)
              
              
              (unaudited)
              
              (unaudited)CASH
                  FLOW FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (26,627,377
              )
              
              $
              (37,949,980
              )
              $
              (48,505,613
              )Adjustment
                  to reconcile net loss to net cash used in operating
                  activities:Accrued
                  consulting fees
              
              
              -
              
              
              
              -
              
              
              97,500Depreciation
              
              
              61,795
              
              
              
              11,353
              
              
              107,429Change
                  in inventory reserve
              
              
              1,215,805
              
              
              
              -
              
              
              1,215,805Stock
                  compensation expense for options issued to employees
              
              
              1,841,058
              
              
              
              2,965,236
              
              
              5,438,652Fair
                  value of shares issued for services
              
              
              5,850
              
              
              
              130,095
              
              
              5,850Fair
                  value of shares issued for financing costs
              
              
              46,267
              
              
              
              390,219
              
              
              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
              
              
              
              41,697
              
              
              129,515Amortization
                  of debt discounts and debt issuance costs
              
              
              3,155,987
              
              
              
              4,133,886
              
              
              8,008,206Non-cash
                  financing costs
              
              
              9,210,728
              
              
              
              9,346,885
              
              
              18,966,363Change
                  in accrued derivative liability
              
              
              -
              
              
              
              15,492,252
              
              
              (4,624,623
              )Loss
                  on write off of deposit
              
              
              207,673
              
              
              
              
              
              
              207,673Non-cash
                  foreign currency transaction loss
              
              
              1,726,401
              
              
              
              -
              
              
              930,708Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              -
              
              
              
              (37,945
              )
              
              -Other
                  receivables
              
              
              462,994
              
              
              
              -
              
              
              182,941Inventory
              
              
              (3,010,930
              )
              
              
              -
              
              
              (3,010,930
              )Prepaid
                  expenses and other assets
              
              
              (3,805,810
              )
              
              
              (213,343
              )
              
              (4,025,655
              )Due
                  from related party
              
              
              2,901
              
              
              
              
              
              
              2,901Accounts
                  payable and accrued expenses
              
              
              6,189,686
              
              
              
              1,990,004
              
              
              7,279,078Due
                  to related party
              
              
              -
              
              
              
              -
              
              
              (140,646
              )Net
                  cash used in operating activities
              
              
              (8,655,526
              )
              
              
              (3,699,641
              )
              
              (16,669,774
              )CASH
                  FLOW FROM INVESTING ACTIVITIES:Acquisition
                  of Interpacific Oil S.A.C.
              
              
              -
              
              
              
              -
              
              
              (700,000
              )Change
                  in restricted cash
              
              
              (146,463
              )
              
              
              
              
              
              (146,463
              )Deposit
                  paid on acquisition of Immobiliaria Alpha
              
              
              -
              
              
              
              (1,000,000
              )
              
              (199,867
              )VAT
                  receivable
              
              
              (4,341,604
              )
              
              
              (1,413,849
              )
              
              (7,019,328
              )Net
                  cash acquired with acquisition
              
              
              -
              
              
              
              -
              
              
              1,825,805Prepayment
                  for purchase of equipment
              
              
              -
              
              
              
              -
              
              
              (174,276
              )Purchase
                  of propety, plant and equipment
              
              
              (19,525,157
              )
              
              
              (5,937,455
              )
              
              (33,747,291
              )Net
                  cash used in investing activities
              
              
              (24,013,224
              )
              
              
              (8,351,304
              )
              
              (40,161,420
              )CASH
                  FLOW FROM FINANCING ACTIVITIES:Due
                  to related parties, net
              
              
              -
              
              
              
              (22,881
              )
              
              313Proceeds
                  from subscriptions received in advance
              
              
              -
              
              
              
              -
              
              
              96,277Proceeds
                  from issuance of convertible debt
              
              
              5,000,000
              
              
              
              13,000,000
              
              
              18,000,000Proceeds
                  from line of credit
              
              
              20,947,091
              
              
              
              5,000,000
              
              
              37,347,091Change
                  in interest reserve
              
              
              740,736
              
              
              
              -
              
              
              (259,264
              )Interest
                  payment deducted from Restricted Cash
              
              
              
              
              
              
              -
              
              
              285,068Paydown
                  of covertible debt
              
              
              -
              
              
              
              (3,000,000
              )
              
              (3,000,000
              )Paydown
                  of long term debt
              
              
              -
              
              
              
              (1,200,000
              )
              
              (1,200,000
              )Payment
                  of offering costs
              
              
              (1,600,645
              )
              
              
              (2,366,584
              )
              
              (4,137,444
              )Proceeds
                  from the issuance of common stock
              
              
              5,500,000
              
              
              
              690,466
              
              
              9,704,375Net
                  cash provided by financing activities
              
              
              30,587,182
              
              
              
              12,101,001
              
              
              56,836,416Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (785,585
              )
              
              
              25,382
              
              
              118,729NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (2,867,153
              )
              
              
              75,438
              
              
              123,951CASH
                  AND CASH EQUIVALENTS, Beginning of period
              
              
              2,991,104
              
              
              
              1,261,974
              
              
              -CASH
                  AND CASH EQUIVALENTS, End of period
              
              $
              123,951
              
              
              $
              1,337,412
              
              $
              123,951SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Interest
                  paid
              
              $
              740,376
              
              
              $
              106,678
              
              $
              1,531,183Income
                  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
              
              $
              -
              
              
              $
              4,152,000
              
              $
              4,152,000Issuance
                  of common stock with convertible debenture
              
              $
              -
              
              
              $
              -
              
              $
              5,500,000Issuance
                  of warrants with convertible debenture
              
              $
              
              
              
              $
              5,007,647
              
              $
              507,647Issuance
                  of warrants for debt extension
              
              $
              -
              
              
              $
              -
              
              $
              390,219Issuance
                  of warrants for consulting services
              
              $
              -
              
              
              $
              437,415
              
              $
              18,516Issuance
                  of common stock for debt issuance costs
              
              $
              -
              
              
              $
              180,000
              
              $
              180,000Issuance
                  of warrants for debt issuance costs
              
              $
              -
              
              
              $
              212,232
              
              $
              212,232Issuance
                  of convertible promissory note for debt issuance costs
              
              $
              60,000
              
              
              $
              60,000
              
              $
              120,000Issuance
                  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 convertible promissory note for interest payable
              
              $
              1,526,600
              
              
              $
              -
              
              
              610,000Issuance
                  of warrants as part of financing agreement
              
              $
              573,628
              
              
              $
              -
              
              $
              573,628Capitalize
                  interest on construction in progress
              
              $
              2,703,910
              
              
              $
              -
              
              $
              3,100,733Issuance
                  of common stock for convertible debt
              
              $
              106,267
              
              
              $
              -
              
              $
              106,267Repricing
                  of warrants
              
              $
              891,987
              
              
              $
              -
              
              $
              891,987Repricing
                  of convertible debenture
              
              $
              5,481,833
              
              
              $
              -
              
              $
              5,481,833Beneficial
                  conversion feature on issuance of convertible debt
              
              $
              166,667
              
              
              $
              -
              
              $
              166,667
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  6
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(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
        and 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 nine months ended September 30,
        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 stockholders 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’.
 
 7
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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. In 2007, 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.
 
 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 stockholders,
        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 nine months ended September 30, 2008,
        the Company incurred a net loss of $26,627,377 and as of September 30,
        2008, the Company has a deficit accumulated during the development stage
        of
        $48,505,613. 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.
 
 8
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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
                  Industrial S.A.C.
              
              
              Peru
              
              
              99.9Palma
                  Industrial's five subsidiaries:Aceite
                  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 sheets 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 sheets. 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.
 
 9
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents include cash on 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 and monies restricted
        under a standby letter of credit. 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 September 30, 2008
        and
        December 31, 2007, total restricted cash related to the interest reserve
        amounted to $0 and $740,376, respectively. As of September 30, 2008 and December
        31, 2007, total restricted cash related to the standby letter of credit amounted
        to $141,905 and $0, respectively.
 
 Inventory
 
 Inventory
        is stated at the lower of cost or market. Cost has been determined by using
        the
        first-in, first-out method. The Company periodically reviews its reserves
        for
        slow moving and obsolete inventory and believes that the reserve at September
        30, 2008 is adequate.
 
 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 $1,350,806. 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 September 30, 2008 and December 31, 2007, there
        was
        no significant impairment of its goodwill.
 
 10
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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. 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
        value of the long-lived assets. Loss on long-lived assets to be disposed
        of is
        determined in a similar manner, except that fair values are reduced for the
        cost
        of disposal. Based on its review, the Company believes that, as of September
        30,
        2008 and December 31, 2007, there were no significant impairments of its
        long-lived assets.
 
 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 follows:
 
 ·
              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
        September 30, 2008, the Company did not identify any assets and liabilities
        that
        are required to be presented on the balance sheet at fair value.
 
 11
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  Concentration
        of credit risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained within Peru,
        Argentina and the United States. Certain financial 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 September 30, 2008 and December
        31, 2007, the Company had deposits in excess of federally insured limits
        totaling $126,952 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 income (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 gain of $316,129 and a translation loss of
        $4,711
        for the nine months ended September 30, 2008 and 2007,
        respectively. Translation adjustments included in the balance sheets were a
        translation gain of $116,338 and a translation loss of $199,791 at September
        30,
        2008 and December 31, 2007, respectively. Asset and liability amounts at
        September 30, 2008 and December 31, 2007 were translated at 2.977 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 nine months
        ended
        September 30, 2008 and 2007, were 2.884PEN and 3.184 PEN to $1.00 USD,
        respectively. At September 30, 2008 and December 31, 2007 the exchange rate
        for
        the assets and liabilities of the Company’s Argentinean subsidiary was 3.112 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
        nine months ended September 30, 2008 was 3.09 ARS to $1.00 USD. Cash flows
        are
        also translated at average translation rates for the period. Therefore, amounts
        reported on the statements of cash flows will not necessarily agree with
        changes
        in the corresponding balances on the balance sheets.
 
 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 and nine months ended September
        30, 2008, the Company recorded net transaction losses of $455,700 and
        $1,324,334, respectively. There were no transaction gains or losses for the
        three and nine months ended September 30, 2007. This loss represents the
        foreign
        currency loss 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 into any currency trading
        or
        hedging transactions, although there is no assurance that the Company will
        not
        enter into such transactions in the future.
 
 12
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  Income
        Taxes
 
 The
        Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
        for Income Taxes.” SFAS 109 requires a company to use the asset and liability
        method of accounting for income taxes, whereby deferred tax assets are
        recognized for deductible temporary differences, and deferred tax liabilities
        are recognized for taxable temporary differences. Temporary differences are
        the
        differences between the reported amounts of assets and liabilities and their
        tax
        bases. Deferred tax assets are reduced by a valuation allowance when, in
        the
        opinion of management, it is more likely than not that some portion or all
        of
        the deferred tax assets will not be realized. Deferred tax assets and
        liabilities are adjusted for the effects of changes in tax laws and rates
        on the
        date of enactment.
 
 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”. 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.
 
 13
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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 stockholder 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 $576,342 and $1,841,058 in share-based
        compensation expense for the three and nine months ended September 30, 2008,
        respectively. The Company recognized $602,689 and $2,965,236 in share-based
        compensation expense for the three and nine months ended September 30, 2007.
 
 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 14).
 
 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. The Company believes adopting SFAS No. 141R will significantly
        impact its financial statements for any business combination completed after
        December 31, 2008.
 
 14
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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
        April
        2008, the FASB issued 142-3 “Determination of the useful life of Intangible
        Assets”, which amends the factors a company should consider when developing
        renewal assumptions used to determine the useful life of an intangible asset
        under SFAS142. This Issue is effective for financial statements issued for
        fiscal years beginning after December 15, 2008, and interim periods within
        those
        fiscal years. SFAS 142 requires companies to consider whether renewal can
        be
        completed without substantial cost or material modification of the existing
        terms and conditions associated with the asset. FSP 142-3 replaces the previous
        useful life criteria with a new requirement—that an entity consider its own
        historical experience in renewing similar arrangements. If historical experience
        does not exist then the Company would consider market participant assumptions
        regarding renewal including 1) highest and best use of the asset by a market
        participant, and 2) adjustments for other entity-specific factors included
        in
        SFAS 142. The Company is currently evaluating the impact that adopting SFAS
        No.142-3 will have on its financial statements
 
 15
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  In
        May
        2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
        Principles.” This Statement identifies the sources of accounting principles and
        the framework for selecting the principles to be used in the preparation
        of
        financial statements of nongovernmental entities that are presented in
        conformity with generally accepted accounting principles (GAAP) in the United
        States (the GAAP hierarchy). The Company is currently evaluating the impact
        that
        adopting SFAS No. 162 will have on its financial statements.
 
 In
        May
        2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance
        Contracts, an interpretation of FASB Statement No. 60.” The scope of this
        Statement is limited to financial guarantee insurance (and reinsurance)
        contracts, as described in this Statement, issued by enterprises included
        within
        the scope of Statement 60. Accordingly, this Statement does not apply to
        financial guarantee contracts issued by enterprises excluded from the scope
        of
        Statement 60 or to some insurance contracts that seem similar to financial
        guarantee insurance contracts issued by insurance enterprises (such as mortgage
        guaranty insurance or credit insurance on trade receivables). This Statement
        also does not apply to financial guarantee insurance contracts that are
        derivative instruments included within the scope of FASB Statement No. 133,
        “Accounting for Derivative Instruments and Hedging Activities.” This Statement
        will not have and impact on the Company’s financial statements.
 
 In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        No. 07-5”). This Issue is effective for financial statements issued for fiscal
        years beginning after December 15, 2008, and interim periods within those
        fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own
        stock and (b) classified in stockholders’ equity in the statement of
        financial position would not be considered a derivative financial instrument.
        EITF No.07-5 provides a new two-step model to be applied in determining whether
        a financial instrument or an embedded feature is indexed to an issuer’s own
        stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
        The Company believes adopting this statement will have a material impact
        on the
        financial statements because among other things, any option or warrant
        previously issued and all new issuances denominated in US dollars will be
        required to be carried as a liability and marked to market each reporting
        period.
 
 In
        June
        2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
        Issue No. 98-5”. The objective of EITF 08-4 is to provide transition
        guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
        Securities with Beneficial Conversion Features or Contingently Adjustable
        Conversion Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5
        to Certain Convertible Instruments”, and SFAS 150, “Accounting for Certain
        Financial Instruments with Characteristics of both Liabilities and Equity”. This
        Issue is effective for financial statements issued for fiscal years ending
        after
        December 15, 2008. Early application is permitted. The Company is currently
        evaluating the impact that adopting EITF 08-4 will have on its financial
        statements.
  16
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  On
        October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
        Financial Asset When the Market for That Asset Is Not Active,” which clarifies
        the application of SFAS 157 in a market that is not active and provides an
        example to illustrate key considerations in determining the fair value of
        a
        financial asset when the market for that financial asset is not active. FSP
        157-3 became effective on October 10, 2008, and its adoption did not have
        a
        material impact on our financial position or results for the quarter ended
        September 30, 2008.
 
 **Note
        3 - Inventory**
 
 Inventory
        consisted of the following at September 30, 2008 and December 31,
        2007:
  September 30,
                
                December 31,Description
                
                2008
                
                2007Raw
                    Material
                
                $
                2,599,991
                
                $
                -Work-in-Process
                
                
                153,727
                
                
                -Finished
                    Goods
                
                
                163,505
                
                
                -2,917,223
                
                
                -Reserve
                
                
                (1,177,967
                )
                
                -Inventory,
                    net
                
                $
                1,739,256
                
                $
                -
 
 **Note
        4 – VAT Receivable**
 
 At
        September 30, 2008 and December 31, 2007, the Company recognized a VAT (value
        added tax) receivable of $6,838,175 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
        5 – Property, Plant and Equipment**
 
 Property,
        plant and equipment consisted of the following at September 30, 2008 and
        December 31, 2007:
 
 17
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
 
 September 30,
                2008
              
              December 31,
                2007Land
              
              $
              3,398,511
              
              $
              3,375,818Plant
                  under construction
              
              
              31,873,834
              
              
              11,708,162Building
                  improvements
              
              
              136,570
              
              
              39,643Equipment
              
              
              1,361,893
              
              
              685,491Furniture
                  and miscellaneous
              
              
              122,675
              
              
              76,89136,893,483
              
              
              15,886,005Accumulated
                  depreciation
              
              
              (103,298
              )
              
              (43,107
              )Property,
                  Plant and Equipment, net
              
              $
              36,790,185
              
              $
              15,842,898
 
 Depreciation
        expense amounted to $39,415 and $61,795 for the three and nine months ended
        September 30, 2008, $3,534 and $11,353 for the three and nine months ended
        September 30, 2007, respectively, and $107,429 for the period from May 10,
        2006
        (inception) to September 30, 2008. For the nine months ended September 30,
        2008
        and 2007, interest capitalized to property, plant and equipment amounted
        to
        $2,052,333 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 and
        tested during October 2008. At September 30, 2008 and December 31, 2007 the
        construction in progress accounts includes capitalized interest of $2,449,156
        and $396,823, respectively.
 
 **Note
        6 – Convertible Debt**
 
 On
        September 12, 2007, the 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 the 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. The 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. On September 15, 2008,
        the
        Company issued a $916,600 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 the
        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, the Company agreed to take all necessary actions to cause Erich
        Reehl to be elected as a director of the board of directors or the Company.
 
 18
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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.
  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 the Company and rank
        equally in right of payment to the 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.
 
 19
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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 the Company. It is an
        event
        of default under the Additional Notes if (i) the 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
        the Company specified in the Notes occur; (iii) the 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) the 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 the subsidiaries in an amount exceeding $100,000; (vii) the 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 the 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.
 
 The
        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 the 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.
 
 Total
        interest incurred for the three and nine months ended September 30, 2008
        related
        to the convertible debentures amounted to $478,707 and $1,255,446.
 
 **Note
        7 – 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 186,435 shares of
        the
        Company’s common stock in January 2008.
 
 20
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  **Note
        8 – 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 Loan Agreement terminates on January
        12,
        2011.
 
 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.
 
 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, the Company borrowed an additional $4,120,746, on May 7,
        2008,
        the Company borrowed an addition $3,437,075, and on May 19, 2008, the Company
        borrowed an additional $5,375,853 under the Loan Agreement.
 
 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.
 
 21
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  The
        Loan
        Agreement, among other things, requires the Company to furnish monthly,
        quarterly and annual financial statements within a specified time period,
        and
        prohibits the Company from encumbering its property or assets, disposing
        of its
        assets, declare or pay dividends, lend money, acquire stock, or make capital
        expenditures that are not approved in writing by Plainfield.
 
 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.
 
 22
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  The
        outstanding balance at September 30, 2008 and December 31, 2007 is $37,347,091
        and $16,400,000, respectively. Total interest expense for the three and nine
        months ended September 30, 2008 amounted to $1,198,993 and $2,901,733,
        respectively.
 
 During
        2008, in connection with the additional issuance of the Line of Credit, the
        Company paid approximately $710,000 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 and nine months ended September 30, 2008, the
        Company amortized a total of $107,174 and $235,638, respectively, of the
        debt
        issuance costs, related to the line of credit, as amortization of debt discounts
        and debt issuance costs in the accompanying consolidated statements of
        operations.
 
 **Note
        9 – Accrued Derivative Liability**
 
 As
        a
        result of the Company issuing the Notes and Warrants described in Note 6,
        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
        10 – 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 lump
                  sum payment of $309,166 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 $102,000
                  and
                  $289,000 for the three and nine months ended September 30, 2008.
 
 23
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  b)
              Plainfield
                  is a related party as they are a major stockholder of the Company.
                  See
                  transactions with Plainfield in notes 6, 7, 11, 15 and 16.
 
 c)
              As
                  of September 30, 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.
 
 **Note
        11 – 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)
              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.
  24
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
 
 c)
              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 director,
                  and Adam
                  Roseman, former 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 stockholder
                  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.
 
 d)
              On
                  September 12, 2007, certain of our stockholders (the “Stockholders”)
                  entered into a voting agreement (the “Voting Agreement”) with PSSM and
                  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.
 
 e)
              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 not
                  sell,
                  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.  f)
              On September 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.
 
 25
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
 
 During
        the nine months ended September 30, 2008, the Company entered into additional
        agreements with Plainfield. See Notes 6, 7, 11 and 15 for summaries of these
        agreements.
 
 **Leases**
 g)
              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.
 
 h)
              On
                  June 1, 2007, the Company entered into a lease for premises in
                  Chorrillos,
                  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.
 
 During
        the three and nine months ended September 30, 2008, the Company had lease
        expense in the amount of $22,239 and $66,717, respectively, and $18,039 and
        $54,118 lease expense for the three and nine months ended September 30, 2007,
        respectively.
 
 **Note
        12– 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.
 
 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%.
 
 26
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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.
 
 27
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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.
 
 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.
 
 28
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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
        $306,769 and $670,224 during the three and nine months ended September 30,
        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 $49,917 and $109,057
        during the three and nine months ended September 30, 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.
 
 29
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **September
        30, 2008**
 **(unaudited)**
  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 $9,401 and $19,211 during the three and nine months ended September
        30, 2008 which is recorded as interest and financing costs in the accompanying
        consolidated statements of operations.
 
 On
        August
        8, 2008, the Company completed two private placements of shares of the Company’s
        common stock. One private placement was for 1,428,572 shares and the other
        was
        for 14,285,715 shares. The price per share was $0.35 for total gross proceeds
        of
        $5,500,000. The Company paid $385,000 as a placement fee and $27,500 in other
        expenses.


30




**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**





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 stockholder
      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.





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, Director, 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.





During
      May 2008, the Company issued 2,440,000 stock options to employees during the
      second quarter of 2008. The fair values of employee stock options are estimated
      for the calculation of the pro forma adjustments in the below table at the
      date
      of grant using the Black-Scholes option-pricing model with the following
      weighted-average assumptions: expected volatility of 110%; average risk-free
      interest rate of 3.39%; expected life of 5.0 years; no expected dividend yield;
      and amortized over the vesting period of three years.





The
      following summarizes the stock options transactions for the nine months ended
      September 30, 2008:


31


**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateNumber of
              
              Exercise
              
              Contractual
              
              IntrinsicOptions
              
              Price
              
              Life (in years)
              
              ValueOutstanding,
                  December 31, 2007
              
              
              14,000,000
              
              $
              0.60
              
              
              9.45Granted
              
              
              2,440,000
              
              $
              0.60Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (1,253,750
              )
              $
              0.60Outstanding,
                  September 30, 2008
              
              
              15,186,250
              
              $
              0.60
              
              
              8.84
              
              
              -Exercisable,
                  September 30, 2008
              
              
              8,226,250
              
              $
              0.60
              
              
              8.77
              
              
              -





The
      Company has recorded wages expense in the amount of $576,342 and $1,841,058
      to
      reflect the value of these options for the three and nine months ended September
      30, 2008, respectively. The Company recorded wages expense for options issued
      of
      $602,689 and $2,965,236 for the three and nine months ended September 30, 2007,
      respectively.





**Note
      13 – Warrants**





On
      August
      5, 2008, the Company and Plainfield entered into a warrant exchange agreement
      with Plainfield. At the time of the agreement, Plainfield (A) was a holder
      of
      warrants to purchase (i) 59,104,912 shares of the Company’s common stock, $0.001
      par value (the “Common Stock”), at an exercise price of $0.30; and (ii) 122,605
      shares of Common Stock at an exercise price of $0.01; and (B) had the right
      to
      acquire warrants to purchase 57,823,130 shares of Common Stock at an exercise
      price to be determined but not greater than $0.30 (the “Warrant Rights” and
      together with the warrants described in subclause (A), the “Warrants”).
      Plainfield and the Company consummated an exchange of the Warrants pursuant
      to
      the terms of the agreement. Plainfield exchanged all of the Warrants for
      78,033,765 shares of Common Stock (the “Exchange Shares”). Upon issuance of the
      Exchange Shares to Plainfield, the Warrants were rendered null and void and
      of
      no further force or effect. The Company calculated the value of the shares
      and
      the value of the warrants on the exchange date with the difference of $9,167,050
      being reflected in the interest and financing costs in the accompanying
      consolidated statement of operations.





On
      September 8, 2008, the Company entered into a warrant exchange agreement with
      YA
      Global Investments, L.P. (“YA Global”). Pursuant to the agreement, YA Global as
      holder of (i) Warrant No.: PBOF-1-1 to purchase 704,082 shares of Common Stock
      at an exercise price of $0.98 and (ii) Warrant No.: PBOF-1-2 to purchase 704,082
      shares of Common Stock at an exercise price of $0.98 exchanged all of the
      Warrants for 938,776 shares of the Company’s Common Stock. Upon issuance of the
      Common Stock to YA Global, the Warrants were rendered null and void and of
      no
      further force or effect. The Company calculated the value of the shares and
      the
      value of the warrants on the exchange date with the difference of $43,678 being
      reflected in the interest and financing costs in the accompanying consolidated
      statement of operations.


32


**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**





The
      following summarizes the stock purchase warrant transactions for the nine months
      ended September 30, 2008:





WeightedWeighted
            
            AverageAverage
            
            RemainingNumber of
            
            Exercise
            
            ContractualWarrants
            
            Price
            
            Life (in years)Outstanding,
                December 31, 2007
            
            
            60,303,581
            
            $
            0.61
            
            
            6.57Granted
            
            
            2,289,272
            
            $
            0.28Exercised
            
            
            -
            
            
            -Exchanged
            
            
            (60,635,681
            )
            
            0.31Forfeited
            
            
            (151,505
            )
            $
            1.50Outstanding,
                September 30, 2008
            
            
            1,805,667
            
            $
            0.89
            
            
            3.78





**Note
      14 – 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
      for
      the period ended September 30, 2008 are as follows:





U.S.
            
            Peru
            
            Argentina
            
            TotalNet
                loss
            
            $
            (17,982,390
            )
            $
            (8,496,867
            )
            $
            (148,120
            )
            $
            (26,627,377
            )Property,
                plant and equipment
            
            $
            795,600
            
            $
            35,980,327
            
            $
            14,258
            
            $
            36,790,185Total
                Assets
            
            $
            4,088,989
            
            $
            51,286,639
            
            $
            114,166
            
            $
            55,489,794





**Note
      15 – 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. This agreement expired on March 31, 2008 and the
      Company was not able to negotiate an extension in favorable terms. The deposit
      to guarantee the acquisition has been expensed in the statement operations
      for
      the nine months ended September 30, 2008.




33


**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**





**Note
      16 – Subsequent Events**





Senior
      Convertible PIK Election Notes





As
      of
      September 30, 2008, the Company had accrued interest of $2,322,779 related
      to
      its line of credit with Plainfield. In order to obtain funds to pay the accrued
      interest and to pay the interest that will accrue through January 31, 2009,
      on
      November 4, 2008, the Company executed the Second Amendment to Securities
      Purchase Agreement (the “Agreement”) with Plainfield. Pursuant to this
      Agreement, the Company agreed to sell to Plainfield and Plainfield agreed to
      buy
      from the Company, (1) $2,370,182 in aggregate principal amount of the 10%/12%
      Senior Convertible PIK Election Notes due 2012 for a purchase price of
      $2,370,182 and (2) the aggregate principal amount of 10%/12% Senior Convertible
      PIK Election Notes due 2012 set forth in the following table:


Issuance DateIssuance Dates
              
              Principal Amount
              
              Purchase PriceNovember
                  4, 2008
              
              $
              412,253
              
              $
              412,253December
                  1, 2008
              
              $
              398,955
              
              $
              398,955January
                  1, 2009
              
              $
              412,253
              
              $
              412,253February
                  1, 2009
              
              $
              412,254
              
              $
              412,254





On
      November 4, 2008, the Company sold to Plainfield the $2,370,182 and the $412,253
      10%/12% Senior Convertible PIK Election Notes due 2012.




34





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





**Forward-looking
      statements**





The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and the related notes
      thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly
      report on Form 10-Q contains certain forward-looking statements and our future
      operating results could differ materially from those discussed herein. Certain
      statements contained in this discussion, including, without limitation,
      statements containing the words "believes", "anticipates," "expects" and the
      like, constitute "forward-looking statements" within the meaning of Section
      27A
      of the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue
“penny stock,” as such term is defined in Rule 3a51-1 promulgated under the
      Exchange Act, we are ineligible to rely on these safe harbor provisions. Such
      forward-looking statements involve known and unknown risks, uncertainties and
      other factors which may cause our actual results, performance or achievements
      to
      be materially different from any future results, performance or achievements
      expressed or implied by such forward-looking statements. Given these
      uncertainties, readers are cautioned not to place undue reliance on such
      forward-looking statements. We disclaim any obligation to update any such
      factors or to announce publicly the results of any revisions of the
      forward-looking statements contained herein to reflect future events or
      developments.





**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, (“Callao Port Facility”), and operate a
      10.0 million gallon biodiesel production plant that we acquired from
      Interpacific Oil, (“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
      $4.8 million in financing in order to adequate our plant facilities to comply
      with government regulations. 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. 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 9 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.


35





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
      million gallons per year to 10
      million gallons per year.





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
      plan
      to be self-sufficient with our primary raw material, vegetable oil. This
      composes approximately 94% of our estimated production costs. As part of this
      vertical integration, we intend to raise $16 million within the next 6 months
      in
      order to plant roughly 12,000 hectares of Jatropha. Our studies show that this
      will yield, conservatively, 3 metric tons of oil per hectare by 2010, once
      the
      plants reach maturity. This will supply an estimated 8% of our raw material
      requirements and our long term objective is to develop sufficient crops in
      order
      to be 100% self- sufficient. We plant to use alternative non-edible crops like
      Jatropha, which can be planted in arid lands unsuitable for most food crops.
      Finally, we intend to raise an additional $20 million for an oil extraction
      plant for our Jatropha plantations and additional tanks for our storage terminal
      facility. There can be no assurance that we will be able to secure any such
      financing at terms that are favorable to us or at all, or, even if secure such
      financing, that we will ever become self sufficient as described
      above.





The
      construction of our Callao Port Facility has been completed and testing is
      currently being done. Assuming the tests are successful and we secure sufficient
      financing, we are targeting to begin operations during the first quarter of
      2009. The change from third quarter 2008 to first quarter of 2009 is because
      we
      were delayed in obtaining working capital financing with favorable terms. If
      we
      do not obtain additional working capital in the near future, this date could
      be
      further delayed. As for the Interpacific Facility, testing has already been
      completed and we expect to generate revenues by December 2008.





**Results
      of Operations**





*For
      the three month period ended September 30, 2008 vs. the three month period
      ended
      September30, 2007*





We
      generated no revenues during both the three month period ended September 30,
      2008 and the three month period ended September 30, 2007





Consulting
      fees were $602,363 for the three months ended September 30, 2008 compared to
      $967,451 for the three months ended September 30, 2007 for a decrease of
      $365,088, or (38%). The decrease in consulting fees is because the Company
      paid
      more consulting fees during the initial phase of the plant construction which
      occurred during 2007 and the first quarter of 2008.


36





General
      and administrative expenses were $2,512,602 for the three months ended September
      30, 2008 compared to $290,184 for the three months ended September 30, 2007
      for
      an increase of $2,222,418, or 766%. The increase is related to building internal
      infrastructure to support the operation of the plants that are being
      constructed, and the Company recorded an inventory reserve of approximately
      $1.2
      million due to the decrease in soy bean oil.





Professional
      fees were $500,920 for the three months ended September 30, 2008 compared to
      $761,759 for the three months ended September 30, 2007 for a decrease of
      $260,839, or (34%). The decrease in fees is due to the decrease in legal fees
      and accounting fees. The decrease in legal fees is because we did not have
      as
      many financing arrangements as during the quarter ending September 30,
      2007.





Wages
      were $1,006,972 for the three months ended September 30, 2008 compared to
      $972,530 for the three months ended September 30, 2007 for an increase of
      $34,442, or 4%. The wages remained consistent with the three months ended
      September 30, 2007 which is due to the decrease in stock compensation expense
      for options issued to employees offset by an increase in employees as we
      continue to hire people as we continue to grow. Stock compensation expenses
      were
      $576,342 for the three months ended September 30, 2008 compared to $602,689
      for
      the three months ended September 30, 2007 for a decrease of $26,347 or (4.3%).





Interest
      and financing costs were $11,132,528 for the three months ended September 30,
      2008 compared to $10,593,099 for the three months ended September 30, 2007
      for
      an increase of $539,429, or 5%.





Amortization
      of debt discounts and debt issuance costs were $1,198,575 for the three months
      ended September 30, 2008 compared to $973,382 for the three months ended
      September 30, 2007, for an increase of $225,193, or 23%.





Foreign
      currency transaction losses were $455,700 for the three months ended September
      30, 2008 compared to $0 for the three months ended September 30, 2007, for
      an
      increase of $455,700. The increase is primarily due to the line of credit which
      was denominated and payable in U.S. dollars. Because the U.S. dollar
      has increased in value compared to the Peruvian Soles, we need more Peruvian
      Soles to repay the line of credit.


We
        estimate that our organization and financing costs for the next twelve month
        period will be approximately $6,000,000. This estimate increased from the
        previous quarter because the estimates for building the infrastructure have
        increased. These costs will primarily consist of legal, administrative,
        compliance, and other expenses.


*For
      the nine month period ended September 30, 2008 vs. the nine month period ended
      September30, 2007*





We
      generated no revenues during both the nine month period ended September 30,
      2008
      and the nine month period ended September 30, 2007.




37


Consulting
      fees were $1,589,777 for the nine months ended September 30, 2008 compared
      to
      $1,982,212 for the nine months ended September 30, 2007 for a decrease of
      $392,435, or (20%). The decrease in consulting fees is because the Company
      paid
      more consulting fees during the initial phase of the plant construction which
      occurred during 2007 and the first quarter of 2008.





General
      and administrative expenses were $3,597,038 for the nine months ended September
      30, 2008 compared to $596,894 for the nine months ended September 30, 2007
      for
      an increase of $3,000,144, or 503%. The increase in costs is related to building
      internal infrastructure to support the operation of the plants that are being
      constructed, and the Company recorded an inventory reserve of approximately
      $1.2
      million due to the decrease in soy bean oil.





Professional
      fees were $1,532,382 for the nine months ended September 30, 2008 compared
      to
      $1,285,141 for the nine months ended September 30, 2007 for an increase of
      $247,241, or 19%.




Wages
      were $2,955,646 for the nine months ended September 30, 2008 compared to
      $3,793,500 for the nine months ended September 30, 2007 for a decrease of
      $837,854, or (22%). The decrease in wages is due to the decrease in stock
      compensation expense for options issued to employees offset by an increase
      in
      employees as we continue to hire people as we grow. Stock compensation expenses
      were $1,841,058 for the nine months ended September 30, 2008 compared to
      $2,965,236 for the nine months ended September 30, 2007 for a decrease of
      $1,124,178 or (38%).





Interest
      and financing costs were $12,187,983 for the nine months ended September 30,
      2008 compared to $10,665,996 for the nine months ended September 30, 2007 for
      an
      increase of $1,521,987, or 14%. 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 $3,155,987 for the nine months
      ended September 30, 2008 compared to $4,133,886 for the nine months ended
      September 30, 2007, for a decrease of $977,899, or (24%). The decrease is
      because the Company amortized $2,357,195 related to debt incurred during the
      second quarter 2007 which had a three month maturity date offset by an increase
      in debt issue costs associated with obtaining financing in order to construct
      the biodiesel plants. Included in the expense are amounts 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 losses were $1,324,334 for the nine months ended September
      30, 2008 compared to $0 for the nine months ended September 30, 2007, for an
      increase of $1,324,334. The increase is due to the line of credit which was
      denominated and payable in U.S. dollars. Because the U.S. dollar has
      increased in value compared to the Peruvian Soles, we need more Peruvian Soles
      to repay the line of credit.




We
        estimate that our organization and financing costs for the next twelve month
        period will be approximately $6,000,000. This estimate increased from previous
        quarter because the estimates for building the infrastructure have increased.
        These costs will primarily consist of legal, administrative, compliance,
        and
        other expenses.


38


**Liquidity
      and Capital Resources**




As
      of
      September 30, 2008, we had $123,951 in cash and cash equivalents. In addition,
      for the nine months ended September 30, 2008, our cash used in operating
      activities was $8,655,526 compared to our cash used in operating activities
      of
      $3,699,641 for the nine months ended September 30, 2007. The cash used in
      operating activities was comprised primarily of our net loss of $26,627,377,
      increase in inventory of $3,010,930 and an increase in prepaid expenses and
      other deposits of $3,805,810, offset by an increase in accounts payable and
      accrued expenses of $6,189,686, stock compensation expense of $1,841,058,
      amortization of debt discounts and debt issuance costs of $3,155,987, a noncash
      foreign currency transaction loss of $1,726,401, the fair value of warrants
      issued for shares of $9,210,728 and an increase in inventory reserve of
      $1,215,805.





During
      the nine months ended September 30, 2008 and 2007, we used $24,013,224 and
      $8,351,304 in investing activities, respectively. For the nine months ended
      September 30, 2008 and 2007, we used $19,525,157 and $5,937,455, respectively
      for the purchase of property, plant, and equipment. Our VAT credit increased
      by
      $4,341,604 and $1,413,849 for the nine months ended September 30, 2008 and
      2007,
      respectively.





During
      the nine months ended September 30, 2008 and 2007, cash provided by financing
      activities was $30,587,182 and $12,101,001, respectively. During the nine months
      ended September 30, 2008, we received $5,000,000 from the issuance of
      convertible debt, $20,947,091 from additional draw downs on our line of credit
      and $5,500,000 from the issuance of common stock. We paid $1,600,645 in offering
      costs associated with the convertible debt and the line of credit.





The
      construction of our Callao Port Facility has been completed and testing is
      currently being done. Assuming the tests are successful and we secure sufficient
      financing, we are targeting to begin operations during the first quarter of
      2009.





As
      for
      the Interpacific Facility, testing has already been completed and we expect
      to
      generate revenues by December 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 both our Callao Port Facility
      and
      our Interpacific Facility.





Our
      capital expenditures for the Callao refinery during the next twelve month period
      are expected to be approximately $5 million, which will be expended as the
      remaining contractors finish off their testing work. In addition, we intend
      to
      raise $16 million within the next 6 month period for our Jatropha plantations
      as
      part of our vertical integration strategy. Finally, we intend to raise $20
      million within the next 12 month period for an oil extraction plant and
      additional tanks. There can be no assurance that we will be able to secure
      financing terms that are favorable to us or at all.





*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.


39





*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.





Also,
      pursuant to the Amendment, interest under the Loan Agreement from and including
      March 12, 2008 through September 30, 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 there from
      of
      the Borrowers.


40





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.





On
      August
      5, 2008, our Company and Plainfield entered into a Warrant Exchange Agreement
      (the “Agreement”). Plainfield (A) was a holder of warrants to purchase (i)
      59,104,912 shares of our Company’s common stock, $0.001 par value (the “Common
      Stock”), at an exercise price of $0.30; and (ii) 122,605 shares of Common Stock
      at an exercise price of $0.01; and (B) had the right to acquire warrants to
      purchase 57,823,130 shares of Common Stock at an exercise price to be determined
      but not greater than $0.30 (the “Warrant Rights” and together with the warrants
      described in subclause (A), the “Warrants”). Plainfield and our Company
      consummated an exchange of the Warrants pursuant to the terms of the Agreement.
      Plainfield exchanged all of the Warrants for 78,033,765 shares of Common Stock
      (the “Exchange Shares”). Upon issuance of the Exchange Shares to LLCII, the
      Warrants were rendered null and void and of no further force or effect. We
      calculated the value of the shares and the value of the warrants on the exchange
      date with the difference of $9,167,050 being reflected in the interest and
      financing costs in the accompanying consolidated statement of
      operations.


41





Upon
      the
      closing of the Agreement, Plainfield and its affiliates own (1) 89,683,765
      shares of Common Stock, or approximately 57.6% or our outstanding Common Stock;
      and (2) $15,610,000 aggregate principal amount of notes convertible into
      52,033,333 shares of Common Stock at a conversion price of $0.30. Plainfield
      is
      also the sole lender and administrative agent under our Company’s Loan
      Agreement, which has a principal aggregate amount of $37,346,939
      outstanding.




On
      September 8, 2008, we entered into a warrant exchange agreement with YA Global
      Investments, L.P. (“YA Global”). Pursuant to the agreement, YA Global as holder
      of (i) Warrant No.: PBOF-1-1 to purchase 704,082 shares of Common Stock at
      an
      exercise price of $0.98 and (ii) Warrant No.: PBOF-1-2 to purchase 704,082
      shares of Common Stock at an exercise price of $0.98 exchanged all of the
      Warrants for 938,776 shares of our Common Stock. Upon issuance of the Common
      Stock to YA Global, the Warrants were rendered null and void and of no further
      force or effect. We calculated the value of the shares and the value of the
      warrants on the exchange date with the difference of $43,678 being reflected
      in
      the interest and financing costs in the accompanying consolidated statement
      of
      operations.





*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.


42





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, 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.




43


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.





*Common
      stock*





On
      August
      8, 2008, we completed a private placement of 15,714,287 shares of our common
      stock at a price of $0.35 per share for total gross proceeds of $5,500,000.
      We
      paid $385,000 as a placement fee and $27,500 in other expenses.





*Senior
      Convertible PIK Election Notes*





As
      of
      September 30, 2008, we had accrued interest of $2,322,779 related to our line
      of
      credit with Plainfield. In order to obtain funds to pay the accrued interest
      and
      to pay the interest that will accrue through January 31, 2009, on November
      4,
      2008, we executed the Second Amendment to Securities Purchase Agreement (the
      “Agreement”) with Plainfield. Pursuant to this Agreement, the we agreed to sell
      to Plainfield and Plainfield agreed to buy from us, (1) $2,370,182 in aggregate
      principal amount of the 10%/12% Senior Convertible PIK Election Notes due 2012
      for a purchase price of $2,370,182 and (2) the aggregate principal amount of
      10%/12% Senior Convertible PIK Election Notes due 2012 set forth in the
      following table:





Issuance DateIssuance Dates
            
            Principal Amount
            
            Purchase PriceNovember
                4, 2008
            
            $
            412,253
            
            $
            412,253December
                1, 2008
            
            $
            398,955
            
            $
            398,955January
                1, 2009
            
            $
            412,253
            
            $
            412,253February
                1, 2009
            
            $
            412,254
            
            $
            412,254





On
      November 4, 2008, we sold to Plainfield the $2,370,182 and the $412,253 10%/12%
      Senior Convertible PIK Election Notes due 2012.


44


**Uncertainties
      and Going-Concern**





The
      continuation of our business is dependent upon us raising additional financial
      support and our Callao Port Facility beginning operations, or until we begin
      production at 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, 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. 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.





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





**Commitments
      and Contingencies**





**We
      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 our Company entering into a financing
                transaction or series of transactions pursuant to which our 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**.**





45


b)
            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.





c)
            On
                September 4, 2007, our 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 director,
                and Adam
                Roseman, former Chairman of the Board of Directors, amended the
                Nonstatutory Stock Option Agreement (the “Plan”) entered into between each
                of them and our 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 our 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 our 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.





d)
            On
                September 12, 2007, certain of our stockholders (the “Stockholders”)
                entered into a voting agreement (the “Voting Agreement”) with PSSM and
                Plainfield. Pursuant to the Voting Agreement, the Stockholders agreed
                to
                vote all common stock of our Company beneficially owned by them at
                any
                regular or special meeting of the stockholders of our Company in
                favor of
                a proposal to (i) 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 (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 our
                Company.
                The Voting Agreement shall terminate upon the earlier of (i) stockholder
                approval of the actions set forth above, or (ii) January 31, 2008.





e)
            On
                September 12, 2007, a stockholders agreement (the “Stockholders
                Agreement”) was executed among Luis Goyzueta, our Chief Executive Officer
                and a director, Plainfield and our 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
                our
                Company. He further agreed to retain his voting rights and to not
                sell,
                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.


46


f)
            On
                September 12, 2007, our 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 our 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 nine months ended September 30, 2008, our Company entered into additional
      agreements with Plainfield. See Notes 6, 11 and 15 for summaries of these
      agreements.





g)
            On
                October 1, 2006, our Company entered into a lease for premises in
                Lima,
                Peru. Under the terms of the lease, our 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.





h)
            On
                June 1, 2007, our Company entered into a lease for premises in Chorrilos,
                Peru. Under the terms of the lease, our 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.





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.





**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.





**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.


47


*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.


48


*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 2,440,000 stock options to employees during the second quarter
      of
      2008. 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 110%; average risk-free interest rate of
      3.39%; expected life of 5.0 years; no expected dividend yield; and amortized
      over the vesting period of three years. We recognized $576,342 and $1,841,048
      in
      share-based compensation expense for the three months and nine months ended
      September 30, 2008, respectively.





*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. The Company believes adopting SFAS No. 141R will significantly
      impact its financial statements for any business combination completed after
      December 31, 2008.


49


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
      April
      2008, the FASB issued 142-3 “Determination of the useful life of Intangible
      Assets”, which amends the factors a company should consider when developing
      renewal assumptions used to determine the useful life of an intangible asset
      under SFAS142. This Issue is effective for financial statements issued for
      fiscal years beginning after December 15, 2008, and interim periods within
      those
      fiscal years. SFAS 142 requires companies to consider whether renewal can be
      completed without substantial cost or material modification of the existing
      terms and conditions associated with the asset. FSP 142-3 replaces the previous
      useful life criteria with a new requirement—that an entity consider its own
      historical experience in renewing similar arrangements. If historical experience
      does not exist then the Company would consider market participant assumptions
      regarding renewal including 1) highest and best use of the asset by a market
      participant, and 2) adjustments for other entity-specific factors included
      in
      SFAS 142. The Company is currently evaluating the impact that adopting SFAS
      No.142-3 will have on its financial statements





In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
      an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
      No. 07-5”). This Issue is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those fiscal
      years. Early application is not permitted. Paragraph 11(a) of Statement of
      Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
      Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
      definition of a derivative but is both (a) indexed to the Company’s own
      stock and (b) classified in stockholders’ equity in the statement of
      financial position would not be considered a derivative financial instrument.
      EITF No.07-5 provides a new two-step model to be applied in determining whether
      a financial instrument or an embedded feature is indexed to an issuer’s own
      stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
      The Company believes adopting this statement will have a material impact on
      the
      financial statements because among other things, any option or warrant
      previously issued and all new issuances denominated in US dollars will be
      required to be carried as a liability and marked to market each reporting
      period.


In
        June
        2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
        Issue No. 98-5”. The objective of EITF 08-4 is to provide transition guidance
        for conforming changes made to EITF 98-5, “Accounting for Convertible Securities
        with Beneficial Conversion Features or Contingently Adjustable Conversion
        Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5 to Certain
        Convertible Instruments”, and SFAS 150, “Accounting for Certain Financial
        Instruments with Characteristics of both Liabilities and Equity”. This Issue is
        effective for financial statements issued for fiscal years ending December
        15,
        2008. Early applications is permitted. The Company is currently evaluating
        the
        impact that adopting EITF 08-4 will have on its financial
        statements.
 
 On
        October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
        Financial Asset When the Market for That Asset Is Not Active,” which clarifies
        the application of SFAS 157 in a market that is not active and provides an
        example to illustrate key considerations in determining the fair value of
        a
        financial asset when the market for that financial asset is not active. FSP
        157-3 became effective on October 10, 2008, and its adoption did not have
        a
        material impact on our financial position or results for the quarter ended
        September 30, 2008.


50


**Item
      3. Quantitative and Qualitative Disclosure about Market
      Risk**





Not
      applicable.





**Item
      4. Controls and Procedures**





Evaluation
      of Disclosure Controls and Procedures





As
      of
      September 30, 2008, under the direction of our Chief Executive Officer and
      Chief
      Financial Officer, we evaluated our disclosure controls and procedures as of
      September 30, 2008 and concluded that our disclosure controls and procedures
      were ineffective as of September 30, 2008 due to the following: The material
      weakness relates to the following:





We
      have a
      material weakness in that as our business has developed during the current
      fiscal year and as we anticipate our business will continue to develop in the
      future, our internal controls have not kept pace with our existing and
      anticipated future business development and as such we have material weaknesses
      in that due to our current financial situation, we lack sufficient financial
      resources to implement a fully effective internal controls and procedures
      infrastructure for our current and anticipated future business
      conditions.





There
      were no changes in our internal control over financial reporting during the
      fiscal quarter ended September 30, 2008, that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II. OTHER INFORMATION**





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





**Exhibit No.**
            
            **Description of Exhibit**10.1
            
            Warrant
                Exchange Agreement, dated as of August 5, 2008, by and between Pure
                Biofuels Corp. and Plainfield Peru II LLC. (incorporated by reference
                from
                the Current Report on Form 8-K filed on August 6, 2008 (Commission
                File
                No. 000-50903))10.2
            
            Warrant
                Exchange Agreement, dated as of September 8, 2008, by and between
                Pure
                Biofuels Corp. and YA Global Investments, L.P. (incorporated by reference
                from the Current Report on Form 8-K filed on September 9, 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


51




**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:
                November 13, 2008
            By:
            /s/
                Luis GoyzuetaLuis
                Goyzueta,
              Chief
                Executive Officer and
              DirectorDate:
                November 13, 2008
            By:
            /s/
                Gustavo GoyzuetaGustavo
                Goyzueta,
              Chief
                Financial Officer


52