UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-QSB**




x
            Quarterly
                report pursuant Section 13 or 15(d) of the Securities Exchange Act
                of
                1934For
                the quarterly period endedSeptember
                30, 2007o
            Transition
                report pursuant Section 13 or 15(d) of the Securities Exchange Act
                of
                1934For
                the transition period from _______ to _______.Commission
              file number000-50907




**PURE
      BIOFUELS CORP.**




**(Exact
      name of small business issuer as specified in its charter)**




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




**9440
      Little Santa Monica Blvd., Suite 401 Beverly Hills, CA
      90210**


**Telephone
      No.: 1-310-402-5916**


**(Address
      and telephone number of Registrant’s principal**


**executive
      offices and principal place of business)**




**N/A**


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




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o




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




As
      of
      October 15, 2007, the Company had 74,669,769 outstanding shares of common
      stock.




Transitional
      Small Business Disclosure Format (Check one): Yes o No
x




1


**TABLE
      OF CONTENTS**




PART
                I - FINANCIAL INFORMATION
            3Item
                1. Unaudited Financial Statements
            4Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            22Item
                3. Controls and Procedures
            31PART
                II - OTHER INFORMATION
            31Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            31Item
                3. Defaults Upon Senior SecuritiesItem
                4. Submission of Matters to a Vote of Security HoldersItem
                6. Exhibits
            32SIGNATURES
            34




2


**PART
      I - FINANCIAL INFORMATION**




**Pure
      Biofuels Corp.**


(formerly
      Metasun Enterprises, Inc.)


(A
      Development Stage Company)


(Unaudited)




September
                  30, 2007IndexConsolidated
                  Balance Sheets
              4Consolidated
                  Statements of Operations and Other Comprehensive Loss
              5Consolidated
                  Statements of Stockholders’ Equity
              6Consolidated
                  Statements of Cash Flows
              7Notes
                  to the Consolidated Financial Statements
              8




3




**Item
      1. Financial Statements**




**PURE
      BIOFUELS CORP.**


(A
      Development Stage Company)


**CONSOLIDATED
      BALANCE SHEETS**





**September 30,**
            
            **December
                31,****2007**
            
            **2006**(Unaudited)**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            1,337,412
            
            $
            1,261,974Restricted
                cash
            
            
            1,000,000
            
            
            -Accounts
                receivable, net
            
            
            37,930
            
            
            18Prepaid
                expenses and other assets
            
            
            262,795
            
            
            51,986TOTAL
                CURRENT ASSETS
            
            
            2,638,137
            
            
            1,313,978VAT
                RECEIVABLE
            
            
            1,553,110
            
            
            192,766PROPERTY
                PLANT AND EQUIPMENT, net
            
            
            9,905,622
            
            
            4,020,837DEBT
                ISSUANCE COSTS
            
            
            3,950,746
            
            
            -TOTAL
                ASSETS
            
            $
            18,047,615
            
            $
            5,527,581**LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            $
            2,206,340
            
            $
            258,432Due
                to related parties
            
            
            74,932
            
            
            97,813Current
                portion of long term debt
            
            
            -
            
            
            600,000Convertible
                promissory note
            
            
            60,000
            
            
            -Accrued
                derivative liability
            
            
            35,322,167
            
            
            -TOTAL
                CURRENT LIABILITIES
            
            
            37,663,439
            
            
            956,245LONG
                TERM DEBT, net of current portion
            
            
            -
            
            
            600,000CONVERTIBLE
                NOTES, net of debt discount of $9,901,478
            
            
            98,522
            
            
            -LINE
                OF CREDIT
            
            
            5,000,000
            
            
            -TOTAL
                LIABILITIES
            
            
            42,761,961
            
            
            1,556,245MINORITY
                INTEREST
            
            
            -
            
            
            -COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -STOCKHOLDERS'
                EQUITYPreferred
                stock; $0.001 par value; 1,000,000 shares authorized, no shares
                issuedCommon
                stock; $0.001 par value; 93,750,000 shares authorized; 74,699,769
                and
                62,132,419 shares issued and outstanding as of September 30, 2007
                and
                December 31, 2006, respectively
            
            
            74,670
            
            
            62,132Additional
                paid-in capital
            
            
            14,241,286
            
            
            4,888,538Subscriptions
                received in advance
            
            
            -
            
            
            96,277Accumulated
                other comprehensive income
            
            
            (4,711
            )
            
            -Deficit
                accumulated during the development stage
            
            
            (39,025,591
            )
            
            (1,075,611
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            (24,714,346
            )
            
            3,971,336TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            18,047,615
            
            $
            5,527,581The
                accompanying notes are an integral part of these consolidated financial
                statements




4




PURE
      BIOFUELS CORP.


(A
      Development Stage Company)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS**


(Unaudited)




**Three Months Ended September 30,**
            
            **Nine Months Ended September 30,**
            
            **For
                the period**
              **from
                May 10, 2006**
              **(date
                of inception)**
              **to September 30, 2007****2007**
            
            **2006**
            
            **2007**
            
            
            **2006**REVENUE
            
            $
            -
            
            $
            -
            
            $
            -
            
            
            $
            -
            
            $
            -COST
                OF REVENUE
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -GROSS
                PROFIT
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -OPERATING
                EXPENSESConsulting
                fees
            
            
            967,451
            
            
            359,000
            
            
            1,982,212
            
            
            
            359,000
            
            
            2,599,532General
                and administrative
            
            
            290,184
            
            
            73,207
            
            
            596,894
            
            
            
            73,207
            
            
            758,799Professional
                fees
            
            
            761,759
            
            
            15,365
            
            
            1,285,141
            
            
            
            15,365
            
            
            1,351,380Wages
            
            
            972,530
            
            
            43,161
            
            
            3,793,500
            
            
            
            43,161
            
            
            4,023,647TOTAL
                OPERATING EXPENSES
            
            
            2,991,924
            
            
            490,733
            
            
            7,657,747
            
            
            
            490,733
            
            
            8,733,358LOSS
                FROM OPERATIONS
            
            
            (2,991,924
            )
            
            (490,733
            )
            
            (7,657,747
            )
            
            
            (490,733
            )
            
            (8,733,358
            )OTHER
                INCOME (EXPENSES):Interest
                and financing costs
            
            
            (10,593,099
            )
            
            -
            
            
            (10,665,996
            )
            
            
            -
            
            
            (10,665,996
            )Other
                income (expense), net
            
            
            448
            
            
            -
            
            
            (99
            )
            
            
            -
            
            
            (99
            )Increase
                in accrued derivative liability
            
            
            (15,492,252
            )
            
            -
            
            
            (15,492,252
            )
            
            
            -
            
            
            (15,492,252
            )Amortization
                of debt discounts and debt issuance costs
            
            
            (973,382
            )
            
            -
            
            
            (4,133,886
            )
            
            
            -
            
            
            (4,133,886
            )TOTAL
                OTHER EXPENSE
            
            
            (27,058,285
            )
            
            -
            
            
            (30,292,233
            )
            
            
            -
            
            
            (30,292,233
            )LOSS
                BEFORE PROVISION FOR INCOME TAXES
            
            
            (30,050,209
            )
            
            (490,733
            )
            
            (37,949,980
            )
            
            
            (490,733
            )
            
            (39,025,591
            )PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -NET
                LOSS
            
            $
            (30,050,209
            )
            $
            (490,733
            )
            $
            (37,949,980
            )
            
            $
            (490,733
            )
            
            (39,025,591
            )OTHER
                COMPREHENSIVE (LOSS):Foreign
                currency translation adjustment
            
            
            (6,796
            )
            
            -
            
            
            (4,711
            )
            
            
            -
            
            
            (4,711
            )COMPREHENSIVE
                LOSS
            
            $
            (30,057,005
            )
            $
            (490,733
            )
            $
            (37,954,691
            )
            
            $
            (490,733
            )
            $
            (39,030,302
            )NET
                LOSS PER SHARE - BASIC AND DILUTED
            
            $
            (0.46
            )
            $
            (0.02
            )
            $
            (0.60
            )
            
            $
            (0.02
            )
            $
            (0.80
            )WEIGHTED
                AVERAGE COMMON EQUIVALENTSHARES
                OUTSTANDING - BASIC AND DILUTED
            
            
            65,121,573
            
            
            32,626,000
            
            
            63,294,040
            
            
            
            32,626,000
            
            
            48,930,106





The
      accompanying notes are an integral part of these consolidated financial
      statements




5




**PURE
      BIOFUELS CORP.**


(A
      Development Stage Company)


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


(Unaudited)




**Deficit****Accumulated**
            
            **Accumulated****Additional**
            
            **Susbscriptions**
            
            **Other**
            
            **During
                the**
            
            **Total****Common
                Stock**
            
            **Paid-in**
            
            **Received**
            
            **Comprehensive**
            
            **Development**
            
            **Stockholders'****Shares**
            
            **Par
                Value**
            
            **Capital**
            
            **In
                Advance**
            
            **Income**
            
            **Stage**
            
            **Equity****Balance,
                May 10, 2006 (inception date)**
            
            
            **1,000**
            
            **$**
            **304**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            
            **304**Adustment
                for change in par value
            
            
            
            
            
            (303
            )
            
            303
            
            
            
            
            
            
            
            
            
            
            
            -Recapitalization
                transactions
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Shares
                of Pure Biofuels Corp.
            
            
            71,359,405
            
            
            71,359
            
            
            1,740,626
            
            
            
            
            
            
            
            
            
            
            
            1,811,985Cancellation
                of Metasun Software Corp. shares
            
            
            (43,912,167
            )
            
            (43,912
            )
            
            43,912
            
            
            
            
            
            
            
            
            
            
            
            -Recapitalization
                Adjustment
            
            
            29,999,970
            
            
            29,999
            
            
            (210,526
            )
            
            
            
            
            
            
            
            
            
            
            (180,527
            )Shares
                acquired by legal parent
            
            
            (1,000
            )
            
            (1
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1
            )Issuance
                of common stock for cash, October 12, 2006 @ $0.75
            
            
            3,853,547
            
            
            3,854
            
            
            2,886,306
            
            
            
            
            
            
            
            
            
            
            
            2,890,160Issuance
                of common stock for cash, November 10, 2006 @ $0.75
            
            
            426,666
            
            
            427
            
            
            319,573
            
            
            
            
            
            
            
            
            
            
            
            320,000Issuance
                of common stock for cash, December 19, 2006 @ $0.75
            
            
            404,998
            
            
            405
            
            
            303,344
            
            
            
            
            
            
            
            
            
            
            
            303,749Finders
                fee
            
            
            
            
            
            
            
            
            (195,000
            )
            
            
            
            
            
            
            
            
            
            
            (195,000
            )Subscriptions
                received in advance
            
            
            
            
            
            
            
            
            
            
            
            96,277
            
            
            
            
            
            
            
            
            96,277Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,075,611
            )
            
            (1,075,611
            )**Balance,
                December 31, 2006**
            
            
            **62,132,419**
            
            
            **62,132**
            
            
            **4,888,538**
            
            
            **96,277**
            
            
            **-**
            
            
            **(1,075,611**
            **)**
            
            **3,971,336**Issuance
                of common stock for cash, March 23, 2007 @ $0.75
            
            
            303,009
            
            
            303
            
            
            156,440
            
            
            (96,277
            )
            
            
            
            
            
            
            
            60,466Issuance
                of common stock for debt issuance costs, April 25, 2007 @
                $0.98
            
            
            183,674
            
            
            184
            
            
            179,816
            
            
            
            
            
            
            
            
            
            
            
            180,000Issuance
                of common stock for cash, July 6, 2007 @ $0.60
            
            
            50,000
            
            
            50
            
            
            29,950
            
            
            
            
            
            
            
            
            
            
            
            30,000Issuance
                of common stock for cash, July 12, 2007 @ $0.60
            
            
            250,000
            
            
            250
            
            
            149,750
            
            
            
            
            
            
            
            
            
            
            
            150,000Issuance
                of common stock for cash, July 12, 2007 @ $0.60
            
            
            250,000
            
            
            250
            
            
            149,750
            
            
            
            
            
            
            
            
            
            
            
            150,000Issuance
                of common stock for cash, July 20, 2007 @ $0.60
            
            
            84,000
            
            
            84
            
            
            49,916
            
            
            
            
            
            
            
            
            
            
            
            50,000Issuance
                of common stock for cash, August 8, 2007 @ $0.60
            
            
            416,667
            
            
            417
            
            
            249,583
            
            
            
            
            
            
            
            
            
            
            
            250,000Issuance
                of common stock with convertible debt, September 12, 2007 @
                $0.50
            
            
            11,000,000
            
            
            11,000
            
            
            5,489,000
            
            
            
            
            
            
            
            
            
            
            
            5,500,000Stock
                compensation expense for options issued to employees
            
            
            
            
            
            
            
            
            2,965,236
            
            
            
            
            
            
            
            
            
            
            
            2,965,236Fair
                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
            
            
            
            
            
            
            
            
            130,095
            
            
            
            
            
            
            
            
            
            
            
            130,095Estimated
                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
            
            
            
            
            
            
            
            
            (5,983,030
            )
            
            
            
            
            
            
            
            
            
            
            (5,983,030
            )Foreign
                currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,711
            )
            
            
            
            
            (4,711
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (37,949,980
            )
            
            (37,949,980
            )**Balance,
                September 30, 2007**
            
            
            **74,669,769**
            
            **$**
            **74,670**
            
            **$**
            **14,241,286**
            
            **$**
            **-**
            
            **$**
            (4,711
            )
            **$**
            (39,025,591
            )
            **$**
            (24,714,346
            )





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




6


**PURE
      BIOFUELS CORP.**


(A
      Development Stage Company)


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Unaudited)


**For
                  the period****from
                  May 10, 2006****Nine Months Ended September 30,**
              
              **(date
                  of inception)****2007**
              
              **2006**
              
              **to September 30, 2007**CASH
                  FLOW FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (37,949,980
              )
              $
              (490,733
              )
              $
              (39,025,591
              )Adjustment
                  to reconcile net loss to net cash used
                  in operating activities:Accrued
                  consulting fees
              
              
              -
              
              
              -
              
              
              97,500Depreciation
                  and amortization
              
              
              11,353
              
              
              -
              
              
              15,490Stock
                  compensation expense for options issued to employees
              
              
              2,965,236
              
              
              -
              
              
              2,965,236Fair
                  value of warrants issued for services
              
              
              130,095
              
              
              -
              
              
              130,095Fair
                  value of warrants issued for financing costs
              
              
              390,219
              
              
              -
              
              
              390,219Effect
                  of warrant repricing
              
              
              41,697
              
              
              -
              
              
              41,697Amortization
                  of debt discounts and debt issuance costs
              
              
              4,133,886
              
              
              -
              
              
              4,133,886Non-cash
                  financing costs
              
              
              9,346,885
              
              
              -
              
              
              9,346,885Change
                  in accrued derivative liability
              
              
              15,492,252
              
              
              -
              
              
              15,492,252Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (37,945
              )
              
              (37
              )
              
              (37,945
              )Prepaid
                  expenses and deposits
              
              
              (213,343
              )
              
              (1,800
              )
              
              (265,347
              )Accounts
                  payable and accrued expenses
              
              
              1,990,004
              
              
              (30,535
              )
              
              1,798,063Due
                  to related party
              
              
              -
              
              
              230,000
              
              
              74,932Net
                  cash used in operating activities
              
              
              (3,699,641
              )
              
              (293,105
              )
              
              (4,842,628
              )CASH
                  FLOW FROM INVESTING ACTIVITIES:VAT
                  receivable
              
              
              (1,413,849
              )
              
              -
              
              
              (1,606,615
              )Net
                  cash acquired with acquisition
              
              
              -
              
              
              1,812,202
              
              
              1,812,202Increase
                  in restricted cash
              
              
              (1,000,000
              )
              
              -
              
              
              (1,000,000
              )Purchase
                  of propety, plant and equipment
              
              
              (5,937,455
              )
              
              -
              
              
              (8,762,429
              )Net
                  cash used in investing activities
              
              
              (8,351,304
              )
              
              1,812,202
              
              
              (9,556,842
              )CASH
                  FLOW FROM FINANCING ACTIVITIES:Due
                  to related parties, net
              
              
              (22,881
              )
              
              -
              
              
              (22,568
              )Proceeds
                  from subscriptions received in advance
              
              
              -
              
              
              3,052,723
              
              
              96,277Proceeds
                  from issuance of convertible debt
              
              
              13,000,000
              
              
              -
              
              
              13,000,000Proceeds
                  from line of credit
              
              
              5,000,000
              
              
              -
              
              
              5,000,000Paydown
                  of convertible debt
              
              
              (3,000,000
              )
              
              -
              
              
              (3,000,000
              )Paydown
                  of long term debt
              
              
              (1,200,000
              )
              
              -
              
              
              (1,200,000
              )Payment
                  of offering costs
              
              
              (2,366,584
              )
              
              -
              
              
              (2,366,584
              )Proceeds
                  from the issuance of common stock
              
              
              690,466
              
              
              304
              
              
              4,204,375Net
                  cash provided by financing activities
              
              
              12,101,001
              
              
              3,053,027
              
              
              15,711,500Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              25,382
              
              
              -
              
              
              25,382NET
                    INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              75,438
              
              
              4,572,124
              
              
              1,337,412CASH
                  AND CASH EQUIVALENTS, Beginning of period
              
              
              1,261,974
              
              
              -
              
              
              -CASH
                  AND CASH EQUIVALENTS, End of period
              
              $
              1,337,412
              
              $
              4,572,124
              
              $
              1,337,412SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Interest
                  paid
              
              $
              106,678
              
              $
              -
              
              $
              106,678Income
                  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 warrants with convertible debenture
              
              $
              5,007,647
              
              $
              -
              
              $
              5,007,647Issuance
                  of warrants for consulting services
              
              $
              437,415
              
              $
              -
              
              $
              437,415Issuance
                  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
  The
          accompanying notes are an integral part of these consolidated financial
          statements


7




**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**




**1.
      Organization and Significant Accounting Polices**




**Basis
      of Presentation**





The
      following unaudited interim consolidated financial statements have been prepared
      in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-QSB and Regulation
      S-B as promulgated by the Securities and Exchange Commission (the “SEC”).
      Accordingly, these financial statements do not include all of the disclosures
      required by generally accepted accounting principles for complete financial
      statements. These unaudited interim consolidated financial statements should
      be
      read in conjunction with the Company’s audited consolidated financial statements
      for the year ended December 31, 2006. In the opinion of management, the
      unaudited interim consolidated financial statements furnished herein include
      all
      adjustments, all of which are of a normal recurring nature, necessary for a
      fair
      statement of the results for the interim period presented. Operating results
      for
      the period ended September 30, 2007 are not necessarily indicative of the
      results that may be expected for the year ending December 31, 2007.




The
      preparation of financial statements in accordance with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosures of
      contingent assets and liabilities at the date of the consolidated financial
      statements and the reported amounts of revenues and expenses during the period.
      Actual results could differ from those estimates.




These
      unaudited interim consolidated financial statements include the accounts of
      Pure
      Biofuels Corp. and its two 99.99%
      owned subsidiaries, Pure
      Biofuels del Peru S.A.C. and Palma Industrial S.A.C. and Palma Industrial’s five
      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.  In
      addition, these statements include the account of Pure Biofuels del Peru
      S.A.C.’s 95% owned subsidiary, Pure Biocarburantes , S. A. 
      Minority interest has not been presented on the consolidated balance sheet
      due
      to accumulated losses which exceed the minority stockholders equity. In
      accordance with Accounting
      Principles Board Opinion No. 18,
      the minority interest has been written down to zero on the accompanying balance
      sheet.




**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. At
      September 30, 2007, the only potential dilutive securities were 14,000,000
      and
      63,854,176 common stock options and warrants, respectively. In addition, at
      September 30, 2007 the Company has outstanding Convertible Notes convertible
      into 16,666,667 shares of the Company’s common stock. Due to the net loss, none
      of the potentially dilutive securities were included in the calculation of
      diluted earnings per share since their effect would be anti-dilutive.





8


**Stock-based
      Compensation**





On
      April
      27, 2007, our board of directors amended and restated the Company’s stock
      option plan (the “Plan”) to
      increase the number of available options from a total of 18,000,000 to
      21,000,000 options that
      enables it to grant options to employees, including its officers and directors,
      and its subsidiaries and other persons who
      contribute to the success of the Company.  The
      board of directors will administer the Plan .
      The
      Plan is subject to shareholder approval, which has not yet been obtained. The
      Company records stock-based compensation in accordance with SFAS No. 123R “Share
      Based Payments”, using the fair value method.





The
      Company issued 14,000,000 stock options to employees and directors during the
      nine months ended September 30, 2007. The
      fair
      values of employee stock options are calculated using the Black-Scholes
      option-pricing model with the following weighted-average assumptions: expected
      volatility of 92%; average risk-free interest rate of 5.0%; expected life of
      5.0
      years; no expected dividend yield; and amortized over the vesting period of
      three years. The
      Company recognized $2,965,236 in share-based compensation expense for the
      nine months ended September 30, 2007. During the three months ended September
      30, 2007, the Company re-priced these options reducing the exercise price from
      $0.98 to $0.60. The above mentioned expense includes the effect of the
      re-pricing.





**2.
      Going Concern Uncertainty**




The
      Company is in the development stage and planned principal activities have
      commenced, but the Company has not generated any significant 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 financing
      to
      continue operations and to generate sustainable significant revenue. There
      is no
      guarantee that the Company will be able to raise adequate equity financing
      or
      generate profitable operations. As at September 30, 2007, the Company has a
      working capital deficit of $35,025,302 and has deficit accumulated during the
      development stage of $39,025,591. 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 debt or equity financing.





**3.
      Foreign Currency Translation**





The
      reporting currency of the Company is the U.S. dollar. The Company‘s subsidiaries
      use their local currencies, Peruvian Nuevos Soles (PEN), and the Argentinean
      Pesos 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 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.





Translation
      adjustments amounted to $(4,711) as of September 30, 2007. Asset and liability
      amounts at September 30, 2007 and December 31, 2006 were translated at 3.023
      PEN
      to $1.00 USD and 3.194 PEN to $1.00 USD, respectively. Equity accounts were
      stated at their historical rate. The average translation rates applied to income
      statement accounts for the nine months ended September 30, 2007 and the period
      from inception (May 10, 2006) to December 31, 2006 were 3.092 PEN and 3.197
      PEN, respectively. At September 30, 2007 and for the nine months ended September
      30, 2007, the exchange rate for the Company’s Argentina subsidiary was 3.14
      Argentina Pesos to $1.00 USD and 3.10 Argentina Pesos to $1.00 USD.
      Cash flows are also translated at average translation rates for the period,
      therefore, amounts reported on the statement of cash flows will not necessarily
      agree with changes in the corresponding balances on the balance
      sheet.




9





**4.
      Recent Accounting Pronouncements**




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 for fiscal years
      beginning after November 15, 2007. The Company is currently assessing the impact
      of SFAS No. 159 on its financial position and results of
      operations.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements“. The
      objective of SFAS No. 157 is to increase consistency and comparability in fair
      value measurements and to expand disclosures about fair value measurements.
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements and does not require any new
      fair
      value measurements. The provisions of SFAS No. 157 are effective for fair value
      measurements made in fiscal years beginning after November 15, 2007. The
      adoption of this statement is not expected to have a material effect on the
      Company‘s future reported financial position or results of
      operations.





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.





**5. 
       VAT Receivable**




At
      September 30, 2007, the Company recognized a VAT (value added tax) receivable
      of
      $1,553,110 in Peru and Argentina. 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
      and
      Argentinean income tax liability or to receive a refund credit against VAT
      payable or sales. As the Company does not anticipate incurring either a Peruvian
      and Argentinean tax or a VAT liability during the next fiscal year, the
      receivable was classified as a long-term asset.





**6. 
       Property, Plant and Equipment**





The
      cost
      of property and equipment at September 30, 2007 consisted of the following:





Cost
            
            Accumulated
                Amortization
            
            September 30, 2007
                Net Book Value
            
            December 31, 2006
                Net Book ValueLand
            
            $
            3,165,912
            
            $
            -
            
            $
            3,165,912
            
            $
            3,098,951Plant
                under Construction
            
            
            6,548,269
            
            
            -
            
            
            6,548,269
            
            
            796,200Building
                Improvements
            
            
            27,794
            
            
            (2,316
            )
            
            25,478
            
            
            27,562Computer
                Equipment
            
            
            97,359
            
            
            (8,567
            )
            
            88,792
            
            
            50,774Furniture
                & Miscellaneous
            
            
            81,778
            
            
            (4,607
            )
            
            77,171
            
            
            47,350$
            9,921,112
            
            $
            (15,490
            )
            $
            9,905,622
            
            $
            4,020,837




Depreciation
      expense amounted to $11,353 and $3,534, for the nine months and three months
      ended September 30, 2007, respectively. For
      the
      nine months and three months ended September 30, 2007 interest capitalized
      to
      construction in progress amounted to $66,962 and $18,962, respectively. Interest
      capitalized since inception amounted to $66,962.




10


**7. 
       Long Term Debt**




On
      December 21, 2006, the Company entered into a purchase agreement with Tradetex
      International Inc. (“Tradetex“), whereby the Company acquired land located in
      Callao, Peru. The purchase price of $3,008,998 is to be paid as
      follows:





i)
                An
                    initial deposit of $150,000
                    (paid);





ii)
                $1,658,998
                    upon the transfer of the property (paid);





iii)
            $600,000,
                plus accrued interest at an annual effective rate of 8%, on or before
                November 21, 2007; and





iv)
            $600,000,
                plus accrued interest at an annual effective rate of 8%, on or before
                November 21, 2008.





The
      Company repaid all amounts outstanding during the three months ended September
      30, 2007.




Total
      interest expense related to the land purchase since inception and for the nine
      months and three months ended September 30, 2007 amounted to $67,000,
      $67,000 and $19,000, respectively. The Company capitalized interest costs
      incurred on funds used to purchase the land; therefore, no interest
      expense was
      incurred during the three or nine months ended September 30,
      2007.




**8. 
       Convertible Debt**




$3,000,000
      Convertible Debenture





On
      April
      19, 2007 the Company entered into a purchase agreement with an accredited
      investor (the “Investor”) pursuant to which the Company agreed to sell up to $3
      million aggregate principal amount of its 12% senior secured convertible
      debentures due July 19, 2007 (the “Debenture”) and warrants to purchase up to
      704,082 shares of common stock in a private placement to the Investor. The
      sale
      of the Debenture and the warrants was consummated on April 19, 2007. In
      connection with the sale of the Debenture, the Company paid various fees in
      the
      amount of $175,000 from the proceeds of the sale to the advisor of the Investor.
      The Debenture is convertible into shares of the Company’s common stock at the
      option of the holder of Debenture at any time after April 19, 2007, at an
      initial conversion rate of 1,020.408 shares of common stock per $1,000 principal
      amount of Debenture, which is equivalent to a conversion price of $0.98 per
      share. The conversion price is subject to adjustment in accordance with the
      terms of the Debenture. Subject to the conversion and redemption rights under
      the Debenture, the Company is obligated to pay 120% of the principal amount
      of
      the Debenture, plus accrued and unpaid interest, in cash on July 19, 2007 (the
      “Maturity Date"), provided that the Maturity Date shall be extended until
      October 19, 2007 in the event that any principal is outstanding under the
      Debenture as of the Maturity Date due to the Company’s inability to consummate a
      financing of at least $3 million and no Event of Default then exists. If the
      Maturity Date is extended, the Investor will receive an additional 704,082
      warrants and the interest rate is increased up to 1.5% per month or 18% per
      year. On July 23, 2007, the Maturity Date of the Debenture was extended to
      October 19, 2007 **.**




On
      April
      19, 2007 the Company entered into a Security Agreement with the Investor and
      Palma Industrial SAC and Pure Biofuels del Peru SAC, 99% owned subsidiaries
      of
      the Company, pursuant to which the obligations under the Debenture were secured
      by liens on substantially all of the assets of the Company and the
      subsidiaries.




The
      Debenture is redeemable by the Company upon the first trading day immediately
      following any of the following events:




(a)
            default




(b)
            the
                consummation of any future fund raising transaction by the Company,
                or




11





(c)
            any
                date beyond the maturity date that is mutually agreed upon by the
                Investor
                and the Company at a redemption price equal to 120% of the principal
                amount plus accrued and unpaid interest to, but not including, the
                repayment date.




Upon
      the
      occurrence of any of the preceding events, and assuming the Company has filed
      an
      effective registration statement with the SEC relating to the shares underlying
      the debenture, the Company will also have the option to convert the Debenture
      into shares of common stock at a conversion price equal to the lower of (i)
      $0.98 and (ii) that price which will be computed as 95% of the lowest volume
      weighted average price of the common stock during the sixty consecutive trading
      days immediately preceding the applicable repayment date.





The
      Debenture is a secured obligation of the Company and is senior in right of
      payment to the Company’s future secured indebtedness. The Debentures also
      restrict the Company and its subsidiaries from incurring indebtedness or other
      obligations, including senior secured indebtedness or other secured obligations
      in the future.




If
      there
      is an event of default on the Debentures, the principal amount of the Debenture,
      plus accrued and unpaid interest may be declared immediately due and payable,
      subject to certain conditions set forth in the Debenture. These amounts
      automatically become due and payable in the case of certain types of bankruptcy
      or insolvency events involving the Company. Also upon an event of a default,
      the
      investor will have the right to full recourse against the amounts owed by the
      Company pursuant to the Debenture through the pledge of 5,000,000 shares of
      the
      Company’s common stock by the Company’s CEO.




The
      warrants granted to the Investor on April 19, 2007 are exercisable into shares
      of the Company’s common stock at the option of the holder of the warrants at any
      time after April 19, 2007, at an initial exercise price of $0.98 per share.
      The
      exercise price is subject to adjustment in accordance with the terms of the
      warrants.





The
      warrants granted to the Investor on April 19, 2007 and conversion feature in
      the
      above Debenture offerings are not considered derivative instruments that need
      to
      be bifurcated from the original security since the Debenture has a fixed
      conversion price of $0.98 as long as the Company is not in default of the terms
      of the Debenture, which means the Company can determine the maximum shares
      that
      could be issued upon conversion. The Company determined the fair value of the
      detachable warrants issued in connection with the Debenture to be $507,647,
      using the Black-Scholes option pricing model and the following
      assumptions:  term of 5 years, a risk free interest rate
      of 5.0%, a dividend yield of 0% and volatility of 93%. In addition,
      the Company determined the value of the beneficial conversion feature to be
      $507,647. The combined total discount for the Debenture is $1,015,294 and
      is being amortized over the term of the Debenture. For the three and nine months
      ended September 30, 2007, the Company amortized $211,985 and $1,015,294,
      respectively of the aforesaid discounts as other expense in the accompanying
      consolidated statements of operations.





In
      connection with the issuance of the Debenture and the warrants issued to the
      Investor on April 19, 2007, a cash placement fee of $175,000 was paid to the
      placement agent. In addition, in connection with a Financing Contingency Escrow
      Agreement, certain stockholder of the Company transferred 2,400,000 common
      shares valued at $2,352,000 to certain parties responsible for arranging the
      $3,000,000 Debenture. The cash and stock mentioned above have been capitalized
      as debt issuance costs and are being amortized over the term of the loan. For
      the three and nine months ended September 30, 2007, the Company amortized
      $527,615 and $2,527,000, respectively, of the aforesaid debt issuance costs
      as
      other expense in the accompanying consolidated statements of
      operations.





The
      Maturity Date of the Debentures was extended to October 19, 2007. As a result,
      the interest on the note was increased to 18% and 704,082 warrants were issued
      with a exercise price of $0.60, the trading price of the stock on the date
      the
      loan was extended. The fair value of the warrants pursuant to the Black Scholes
      option pricing model was $390,219 and was accounted for as debt issuance costs,
      which will be amortized over the life of the extension period as additional
      interest expense.




This
      convertible debenture including accrued interest was paid on September 13,
      2007.




$10,000,000
      Convertible Notes




12





On
      September 12, 2007, the Company entered into the Purchase Agreement
      with PSSM and
      Plainfield, pursuant
      to which the Company agreed to sell to Plainfield (1) 11,000,000 shares of
      the Company’s common stock, (2) $10,000,000 aggregate principal amount of
      the Company’s senior convertible Notes, and (3) Warrants 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 the Amendment
      Date upon which the Company obtains 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.
      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 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 in
      PIK
      interest. The
      first
      payment of interest shall be paid in PIK Interest. PIK
      (payments other than cash) interest on this note will accrue at the rate of
      12%
      per annum and be payable by issuing additional notes (“PIK notes”) in an
      aggregate principal amount equal to the amount of PIK interest for the
      applicable interest period and the Company will issue and deliver such PIK
      notes
      to the holder of this note.





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.





If
      there
      is an event of default on the Notes, the principal amount of the Notes, plus
      accrued and unpaid interest may be declared immediately due and payable, subject
      to certain conditions set forth in the 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 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 Purchase Agreement) shall cease
      to
      be in full force and effect ;
      (v) the
      Company fails to make the payments on the 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) the
      Amendment Date shall not have occurred on or prior to November 30, 2007 (unless
      otherwise extended to January 31, 2008 pursuant to the Securities Purchase
      Agreement); (viii) the Company defaults in the due performance or observance
      by
      it of any term, covenant or agreement contained in the Purchase Agreement; or
      (ix)
      a ny
      representation, warranty or statement made or deemed made by the Company in
      connection with this transaction shall prove to be untrue in any material
      respect on the date as of which made or deemed made.





The
      Warrants are exercisable into 56,938,245 shares of common stock of the Company
      at the option of the holder of Warrants at any time after the Amendment
      Date upon which the Company obtains 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 up to
      and including September 12, 2014, at an initial exercise price of $0.60 per
      share. The exercise price is subject to adjustment in accordance with the terms
      of the Warrants.





In
      connection with the issuance of the Notes and the Warrants, a cash placement
      fee
      of $730,000 and $316,000 was paid to Merriman Curhan Ford & Co. and
      Cannacord Adams Inc., for agent and investment banking fees. An additional
      $770,584 was withheld from the amount disbursed to cover financing costs
      associated with the agreement. In addition, in connection with a Financing
      Contingency Escrow Agreement, certain stockholders of the Company transferred
      3.6 million common shares of the Company valued at $1,800,000 to certain parties
      responsible for arranging the Purchase Agreement and the Loan Agreement. The
      cash and stock mentioned above have been capitalized as debt issuance costs
      and
      are being amortized over the term of the Notes. For the three and nine months
      ended September 30, 2007, the Company amortized a total of $36,411 of the
      aforesaid debt issuance costs as other expense in the accompanying consolidated
      statements of operations.




13




As
      a
      result of the Company issuing the Notes and Warrants, it does not have enough
      authorized shares to satisfy the conversion of all the warrants and options
      outstanding. Therefore the outstanding options and warrants have been recorded
      at fair value and shown as accrued derivative liability at September 30,
      2007.





The
      $10,000,000 proceeds from the Notes were first allocated to the fair value
      of
      the 11,000,000 shares of common stock issued in connection with the Notes which
      was $5,500,000. The
      remaining $4,500,000 of the face amount of the Notes was allocated to the
      Warrants. The fair
      value of the 56,938,245 Warrants issued in connection with this transaction
      was
      $10,711,477. 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 109%. The fair value
      of the Warrants were applied to t he
      remaining $4,500,000 of the face amount of the Notes and the remainder of
      $6,211,477 has been charged to financing costs. In addition, the fair value
      of
      the beneficial conversion feature associated with the Notes of $3,135,408 has
      been charged to financing costs. The total charge to financing costs for this
      transaction was $9,346,885. Both the value assigned to the shares of common
      stock ($5,500,000) and Warrants ($4,500,000) are recorded as a debt discounts
      and will be amortized over the terms of the Notes. For
      the
      three and nine months ended September 30, 2007, the Company amortized $98,522
      of
      the aforesaid debt discounts as other expense in the accompanying consolidated
      statements of operations.




**9. 
       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 cost and is being amortized over the term of the Debenture. For
      the
      three and nine months ended September 30, 2007, the Company amortized $12,527
      and $60,000, respectively of the aforesaid debt issuance costs as other expense
      in the accompanying consolidated statements of operations.




**10. 
       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 Plainfield Special Situations Master Fund Limited (“PSSM”), as
      Administrative Agent.  The
      Company’s initial borrowings under the Loan Agreement are $5,000,000. On October
      25, 2007, the Company made a subsequent borrowing in the amount of $5,000,000.
      Subsequent borrowings under the Loan Agreement must be for at least $2,000,000
      and will be in the form of either Base Rate loans or Eurodollar loans, each
      as
      defined in the credit agreement.




In
      connection with the issuance of the Line of Credit, the Company paid $375,000
      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, 2007, the Company amortized a total of $4,427 of
      the
      aforesaid debt issuance costs as other expense in the accompanying consolidated
      statements of operations.




**11. 
       Accrued Derivative Liability**





As
      a
      result of the Company issuing the Notes and Warrants described in Note 8 above,
      it does not have enough authorized shares to satisfy the conversion of all
      the
      warrants and options outstanding. Therefore, the outstanding options and
      warrants have been recorded at fair value and shown as accrued derivative
      liability at September 30, 2007. 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
      $5,983,030 was transferred from additional paid in capital to accrued derivative
      liability on September 12, 2007. The fair value of outstanding options and
      warrants at September 30, 2007 of $29,446,391 has been recorded as accrued
      derivative liability at September 30, 2007. 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
      of
      $5,875,776 at September 30, 2007 has also been recorded as accrued derivative
      liability at September 30, 2007. The change in fair value of the accrued
      derivative liability from September 12, 2007 to September 30, 2007 was
      $15,492,252 has been reflected as a charge to other expense in the accompanying
      statement of operations.




14




**12. 
       Related Party Transactions**




The
      Company entered into the following transactions with related parties during
      the
      nine months ended September 30, 2007:




a)
              Incurred
                  consulting fees of $30,000 for services provided by directors of
                  the
                  Company.





b)
            Incurred
                consulting fees of $38,678 for services provided by a company controlled
                by an officer of the Company.





c)
            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 services to the Company. The agreement
                provides for monthly payments of $33,335 retroactive from September
                2006 to June 2007 and $28,335 beginning July
                2007.




Included
      in due to related parties at September 30, 2007 is $74,932 owing to entities
      under common control, directors, the CEO, the President and an employee related
      to the President of the Company for consulting fees and payment of expenses
      on
      the Company’s behalf.




See
      Note 17 for an additional related party
      transaction.




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





13. 
       Commitments




On
      September 15, 2006, the Company entered into the following consulting
      agreements, all of which were cancellable within 28 days of written notice.
      Effective February 28, 2007, the Company terminated these consulting and
      management agreements, which were entered into on September 15, 2006
      with:




a)
            A
                consultant to provide investor relations services. Under the terms
                of the
                agreement, the Company agreed to pay $3,000 per month for an initial
                term
                of three years, and at the election of the Company, can be renewed
                for one
                or more additional one-year terms. The Company agreed to pay a one
                time
                signing bonus of $7,500. During the nine months ended September 30,
                2007,
                consulting fees of $6,000 were incurred. The Company did not incur
                any
                additional expenses during the current quarter ended September 30,
                2007.




b)
            Another
                consultant to provide investor relations services. Under the terms
                of the
                agreement, the Company agreed to pay $3,000 per month for an initial
                term
                of three years, and at the election of the Company, can be renewed
                for one
                or more additional one-year terms. The Company agreed to pay a one
                time
                signing bonus of $7,500. During the nine months ended September 30,
                2007
                consulting fees of $6,000 were incurred. The Company did not incur
                any
                additional expenses during the current quarter ended September 30,
                2007.




c)
              A
                  director to provide management services. Under the terms of the
                  agreement,
                  the Company agreed to pay $7,000 per month for an initial term
                  of three
                  years, and at the election of the Company, can be renewed for one
                  or more
                  additional one-year terms. The Company agreed to pay a one time
                  signing
                  bonus of $103,500. During the nine months ended September 30, 2007,
                  consulting fees of $14,000 were incurred. The Company did not incur
                  any
                  additional expenses during the current quarter ended September
                  30,
                  2007.




d)
            A
                director to provide accounting services to the Company. Under the
                terms of
                the agreement, the Company agreed to pay $2,000 per month for an
                initial
                term of three years, and at the election of the Company, can be renewed
                for one or more additional one-year terms. The Company agreed to
                pay a one
                time signing bonus of $3,000. During the nine months ended September
                30,
                consulting fees of $4,000 were incurred. The Company did not incur
                any
                additional expenses during the current quarter ended September 30,
                2007.




15




The
      Company also entered into the following agreements:





e)
            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 US. 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**.**




f)
            The
                Company is required to pay the remaining $60,000 plus VAT, pursuant
                to an
                engineering contract between the Company and Polindustria. During
                the nine
                month period ended September 30, 2007, the Company paid an additional
                $54,264 to Polindustria, comprised of $45,600 in payments and $8,664
                in
                VAT.





g)
            The
                Company is required to pay Capricorn $480,000 upon the delivery of
                the
                designs, as set forth in the License Agreement. During the three
                month
                period ended March 31, 2007, the Company paid an additional $571,200
                to
                Capricorn, comprised of $480,000 in payments and $91,200 in VAT.
                No
                other expenses were incurred during the quarter
                ended September 30, 2007.





h)
            OnAugust
                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.





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





j)
            On
                September 12, 2007, the Company and Steven Magami, the Company’s
                President, entered into an amendment to the employment agreement
                dated
                June 22, 2007 (the “Amended Employment Agreement”). Pursuant to the
                Amended Employment Agreement, Mr. Magami’s salary was increased from
                $100,000 per year to $200,000 per
                year.




16




k)
            On
                September 12, 2007, certainof
                our stockholders (the “Stockholders”) entered intoa
                voting agreement (the “Voting Agreement”) with PSSM,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, “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.





l)
            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 pursuant . He further agreed to retain his voting rights
                and to
                notsell,
                dispose of or otherwise transfer record or beneficial ownership of
                any
                common stock unless the transferee agrees to abide by the terms of
                the
                Stockholders Agreement.





m)
            OnSeptember 12, 2007, the Company entered into a registration rights
                agreement (the “ARC Registration Rights Agreement”) with****ARC
                Investment Partners, LLC, Tapirdo Enterprises, LLC (an affiliate
                of Adam
                Roseman), and SGM Capital, LLC (an affiliate of Steven Magami)
                (collectively, the “ARC Holders”) in which the Company granted to each of
                the ARC Holders the right to request two demand registrations. In
                addition, the ARC Holders were granted certain shelf registration
                and
                piggyback registration rights.




n)
            On
                September 12, 2007, theCompany,
                as Guarantor,entered into the Loan Agreement withPure
                Biofuels Del Peru and Palma Industrial, the lender party thereto
                and PSSM,
                as Administrative Agent. The Company’s initial borrowings under the Loan
                Agreement were $5,000,000. On October 29, 2007, the Company made
                a
                subsequent borrowing under the Loan Agreement in the amount of $5,000,000.
                Subsequent borrowings under the Loan Agreement must be for at least
                $2,000,000 and will be in the form of either base rate loans or Eurodollar
                loans, each as defined in the credit agreement. The Loan Agreement
                terminates on January 12, 2011. Payments of interest on borrowings
                under
                the Loan Agreement are payable monthly. After September 12, 2009,
                principal amounts owed under the Loan Agreement may be prepaid at
                a rate
                of 108%. In addition, the Loan Agreement provides for certain mandatory
                prepayments, including, without limitation, upon the receipt of any
                cash
                proceeds from any capital contribution or any sale or issuance of
                equity
                interests, any cash proceeds from any issuance or incurrence of certain
                indebtedness and any cash proceeds from any asset
                sale.





o)
            On
                September 12, 2007, the Company entered into a securities purchase
                agreement (the “Purchase Agreement”), withPSSM and Plainfield,pursuant
                to which the Company agreed to sell to Plainfield (1) 11,000,000
                shares of
                the Company’s common stock (the “Shares”), (2) $10,000,000 aggregate
                principal amount of our 10%/12% senior convertible PIK election notes
                due
                September 12, 2012, (the “Notes”), and (3) warrants (the “Warrants,” and,
                together with the Shares and the Notes, the “Securities”) to purchase up
                to 56,938,245 shares of the Company’s common stock. The Notes are
                convertible into 16,666,667 shares of the Company’s common stock at the
                option of the holder of Notes at any time after the Amendment Dateupon
                which the Company obtains 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 Warrantsand 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. 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.




17





p)
            On
                September 12, 2007, in connection with the offering of the Securities,
                the
                Company also entered into a registration rights agreement with Plainfield
                (the “Plainfield Registration Rights Agreement”). Under the Registration
                Rights Agreement, the Company granted to Plainfield and its permitted
                transferees (the “Holders”) certain registration rights with respect to
                the Shares and the shares of common stock issuable upon conversion
                of the
                Notes and exercise of the Warrants (collectively, with all shares
                paid,
                issued or distributed in respect of the Securities, the “Registrable
                Securities”). Pursuant to the Plainfield Registration Rights Agreement,
                the Holders of at least 20% of the Registrable Securities are entitled
                to
                request up to three demand registrations. In addition, the Company
                has
                agreed to use its commercially reasonable efforts to qualify for
                registration on a registration statement on Form S-3. After the Company
                has qualified for the use of Form S-3 or any comparable or successor
                form,
                the Holders of at least 25% of the Registrable Securities shall have
                the
                right, at least once in each 12-month period, to request a registration
                statement on Form S-3 covering the resale of the Registrable Securities.
                The Registration Rights Agreement also grants to the Holders certain
                piggyback registration rights.




Leases





q)
            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. During
                the
                nine month and three month period ended September 30, 2007, the Company
                had lease expense in the amount of $54,118 and $18,039, respectively.





r)
            On
                October 10, 2006, the Company entered into a lease for premises in
                Vancouver, British Columbia. Under the terms of the lease, the Company
                is
                required to make monthly payments of $3,000, plus applicable taxes,
                until
                October 2008. This lease was terminated during the period ended September
                30, 2007.





s)
            On
                January 8, 2007, the Company entered into a lease for premises in
                Buenos
                Aires, Argentina. Under the terms of the lease, the Company is required
                to
                make monthly payments of approximately $2,000, plus applicable taxes
                until
                August 2007. The Company for the nine month period and three month
                period
                ended September 30, 2007 incurred expenses in the amounts of $1,740
                and
                $870, respectively.





On
      June
      25, 2007, the Company received a letter from Wharton Capital Partners Ltd
      demanding the payment of $240,000 and common stock and warrant consideration
      pursuant to an agreement dated April 18, 2007. The Company believes that it
      has
      made the required payments pursuant to the April 18, 2007 agreement except
      for
      the payment of the convertible promissory note which is shown as a liability
      on
      the accompanying consolidated balance sheet.




18








**14. 
       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. The Company is
      currently seeking stockholder approval in a November 19, 2007 stockholders’
meeting to amend 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%.





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 8. 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
      three and nine months ended September 30, 2007, the Company amortized a total
      of $37,582 and $180,000, respectively, of the aforesaid debt issuance costs
      as other 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 are being amortized
      over
      the term of the Debenture. For
      the
      three and nine months ended September 30, 2007, the Company amortized a total
      of $44,312 and $212,232, respectively, of the aforesaid debt issuance costs
      as other expense in the accompanying consolidated statements of
      operations.





The
      Maturity Date of the Debentures was extended to October 19, 2007. As a result,
      the interest on the note was increased to 18% and 704,082 warrants were issued
      with an exercise price of $0.75, 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
      2007, the Company issued options to purchase 50,000 shares of common stock
      pursuant to a consulting agreement. The Company valued these options 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 options has been expensed
      as
      consulting 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.





19





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





Financing
      Contingency Escrow Agreement





During
      the nine months ended September 30, 2007, certain stockholders of the Company
      entered into a financing contingency escrow agreement with certain entities
      that
      will attempt to obtain financing for the Company. In accordance with the
      agreement a total of 6,000,000 common shares will be transferred from the
      individual stockholders to the entities that bring financing to the Company
      if
      financing in the amount of $7,500,000 is arranged before August 30, 2007. If
      less than $7,500,000 in financing is raised, a proportionate number of the
      6,000,000 common shares will be transferred. As of September 30, 2007 a total
      of
      6,000,000 common shares have been transferred as a result of the $3,000,000
      in
      convertible debenture financing mentioned below. On
      August
      30, 2007, the Company and the parties to the financing contingency escrow
      agreement entered into an amendment to the escrow agreement, pursuant to which
      the individual stockholders will transfer the common shares held in escrow
      upon
      the Company entering into a financing transaction, as referred above, on or
      before October 31, 2007. On September 12, 2007, the Company closed a $30.0
      million financing entitling the entities to their respective portions of 60%
      of
      the common shares held in escrow.





Stock
      Options





In
      2006,
      the Company adopted a Stock Option and Award Plan (the “Plan”) initially
      reserving an aggregate of 18,000,000 shares of the Company’s common stock (the
“Available Shares”) for issuance pursuant to the exercise of stock options. The
      plan options were increased to 21,000,000 in April 2007, subject to shareholder
      approval which has not yet been obtained.





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




During
      June 2007, the Company granted, 14,000,000 common stock options exercisable
      at
      $0.98 per share to various employees and directors. The options expire in June
      2017. The Company has recorded wages expense in the amount of $2,965,236 to
      reflect the value of these options for the period from the grant date to
      September 30, 2007. The Company valued these options using the Black Scholes
      model with the following factors: market price of $0.93; volatility of 92%;
      risk
      free rate of 5%; exercise price of $0.98; and an estimated life of 5 years. During
      the three months ended September 30, 2007, the Company re-priced these options
      reducing the exercise price from $0.98 to $0.60. The above mentioned expense
      includes the effect of the re-pricing.





On
      September 4, 2007, the Company and each of Luis Goyzueta, our Chief Executive
      Officer, Gustavo Goyzueta, our Chief Financial Officer, Alberto Pinto, our
      Chief
      Operating Officer, Steven Magami, our President, and Adam Roseman, 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.




20




The
      following summarizes the stock options transactions for the nine months ended
      September 30, 2007:




Number
                ofOptions
            
            Weightedaverageexerciseprice
            
            Weightedaverageremainingcontractuallife (in years)Outstanding,
                December 31, 2006
            
            
            -Granted
            
            
            14,000,000
            
            $
            0.60Outstanding,
                September 30, 2007
            
            
            14,000,000
            
            $
            0.60
            
            
            9.70




**15. 
       Warrants**




The
      following summarizes the stock purchase warrant transactions for the nine months
      ended September 30, 2007:





Number
                ofWarrants
            
            Weightedaverageexerciseprice
            
            Weightedaverageremainingcontractuallife (in years)Outstanding,
                December 31, 2006
            
            
            3,550,595
            
            $
            1.50Granted
            
            
            60,303,581
            
            $
            0.61Outstanding,
                September 30, 2007
            
            
            63,854,176
            
            $
            0.66
            
            
            4.66





**16. 
       Segmented Information**




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





U.S.
            
            Peru
            
            Argentina
            
            Total$
            
            $
            
            $
            
            $Net
                loss
            
            
            35,228,801
            
            
            2,557,744
            
            
            163,435
            
            
            37,949,980Property,
                Plant and equipment
            
            
            659,000
            
            
            9,232,123
            
            
            14,499
            
            
            9,905,622Total
                assets
            
            
            4,725,157
            
            
            13,200,744
            
            
            121,714
            
            
            18,047,615





**17. 
       Acquisition**




On
      May
      11, 2007, we entered into a binding letter of intent, with Interpacific Oil
      SAC,
      a Peruvian corporation and its stockholders, Luis Goyzueta, Alberto Pinto and
      Patrick Orlando, which provides for the acquisition by us of either all the
      assets or all the capital stock of Interpacific for an aggregate consideration
      of (1) $6.3 million, payable $0.7 million in cash and, a number of shares of
      the
      common stock of our Company equal to $5.6 million (subject to reduction as
      described below) divided by the per share purchase price of our common stock
      used in the first equity or debt financing following the execution of the letter
      of intent or if no such financing occurs within 90 days after the closing of
      the
      acquisition, then the lowest closing market price of our common stock between
      the execution of the definitive agreement and 90 days after the closing of
      the
      definitive agreement and (2) a five year warrant to purchase 2,925,000 shares
      of
      our common stock, at an exercise price equal to the closing bid price of our
      common stock on the trading day immediately preceding the date of the closing
      of
      the acquisition between the parties. Interpacific is related to the Company
      as
      Luis Goyzueta is the CEO, director and majority stockholder of the Company
      and
      Alberto Pinto is COO and director of the Company. This acquisition has not
      yet
      closed.




**18.   Subsequent
          Event**
 On
        October 29, 2007, the Company entered into a Waiver and Agreement, or the
        Waiver
        Agreement, by and among us, Pure Biofuels del Peru, Palma Industrial, (together
        with the Company, the “Borrowers”), the subsidiaries of the Borrowers and PSSM
        (Plainfield Special Situations Master Fund Limited), as Administrative Agent.
        Pursuant to the Waiver Agreement, the Borrowers may incur loans under the
        Loan
        Agreement, in accordance with the terms of the Loan Agreement, notwithstanding
        certain Specified Defaults (as defined in the Waiver Agreement) until November
        27, 2007.
 
 In
        consideration for the lender under the Loan Agreement and Administrative
        Agent
        entering into the Waiver Agreement, on October 29, 2007, we issued to Plainfield
        Peru II LLC 250,000 shares of our common stock. In addition, if all the
        Specified Defaults have not been cured prior to 12:00 p.m. (noon) New York
        City
        time on each of November 5, 2007, November 12, 2007, November 19, 2007 and
        November 26, 2007, we shall issue to Plainfield Peru II LLC 100,000 shares
        of
        our common stock on each such date. Pursuant to the terms of the Waiver
        Agreement, we issued 100,000 shares to Plainfield on each of November 5,
        2007
        and November 12, 2007.





21




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




You
      should read the following discussion of our financial condition and results
      of
      operations together with the reviewed financial statements and the notes to
      the
      reviewed financial statements included in this quarterly report. This discussion
      contains forward-looking statements that reflect our plans, estimates and
      beliefs. Our actual results may differ materially from those anticipated in
      these forward-looking statements.





We
      are
      engaged in the business of producing, processing and distributing biodiesel
      and
      related products as an alternative fuel for freight and transportation plants
      and the marine, farming, rail and aviation industries.





On
      September 15, 2006, we completed a share exchange agreement with Pure Biofuels
      del Peru, S.A.C. (“Pure Biofuels Peru”). As a result of the share exchange
      agreement, we abandoned our previous software development, website maintenance
      and server administration business and commenced the business of producing,
      processing and distributing biodiesel. Because we are the successor business
      to
      Pure Biofuels Peru and because the operations and assets of Pure Biofuels Peru
      represent our entire business and operations from the closing date of the share
      exchange agreement, our management's discussion and analysis and plan of
      operations are based on Pure Biofuels Peru's intended operations.





On
      September 15, 2006, in connection with the closing of the share exchange
      agreement, we changed our fiscal year end to December 31. The share exchange,
      contemplated by the share exchange agreement, was deemed to be a reverse
      acquisition for accounting purposes. Pure Biofuels Peru, the acquired entity,
      is
      regarded as the predecessor entity as of September 15, 2006. Starting with
      the
      periodic report for the quarter in which the acquisition was consummated, our
      Company will file annual and quarterly reports based on the December 31 fiscal
      year end of Pure Biofuels Peru. Such financial statements will depict the
      operating results of Pure Biofuels Peru, including the acquisition of Pure
      Biofuels Peru by us, from September 15, 2006.





***Plan
      of Operations***





**Overview**





This
      quarterly report contains forward-looking statements that involve significant
      risks and uncertainties. The following discussion, which focuses on our plan
      of
      operation through the commencement of operations of our plant, consists almost
      entirely of forward-looking information and statements. Actual events or results
      may differ materially from those indicated or anticipated, as discussed in
      the
      section entitled “Forward Looking Statements.”





We
      intend
      to construct and operate a 52.5 million gallon biodiesel production plant at
      a
      site near the Callao Port in Lima, Peru. 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 plant, engaging
      service providers and related activities.





The
      plant
      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
      pounds 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.





We
      will
      not generate revenue until we complete construction of our plant and commence
      operations. We expect to complete construction of our plant in the first quarter
      of 2008 and to commence full production capabilities by mid-2008.





In
      order
      to finance the construction of our plant, on
      September 12, 2007, we, as Guarantor, entered into a $20,000,000 loan agreement,
      or the Plainfield 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, or the
      Borrowers, the lender party thereto and Plainfield Special Situations Master
      Fund Limited, a Cayman Islands corporation, as Administrative Agent . The
      Borrower’s initial borrowings under the Loan Agreement were $5,000,000. On
      October 29, 2007, the Borrowers borrowed an additional $5,000,000. Subsequent
      borrowings under the Loan Agreement must be for at least $2,000,000 and will
      be
      in the form of either base rate loans or Eurodollar loans, each as defined
      in
      the credit agreement.




22





Also
      on
      September 12,
      2007, for aggregate consideration of $10,000,000, we entered into a securities
      purchase agreement, or the Securities Purchase Agreement, with PSSM,
      Plainfield Peru I LLC and Plainfield Peru II LLC, or Plainfield, pursuant
      to which we agreed to sell to Plainfield (1) 11,000,000 shares of our common
      stock, (2) $10,000,000 aggregate principal amount of our 10/12% PIK convertible
      notes, or the PIK Notes and (3) warrants to purchase up to 56,938,245 shares
      of
      our common stock, or the Warrants.





We
      intend
      to utilize the proceeds of such financing and additional financing
      required as follows:





Use
                of Proceeds
            
            AmountOrganizational
                and Financing Costs
            
            $
            3,000,000Capital
                Equipment
            
            $
            22,400,000Working
                Capital
            
            $
            6,000,000Growth
                Initiatives: Research and Due Diligence
            
            $
            1,500,000Contingency
            
            $
            1,100,000Total
            
            $
            33,000,000





In
      addition to the aggregate $30,000,000 of financing we received from PSSM and
      Plainfield on September 12, 2007, we expect that we will need to raise an
      additional $5,000,000 in order to complete construction of our plant. The
      amounts set forth above are estimates only and are subject to
      change.





***Results
      of Operation***





For
      the
      three and nine months ended September 30, 2007, we had no revenues from
      operation and our operating expenses were $2,991,924 and $7,657,747,
      respectively. Since May 10, 2006 (date of inception) until September 30, 2007
      we
      had no revenues and our operating expenses were $8,733,358. Included in our
      operating expenses for the three and nine months ended and from inception to
      September 30, 2007 was a charge of $602,689, $2,965,236 and $2,965,236,
      respectively, related to stock options issued to employees and directors in
      accordance with SFAS No. 123R. Until our biodiesel plant is operational or
      we
      complete the acquisition of Interpacific Oil S.A.C., we do not expect to
      generate any revenues, and we will continue to incur expenses relating to the
      building of our biodiesel plant.





***Other
      expenses***





Other
      expenses for the nine months ended September 30, 2007 is principally a result
      of
      interest and financing cost of $10,665,996, increase in accrued derivative
      liability of $15,492,252 and amortization of debt discounts and debt issuance
      costs of $4,133,886. Interest and financing costs consists of interest paid
      and
      accrued on our outstanding debt, the premium paid to retire our $3,000,000
      convertible debenture, the value of penalty warrants issued in July 2007 and
      the
      non-cash financing charge of $9,346,885 related to the PIK Notes. PIK
      (payments other than cash) interest on this note will accrue at the rate of
      12%
      per annum and be payable by issuing additional notes, or PIK notes, in an
      aggregate principal amount equal to the amount of PIK interest for the
      applicable interest period and we will issue and deliver such PIK notes to
      the
      holder of this note.The increase in accrued derivative liability is a
      result of the increase in our stock price which increased the fair value of
      the outstanding options and warrants that have been recorded as accrued
      derivative liability in the balance sheet. The amortization of debt discounts
      and debt issuance costs are a result of the debt issue costs and debt discounts
      associated with the $3,000,000 convertible debenture and the PIK
      Notes.




**Organizational
      and Financing Costs**





We
      estimate that our organization and financing costs for the next twelve month
      period will be approximately $3,000,000. These costs will primarily consist
      of
      placement agent fees, commitment fees, legal, administrative, compliance
      and other expenses.





**Capital
      Equipment**





We
      are beginning to acquire the processing equipment. Based on our project
      schedule, completion and startup of the plant is planned for mid - 2008. Our
      planned capital expenditures for the next twelve month period in connection
      with
      the construction of the plant are estimated as follows:




23




**Infrastructure
                  / Activity**
              
              **Cost**Tanks
                  –
                  170,000 MT of storage (installed, including valves, piping,
                  etc)
              
              $
              9,300,000Water
                  treatment plant
              
              $
              400,000Civil
                  works (including administrative building, access road and other
                  infrastructure)
              
              $
              950,000Underwater
                  pipes
              
              $
              1,800,000Refinery
                  (including reactors, piping and pumps)
              
              $
              7,300,000Services
                  building (electrical substation, quality control laboratory, boilers,
                  water softener etc.)
              
              $
              1,000,000Miscellaneous/
                  Contingency (including foreign currency exchange impact)
              
              $
              1,650,000**Total**
              
              **$**
              **22,400,000**





**Growth
      Initiatives: Research and Due Diligence**





We
      estimate that our research and due diligence costs for the next twelve month
      period will be approximately $1,500,000. These costs will primarily consist
      of
      feasibility studies to start our own plantations of palm oil, canola and
      jatropha in order to be self sufficient in the sourcing of our feedstock. It
      also includes all the costs of engineering and permitting needed for our
      indirect subsidiary, Pure Biocarburantes, S.A.





**Contingency**





We
      estimate that our contingency costs for the next twelve month period will be
      approximately $1,650,000. These costs will primarily consist of increases in
      raw
      materials cost for plant construction such as steel or cement or delays in
      permitting from the local authorities and increased costs due to the weakening
      of the U.S. dollar.





**Employees**





We
      estimate that our employee and consultant compensation expenses for the next
      twelve month period will be approximately $1,500,000. These costs will primarily
      consist of wages and consulting contracts for hired professionals.





There
      will be 24 employees pre-construction and 45 employees post-construction of
      our
      processing plant. The new employees post-construction will consist of plant
      operators and quality control personnel.





**Trends
      and Uncertainties**





Our
      ability to generate revenues in the future is dependent on whether we
      successfully complete construction of our biodiesel processing plant and
      it
      begins operating. We will not be able to complete construction unless we secure
      additional financing of at least $5,000,000 .
      We
      cannot predict whether or when this may happen and this causes uncertainty
      with
      respect to the continuation and growth of our Company and our ability to
      generate revenues.





**Financing**





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.





On
      April
      19, 2007 we entered into a purchase agreement with an accredited investor,
      pursuant to which we agreed to sell up to $3 million aggregate principal amount
      of our 12% senior secured convertible debentures due July 19, 2007 and warrants
      to purchase up to 704,082 shares of our common stock in a private placement
      to an accredited investor within the meaning of Rule 501 of Regulation D under
      the Act. The sale of $3 million aggregate principal amount of debentures and
      warrants to purchase an aggregate of up to 704,082 shares of common stock was
      consummated on April 19, 2007. In connection with the sale of the debentures,
      we
      paid various fees in the amount of $175,000 from the proceeds of the sale to
      the
      advisor of the accredited investor.





24




On
      September 12, 2007, we ,
      as
      Guarantor, entered
      into the Loan Agreement . Our
      initial borrowings under the Loan Agreement were $5,000,000. On October 29,
      2007, the Company undertook a subsequent borrowing under the Loan Agreement
      in
      the amount of $5,000,000. Subsequent borrowings under the Loan Agreement must
      be
      for at least $2,000,000 and will be in the form of either base rate loans or
      Eurodollar loans, each as defined in the Loan Agreement. Obligations under
      the
      Loan Agreement are secured by liens on substantially all of the assets of us,
      the Borrowers and each of the Borrowers’ subsidiaries. The Loan Agreement
      terminates on January 12, 2011. Payments of interest on borrowings under the
      Loan Agreement are payable monthly. After September 12, 2009, principal amounts
      owed under the Loan Agreement may be prepaid at a rate of 108%. In addition,
      the
      Loan Agreement provides for certain mandatory prepayments, including, without
      limitation, upon the receipt of any cash proceeds from any capital contribution
      or any sale or issuance of equity interests, any cash proceeds from any issuance
      or incurrence of certain indebtedness and any cash proceeds from any asset
      sale.





Obligations
      under the Loan Agreement are immediately due and payable upon the occurrence
      of
      certain events of default, as defined in the Loan Agreement, including, without
      limitation: (i) default in the payment when due of any principal of any Loan
      or
      any PIK Note; (ii) default, and such default shall continue unremedied for
      three
      or more business days, in the payment when due of any interest on any Loan
      or
      any Note or any fees or any other amounts owing under the Loan Agreement; (iii)
      any representation, warranty or statement made or deemed made by any credit
      party pursuant to the Loan Agreement shall prove to be untrue in any material
      respect on the date as of which made or deemed made; (iv) default by any credit
      party of any obligation contained in the Loan Agreement; (v) default in the
      repayment of other indebtedness exceeding $100,000; (vi) certain events of
      bankruptcy; (vii) any of the loan documents shall cease to be in full force
      and
      effect; (viii) one or more judgments or decrees shall be entered against a
      credit party equal to or exceeding an aggregate of $100,000; (ix) a change
      of
      control; or (x) an event of default under the PIK Notes.





Also on
      September 12, 2007, we entered into a Securities Purchase Agreement pursuant
      to
      which we agreed to sell to Plainfield (1) 11,000,000 Shares of our common stock,
      (2) the PIK Notes, and (3) the Warrants. The PIK Notes are convertible into
      16,666,667 shares of our common stock at the option of the holder of Notes
      at
      any time after the date
      upon
      which we obtain stockholder approval to increase the number of authorized shares
      of our common stock from 93,750,000 to a number sufficient to support the
      issuance of the common stock underlying the PIK Notes and the Warrants, or
      the
      Amendment Date, 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
      Securities Purchase Agreement. We will pay interest on the PIK Notes
      semi-annually in arrears on March 15 and September 15 of each year, commencing
      March 15, 2008. Subject to the conversion rights set forth below, we are
      obligated to pay 100% of the principal amount of the PIK Notes, plus accrued
      and
      unpaid interest, in cash on the maturity date of the PIK Notes, or September
      12,
      2012, provided,
      however, that we may, at our option, elect to pay interest on the PIK Notes
      (i)
      entirely in cash, or (ii) entirely by issuing additional PIK Notes in PIK
      interest. The
      first
      payment of interest shall be paid in PIK interest. PIK
      (payments other than cash) interest on this note will accrue at the rate of
      12%
      per annum and be payable by issuing additional notes in an aggregate principal
      amount equal to the amount of PIK interest for the applicable interest period
      and we will issue and deliver such PIK notes to the holder of this
      note.





The
      PIK
      Notes are senior unsecured obligations of ours and rank equally in right of
      payment to our future senior indebtedness. The PIK Notes also restrict our
      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.





If
      there
      is an event of default on the PIK Notes, the principal amount of the PIK Notes,
      plus accrued and unpaid interest may be declared immediately due and payable,
      subject to certain conditions set forth in the PIK Notes. These amounts
      automatically become due and payable in the case of certain types of bankruptcy
      or insolvency events. It is an event of default under the PIK Notes if (i)
      we
      fail to pay accrued interest, principal amount or another amount with respect
      to
      the PIK Notes when due; (ii) certain events of bankruptcy, insolvency or
      reorganization with respect to the Company specified in the PIK Notes occur;
      (iii) we fail to pay when due any other indebtedness in excess of $100,000;
      (iv) any
      of
      the Transaction Documents (as defined in the Securities Purchase Agreement)
      shall cease to be in full force and effect ;
      (v) we
      fail to make the payments on the PIK Notes required upon a Change of Control
      (as
      defined in the Securities Purchase Agreement) (vi) certain judgments
      or decrees shall be entered against us or any of our subsidiaries in an amount
      exceeding $100,000 ;
      (vii) the
      Amendment Date shall not have occurred on or prior to November 30, 2007 (unless
      otherwise extended to January 31, 2008 pursuant to the Securities Purchase
      Agreement); (viii) we default in the due performance or observance of any term,
      covenant or agreement contained in the Securities Purchase Agreement; or
      (ix)
      a ny
      representation, warranty or statement made or deemed made by us in connection
      with this transaction shall prove to be untrue in any material respect on the
      date as of which made or deemed made.




25





The
      Warrants are exercisable into 56,938,245 shares of our common stock at the
      option of the holder of Warrants at any time after the Amendment
      Date upon which we obtain 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 PIK Notes
      and the Warrants up to
      and including September 12, 2014, at an initial exercise price of $0.60 per
      share. The exercise price is subject to adjustment in accordance with the terms
      of the Warrants.





Given
      that we are a development stage company and have not generated any revenues
      to
      date, our cash flow projections are subject to numerous contingencies and risk
      factors beyond our control, including our ability to manage our expected growth,
      complete construction of our proposed plant and commence operations. We can
      offer no assurance that our Company will generate cash flow sufficient to meet
      our cash flow projections or that our expenses will not exceed our projections.
      If our expenses exceed estimates, we will require additional monies during
      the
      next twelve months to execute our business plan.





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





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





**Recent
      Developments**





On
      October 29, 2007, the Company entered into a Waiver and Agreement, or the Waiver
      Agreement, by and among us, Pure Biofuels del Peru, Palma Industrial, (together
      with the Company, the “Borrowers”), the subsidiaries of the Borrowers and PSSM
      (Plainfield Special Situations Master Fund Limited), as Administrative Agent.
      Pursuant to the Waiver Agreement, the Borrowers may incur loans under the Loan
      Agreement, in accordance with the terms of the Loan Agreement, notwithstanding
      certain Specified Defaults (as defined in the Waiver Agreement) until November
      27, 2007.





In
      consideration for the lender under the Loan Agreement and Administrative Agent
      entering into the Waiver Agreement, on October 29, 2007, we issued to Plainfield
      Peru II LLC 250,000 shares of our common stock. In addition, if all the
      Specified Defaults have not been cured prior to 12:00 p.m. (noon) New York
      City
      time on each of November 5, 2007, November 12, 2007, November 19, 2007 and
      November 26, 2007, we shall issue to Plainfield Peru II LLC 100,000 shares
      of
      our common stock on each such date. Pursuant to the terms of the Waiver
      Agreement, we issued 100,000 shares to Plainfield on each of November 5, 2007
      and November 12, 2007.




***Liquidity
      and Capital Resources***





As
      of
      September 30, 2007, we had $1,337,412 in cash and cash equivalents. In addition,
      for the nine months ended September 30, 2007, our cash used in operating
      activities was $3,699,641.





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




26




In
      addition to the $30,000,000 financing completed on September 12, 2007, we
      believe we will need additional financing of approximately $5,000,000 to
      complete construction of our plant and begin operations.





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





**Going
      Concern**





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





Due
      to
      the uncertainty of our ability to meet our current operating expenses and the
      capital expenses noted above, in their report on the annual financial statements
      for the year ended December 31, 2006, our independent auditors included an
      explanatory paragraph regarding concerns about our ability to continue as a
      going concern. Our financial statements contain additional note disclosures
      describing the circumstances that lead to this disclosure by our independent
      auditors.





The
      continuation of our business is dependent upon us raising additional financial
      support. The issuance of additional equity securities by us could result in
      a
      significant dilution in the equity interests of our current stockholders.
      Obtaining commercial loans, assuming those loans would be available, will
      increase our liabilities and future cash commitments.





***Off-Balance
      Sheet Arrangements***





We
      have
      no outstanding off-balance sheet guarantees, interest rate swap transactions
      or
      foreign currency contracts. Neither us nor our operating subsidiary engages
      in
      trading activities involving non-exchange traded contracts.





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





**Use
      of Estimates**





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




27





**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.





**Accrued
      Derivative Liability**





As
      a
      result of us issuing the notes and warrants in September 2007, we do not have
      enough authorized shares to satisfy the conversion of all the warrants and
      options outstanding. Therefore, the outstanding options and warrants
      have been recorded at fair value and shown as accrued derivative liability
      at
      September 30, 2007. The
      fair
      value of the accrued derivative liability is determined at each balance sheet
      date using
      the Black-Scholes option pricing model.





**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.





**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.




28





**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 subject to shareholder approval. 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.





The
      Company issued 14,000,000 stock options to employees and directors during the
      nine months ended September 30, 2007. The
      fair
      values of employee stock options are estimated for the calculation of the pro
      forma adjustments in the above table at the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions: expected volatility of 92%; average risk-free interest rate of
      5.0%; expected life of 5.0 years; no expected dividend yield; and amortized
      over
      the vesting period of three years. We recognized $2,965,236 in share-based compensation expense for the nine
      months ended September 30, 2007.





***Recent
      Accounting Pronouncements***





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how
      the effects of prior year uncorrected misstatements should be considered when
      quantifying misstatements in current year financial statements. SAB No. 108
      requires companies to quantify misstatements using a balance sheet and income
      statement approach and to evaluate whether either approach results in
      quantifying an error that is material in light of relevant quantitative and
      qualitative factors. SAB No. 108 is effective for period ending after November
      15, 2006. The adoption of SAB No. 108 had no effect on our consolidated
      financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
      objective of SFAS No. 157 is to increase consistency and comparability in fair
      value measurements and to expand disclosures about fair value measurements.
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements and does not require any new
      fair
      value measurements. The provisions of SFAS No. 157 are effective for fair value
      measurements made in fiscal years beginning after November 15, 2007. The
      adoption of this statement is not expected to have a material effect on our
      future reported financial position or results of operations.





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 for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      No. 159 on our financial position and results of operations.





**Risk
      Factors**




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




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




29




Our
      common shares are considered speculative during the development of our new
      business operations. Prospective investors should consider carefully the risk
      factors set out below.




In
      addition to the risk factors below, please see our Risk Factors in Item 1 from
      our annual report on Form 10-KSB for the year ended December 31, 2006, filed
      April 13, 2007.




***The
      number of issued and outstanding warrants poses the risk of dilution of
      ownership and voting power of our existing
      stockholders.***




We
      currently have issued and outstanding warrants to purchase 63,854,176 shares
      of
      the Company’s common stock. If a substantial portion or all of these warrants
      are exercised or are converted into stock, such conversion or exercise would
      cause a reduction in the proportionate ownership and voting power of all current
      stockholders.




In
      addition, we currently do not have sufficient shares of common stock authorized
      to allow for the exercise in full of the issued and outstanding warrants.
      However, the warrants held by Plainfield are not exercisable until the Amendment
      Date upon which the Company obtains 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. The Company is currently seeking stockholder approval to amend
      its
      Articles of Incorporation to increase the number of authorized shares to
      250,000,000. If the Company does not obtain the required stockholder vote,
      it
      will continue to lack sufficient shares of authorized common stock to allow
      for
      the exercise of all of the issued and outstanding warrants.




***Our
      failure to comply with the covenants contained in the Loan Agreement or the
      PIK
      Notes, or any other agreement governing our debt, including our failure as
      a
      result of events beyond our control, could result in an event of default, which
      would materially and adversely affect our financial
      condition.***




If
      there
      were an event of default under our Loan Agreement or the PIK Notes, the lenders
      could cause all amounts outstanding with respect to that debt to be due and
      payable immediately. It is likely that, if the defaulted debt is accelerated,
      our assets and cash flow will not be sufficient to fully repay borrowings under
      our outstanding debt instruments and we cannot assure you that we would be
      able
      to refinance or restructure the payments under the Loan Agreement. Further,
      if
      we are unable to repay, refinance or restructure payments under the Loan
      Agreement, the lender under the Loan Agreement could proceed against the
      collateral securing the loan. In that event, any proceeds received upon a
      realization of the collateral would be applied to amounts due under the Loan
      Agreement and it is unlikely that we would be able to obtain additional
      financing or continue our operations. On October 29, 2007, we entered into
      the
      Waiver Agreement, pursuant to which we and the borrowers under the Loan
      Agreement may incur loans under the Loan Agreement, in accordance with the
      terms
      of the Loan Agreement, notwithstanding certain Specified Defaults (as defined
      in
      the Waiver Agreement) until November 27, 2007. If we are unable to cure the
      Specified Defaults by November 27, 2007, the Administrative Agent may declare
      an
      Event of Default under the Loan Agreement.




Pursuant
      to the terms of the PIK Notes, by November 30, 2007, we are required to 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. If we are unable to obtain stockholder
      approval for such amendment by November 30, 2007, we will be in default under
      both the PIK Notes and the Loan Agreement. If this were to occur, we may be
      required to repay all loans under the Loan Agreement plus interest and certain
      repayment premiums and the $10,000,000 principal amount of the PIK Notes may
      be
      declared immediately due and payable. We currently would not be able to repay
      the amounts owed under the PIK Notes and the Loan Agreement in the case of
      an
      Event of Default.


Weakness
        of the U.S. dollar versus other currencies may increase our costs of operation
        and adversely affect our reported operating results.
  We
        typically raise equity and debt financing in U.S. dollars. Recently, the
        value
        of the U.S. dollar has decreased against other currencies including the euro
        and
        the Peruvian Nuevos Soles, or PEN. Many of our expenses in building our facility
        are denominated in euros and PENs which has increased the overall cost of
        construction. The PEN is the primary operating currency for our business
        operations while our financial results are reported in U.S. dollars. Trends
        in
        sales, expenses and profits may experience significant fluctuations as the
        rate
        of exchange between the PEN and the U.S. dollar fluctuates. We cannot assure
        you
        what effect, if any, changes in the exchange rate of the PEN against the
        U.S.
        dollar will have on our results of operations and financial condition.
  We
        do not
        currently engage in any currency hedging transactions intended to reduce
        the
        effect of fluctuations in foreign currency exchange rates on our results
        of
        operations. We cannot guarantee that we will enter into hedging transactions
        in
        the future or, if we do, that these transactions will successfully protect
        us
        against currency fluctuations.




***If
        we fail to maintain an effective system of internal controls, we may not
        be able
        to accurately report our financial results or prevent
        fraud.***
 
 We
        will
        be subject to reporting obligations under the U.S. securities laws. The
        Securities and Exchange Commission (“SEC”), as required by Section 404 of
        the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), adopted rules requiring
        every public company to include a management report on such company’s internal
        controls over financial reporting in its annual report, which contains
        management’s assessment of the effectiveness of the company’s internal controls
        over financial reporting. In addition, an independent registered public
        accounting firm must attest to and report on management’s assessment of the
        effectiveness of the company’s internal controls over financial reporting. These
        requirements will first apply to our annual report on Form 10-K for the fiscal
        year ending December 31, 2007. Our management may conclude that our
        internal controls over our financial reporting are not effective. Moreover,
        even
        if our management concludes that our internal controls over financial reporting
        are effective, our independent registered public accounting firm may still
        decline to attest to our management’s assessment or may issue a report that is
        qualified if it is not satisfied with our controls or the level at which
        our
        controls are documented, designed, operated, or reviewed, or if it interprets
        the relevant requirements differently from us. Our reporting obligations
        as a
        public company will place a significant strain on our management, operational,
        and financial resources and systems for the foreseeable future. Effective
        internal controls, particularly those related to revenue recognition, are
        necessary for us to produce reliable financial reports and are important
        to help
        prevent fraud. As a result, our failure to achieve and maintain effective
        internal controls over financial reporting could result in the loss of investor
        confidence in the reliability of our financial statements, which in turn
        could
        harm our business and negatively impact the trading price of our stock.
        Furthermore, we anticipate that we will incur considerable costs and use
        significant management time and other resources in an effort to comply with
        Section 404 and other requirements of the Sarbanes-Oxley
        Act.




30




**Item
      3. Controls and Procedures**




Evaluation
      of Disclosure Controls and Procedures




Under
      the
      supervision and with the participation of our management, including the Chief
      Executive Officer and Chief Financial Officer, we have evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Exchange Act Rule 13a-15(e) or Rule 15d-15(e) as of
      the
      end of the period covered by this report. Based on that evaluation, the Chief
      Executive Officer and Chief Financial Officer have concluded that these
      disclosure controls and procedures are effective. There were no changes in
      our
      internal control over financial reporting during the quarter ended September
      30,
      2007 that have materially affected, or are reasonably likely to materially
      affect, our internal controls over financial reporting. Potential investors
      should be aware that the design of any system of controls and procedures is
      based in part upon certain assumptions about the likelihood of future events.
      There can be no assurance that any design will succeed in achieving its stated
      goals under all potential future conditions, regardless of how
      remote.




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





**PART
      II - OTHER INFORMATION**




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




The
      following sets forth certain information regarding sales of equity securities
      that were either not registered under the Securities Act or not previously
      included in a Current Report on Form 8-K during the three months ended September
      30, 2007.




On
      July
      20, 2007, for aggregate consideration of $630,400, the Company entered into
      subscription agreements with certain accredited investors pursuant to which
      we
      agreed to sell an aggregate of 1,050,667 units in a private placement pursuant
      to Section 4(2) or Regulation D under the Act. Each unit consists of one common
      share and one common share purchase warrant. Each warrant entitles the holder
      to
      purchase one share of common stock for a period of five years from closing
      at a
      price of $ 0.80.




On
      September 12, 2007, for aggregate consideration of $10,000,000 the Company
      entered into the Securities Purchase Agreement with PSSM and
      Plainfield, pursuant
      to which we agreed to sell to Plainfield (1) 11,000,000 shares of our common
      stock (the “Shares”), (2) $10,000,000 aggregate principal amount of our PIK
      Notes and (3) warrants to purchase up to 56,938,245 shares of the Company’s
      common stock at an exercise price of $0.60 per share. The PIK Notes are
      convertible into 16,666,667 shares of our common stock at the option of the
      holder of the PIK Notes at any time after the Amendment Date and on or prior
      to
      September 12, 2012, at a conversion price of $0.60 per share. In connection
      with
      this issuance, we paid agent and investment banking fees of $1,046,000 from
      the
      proceeds of the sale.


**Item
        3. Defaults Upon Senior Securities.**
  On
        October 29, 2007, we entered into a Waiver and Agreement by and among us,
        Pure
        Biofuels del Peru S.A.C., a Peruvian corporation and our 99.9% subsidiary,
        Palma
        Industrial S.A.C., a Peruvian corporation and our 99.9% subsidiary, the
        subsidiaries of the borrowers and Plainfield Special Situations Master Fund
        Limited, a Cayman Islands company. Pursuant to the Waiver Agreement, the
        borrowers may incur loans under the Loan Agreement, dated September 12, 2007,
        by
        and between the borrowers, the lender party thereto and the Administrative
        Agent
        in accordance with the terms of the Loan Agreement notwithstanding certain
        Specified Defaults (as defined in the Waiver Agreement) until November 27,
        2007.
  In
        consideration for the lender and Administrative Agent entering into the Waiver
        Agreement, on October 29, 2007, we issued to Plainfield Peru II LLC 250,000
        shares of common stock. In addition, if all the Specified Defaults have not
        been
        cured prior to 12:00 p.m. (noon) New York City time on each of November 5,
        2007,
        November 12, 2007, November 19, 2007 and November 26, 2007, the Company shall
        issue to Plainfield Peru II LLC 100,000 shares of Common Stock on each such
        date. We issued 100,000 shares of common stock on November 5, 2007 and November
        12, 2007.
  **Item
        4. Submission of Matters to a Vote of Security Holders.**
  On
        July
        23, 2007, we held a special meeting of our stockholders to 1) amend our Articles
        of Incorporation, to increase the number of authorized shares of common stock,
        from 93,750,000 shares to 250,000,000 shares, and to authorize 1,000,000
        shares
        of preferred stock, which may be issued in one or more series, with such
        rights,
        preferences, privileges and restrictions as shall be fixed by our Board of
        Directors from time to time and 2) amend and restate our 2006 Stock Option
        and
        Award Plan to, among other things, increase the number of shares authorized
        under the plan from 18,000,000 to 21,000,000 and expand the types of awards
        that
        may be granted under the plan. However, the number of shares that voted at
        the
        meeting did not constitute a quorum and we postponed the meeting until August
        10, 2007 and again until August 24, 2007. We never obtained a quorum so did
        not
        hold the meeting. We have subsequently filed a new proxy statement with a
        new
        record date and are holding a meeting of stockholders on November 19,
        2007.




31


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




**Exhibit
                No.**
            **Description
                of Exhibit**3.1
            
            Amended
                & Restated Bylaws of Pure Biofuels Corp. (incorporated by reference
                from the Current Report on Form 8-K filed on September 18,
                2007).


4.1
              
              10%/12%
                  Senior Convertible PIK Election Note, dated September 12, 2007,
                  issued by
                  Pure Biofuels Corp. to Plainfield Peru I LLC.
 4.2
                
                Voting
                    Agreement, dated September 12, 2007, between certain of the stockholders
                    of Pure Biofuels Corp., Plainfield Special Situations Mater Fund
                    Limited,
                    Plainfield Peru I LLC and Plainfield Peru II LLC.


4.3
            
            Stockholders
                Agreement, dated September 12, 2007, between Pure Biofuels Corp.,
                Luis
                Goyzueta, Plainfield Special Situations Mater Fund Limited, Plainfield
                Peru I LLC and Plainfield Peru II LLC.


4.4
            
            Form
                of Amendment to Option Agreement (incorporated by reference from
                the
                Current Report on Form 8-K filed on September 10, 2007).10.1
            
            Securities
                Purchase Agreement, dated September 12, 2007, between Pure Biofuels
                Corp.,
                Plainfield Special Situations Mater Fund Limited, Plainfield Peru
                I LLC
                and Plainfield Peru II LLC.10.2
            
            Registration
                Rights Agreement, dated September 12, 2007, between Pure Biofuels
                Corp.,
                ARC Investment Partners, LLC, Tapirdo Enterprises, LLC and SGM Capital,
                LLC.10.3
            
            Registration
                Rights Agreement, dated September 12, 2007, between Pure Biofuels
                Corp.,
                Plainfield Special Situations Mater Fund Limited, Plainfield Peru
                I LLC
                and Plainfield Peru II LLC.10.4
            
            Amendment,
                dated September 12, 2007, to the Employment Agreement dated June
                22, 2007
                between Pure Biofuels Corp. and Steven Magami.10.5
            
            Employment
                Agreement, dated June 22, 2007, by and between Pure Biofuels Corp.
                and
                Steven Magami (incorporated by reference from Exhibit 10.8 from the
                Quarterly Report on Form 10-QSB filed on August 14, 2007).10.6
            
            Stock
                Purchase Warrant, dated September 12, 2007, granted to Plainfield
                Peru II
                LLC.10.7
            
            Loan
                Agreement, dated September 12, 2007, by and among Pure Biofuels Corp.,
                Pure Biofuels del Peru S.A.C., Palma Industrial S.A.C., Lenders and
                Plainfield Special Situations Master Fund Limited.




32




10.8
            
            Note
                in the name of Palma Industrial S.A.C.10.9
            
            Note
                in the name of Pure Biofuels del Peru S.A.C.10.10
            
            Subsidiaries
                Guaranty by and among Pure Biofuels del Peru S.A.C. and Pure Biofuels
                Corp. in favor of Plainfield Special Situations Master Fund
                Limited.10.11
            
            Environmental
                Indemnity, dated as of September 10, 2007, by and between Pure Biofuels
                del Peru S.A.C. and Palma Industrial S.A.C., in favor of Plainfield
                Special Situations Master Fund Limited.


10.12
            
            Service
                Agreement dated August 6, 2007, by and between Ocean Marine S.A.C.
                and Pure Biofuels Del Peru S.A.C.


10.13
              
              Pledge
                  Agreement, dated September 12, 2007, by and among Pure Biofuels
                  Corp.,
                  Pure Biofuels del Peru S.A.C., Palma Industrial S.A.C., Lenders
                  and
                  Plainfield Special Situations Master Fund Limited.


31.1
            
            Certifications
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certifications
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certifications
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.32.2
            
            Certifications
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.





33





**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**PURE
                BIOFUELS CORP.**Date:
                November 14, 2007
            By:
            /s/
                Luis GoyzuetaLuis
                Goyzueta,
              CEO
                & DirectorDate:
                November 14, 2007
            By:
            /s/
                Gustavo GoyzuetaGustavo
                Goyzueta,
              Chief
                Financial Officer




34