UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q




(Mark
One)


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


For the
quarterly period ended March 31,
2009


 ̈


For the
transition period from _______ to _______.




Commission
file number000-50907




PURE
BIOFUELS CORP.




(Exact
Name of Registrant as Specified in Its Charter)




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





701
Brazos Street, Suite 1050


Austin,
TX 78707


(Address
of Principal Executive Offices) (Zip Code)




1-310-402-5916


(Registrant’s
Telephone Number, Including Area Code)




N/A


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




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x  No
 ̈




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





Large accelerated filer  ̈
                          Accelerated filer  ̈Non-accelerated filer  ̈  (Do not check if
                            a smaller reporting company)
                          Smaller reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈No
x
 As of May
11, 2009, the Company had 172,374,699 outstanding shares of common stock, par
value $0.001.


PURE
BIOFUELS CORP. AND SUBSIDIARIES




TABLE OF
CONTENTS




PageNumberPART
      I.
                                  FINANCIAL
      INFORMATIONItem
      1.
                                  Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2009 (unaudited) andDecember
      31, 2008
                                  3Consolidated
      Statements of Operations and Other Comprehensive Incomefor
      the three months ended March 31, 2009 and 2008 and for the
      periodfrom
      May 10, 2006 (date of inception) to March 31, 2009
    (unaudited)
                                  4Consolidated
      Statement of Stockholders' Equity (Deficit) for the period
      fromMay
      10, 2006 (date of inception) to March 31, 2009 (unaudited)
                                  5Consolidated
      Statements of Cash Flows for the three months endedMarch
      31, 2009 and 2008 and for the period from May 10, 2006(date
      of inception) to March 31, 2009 (unaudited)
                                  6Notes
      to Consolidated Financial Statements (unaudited)
                                  7Item
      2.
                                  Management’s
      Discussion and Analysis or Plan of Operations
                                  36Item
      3.
                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                  48Item
      4.
                                  Controls
      and Procedures
                                  48PART
      II.
                                  OTHER
      INFORMATION
                                  49Item
      1.
                                  Legal
      Proceedings
                                  49Item
      1A.
                                  Risk
      Factors
                                  49Item
      2.
                                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                                  49Item
      3.
                                  Defaults
      Upon Senior Securities
                                  49Item
      4.
                                  Submission
      of Matters to a Vote of Security Holders
                                  49Item
      5.
                                  Other
      Information
                                  49Item
      6.
                                  Exhibits
                                  49SIGNATURES
                                  50




2




PURE
BIOFUELS CORP. AND SUBSIDIARIES


(A
Development Stage Company)


CONSOLIDATED
BALANCE SHEETS


AS
OF MARCH 31, 2009 AND DECEMBER 31, 2008





March
      31,
                                                                  
                                                                  
                                                                  December
      31,2009
                                                                  
                                                                  
                                                                  2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                                                  
                                                                  $
                                                                  1,343,722
                                                                  
                                                                  
                                                                  $
                                                                  579,241Restricted
      cash
                                                                  
                                                                  
                                                                  141,957
                                                                  
                                                                  
                                                                  
                                                                  141,775Accounts
      receivable
                                                                  
                                                                  
                                                                  57,625
                                                                  
                                                                  
                                                                  
                                                                  148,337Other
      receivables
                                                                  
                                                                  
                                                                  534,618
                                                                  
                                                                  
                                                                  
                                                                  11,539Inventories
                                                                  
                                                                  
                                                                  1,066,929
                                                                  
                                                                  
                                                                  
                                                                  1,192,362Prepaid
      expenses and other assets
                                                                  
                                                                  
                                                                  4,560,779
                                                                  
                                                                  
                                                                  
                                                                  117,094TOTAL
      CURRENT ASSETS
                                                                  
                                                                  
                                                                  7,705,630
                                                                  
                                                                  
                                                                  
                                                                  2,190,348VAT
      CREDITS
                                                                  
                                                                  
                                                                  7,330,011
                                                                  
                                                                  
                                                                  
                                                                  7,368,021PROPERTY,
      PLANT AND EQUIPMENT, net
                                                                  
                                                                  
                                                                  37,141,616
                                                                  
                                                                  
                                                                  
                                                                  37,546,422DEBT
      ISSUANCE COSTS, net
                                                                  
                                                                  
                                                                  3,560,226
                                                                  
                                                                  
                                                                  
                                                                  3,919,311GOODWILL
                                                                  
                                                                  
                                                                  7,012,642
                                                                  
                                                                  
                                                                  
                                                                  7,015,640OTHER
      ASSETS
                                                                  
                                                                  
                                                                  247,712
                                                                  
                                                                  
                                                                  
                                                                  248,133TOTAL
      ASSETS
                                                                  
                                                                  $
                                                                  62,997,837
                                                                  
                                                                  
                                                                  $
                                                                  58,287,875LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                                                                  
                                                                  $
                                                                  5,547,809
                                                                  
                                                                  
                                                                  $
                                                                  5,325,948Accrued
      expenses
                                                                  
                                                                  
                                                                  1,155,930
                                                                  
                                                                  
                                                                  
                                                                  879,941Interest
      payable
                                                                  
                                                                  
                                                                  436,025
                                                                  
                                                                  
                                                                  
                                                                  1,079,533Due
      to prior stockholders of Interpacific Oil
                                                                  
                                                                  
                                                                  5,744,718
                                                                  
                                                                  
                                                                  
                                                                  5,740,061Due
      to related parties
                                                                  
                                                                  
                                                                  477,262
                                                                  
                                                                  
                                                                  
                                                                  399,780Notes
      payable-short term, net of debt discount of $0 and $266,622as of
      March 31, 2009 and December 31, 2008, respectively
                                                                  
                                                                  
                                                                  1,500,000
                                                                  
                                                                  
                                                                  
                                                                  1,233,378Accrued
      derivative liabilities
                                                                  
                                                                  
                                                                  13,644,619
                                                                  
                                                                  
                                                                  
                                                                  564,643TOTAL
      CURRENT LIABILITIES
                                                                  
                                                                  
                                                                  28,506,363
                                                                  
                                                                  
                                                                  
                                                                  15,223,284CONVERTIBLE
      NOTES, net of debt discount of $14,703,125 and $12,770,545as of
      March 31, 2009 and December 31, 2008, respectively
                                                                  
                                                                  
                                                                  9,383,512
                                                                  
                                                                  
                                                                  
                                                                  6,937,445LINE
      OF CREDIT
                                                                  
                                                                  
                                                                  37,346,939
                                                                  
                                                                  
                                                                  
                                                                  37,346,939TOTAL
      LIABILITIES
                                                                  
                                                                  
                                                                  75,236,814
                                                                  
                                                                  
                                                                  
                                                                  59,507,668COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock; $0.001 par value; 1,000,000 shares authorized, no shares
      issued
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Common
      stock; $0.001 par value; 325,000,000 sharesauthorized; 172,374,699
      and shares issued and outstanding as of March 31, 2009 and December 31
      2008, respectively
                                                                  
                                                                  
                                                                  172,375
                                                                  
                                                                  
                                                                  
                                                                  172,375Additional
      paid-in capital
                                                                  
                                                                  
                                                                  48,628,981
                                                                  
                                                                  
                                                                  
                                                                  55,362,143Accumulated
      other comprehensive loss
                                                                  
                                                                  
                                                                  (101,157
                                                                  )
                                                                  
                                                                  
                                                                  (564,933
                                                                  )Deficit
      accumulated during the development stage
                                                                  
                                                                  
                                                                  (60,939,176
                                                                  )
                                                                  
                                                                  
                                                                  (56,189,378
                                                                  )TOTAL
      STOCKHOLDERS' EQUITY (DEFICIT)
                                                                  
                                                                  
                                                                  (12,238,977
                                                                  )
                                                                  
                                                                  
                                                                  (1,219,793
                                                                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                                  
                                                                  $
                                                                  62,997,837
                                                                  
                                                                  
                                                                  $
                                                                  58,287,875





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


3




PURE
BIOFUELS CORP. AND SUBSIDIARIES


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 AND


FOR
THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH 31, 2009





For
      the periodThree
      Months
                                                  
                                                  
                                                  Three
      Months
                                                  
                                                  
                                                  from
      May 10, 2006Ended
                                                  
                                                  
                                                  Ended
                                                  
                                                  
                                                  (date
      of inception)March
      31, 2009
                                                  
                                                  
                                                  March
      31, 2008
                                                  
                                                  
                                                  to
      March 31, 2009(unaudited)
                                                  
                                                  
                                                  (unaudited)
                                                  
                                                  
                                                  (unaudited)REVENUE
                                                  
                                                  $
                                                  413,348
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  546,520COST
      OF REVENUE
                                                  
                                                  
                                                  757,050
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,924,310GROSS
      PROFIT
                                                  
                                                  
                                                  (343,702
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (1,377,790
                                                  )SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                                                  
                                                  
                                                  2,036,072
                                                  
                                                  
                                                  
                                                  2,968,181
                                                  
                                                  
                                                  
                                                  25,057,003LOSS
      FROM OPERATIONS
                                                  
                                                  
                                                  (2,379,774
                                                  )
                                                  
                                                  
                                                  (2,968,181
                                                  )
                                                  
                                                  
                                                  (26,434,793
                                                  )OTHER
      INCOME (EXPENSES):Interest
      and financing costs
                                                  
                                                  
                                                  (6,084,539
                                                  )
                                                  
                                                  
                                                  (1,803,471
                                                  )
                                                  
                                                  
                                                  (40,646,376
                                                  )Other
      expenses, net
                                                  
                                                  
                                                  (62,091
                                                  )
                                                  
                                                  
                                                  3,301
                                                  
                                                  
                                                  
                                                  (107,453
                                                  )Change
      in fair value of accrued derivative liabilities
                                                  
                                                  
                                                  (682,192
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  8,841,624Foreign
      currency transaction gain (loss)
                                                  
                                                  
                                                  (258,497
                                                  )
                                                  
                                                  
                                                  2,324,379
                                                  
                                                  
                                                  
                                                  (2,592,178
                                                  )TOTAL
      OTHER INCOME (EXPENSE), net
                                                  
                                                  
                                                  (7,087,319
                                                  )
                                                  
                                                  
                                                  524,209
                                                  
                                                  
                                                  
                                                  (34,504,383
                                                  )LOSS
      BEFORE PROVISION FOR INCOME TAXES
                                                  
                                                  
                                                  (9,467,093
                                                  )
                                                  
                                                  
                                                  (2,443,972
                                                  )
                                                  
                                                  
                                                  (60,939,176
                                                  )PROVISION
      FOR INCOME TAXES
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  800
                                                  
                                                  
                                                  
                                                  -NET
      LOSS
                                                  
                                                  $
                                                  (9,467,093
                                                  )
                                                  
                                                  $
                                                  (2,444,772
                                                  )
                                                  
                                                  $
                                                  (60,939,176
                                                  )OTHER
      COMPREHENSIVE GAIN (LOSS):Foreign
      currency translation adjustment
                                                  
                                                  
                                                  463,776
                                                  
                                                  
                                                  
                                                  (186,624
                                                  )
                                                  
                                                  
                                                  (101,157
                                                  )COMPREHENSIVE
      LOSS
                                                  
                                                  $
                                                  (9,003,317
                                                  )
                                                  
                                                  $
                                                  (2,631,396
                                                  )
                                                  
                                                  $
                                                  (61,040,333
                                                  )NET
      LOSS PER SHARE - BASIC AND DILUTED
                                                  
                                                  $
                                                  (0.05
                                                  )
                                                  
                                                  $
                                                  (0.03
                                                  )
                                                  
                                                  $
                                                  (0.72
                                                  )WEIGHTED
      AVERAGE COMMON EQUIVALENTSHARES OUTSTANDING - BASIC AND
      DILUTED
                                                  
                                                  
                                                  172,374,699
                                                  
                                                  
                                                  
                                                  77,027,825
                                                  
                                                  
                                                  
                                                  84,829,729





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





4




PURE
BIOFUELS CORP. AND SUBSIDIARIES


(A
Development Stage Company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)


FOR
THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH 31, 2009





DeficitAccumulated
                                                                        
                                                                        
                                                                        AccumulatedAdditional
                                                                        
                                                                        
                                                                        Susbscriptions
                                                                        
                                                                        
                                                                        Other
                                                                        
                                                                        
                                                                        During the
                                                                        
                                                                        
                                                                        TotalCommon Stock
                                                                        
                                                                        
                                                                        Paid-in
                                                                        
                                                                        
                                                                        Received
                                                                        
                                                                        
                                                                        Comprehensive
                                                                        
                                                                        
                                                                        Development
                                                                        
                                                                        
                                                                        Stockholders'Shares
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Capital
                                                                        
                                                                        
                                                                        In Advance
                                                                        
                                                                        
                                                                        Loss
                                                                        
                                                                        
                                                                        Stage
                                                                        
                                                                        
                                                                        Equity (Deficit)Balance,
      May 10, 2006
                                                                        
                                                                        
                                                                        1,000
                                                                        
                                                                        
                                                                        $
                                                                        304
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        304Adjustment
      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
                                                                        )
                                                                        
                                                                        $
                                                                        3,971,336Issuance
      of common stock for cash, March 23, 2007 @ $0.75
                                                                        
                                                                        
                                                                        303,009
                                                                        
                                                                        
                                                                        
                                                                        303
                                                                        
                                                                        
                                                                        
                                                                        156,440
                                                                        
                                                                        
                                                                        
                                                                        (96,277
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        60,466Issuance
      of common stock for debt issuance costs, April 25, 2007 @
      $0.98
                                                                        
                                                                        
                                                                        183,674
                                                                        
                                                                        
                                                                        
                                                                        184
                                                                        
                                                                        
                                                                        
                                                                        179,816
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        180,000Issuance
      of common stock for cash, July 6, 2007 @ $0.60
                                                                        
                                                                        
                                                                        50,000
                                                                        
                                                                        
                                                                        
                                                                        50
                                                                        
                                                                        
                                                                        
                                                                        29,950
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        30,000Issuance
      of common stock for cash, July 12, 2007 @ $0.60
                                                                        
                                                                        
                                                                        250,000
                                                                        
                                                                        
                                                                        
                                                                        250
                                                                        
                                                                        
                                                                        
                                                                        149,750
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        150,000Issuance
      of common stock for cash, July 12, 2007 @ $0.60
                                                                        
                                                                        
                                                                        250,000
                                                                        
                                                                        
                                                                        
                                                                        250
                                                                        
                                                                        
                                                                        
                                                                        149,750
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        150,000Issuance
      of common stock for cash, July 20, 2007 @ $0.60
                                                                        
                                                                        
                                                                        84,000
                                                                        
                                                                        
                                                                        
                                                                        84
                                                                        
                                                                        
                                                                        
                                                                        49,916
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        50,000Issuance
      of common stock for cash, August 8, 2007 @ $0.60
                                                                        
                                                                        
                                                                        416,667
                                                                        
                                                                        
                                                                        
                                                                        417
                                                                        
                                                                        
                                                                        
                                                                        249,583
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        250,000Issuance
      of common stock with convertible debt, September 12, 2007 @
      $0.50
                                                                        
                                                                        
                                                                        11,000,000
                                                                        
                                                                        
                                                                        
                                                                        11,000
                                                                        
                                                                        
                                                                        
                                                                        5,489,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,500,000Stock
      compensation expense for options issued to employees
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        3,253,311
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        3,253,311Fair
      value of warrants issued for debt issuance costs
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        212,232
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        212,232Fair
      value of warrants issued with convertible debentures
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        507,647
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        507,647Beneficial
      conversion feature associated with convertible debentures
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        507,647
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        507,647Fair
      value of warrants issued for debt extension (704,082
    warrants)
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        390,219
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        390,219Fair
      value of warrants issued to consultant
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        54,958
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        54,958Estimated
      liquidated damages
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (25,200
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (25,200
                                                                        )Existing
      shares transferred to placement agents for financing
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        4,152,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        4,152,000Repricing
      of warrants
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        41,697
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        41,697Transfer
      to accrued derivative liability
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (5,907,893
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (5,907,893
                                                                        )Issuance
      of stock for financing costs
                                                                        
                                                                        
                                                                        650,000
                                                                        
                                                                        
                                                                        
                                                                        650
                                                                        
                                                                        
                                                                        
                                                                        408,100
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        408,750Reclassification
      of derivative liability to equity
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        15,549,576
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        15,549,576Foreign
      currency translation adjustment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (199,791
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (199,791
                                                                        )Net
      loss
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (20,802,625
                                                                        )
                                                                        
                                                                        
                                                                        (20,802,625
                                                                        )Balance,
      December 31, 2007
                                                                        
                                                                        
                                                                        75,319,769
                                                                        
                                                                        
                                                                        $
                                                                        75,320
                                                                        
                                                                        
                                                                        $
                                                                        30,487,037
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        (199,791
                                                                        )
                                                                        
                                                                        $
                                                                        (21,878,236
                                                                        )
                                                                        
                                                                        $
                                                                        8,484,330Stock
      compensation expense for options issued to employees
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        2,363,216
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        2,363,216Issuance
      of common stock for Interpacific Oil
                                                                        
                                                                        
                                                                        2,166,667
                                                                        
                                                                        
                                                                        
                                                                        2,167
                                                                        
                                                                        
                                                                        
                                                                        994,500
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        996,667Issuance
      of common stock for services
                                                                        
                                                                        
                                                                        15,000
                                                                        
                                                                        
                                                                        
                                                                        15
                                                                        
                                                                        
                                                                        
                                                                        5,835
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,850Fair
      value of warrants issued with short-term notes payable
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        573,628
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        573,628Conversion
      of convertible debt
                                                                        
                                                                        
                                                                        186,435
                                                                        
                                                                        
                                                                        
                                                                        186
                                                                        
                                                                        
                                                                        
                                                                        106,081
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        106,267Repricing
      of warrants
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        979,805
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        979,805Repricing
      of convertible debentures
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,481,833
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,481,833Value
      of beneficial conversion feature on convertible note
    issuance
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        166,667
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        166,667Exchange
      of 59,227,517 warrants for 78,033,754shares of common stock with
      Plainfield on 08/05/08
                                                                        
                                                                        
                                                                        78,033,765
                                                                        
                                                                        
                                                                        
                                                                        78,034
                                                                        
                                                                        
                                                                        
                                                                        9,089,016
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        9,167,050Issuance
      of 15,714,287 shares for $.35 per share onAugust 13,
      2008
                                                                        
                                                                        
                                                                        15,714,287
                                                                        
                                                                        
                                                                        
                                                                        15,714
                                                                        
                                                                        
                                                                        
                                                                        5,071,786
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        5,087,500Exchange
      of 1,408,164 warrants for 938,776 shareswith YA Global - on 09/08/08
                                                                        
                                                                        
                                                                        938,776
                                                                        
                                                                        
                                                                        
                                                                        939
                                                                        
                                                                        
                                                                        
                                                                        42,739
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        43,678Foreign
      currency translation adjustment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (365,142
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (365,142
                                                                        )Net
      loss
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (34,311,142
                                                                        )
                                                                        
                                                                        
                                                                        (34,311,142
                                                                        )Balance,
      December 31, 2008 as previously reported
                                                                        
                                                                        
                                                                        172,374,699
                                                                        
                                                                        
                                                                        $
                                                                        172,375
                                                                        
                                                                        
                                                                        $
                                                                        55,362,143
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        (564,933
                                                                        )
                                                                        
                                                                        $
                                                                        (56,189,378
                                                                        )
                                                                        
                                                                        $
                                                                        (1,219,793
                                                                        )Cumulative
      effect of reclassification of warrants and conversion
    options
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (6,939,172
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        4,717,295
                                                                        
                                                                        
                                                                        
                                                                        (2,221,877
                                                                        )Balance,
      January 1, 2009 as adjusted
                                                                        
                                                                        
                                                                        172,374,699
                                                                        
                                                                        
                                                                        $
                                                                        172,375
                                                                        
                                                                        
                                                                        $
                                                                        48,422,971
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        (564,933
                                                                        )
                                                                        
                                                                        $
                                                                        (51,472,083
                                                                        )
                                                                        
                                                                        $
                                                                        (3,441,670
                                                                        )Stock
      compensation expense for options issued to employees
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        577,510
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        577,510Reclassification
      of fair value of options from equity to liability
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (371,500
                                                                        )
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (371,500
                                                                        )Foreign
      currency translation adjustment
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        463,776
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        463,776Net
      loss
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        (9,467,093
                                                                        )
                                                                        
                                                                        
                                                                        (9,467,093
                                                                        )Balance,
      March 31, 2009 (unaudited)
                                                                        
                                                                        
                                                                        172,374,699
                                                                        
                                                                        
                                                                        $
                                                                        172,375
                                                                        
                                                                        
                                                                        $
                                                                        48,628,981
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        (101,157
                                                                        )
                                                                        
                                                                        $
                                                                        (60,939,176
                                                                        )
                                                                        
                                                                        $
                                                                        (12,238,977
                                                                        )





Effective
August 7, 2006, the Company effected a one and one-quarter (1.25) for one (1)
forward stock split of the authorized, issued and outstanding common stock,
without a change to the par value. All share amounts have been retroactively
adjusted for all periods presented.





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


5




PURE
BIOFUELS CORP. AND SUBSIDIARIES


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


AND
FOR THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO MARCH 31,
2009





For
      the periodThree
      Months
                                      
                                      
                                      Three
      Months
                                      
                                      
                                      from
      May 10, 2006Ended
                                      
                                      
                                      Ended
                                      
                                      
                                      (date
      of inception)March
      31, 2009
                                      
                                      
                                      March
      31, 2008
                                      
                                      
                                      to
      March 31, 2009(unaudited)
                                      
                                      
                                      (unaudited)
                                      
                                      
                                      (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                      
                                      $
                                      (9,467,093
                                      )
                                      
                                      $
                                      (2,444,772
                                      )
                                      
                                      $
                                      (60,939,176
                                      )Adjustments
      to reconcile net loss to net cash(used
      in) provided by operating activities:Depreciation
                                      
                                      
                                      165,970
                                      
                                      
                                      
                                      10,876
                                      
                                      
                                      
                                      1,044,257Stock
      compensation expense for options issued to employees
                                      
                                      
                                      577,510
                                      
                                      
                                      
                                      632,358
                                      
                                      
                                      
                                      6,538,320Fair
      value of shares issued for services
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,850
                                      
                                      
                                      
                                      5,850Fair
      value of shares issued for financing costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      46,267
                                      
                                      
                                      
                                      46,267Fair
      value of warrants issued for services
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      54,958Fair
      value of warrants and conversion options issued for financing
      costs
                                      
                                      
                                      2,879,447
                                      
                                      
                                      
                                      573,628
                                      
                                      
                                      
                                      3,843,294Financing
      costs of warrant repricing
                                      
                                      
                                      -
                                      
                                      
                                      
                                      87,818
                                      
                                      
                                      
                                      129,515Amortization
      of debt discounts and debt issuance costs
                                      
                                      
                                      1,575,471
                                      
                                      
                                      
                                      805,845
                                      
                                      
                                      
                                      11,255,661Financing
      costs related to warrants exchanged for common stock
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      18,966,363Change
      in fair value of accrued derivative liabilities
                                      
                                      
                                      682,192
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (8,841,624
                                      )Loss
      on write off of deposit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      203,672Non-cash
      foreign currency transaction loss (gain)
                                      
                                      
                                      729,068
                                      
                                      
                                      
                                      (2,324,379
                                      )
                                      
                                      
                                      3,779,477Changes
      in operating assets and liabilities:
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -Accounts
      receivable
                                      
                                      
                                      88,865
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (69,609
                                      )Other
      receivables
                                      
                                      
                                      (518,115
                                      )
                                      
                                      
                                      72,152
                                      
                                      
                                      
                                      (468,110
                                      )Inventories
                                      
                                      
                                      117,017
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,156,829
                                      )Prepaid
      expenses and other assets
                                      
                                      
                                      (399,884
                                      )
                                      
                                      
                                      273,496
                                      
                                      
                                      
                                      (188,637
                                      )Accounts
      payable
                                      
                                      
                                      335,823
                                      
                                      
                                      
                                      3,310,048
                                      
                                      
                                      
                                      5,854,642Accrued
      expenses
                                      
                                      
                                      230,934
                                      
                                      
                                      
                                      288,414
                                      
                                      
                                      
                                      952,486Accrued
      consulting fees
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      97,500Interest
      payable
                                      
                                      
                                      1,544,488
                                      
                                      
                                      
                                      (287,168
                                      )
                                      
                                      
                                      4,410,431Due
      to related parties
                                      
                                      
                                      81,892
                                      
                                      
                                      
                                      (17,365
                                      )
                                      
                                      
                                      155,735Net
      cash provided by (used in) operating activities
                                      
                                      
                                      (1,376,415
                                      )
                                      
                                      
                                      1,033,068
                                      
                                      
                                      
                                      (14,325,557
                                      )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of Interpacific Oil S.A.C.
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (700,000
                                      )Increase
      in deposits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (464,956
                                      )Increase
      in VAT credits
                                      
                                      
                                      (9,212
                                      )
                                      
                                      
                                      (1,323,315
                                      )
                                      
                                      
                                      (7,897,094
                                      )Net
      cash acquired with acquisition
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,825,805Prepayment
      for purchase of equipment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (174,276
                                      )Purchase
      of property, plant and equipment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (7,074,246
                                      )
                                      
                                      
                                      (36,403,890
                                      )Net
      cash used in investing activities
                                      
                                      
                                      (9,212
                                      )
                                      
                                      
                                      (8,397,561
                                      )
                                      
                                      
                                      (43,814,411
                                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from subscriptions received in advance
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      96,277Proceeds
      from issuance of convertible debt
                                      
                                      
                                      2,200,000
                                      
                                      
                                      
                                      5,000,000
                                      
                                      
                                      
                                      20,200,000Proceeds
      from issuance of short term promissory note
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,500,000Proceeds
      from line of credit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,600,000
                                      
                                      
                                      
                                      37,346,939Change
      in restricted cash
                                      
                                      
                                      (1,022
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,152,485
                                      )Interest
      payment deducted from restricted cash
                                      
                                      
                                      -
                                      
                                      
                                      
                                      740,376
                                      
                                      
                                      
                                      1,039,541Payment
      on convertible debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,000,000
                                      )Payment
      on long term debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,200,000
                                      )Payment
      of debt issuance costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (100,000
                                      )
                                      
                                      
                                      (4,170,963
                                      )Proceeds
      from the issuance of common stock
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      9,704,375Net
      cash provided by financing activities
                                      
                                      
                                      2,198,978
                                      
                                      
                                      
                                      9,240,376
                                      
                                      
                                      
                                      60,363,684Effect
      of exchange rate changes on cash and cash equivalents
                                      
                                      
                                      (48,870
                                      )
                                      
                                      
                                      142,638
                                      
                                      
                                      
                                      (879,994
                                      )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                      
                                      
                                      764,481
                                      
                                      
                                      
                                      2,018,521
                                      
                                      
                                      
                                      1,343,722CASH
      AND CASH EQUIVALENTS, Beginning of period
                                      
                                      
                                      579,241
                                      
                                      
                                      
                                      2,991,104
                                      
                                      
                                      
                                      -CASH
      AND CASH EQUIVALENTS, End of period
                                      
                                      $
                                      1,343,722
                                      
                                      
                                      $
                                      5,009,625
                                      
                                      
                                      $
                                      1,343,722





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


6




Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Note
1 - Organization and Basis of Presentation





The
unaudited consolidated financial statements have been prepared by Pure Biofuels
Corp. (the “Company”), pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company’s Annual
Report on Form 10-K. The results for the three months ended March 31, 2009 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 2009.





Organization and Line of
Business




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





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





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


7


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





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





Development Stage Company
and Going-Concern





The
Company is in the development stage since planned principal activities have not
commenced and the Company has not generated significant revenue.  The
Company has two principal facilities which have been completed and
tested.  The Company has revenues from the sale of inventory that was
produced during the testing phase of the facility.  In a development
stage company, management devotes most of its activities to developing a market
for its products and services. These consolidated financial statements have been
prepared on a going-concern basis, which implies the Company will continue to
realize its assets and discharge its liabilities in the normal course of
business. The Company is unlikely to pay dividends or generate significant
earnings in the immediate or foreseeable future. The continuation of the Company
as a going-concern and the ability of the Company to emerge from the development
stage is dependent upon the continued financial support from its stockholders,
the ability of the Company to obtain necessary equity and debt financings to
continue operations and to generate sustainable revenue. There is no guarantee
that the Company will be able to raise adequate equity or debt financings or
generate profitable operations. For the three months ended March 31, 2009, the
Company incurred a net loss of $9,467,093 and as of March 31, 2009, the
Company has a deficit accumulated during the development stage of $60,939,176.
Further, the Company has negative working capital of $20,800,733 as of March 31,
2009. These consolidated 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 has been actively seeking to
raise additional funds through equity or debt financing.





Basis of
Presentation





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




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


8


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





The
Company is a development stage company as defined by Statement of Financial
Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting for Development
Stage Enterprises.” The accompanying consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the
United States of America and have been consistently applied. The Company’s
subsidiaries use their local currencies, Peruvian Nuevos Soles (“PEN”) and the
Argentinean Peso (“ARS”); however the accompanying consolidated financial
statements have been translated and presented in United States Dollars
($).





Note
2 – Summary of Significant Accounting Policies





Principles of
Consolidation





The
accompanying consolidated financial statements include the accounts of Pure
Biofuels Corp. and its subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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. The significant estimates made in the preparation
of the Company’s consolidated financial statements relate to the determination
of depreciation rates for equipment, reserves for slow moving and obsolete
inventory, future tax rates used to determine future income taxes, and the
carrying values of goodwill and warrant liability. Actual results could differ
materially from these estimates upon which the carrying values were
based.





Cash and Cash
Equivalents





Cash and
cash equivalents include cash on hand, cash in time deposits and all highly
liquid investments with original maturities of three months or
less.





Restricted
Cash





Restricted
cash consists of monies under a standby letter of credit as required by a
vendor.  As of March 31, 2009 and December 31, 2008, total restricted
cash related to the standby letter of credit amounted to $141,957 and $141,775,
respectively.


9


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Accounts
Receivable





The
Company maintains reserves for potential credit losses on accounts
receivable.  Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of the reserve.  As of March 31, 2009 and
December 31, 2008, the Company determined that no reserves for accounts
receivable were necessary.





Inventories





Inventories
are stated at the lower of cost or market. Cost has been determined by using the
first-in, first-out method. The Company periodically reviews its reserves for
slow moving and obsolete inventories. As of March 31, 2009 and December 31 2008,
the Company believes that no reserve was necessary.





Property, Plant and
Equipment





Property,
plant and equipment are stated at historical cost and are depreciated using the
straight-line method over their estimated useful lives. The useful lives and
depreciation methods are reviewed periodically to ensure that the depreciation
method and period are consistent with the anticipated pattern of future economic
benefits. Expenditures for maintenance and repairs which do not improve or
extend the respective lives of the assets are charged to operations as incurred
while renewals and betterments are capitalized. Gains and losses on disposals
are included in the results of operations.





The
estimated useful lives were as follows:





Building
      improvements
              
              10
      yearsFacilities
      and equipment
              
              10
      yearsComputer
      equipment and licenses
              
              4
      yearsOther
      fixed assets
              
              10
      years





Goodwill and
Impairment





The
Company applies SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”), to record goodwill and intangible assets.  In accordance with
SFAS 142, certain intangible assets are to be assessed periodically for
impairment using fair value measurement techniques. Goodwill is tested for
impairment on an annual basis as of the end of the Company's fiscal year, or
more frequently when impairment indicators arise. The Company evaluates the
recoverability of intangible assets periodically and takes into account events
and circumstances which indicate that impairment exists. The Company believes
that as of March 31, 2009 and December 31, 2008, there was no significant
impairment of its goodwill.





Long-Lived
Assets





The
Company applies the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets’
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair value of the long-lived assets. Loss
on long-lived assets to be disposed of is determined in a similar manner, except
that fair values are reduced for the cost of disposal. Based on its review, the
Company believes that, as of March 31, 2009 and December 31, 2008, there were no
significant impairments of its long-lived assets.


10


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Accrued Derivative
Liabilities





The
Company applies FASB’s Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.”  EITF 07-5 provides a two-step model to determine
whether a financial instrument or an embedded feature is indexed to an issuer’s
own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope
exception. This standard triggers liability accounting on all instruments and
embedded features exercisable at strike prices denominated in any currency other
than the functional currency of the operating entity in Peru.  Using
the criteria in EITF 07-5, the Company determines which instruments or embedded
features that require liability accounting and records the fair values as an
accrued derivative liability. The changes in the values of the accrued
derivative liabilities are shown in the accompanying consolidated statements of
operations as “change in fair value of accrued derivative
liabilities.”





Fair Value
Measurements





For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate fair value due
to their short maturities. In addition, the Company has long-term debt with
financial institutions. The carrying amounts of the line of credit and other
long-term liabilities approximate their fair value based on current rates for
instruments with similar characteristics.





SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosure of the fair value of financial instruments held by the Company. SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), adopted in January 1, 2008,
defines fair value, and establishes a three-level valuation hierarchy for
disclosures of fair value measurement that enhances disclosure requirements for
fair value measures.  The carrying amounts reported in the
consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The
three levels of valuation hierarchy are defined as follows:





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





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


11


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





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





The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”




The
Company’s warrant liability is carried at fair value totaling $7,082,400 and
$564,643, as of March 31, 2009 and December 31, 2008,
respectively.  The Company’s conversion option liability is carried at
fair value totaling $6,190,719 and $0 as of March 31, 2009 and December 31,
2008, respectively.  The Company’s option liability is carried at fair
value totaling $371,500 and $0 at March 31, 2009 and December 31, 2008,
respectively.  The Company used Level 2 inputs for its valuation
methodology for the warrant liability, conversion option liability and
option liability as their fair values were determined by using the Black-Scholes
option pricing model based on various assumptions.





Carrying Value
                        As of
                        March 31, 2009
                      
                      
                      Fair Value Measurements at
                        March 31, 2009
                        Using Fair Value HierarchyLiabilities
                      
                      (unaudited)
                      
                      
                      Level
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3Warrant
      liability
                      
                      $
                      7,082,400
                      
                      
                      
                      
                      
                      
                      $
                      7,082,400Conversion
      option liability
                      
                      $
                      6,190,719
                      
                      
                      
                      
                      
                      
                      $
                      6,190,719Option
      liability
                      
                      $
                      371,500
                      
                      
                      
                      
                      
                      
                      $
                      371,500




For the
three months ended March 31, 2009, the Company recognized a loss of $682,192 for
the change in the fair value of accrued derivative liabilities. For the period
from May 10, 2006 (date of inception) to March 31, 2009, the Company recognized
a gain of $8,841,624 for the changes in the valuations of the aforementioned
liabilities. For the three months ended March 31, 2008, there was no gain or
loss for the changes in the valuations of the aforementioned
liabilities.





The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the consolidated balance sheets at fair value in
accordance with SFAS 157.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 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 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
The Company adopted SFAS 159 on January 1, 2008. The Company chose not to elect
the option to measure the fair value of eligible financial assets and
liabilities.


12


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Concentration ofCreditRisk





Cash
includes cash on hand and demand deposits in accounts maintained within Peru,
Argentina and the United States. Certain financial instruments, which subject
the Company to concentration of credit risk, consist of cash. The Company
maintains balances at financial institutions which, from time to time, may
exceed Federal Deposit Insurance Corporation insured limits for the banks
located in the Unites States. Balances at financial institutions within Peru and
Argentina are not covered by insurance. As of March 31, 2009 and December 31,
2008, the Company had deposits in excess of federally-insured limits totaling
$1,392,287 and $567,273, respectively. The Company has not experienced any
losses in such accounts.





Foreign Currency
Transactions and Comprehensive Income




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




The
Company recorded a translation gain of $463,776, a loss of $186,624 and a loss
of $101,157 for the three months ended March 31, 2009 and 2008, and for the
period from May 10, 2006 (date of inception) to March 31, 2009, respectively.
Asset and liability amounts at March 31, 2009 and December 31, 2008 were
translated at 3.161 PEN to $1.00 USD and 3.142 PEN to $1.00 USD, respectively
for the Company’s Peruvian subsidiaries. Equity accounts were stated at their
historical rates. The average translation rates applied to income statement
accounts for the three months ended March 31, 2009 and 2008 were 3.195 PEN and
2.872 PEN to $1.00 USD, respectively.  At March 31, 2009 and December
31, 2008, the exchange rates for the assets and liabilities of the Company’s
Argentinean subsidiary were 3.720 ARS and 3.453 ARS to $1.00 USD, respectively.
The average translation rates applied to the income statement accounts for the
Company’s Argentinean subsidiary for the three months ended March 31, 2009 and
2008 were 3.582 ARS and 3.149 to $1.00 USD, respectively. Cash flows are also
translated at average translation rates for the period. Therefore, amounts
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.





Foreign Currency Transaction
Gains and Losses





Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.  For the three months ended March
31, 2009 and 2008, and for the period from May 10, 2006 (date of inception) to
March 31, 2009, the Company recorded a net transaction loss of $258,497, a gain
of $2,324,379 and a loss of $2,592,178, respectively. Historically, the Company
has not entered into any currency trading or hedging transactions, although
there is no assurance that the Company will not enter into such transactions in
the future.


13


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Income
Taxes





The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes.” SFAS 109 requires a company to use the asset and liability
method of accounting for income taxes, whereby deferred tax assets are
recognized for deductible temporary differences, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion, or all of,
the deferred tax assets will not be realized.  Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.





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





Revenue
Recognition





In
accordance with the Securities and Exchange Commission’s (“SEC”) Staff
Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” the Company
recognizes revenue when it is realized or realizable and earned. The Company
must meet all of the following four criteria under SAB 104 to recognize
revenue:





·
            Persuasive
      evidence of an arrangement exists


·
            Delivery
      has occurred


·
            The
      sales price is fixed or
determinable


·
            Collection
      is reasonably assured





Basic and Diluted Losses Per
Share





Earnings
per share is calculated in accordance with the SFAS No. 128, “Earnings Per
Share” (“SFAS 128”). Net earnings per share for all periods presented have been
restated to reflect the adoption of SFAS 128. Basic earnings per share is based
upon the weighted average number of common shares outstanding. Diluted earnings
per share is based on the assumption that all dilutive convertible shares and
stock options were converted or exercised. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the
average market price during the period.  As of March 31, 2009 and
2008, the following potential dilutive shares were excluded from diluted loss
per share for all periods presented because of their anti-dilutive
effect.


14


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





March 31, 2009
                  
                  
                  March 31, 2008Options
                  
                  
                  15,186,250
                  
                  
                  
                  14,000,000Warrants
                  
                  
                  74,305,666
                  
                  
                  
                  62,441,348Convertible
      notes
                  
                  
                  127,955,458
                  
                  
                  
                  52,033,033Total
                  
                  
                  217,447,374
                  
                  
                  
                  128,474,381





Stock-Based
Compensation





The
Company records stock-based compensation in accordance with SFAS No. 123(R),
“Share-Based Payment” (“SFAS 123R”). SFAS 123R requires companies to measure
compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the employee’s requisite service
period. Under SFAS 123R, the Company’s volatility is based on the historical
volatility of the Company’s stock or the expected volatility of similar
companies. The expected life assumption is primarily based on historical
exercise patterns and employee post-vesting termination behavior. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.





The
Company uses the Black-Scholes option-pricing model which was developed for use
in estimating the fair value of options. Option-pricing models require the input
of highly complex and subjective variables including the expected life of
options granted and the Company’s expected stock price volatility over a period
equal to or greater than the expected life of the options. Because changes in
the subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the
Black-Scholes option-pricing model may not provide an accurate measure of the
fair value of the Company’s employee stock options. Although the fair value of
employee stock options is determined in accordance with SFAS 123R using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.





On April
27, 2007, the Company’s 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 stockholders approved the Plan on
November 19, 2007.





Statement of Cash
Flows





In
accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.


15


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Reclassification





Certain
reclassifications have been made to the 2008 consolidated financial statements
to conform to the 2009 consolidated financial statement presentation. These
reclassifications had no effect on net loss or cash flows as previously
reported.





Recent
Pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation, requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others.  The Company adopted SFAS 160 effective January 1,
2009.  The Company has determined the adoption of SFAS 160 did not
have a material impact to the Company’s consolidated financial position or
consolidated results of operations as of March 31, 2009.





In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the
impairment model included within EITF 99-20 to be more consistent with the
impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the
impairment model in EITF 99-20 to remove its exclusive reliance on “market
participant” estimates of future cash flows used in determining fair value.
Changing the cash flows used to analyze other-than-temporary impairment from the
“market participant” view to a holder’s estimate of whether there has been a
“probable” adverse change in estimated cash flows allows companies to apply
reasonable judgment in assessing whether an other-than-temporary impairment has
occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on the
Company’s consolidated financial statements.




In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating
fair value measurements in accordance with FASB Statement No. 157 when
there is not an active market or where the price inputs being used represent
distressed sales. FSP FAS 157-4 provides additional guidance on the major
categories for which equity and debt securities disclosures are to be presented
and amends the disclosure requirements of FASB Statement No. 157 to require
disclosure in interim and annual periods of the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. FSP FAS 157-4
shall be applied prospectively and is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP must
also early adopt FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairment (“FSP FAS 115-2 and
FAS 124-2”). The Company is in the process of evaluating the impact, if
any, of applying this FSP on its financial position, results of operations and
cash flows.


16




Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held
by a Transferor in Securitized Financial Assets,” to make the
other-than-temporary impairments guidance more operational and to improve the
presentation of other-than-temporary impairments in the financial statements.
This FSP will replace the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired debt security
until recovery with a requirement that management assert it does not have the
intent to sell the security, and it is more likely than not it will not have to
sell the security before recovery of its cost basis. This FSP provides increased
disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this FSP does not result in a change
in the carrying amount of debt securities, it does require that the portion of
an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP.  The Company is
currently evaluating this new FSP but does not believe that it will have a
significant impact on the determination or reporting of the financial
results.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and
APB 28-1”). FSP FAS 107-1 and APB 28-1 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments. However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. FSP FAS 107-1 and APB
28-1 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant
assumptions during the period. The FSP shall be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP
FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. The Company
will adopt the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of FSP
FAS 157-4, FSP FAS 115-2 and FAS 124-2.


17




Pure
Biofuels Corp. and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)


Note
3 - Inventories





Inventories
consisted of the following as of March 31, 2009 and December 31,
2008:





March 31,
                    
                    
                    December 31,Description
                    
                    2009
                    
                    
                    2008(unaudited)Raw
      Material
                    
                    $
                    428,836
                    
                    
                    $
                    794,493Work-in-Process
                    
                    
                    568,951
                    
                    
                    
                    152,844Finished
      Goods
                    
                    
                    69,142
                    
                    
                    
                    245,025Inventories
                    
                    $
                    1,066,929
                    
                    
                    $
                    1,192,362





Note
4 – VAT Credits





At March
31, 2009 and December 31, 2008, the Company recognized a value added tax (“VAT”)
credit of $7,330,011 and $7,368,021, respectively in Peru. VAT is charged at a
standard rate of 19% of the purchases made by the Company, and the Company
obtains income tax credits for VAT paid in connection with the purchase of
capital equipment and other goods and services employed in its operations. The
Company is entitled to use the credits against its Peruvian income tax liability
or to receive a refund against VAT payable or sales. As the Company does not
anticipate incurring either a Peruvian tax or a VAT liability during the next
fiscal year, the credits have been classified as non-current.





Note
5 – Property, Plant and Equipment





Property,
plant and equipment consisted of the following:





March 31,
                        
                        
                        December 31,2009
                        
                        
                        2008(unaudited)Land
                        
                        $
                        3,200,717
                        
                        
                        $
                        3,220,041Plant
      under construction
                        
                        
                        5,041,407
                        
                        
                        
                        4,974,263Building
      improvements
                        
                        
                        593,387
                        
                        
                        
                        595,039Facilities
      and equipment
                        
                        
                        28,950,760
                        
                        
                        
                        29,236,036Computer
      equipment and licenses
                        
                        
                        238,736
                        
                        
                        
                        240,374Other
      fixed assets
                        
                        
                        99,764
                        
                        
                        
                        101,12438,124,771
                        
                        
                        
                        38,366,877Less:
      Accumulated depreciation
                        
                        
                        (983,155
                        )
                        
                        
                        (820,455
                        )Property,
      Plant and Equipment, net
                        
                        $
                        37,141,616
                        
                        
                        $
                        37,546,422


18


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Depreciation
expense amounted to $165,970, $10,876 and $1,044,257 for the three months ended
March 31, 2009 and 2008 and for the period from May 10, 2006 (inception) to
March 31, 2009, respectively.





For the
three months ended March 31, 2008 and for the period from May 10, 2006
(inception) to March 31, 2009, interest capitalized to property, plant and
equipment amounted to $478,711 and $3,050,769, respectively. No interest was
capitalized for the three months ended March 31, 2009.





Note
6 – Performance Bond





On March
27, 2009, the Company entered into a performance bond agreement (the “Bond
Agreement”), with FDS Corporation (“FDS”). Under the Bond Agreement, FDS agreed
to open a financial bond in the amount of up to $2,500,000 required by the
Peruvian Authorities to provide the regulatory and other permits necessary to
commercialize the Callao Facility as a terminal and bonded warehouse under the
laws of Peru (the “FDS Bond”) for a term of up to twelve months, subject to the
Company’s option to extend the term for up to two additional twelve month
periods.  The Bond Agreement accrues interest on a monthly basis in
the amount of $31,250. As additional consideration for the placement of the Bond
Agreement, the Company issued to FDS seven year cashless warrants to purchase
62,500,000 shares of common stock by which FDS will have the right to purchase
one share of common stock at an exercise price of $0.05 per share for every
warrant issued (the “FDS Bond Warrants”). FDS may exchange all or any FDS Bond
Warrants at any time after the Effective Date and on or prior to March 31, 2016
for a number of shares of common stock equal to the number of shares that would
have been issued upon the exercise of the FDS Bond Warrants pursuant to Section
4 of the Bond Agreement divided by 1.2.  FDS may withdraw the FDS Bond
at any time and terminate this Agreement if there is an event of default and
Plainfield accelerates the obligations in connection with such event of default
under the Loan Agreement dated as of September 12, 2007.





In
accordance with EITF 07-5 and FAS 133, the Company determined that the FDS Bond
Warrants should be classified as a liability at fair value on the date the FDS
Bond Warrants were issued.  The Company determined the fair value of
the FDS Bond Warrants to be $4,085,589 using the Black-Scholes option pricing
model with the following assumptions:  (1) expected life of 7 years;
(2) volatility of 130%; (3) risk free interest rate of 2.28% and (4) dividend
rate of 0%.  The fair value of $4,085,589 was recorded as a prepaid
asset and warrant liability in the consolidated balance sheets.  The
Company will amortize the $4,085,589 over one year.  The amortization
expense for the three months ended March 31, 2009 was $44,774 and is recorded as
a financing cost in the accompanying consolidated statements of
operations.





Note
7 – Notes Payable – Short Term





FDS Note and
Warrants




On
December 4, 2008, the Company executed a Promissory Note (the “FDS Note”)
promising to pay to FDS, the principal amount of $1,000,000.  The
Company was to pay FDS the principal amount in one installment of $1,000,000 on
the earlier of (a) January 15, 2009 or (b) the date the Company enters into an
agreement with Banco Internacional del Perú - Interbank (“Interbank Peru”)
pursuant to which Interbank Peru will provide the Company with term loan
financing, in a principal amount of not less than $40,330,000. The FDS Note is a
non-interest bearing note.


19


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





In
partial consideration for FDS executing the FDS Note with the Company, the
Company agreed to issue to FDS seven-year warrants to purchase 6,666,666 shares
of the Company’s common stock, par value $.001 per share, at an exercise price
of $0.30 per share of common stock (the “FDS Warrants”).  The FDS
Warrants may be exercised beginning December 4, 2008 through December 4,
2015.




Due to
the non-payment by the Company when required, the Company was required to issue
to FDS seven-year warrants to purchase an additional 26,666,666 shares of the
Company’s common stock at an exercise price of $0.30 per share (the “FDS
Additional Warrants”). The FDS Additional Warrants are to be substantially in
the form of the original FDS Warrants issued with the FDS Note.




In
addition to the issuance of the FDS Additional Warrants, the FDS Note shall be
converted at FDS’ option into either (i) a note evidencing a three-month term
loan bearing an interest rate of 15% per annum to be paid in debt securities
having identical terms and conditions to such three-month term loan or (ii) the
number of duly authorized and validly issued shares of common stock equal to the
total amount of principal outstanding on the FDS Note divided by a conversion
price of $0.30; such an amount of principal outstanding is to be measured on the
date of such event of default.





In
accordance with EITF 07-05 and FAS 133, the Company determined that the FDS
Additional Warrants should be classified as a liability at fair value on the
date the FDS Additional Warrants were to be issued.  The Company did
not issue the FDS Additional Warrants until April 8, 2009; however, the Company
valued the warrants as of the date of default to determine the liability that
should be recorded.  The Company determined the fair value of the FDS
Additional Warrants at January 15, 2009 to be $1,576,763 using the Black-Scholes
option pricing model with the following assumptions:  (1) expected
life of 7 years; (2) volatility of 130%; (3) risk free interest of 2.28% and (4)
dividend rate of 0%.  The fair value of $1,576,763 was recorded as a
warrant liability in the accompanying consolidated balance sheets and included
in financing costs in the consolidated statements of operations at the date of
default.





Plainfield Promissory Note
and Warrants





On
December 4, 2008, the Company executed a Promissory Note (the “Plainfield Note”)
promising to pay to Plainfield, the principal amount of $500,000.  The
Company is to pay Plainfield the principal amount in one installment of $500,000
on the earlier of (a) January 15, 2009 or (b) the date the Company enters into
an agreement with Interbank Peru pursuant to which Interbank Peru will provide
the Company with term loan financing, in a principal amount of not less than
$40,330,000. The Plainfield Note is a non-interest bearing note.





In
partial consideration for Plainfield executing the Plainfield Promissory Note
from the Company, the Company agreed to issue to Plainfield seven-year warrants
to purchase 3,333,333 shares of the Company’s common stock, par value $.001 per
share, at an exercise price of $0.30 per share of common stock (the “Plainfield
Warrants”).  The Plainfield Warrants may be exercised beginning
December 4, 2008 through December 4, 2015.


20


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Due to
the non-payment by the Company when required, the Company was required to issue
to Plainfield seven-year warrants to purchase an additional 13,333,333 shares of
the Company’s common stock at an exercise price of $0.30 per share (the
“Plainfield Additional Warrants”). The Plainfield Additional Warrants are to be
substantially in the form of the original Plainfield Warrants issued with the
Plainfield Note.




In
addition to the issuance of the Plainfield Additional Warrants, the Plainfield
Note shall be converted at Plainfield’s option into either (i) a note evidencing
a three-month term loan bearing an interest rate of 15% per annum to be paid in
debt securities having identical terms and conditions to such three-month term
loan or (ii) the number of duly authorized and validly issued shares of common
stock equal to the total amount of principal outstanding on the Plainfield Note
divided by a conversion price of $0.30; such an amount of principal outstanding
is to be measured on the date of such event of default.





In
accordance with EITF 07-05 and FAS 133, the Company determined that the
Plainfield Additional Warrants should be classified as a liability at fair value
on the date the Plainfield Additional Warrants were to be issued.  The
Company did not issue the Plainfield Additional Warrants until April 8, 2009;
however, the Company valued the warrants as of the date of default to determine
the liability that should be recorded.  The Company determined the
fair value of the Plainfield Additional Warrants at January 15, 2009 to be
$788,382 using the Black-Scholes option pricing model with the following
assumptions:  (1) expected life of 7 years; (2) volatility of 130%;
(3) risk free interest of 2.28% and (4) dividend rate of 0%.  The fair
value of $788,382 was recorded as a warrant liability in the accompanying
consolidated balance sheets and included in financing costs in the accompanying
consolidated statements of operations at the date of default.





Note
8 – Convertible Debt





On
September 12, 2007, the Company entered into a securities purchase agreement
(the “Purchase Agreement”), with Plainfield Special Situations Master Fund
Limited (“PSSM”), Plainfield Peru I LLC (“LLC I”) and Plainfield Peru II LLC
(“LLC II” and together with LLC I, “Plainfield”) pursuant to which the Company
agreed to sell to the Plainfield (1) 11,000,000 shares of the Company’s common
stock (the “Shares”), (2) $10,000,000 aggregate principal amount of the 10%/12%
senior convertible Paid-in-Kind (“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 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 on 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, 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.


21


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





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





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





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





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





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


22


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





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





As of
September 30, 2008, the Company had accrued interest of $2,322,779 related to
its line of credit with Plainfield. In order to obtain funds to pay the accrued
interest and to pay the interest that will accrue through January 31, 2009, the
Company, on November 4, 2008, executed the Second Amendment to Securities
Purchase Agreement (the “Agreement”) with Plainfield. Pursuant to this
Agreement, the Company agreed to sell to Plainfield and Plainfield agreed to buy
from the Company, (1) $2,370,182 in aggregate principal amount of the 10%/12%
Senior Convertible PIK Election Notes due 2012 for a purchase price of
$2,370,182 and (2) $1,537,020 in aggregate principal amount of 10%/12% Senior
Convertible PIK Election Notes due 2012 representing interest through January
31, 2009.





On March
10, 2009, the Company and Plainfield entered into a third amendment to the
Securities Purchase Agreement (the “Third Amendment”).





Under the
Third Amendment, Article II of the Agreement was amended to provide for
Plainfield’s purchase from the Company (a) on March 10, 2009, $1,283,214 in
aggregate principal amount of additional notes (“2009 Additional Notes”) for a
purchase price of $1,283,214, (b) on a date mutually agreed upon, $1,200,000 in
aggregate principal amount of additional notes (“Second 2009 Additional Notes”)
for a purchase price of $1,200,000 and (c) on April 1, 2009 or on such other
date as mutually agreed upon, $313,559 in aggregate principal amount of
additional notes (“April 2009 Additional Notes”) for a purchase price of
$313,559 (all additional Notes issued pursuant to the Third Amendment
collectively, the “2009 Additional Notes”).





Pursuant
to the Third Amendment, the Company issued to Plainfield 10%/12% Senior
Convertible PIK Notes (“2009 Notes”) due September 12, 2012 in the amount of
$1,000,000 and $1,200,000 on March 10, 2009 and March 27, 2009,
respectively.  The Company may pay the interest in cash or by issuing
additional notes.  The interest rate for the 2009 Notes is 10% if the
Company pays the interest in cash and 12% if the Company issues additional
notes. The Company shall make the first interest payment on the 2009 Notes by
issuing additional notes.  The Company will pay interest on the 2009
Notes semi-annually in arrears on March 15 and September 15 of each year,
commencing on March 15, 2009.  The “2009 Notes” are convertible into
shares of common stock at $0.04 per share.


23


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





The
Company determined that the 2009 Notes contained an embedded beneficial
conversion feature as the conversion price of $0.04 per share was less than the
share price of $0.06 on the date of issuance.  The Company applied
EITF 07-5 and recorded the fair value of $2,714,302 as an accrued derivative
liability.  The fair value was determined using the Black-Scholes
option pricing model under the following assumptions:  expected life
between 3.47 and 3.51 years, risk free interest rate between 1.27% and 1.46%,
dividend yield of 0%, and volatility of 130%.  The Company
recorded $2,200,000 to debt discounts to be amortized over the life of the 2009
Notes and $514,302 to financing costs.





The
following table summarizes the convertible notes:





ConvertibleNotesBalance,
      December 31, 2007
                  
                  $
                  602,080Additional
      principal
                  
                  
                  5,000,000Conversion
      of interest to principal
                  
                  
                  1,526,600Line
      of Credit PIK interest
                  
                  
                  3,181,390Discount
      related to additional principal and repricing of conversion
      price
                  
                  
                  (5,648,500
                  )Discount
      related to change in terms
                  
                  
                  (891,987
                  )Amortization
      of note discount
                  
                  
                  3,167,862Balance,
      December 31, 2008
                  
                  $
                  6,937,445Conversion
      of interest to principal
                  
                  
                  1,169,621Additional
      principal
                  
                  
                  2,200,000Line
      of Credit PIK interest
                  
                  
                  1,009,026Increase
      Discount per implementation of EITF 07-5
                  
                  
                  (428,153
                  )Discount
      related to additional principal
                  
                  
                  (2,411,218
                  )Amortization
      of note discount
                  
                  
                  906,791Balance,
      March 31, 2009 (unaudited)
                  
                  $
                  9,383,512





Total
interest incurred for the three months ended March 31, 2009 and 2008 and for the
period from May 10, 2006 (date of inception) to March 31, 2009 related to the
convertible debentures amounted to $626,015, $309,920 and $2,456,562,
respectively.  For the three months ended March 31, 2009 and 2008 and
for the period from May 10, 2006 (date of inception) to March 31, 2009, the
Company amortized debt discounts in the amount of $906,791, $568,381 and
$4,676,733, respectively which are recorded in the accompanying consolidated
statements of operations as interest and financing costs.  The accrued
interest payable related to the convertible notes at March 31, 2009 and December
31, 2008 is $122,462 and $667,280, respectively.


24




Pure
Biofuels Corp. and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)




Note
9 – Line of Credit





On
September 12, 2007, the Company entered into a $20,000,000 Loan Agreement (“Line
of Credit”), 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
(“Subsidiaries”), various lenders and PSSM, as Administrative
Agent.  The Loan Agreement terminates on January 12,
2011.





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





On April
18, 2008, the Company, as Guarantor, entered into a Second Amendment to Loan
Documents (the “Amendment”) with the Subsidiaries (the “Borrowers”), PSSM, as
the Lender and Administrative Agent (“Plainfield” or the “Administrative
Agent”), and the other credit parties thereto. The Amendment amends the loan
agreement (the “Loan Agreement”) and certain related documents (together with
the Loan Agreement, the “Loan Documents”) entered into by the Company, the
Borrowers and Plainfield on September 12, 2007, as amended on March 13,
2008.




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




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




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





The Loan
Agreement, among other things, requires the Company to furnish monthly,
quarterly and annual financial statements within a specified time period, and
prohibits the Company from encumbering its property or assets, disposing of its
assets, declare or pay dividends, lend money, acquire stock, or make capital
expenditures that are not approved in writing by Plainfield.


25


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





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





The
outstanding balance of the Line of Credit at March 31, 2009 and December 31,
2008 was $37,346,939. Total interest expense for the three months ended March
31, 2009 and 2008 and for the period from May 10, 2006 (date of inception) to
March 31, 2009, was $910,332, $590,783 and $5,263,011,
respectively.





During
2008, in connection with the additional draw down on the Line of Credit, the
Company paid approximately $710,000 in debt issuance costs which have been
capitalized and are being amortized over the term of the Line of
Credit.  For the three months ended March 31, 2009 and 2008 and for
the period from May 10, 2006 (date of inception) to March 31, 2009, the Company
amortized a total of $104,843, $35,153 and 480,754, respectively, of the debt
issuance costs, related to the Line of Credit, and these amounts are included as
interest and financing costs in the accompanying consolidated statements of
operations.





Principal
maturities on total debt are scheduled to occur in the following years as of
March 31:





2009
                  
                  $
                  1,500,0002010
                  
                  
                  -2011
                  
                  
                  37,346,9392012
                  
                  
                  24,086,637Total
      debt
                  
                  $
                  62,933,576





Note
10 – Accrued Derivative Liability





Accrued Warrant
Liability





Effective
January 1, 2009, the Company adopted the provisions of EITF 07-5. EITF 07-5
applies to any freestanding financial instruments or embedded features that have
the characteristics of a derivative, as defined by SFAS 133, and to any
freestanding financial instruments that are potentially settled in an entity’s
own common stock.


26


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





As a
result of adopting EITF 07-5, 1,805,667 of the issued and outstanding common
stock purchase warrants previously treated as equity pursuant to the derivative
treatment exemption were no longer afforded equity treatment.  In
accordance with the transition provisions of EITF 07-5, the new guidance has
been applied to the 1,805,667 warrants that were outstanding as of January 1,
2009.  The cumulative effect of this change in accounting principle of
$350,742 has been recognized as a reduction of the opening balance of
accumulated deficit as of that date.  That cumulative effect
adjustment is the difference between the amounts previously recognized in the
Company’s balance sheet as of December 31, 2008 and the amounts that would have
been recognized if the guidance in EITF 07-5 had been applied from the issuance
date of the outstanding warrants.  The fair value of all warrants at
March 31, 2009 is $7,082,400.





Accrued Conversion Option
Liability





Convertible
Debt outstanding at January 1, 2009





The
conversion option embedded in the Company’s convertible debt, as described in
Note 8,  previously met the criteria of being “conventional
convertible” debt and, accordingly, it was not separately accounted for as a
derivative instrument liability.  However, the conversion option does
not meet the criteria of EITF 07-5 because it requires that the conversion price
be adjusted in certain circumstances that do not meet the “fixed-for-fixed’
criteria in that Issue.  As a result, the Company is now required to
separately account for the embedded conversion option as a derivative instrument
liability, carried at fair value and marked-to-market each period, with changes
in the fair value each period charged or credited to operations.





In
accordance with the transition provisions of EITF 07-5, the new guidance has
been applied to the $19,707,990 of the Company’s Convertible Notes that were
outstanding as of January 1, 2009.  The cumulative effect of this
change in accounting principle of $4,366,553 has been recognized as a reduction
of the opening balance of accumulated deficit as of that date.  That
cumulative effect adjustment is the difference between the amounts previously
recognized in the Company’s balance sheet as of December 31, 2008 and the
amounts that would have been recognized if the guidance in EITF 07-5 had been
applied from the issuance date of the outstanding Convertible
Notes.





Convertible
Debt Issued in March 2009





The
Company determined that the 2009 Notes discussed in Note 8, contained an
embedded conversion feature.  Based on EITF 07-05, the conversion
feature was recorded as liability at the issuance date of the 2009
Notes.  The fair value at the date of issuance was $2,714,302 as
described in Note 8.  The fair value of all conversion options at
March 31, 2009 is $6,190,719.





Accrued Option
Liability





As a
result of the Company issuing the 2009 Notes as described in Note 8, it did not
have enough authorized shares to satisfy the conversion of all potential shares
outstanding during the three months ended March 31, 2009. Therefore, the
outstanding options were recorded at fair value and shown as an accrued
derivative liability at the inception of the 2009 Notes. The fair value of the
outstanding options of $371,500 was transferred from additional paid-in capital
to accrued derivative liability on March 31, 2009. The fair value was determined
using the Black-Scholes option pricing model under the following
assumptions:  expected life between 4.19 and 5.12 years, risk free
interest rate of 1.67%, dividend yield of 0%, and volatility
of 130%.


27


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Note
11– Stockholders’ Equity





Common
Stock




Effective
August 7, 2006, the Company effected a one and one-quarter (1.25) for one (1)
forward stock split of the authorized, issued and outstanding common stock,
without a change to the par value. As a result, the authorized share capital
increased from 75,000,000 shares of common stock with a par value of $0.001 to
93,750,000 shares of common stock with a par value of $0.001. On November 19,
2007, the stockholders approved an amendment to 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 October 28,
2008, the stockholders’ approved an amendment to its articles of incorporation
to increase the number of authorized common shares to 325,000,000.





Stock
Options





In 2006,
the Company adopted the 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
shares reserved for issuance increased to 21,000,000 in April 2007, subject to
stockholder approval which was obtained in November 2007.





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


28


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)







WeightedWeighted
                          
                          AverageAverage
                          
                          Remaining
                          
                          AggregateNumber of
                          
                          
                          Exercise
                          
                          Contractual
                          
                          IntrinsicOptions
                          
                          
                          Price
                          
                          Life (in years)
                          
                          ValueOutstanding,
      December 31, 2007
                          
                          
                          14,000,000
                          
                          
                          $
                          0.60Granted
                          
                          
                          2,440,000
                          
                          
                          $
                          0.60Exercised
                          
                          
                          -
                          
                          
                          
                          -Forfeited
                          
                          
                          (1,253,750
                          )
                          
                          $
                          0.60Outstanding,
      December 31, 2008
                          
                          
                          15,186,250
                          
                          
                          $
                          0.60Granted
                          
                          
                          -Exercised
                          
                          
                          -Forfeited
                          
                          
                          -Outstanding,
      March 31, 2009 (unaudited)
                          
                          
                          15,186,250
                          
                          
                          
                          
                          
                          8.34
                          
                          -Exercisable,
      March 31, 2009 (unaudited)
                          
                          
                          9,167,500
                          
                          
                          $
                          0.60
                          
                          8.29
                          
                          -




The
Company recognized $577,510, $632,358 and $6,538,320 in share-based compensation
expense for the three months ended March 31, 2009 and 2008 and for the
period from May 10, 2006 (date of inception) to March 31, 2009,
respectively.





The
compensation expense related to the unvested options as of March 31, 2009 is
$2,931,456 which will be recognized over the weighted average period of 1.42
years.





Note
12 – Warrants





The
following summarizes the stock purchase warrant transactions for the three
months ended March 31, 2009:


29


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





WeightedWeighted
                      
                      AverageAverage
                      
                      RemainingNumber of
                      
                      
                      Exercise
                      
                      ContractualWarrants
                      
                      
                      Price
                      
                      Life (in years)Outstanding,
      December 31, 2007
                      
                      
                      60,303,581
                      
                      
                      $
                      0.61Granted
                      
                      
                      12,289,271
                      
                      
                      $
                      0.30Exercised
                      
                      
                      -
                      
                      
                      
                      -Exchanged
                      
                      
                      (60,635,681
                      )
                      
                      $
                      0.31Forfeited
                      
                      
                      (151,505
                      )
                      
                      $
                      1.50Outstanding,
      December 31, 2008
                      
                      
                      11,805,666
                      
                      
                      $
                      0.39Granted
                      
                      
                      62,500,000
                      
                      
                      $
                      0.30Exercised
                      
                      
                      -Forfeited
                      
                      
                      -Outstanding,
      March 31, 2009 (unaudited)
                      
                      
                      74,305,666
                      
                      
                      $
                      0.31
                      
                      6.86Exercisable,
      March 31, 2009 (unaudited)
                      
                      
                      74,305,666
                      
                      
                      $
                      0.31
                      
                      6.86





Note
13 – Related Party Transactions





The
Company entered into the following transactions with related
parties:




a)
            On
      August 6, 2007, the Company entered into an integral service
      agreement with Ocean Marine S.A.C, (“Ocean Marine”) a company controlled
      by certain officers of the Company and a Peruvian Corporation, to provide
      certain advisory services related to use and handling of biodiesel to the
      Company. The agreement provides for a lump sum payment of $309,166,
      retroactive from September 15, 2006 to June 30, 2007, for the
      services rendered by Ocean Marine and a fee of $34,000 per month to Ocean
      Marine from July 1, 2007 through to August 12, 2009. Total consulting
      expenses incurred under this agreement totaled $102,000, $90,672 and
      $1,050,556 for the three months ended March 31, 2009 and 2008 and for the
      period from May 10, 2006 (date of inception) to March 31, 2009,
      respectively.  The outstanding balance owed to Ocean Marine at
      March 31, 2009 and December 31, 2008 was $268,624 and $191,142,
      respectively.





b)
            Plainfield
      is a related party as it is a major stockholder of the Company. See
      transactions with Plainfield in notes 7 and
8.





c)
            As
      of March 31, 2009 and December 31, 2008, the Company has loans due to
      shareholders in the amount of
$208,638.





d)
            Certain
      officers of the Company were shareholders of Interpacific.  See
      Note 16 for the transaction
details.





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


30


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





Note
14 – Commitments and Contingencies





The
Company entered into the following agreements:





a)
            On
      August 13, 2007, Pure Biofuels del Peru entered into a services agreement
      with Ocean Marine, whereby Ocean Marine agreed to render consulting,
      management and logistical support services with respect to executive
      office duties and responsibilities.  Pure Biofuels del Peru pays
      Ocean Marine $408,000 annually for these services.  The term of
      this agreement is from August 13, 2007 through August 12,
      2009.





b)
            On
      September 12, 2007, the Company entered into a registration rights
      agreement (the “ARC Registration Rights Agreement”) withARC 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.





c)
            During
      the three months ended March 31, 2009, the Company entered into additional
      agreements with Plainfield. See Notes 7 and 8 for a description of these
      agreements.





Leases





d)
            On
      October 1, 2006, the Company entered into an office lease for the Company
      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 basis over the term of the
      lease.





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





For the
three months ended March 31, 2009 and 2008 and for the period from May 10, 2006
(date of inception) to March 31, 2009, the Company incurred lease expense in the
amount of $22,780, $30,130 and $281,099, respectively.





Note
15 – Supplemental Cash Flow Information





The
following table contains the supplemental cash flow information for the periods
indicated.


31


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





For the
                  
                  
                  For the
                  
                  
                  For the periodThree Months
                  
                  
                  Three Months
                  
                  
                  from May 10, 2006Ended
                  
                  
                  Ended
                  
                  
                  (date of inception)March 31, 2009
                  
                  
                  March 31, 2008
                  
                  
                  to March 31, 2009SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,545,280Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  800





The
following table contains the supplemental information of non-cash investing and
financing activities for the periods indicated.





For the
                
                
                For the
                
                
                For the periodThree Months
                
                
                Three Months
                
                
                from May 10, 2006Ended
                
                
                Ended
                
                
                (date of inception)March 31,
                
                
                March 31,
                
                
                To March 31,2009
                
                
                2008
                
                
                2009SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCINGPurchase
      of land through long-term debt
                
                $
                -
                
                
                $
                -
                
                
                $
                1,200,000Shares
      transferred to placements for financing
                
                $
                -
                
                
                $
                -
                
                
                $
                4,152,000Issuance
      of common stock with convertible debenture
                
                $
                -
                
                
                $
                -
                
                
                $
                5,500,000Issuance
      of warrants with convertible debenture
                
                $
                -
                
                
                $
                -
                
                
                $
                507,647Issuance
      of warrants for debt extension
                
                $
                -
                
                
                $
                -
                
                
                $
                390,219Issuance
      of warrants for consulting services
                
                $
                -
                
                
                $
                -
                
                
                $
                18,516Issuance
      of common stock for debt issuance costs
                
                $
                -
                
                
                $
                -
                
                
                $
                180,000Issuance
      of warrants for debt issuance costs
                
                $
                -
                
                
                $
                -
                
                
                $
                212,232Issuance
      of convertible promissory note for debt issuance costs
                
                $
                -
                
                
                $
                -
                
                
                $
                120,000Issuance
      of common stock for financing costs
                
                $
                -
                
                
                $
                -
                
                
                $
                408,750Increase
      in accrued liability related to Interpacific Merger
                
                $
                -
                
                
                $
                -
                
                
                $
                932,104Issuance
      of shares for purchase of Interpacific Oil S.A.C.
                
                $
                -
                
                
                $
                996,667
                
                
                $
                996,667Issuance
      of convertible promissory note for interest payable
                
                $
                2,178,647
                
                
                $
                -
                
                
                $
                6,886,637Issuance
      of warrants as part of financing agreement
                
                $
                2,365,145
                
                
                $
                573,628
                
                
                $
                3,685,314Capitalize
      interest on construction in progress
                
                $
                -
                
                
                $
                478,711
                
                
                $
                3,050,769Issuance
      of common stock for convertible debt
                
                $
                -
                
                
                $
                -
                
                
                $
                106,267Beneficial
      conversion feature on issuance of convertible debt
                
                $
                2,925,520
                
                
                $
                -
                
                
                $
                3,092,187Issuance
      of shares for services
                
                $
                -
                
                
                $
                -
                
                
                $
                5,850Exchange
      of warrants for shares of common stock
                
                $
                -
                
                
                $
                -
                
                
                $
                9,210,728Accrued
      liability for Interpacific Oil S.A.C. purchase price
                
                $
                -
                
                
                $
                -
                
                
                $
                5,740,061Debt
      discounts from issuance of convertible debt
                
                $
                2,411,218
                
                
                $
                -
                
                
                $
                2,411,218





Note
16 – Interpacific Oil S.A.C. Acquisition





Pursuant
to the Merger Agreement (See Note 1), the outstanding capital stock of
Interpacific was converted into the right to receive merger consideration
payable beginning 90 days after the closing of the transaction, subject to
certain performance-based adjustments described below and consisting of the
following: (i) up to $6,300,000 payable with (A) $700,000 in cash, and (B) (i)
up to 9,333,333 shares of common stock, par value $0.001, of the Company and
(ii) a five year warrant to purchase up to 2,925,000 shares of common stock, at
an exercise price of $0.47 per share. The shareholders of Interpacific included
Luis Goyzueta and Alberto Pinto, the Chief Executive Officer and Chief Operating
Officer of the Company, respectively.


32




Pure
Biofuels Corp. and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)




The
$700,000 cash consideration and 2,166,667 shares of the stock consideration
valued at $996,667 were payable 90 days after the closing.  The
remainder of the stock consideration and the warrant consideration (“additional
purchase price”) shall be contingent upon review and confirmation from an
accounting firm agreed upon by the parties to the Merger Agreement that revenue
in accordance with U.S. generally accepted accounting practices for the
operations of Interpacific for the 90-day period beginning on the Closing Date
exceeds $3,900,000. If the revenue is less than $3,900,000, then the additional
stock consideration and warrant consideration shall each be proportionately
reduced. In addition, if the revenue is less than $3,900,000, then Interpacific
shall have the option of measuring the revenue for an additional 90-day period
and can elect to be paid the additional stock consideration and warrant
consideration based solely on the second 90-day period.  As of
December 31, 2007, the Company had paid total cash consideration of $700,000 and
had recorded a shareholder payable for the stock consideration in the amount of
$996,667. The stock was issued on January 26, 2008, pursuant to an amendment to
the Merger Agreement executed on January 23, 2008.





On
November 21, 2008, the Board of Directors established a special committee of the
Board (“Special Committee”) to exercise the authority of the Board of Directors
for the purpose of reviewing, considering, evaluating and approving the
remaining purchase price of $5,600,000 and the granting of 2,925,000 five year
warrants to the shareholders of Interpacific Oil S.A.C. relating to the Merger
Agreement. The Special Committee determined through a resolution that the
Company has an obligation to pay the shareholders of Interpacific Oil S.A.C.
$5,600,000 and to grant 2,925,000 five year warrants to purchase the Company’s
common stock at an exercise price of $0.30.  This resolution is
intended to replace the additional purchase price discussed above.





At March
31, 2009, the fair value of the warrants was $144,718 which was determined by
using the Black-Scholes option pricing model with the following
assumptions:  (1) expected life of 4.69 years; (2) volatility of 130%;
(3) risk free interest rate of 1.67% and (4) dividend rate of 0%.





As a
result of the resolution by the Special Committee, the Company has a verbal
understanding with the previous shareholders of Interpacific on the additional
purchase price as discussed above. As of March 31, 2009, in accordance with SFAS
No. 141, “Business Combinations,” and SFAS No. 5, “Accounting for Contingencies,
the Company has recognized additional goodwill and a liability of $5,744,718 for
the additional purchase price.





Note
17 – Subsequent Events





Plainfield 2009
Note





On April
28, 2009, the Company signed a promissory note (“Plainfield 2009 Note”) to pay
Plainfield $500,000. The Plainfield 2009 Note provides that the Company will pay
the principal amount together with accrued and unpaid interest on the entire
principal amount of the Plainfield 2009 Note at 5% of the principal amount to
Plainfield in one (1) installment of $525,000 on the earlier of (a) May 30, 2009
and (b) the date the Company enters into an agreement with Interbank Peru
pursuant to which Interbank Peru will provide term loan financing for the
Company and/or one or more of its majority-owned subsidiaries, in a principal
amount of not less than $40,330,000 (May 30, 2009 or such earlier date, the
“Maturity Date”).  Any accrued interest shall be added to the
principal sum then owed by the Company to Plainfield and paid on the Maturity
Date.


33


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





The
Plainfield 2009 Note provides for certain events of default with various
remedies including acceleration or conversion, at Plainfield’s sole option, in
lieu of the other remedies for an event of default, into a PIK Note in an
aggregate principal amount of $525,000, convertible into 13,125,000 shares of
common stock, par value $.001 per share, of the Company’s common stock at a
conversion price of $0.04 per share. Plainfield may at its sole option exchange
the PIK Note at any time after the date of the event of default for (a) a
promissory note (the “Exchange Note”) issued by the Company, identical in all
respects to the PIK Note, except that the Exchange Note shall not have any
conversion or exchange rights and (b) a number of shares of common stock equal
to the number of shares that would have been issued upon the conversion of the
PIK Note pursuant to the immediately preceding sentence divided by
1.2.





FDS Note





On April
28, 2009, the Company signed a promissory note (“FDS 2009 Note”) to pay FDS
$500,000. The FDS 2009 Note provides that the Company will pay the principal
amount together with accrued and unpaid interest on the entire principal amount
of the FDS 2009 Note at 5% of the principal amount to FDS in one (1) installment
of $525,000 on the earlier of (a) May 30, 2009 and (b) the date the Company
enters into an agreement with Interbank Peru pursuant to which Interbank Peru
will provide term loan financing for the Company and/or one or more of its
majority-owned subsidiaries, in a principal amount of not less than $40,330,000
(May 30, 2009 or such earlier date, the “Maturity Date”).  Any accrued
interest shall be added to the principal sum then owed by the Company to FDS and
paid on the Maturity Date.





The FDS
2009 Note provides for certain events of default with various remedies including
acceleration or conversion, at FDS’s sole option, in lieu of the other remedies
for an event of default, into a PIK Note in an aggregate principal amount of
$525,000, convertible into 13,125,000 shares of common stock, par value $.001
per share, of the Company’s common stock at a conversion price of $0.04 per
share. FDS may at its sole option exchange the PIK Note at any time after the
date of the event of default for (a) a promissory note (the “Exchange Note”)
issued by the Company, identical in all respects to the PIK Note, except that
the Exchange Note shall not have any conversion or exchange rights and (b) a
number of shares of common stock equal to the number of shares that would have
been issued upon the conversion of the PIK Note pursuant to the immediately
preceding sentence divided by 1.2.





Bank
Financing





The
Company is currently in negotiations with Interbank Peru to obtain long term
financing through a sale-leaseback arrangement.  The Company received
a term sheet which includes, but is not limited, to the following
provisions:





·
            Principal
      amount of $43,000,000.


·
            Term
      of 72 months with interest only payments for the first 12
      months.


·
            Fixed
      interest rate which will be determined once the contracts are
      drafted.


34


Pure
Biofuels Corp. and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(unaudited)





·
            Loan
      fees of 1.6% of the principal
amount.


·
            At
      the end of the life of the loan, the Company will exercise its purchase
      option of 0.5% of the loan.


·
            Maintain
      a reserve account which will become effective after the first year and it
      will hold the next 6 months’ worth of principal and interest payments
      throughout the remaining life of the
loan.


·
            Maintain
      a working capital account of $15,000,000 as an equity placement on the
      Company, and it will be managed by a controller to be determined by
      Interbank Peru.


·
            Maintain
      certain financial and performance ratios that form part of the covenants
      to be included in the
contracts.


35





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





Forward-looking
statements





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





Overview





We have
constructed, tested, and plan to operate a 52.5 million gallon biodiesel
production plant at a site near the Callao Port in Lima, Peru, (“Callao Port
Facility”), and operate a 10.0 million gallon biodiesel production plant that we
acquired from Interpacific Oil, (“Interpacific”, or the “Interpacific
Facility”), on December 4, 2007. Currently, we are a development-stage company
with no significant revenues from operations. To date, our efforts have been
devoted principally to the construction of the Callao Port Facility, engaging
service providers and related activities.





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





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





On
December 4, 2007, we completed the acquisition of the Interpacific Facility,
which opened in 2001, and was one of the first biodiesel production facilities
ever constructed in Peru. We have expanded production capacity of the
Interpacific Facility from 7.2 million gallons per year to 10 million gallons
per year.





We plan
to be self-sufficient with our primary raw material, vegetable oil. This
comprises approximately 92% of our estimated production costs. As part of our
vertical integration, we anticipate that we will need to raise $16 million in
order to plant roughly 12,000 hectares of Jatropha trees. Our studies show that
this will yield, conservatively, 3 metric tons of oil per hectare by 2012, once
the plants reach maturity. This will supply an estimated 8% of our raw material
requirements and our long term objective is to develop sufficient crops in order
to be 100% self-sufficient. We plan to use alternative non-edible crops like
Jatropha, which can be planted in arid lands unsuitable for most food crops.
There can be no assurance that we will be able to secure any such financing at
terms that are favorable to us or at all, or, even if we secure such financing,
that we will ever become self sufficient as described above.


36





The
construction of our Callao Port Facility has been completed and tested. Assuming
we secure sufficient financing, we are targeting to begin operations during the
second quarter of 2009. The date has been pushed back because we have not been
able to secure the working capital required to operate our facilities. If we do
not obtain working capital in the near future, this date could be further
delayed. As for the Interpacific Facility, we have generated minor revenues, as
a result of our testing phase.





We are
currently negotiating a long term financing arrangement which will provide debt
with more favorable terms and conditions.  With the proceeds, we
anticipate repaying the line of credit that we currently have with Plainfield
and pay outstanding invoices.  After we pay the outstanding
liabilities, we will be fully funded and will be able to complete the
construction and to use the underwater pipeline.  In addition to this
financing, we will need to raise approximately $40 million of working capital to
fund the operations of the Callao Port Facility and the Interpacific Facility,
which includes amounts for raw materials and related taxes. There can be no
assurance that we will be able to secure financing at terms that are favorable
to us or at all.





Results of
Operations





For the three months ended
March 31, 2009 vs. the three months ended March 31, 2008





Revenues
were $413,348 for the three months ended March 31, 2009 compared to $0 for the
three months ended March 31, 2008.  Revenues were obtained from sales
of inventory that was produced during the testing period.  The Company
expects to be fully operational during the second quarter of 2009.





Costs of
revenues were $757,050 for the three months ended March 31, 2009 compared to $0
for the three months ended March 31, 2008.  The costs of revenue
include the material and production costs plus additional costs incurred during
the testing of the facility.  As such, these costs are higher than
what we would expect once the plant is fully operational.





Selling,
general and administrative expenses were $2,036,072 for the three months ended
March 31, 2009 compared to $2,968,181 for the three months ended March 31, 2008,
for a decrease of $932,109 or 31%. The decrease is due to a decrease in
consulting fees of $806,000 and legal fees of $233,000 with an increase in other
general and administrative expenses of $175,000.  The decrease in
consulting fees is because our need for consulting services has diminished as
our plant has been completed and tested.  The decrease in legal fees
is because we did not have as many financings during the three months ended
March 31, 2009 as we did during the three months ended March 31,
2008.





Interest
and financing costs consisted of the following for the periods
indicated:





For the Three
                
                
                For the ThreeMonths Ended
                
                
                Months Ended
                
                
                IncreaseMarch 31, 2009
                
                
                March 31, 2008
                
                
                (Decrease)
                
                
                % ChangeInterest
      expense
                
                $
                1,629,621
                
                
                $
                997,626
                
                
                $
                631,995
                
                
                
                63.3
                %Financing
      costs
                
                
                2,879,447
                
                
                
                -
                
                
                
                2,879,447
                
                
                
                100
                %Amortization
      of debt discount and debt issuance costs
                
                
                1,575,471
                
                
                
                805,845
                
                
                
                769,626
                
                
                
                95.5
                %$
                6,084,539
                
                
                $
                1,803,471
                
                
                $
                4,281,068
                
                
                
                237.4
                %


37





The
increase of $631,995 in interest expense is due to the increase in our
debt.  Our average line of credit for the three months ended March 31,
2009 was $37,346,939 compared to $18,200,000 for the three months ended March
31, 2008.  Our average convertible promissory notes outstanding were
$23,400,000 for the three months ended March 31, 2009 compared to $8,100,000 for
the three months ended March 31, 2008.





The
financing costs of $2,879,447 for the three months ended March 31, 2009
consisted of the following:




·
            $514,302
      related to the excess of fair value of the conversion option over the
      principal of the convertible notes.


·
            $2,365,145
      related to the warrants that were issued to FDS and Plainfield per the
      default provisions in their respective short-term
  notes.





The
increase in the amortization of debt discounts and debt issuance costs is
primarily due to the increase in debt discounts recorded on March 13, 2008 that
related primarily to the change in the conversion price from $0.60 to $0.30 for
the $10,610,000 convertible notes that were outstanding as of that
date.  The discount for this concession was $6,540,487.





The
change in fair value of accrued derivative liability for the three months ended
March 31, 2009 was an increase of $682,192 compared to $0 for the three months
ended March 31, 2008.  The change is because we did not have any
derivative liabilities during the three months ended March 31,
2008.





Foreign
currency transaction loss was $258,497 for the three months ended March 31, 2009
compared to a gain of $2,324,379 for the three months ended March 31, 2008, for
a change of $2,582,876 or 111%. The change is primarily due to the line of
credit which was denominated and payable in U.S. dollars.  The change
in exchange rate in favor of the Peruvian Soles increased by 9.6% from December
31, 2007 to March 31, 2008 compared to a 0.6% decrease from December 31, 2008 to
March 31, 2009.





Liquidity and Capital
Resources




As of
March 31, 2009, we had $1,343,722 in cash and cash equivalents. In addition,
during the three months ended March 31, 2009, our cash used in operating
activities was $1,376,415 compared to our cash provided by operating activities
of $1,033,068 for the three months ended March 31, 2008.  During the
three months ended March 31, 2009, the cash used in operating activities was
comprised primarily of our net loss of $9,467,093, offset primarily by non-cash
charges of $6,609,658.





During
the three months ended March 31, 2009 and 2008, we used $9,212 and $8,397,561 in
investing activities, respectively. For the three months ended March 31, 2009
and 2008, we used $0 and $7,074,246, respectively for the purchase of property,
plant, and equipment. Our VAT credit increased by $9,212 and $1,323,315 for the
three months ended March 31, 2009 and 2008, respectively.





During
the three months ended March 31, 2009 and 2008, cash provided by financing
activities was $2,198,978 and $9,240,376, respectively. During the three months
ended March 31, 2009, we received $2,200,000 from the issuance of convertible
debt compared to $5,000,000 of convertible debt and $3,600,000 proceeds from the
line of credit during the three months ended March 31, 2008.





The
construction of our Callao Port Facility has been completed and successfully
tested. If we secure sufficient financing, we are targeting to begin operations
during the second quarter of 2009.





As for
the Interpacific Facility, we expect to generate additional revenues during the
second quarter of 2009, if we are able to secure sufficient
financing.


38





We will
need additional financing of approximately $40 million as working capital needed
to operate both our Callao Port Facility and our Interpacific
Facility.





We
anticipate that we will need to raise $16 million for our Jatropha plantations
as part of our vertical integration strategy. There can be no assurance that we
will be able to secure financing terms that are favorable to us or at
all.





Financings





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





Loan
Agreement





In order
to finance the construction of the Callao Port Facility, on September 12, 2007,
we entered into a $20,000,000 loan agreement, (the “Loan Agreement”), with
Plainfield.





On April
18, 2008, we amended the Loan Agreement which increased the borrowing amount by
$17,346,939, such that the maximum aggregate principal amount of loans available
under the Loan Agreement was $37,346,939.  As of March 31, 2009 and
December 31, 2008, the principal balance outstanding was
$37,346,939.





During
the three months ended March 31, 2009, we converted $1,009,026 of accrued
interest to our PIK Notes.





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





Convertible
Debt





On
September 12, 2007, we issued to Plainfield $10,000,000 aggregate principal
amount of our PIK Notes.  Our Company is to pay interest on the Notes
semi-annually in arrears on March 15 and September 15 of each year, commencing
March 15, 2008. The PIK Notes are senior unsecured obligations of our Company
and rank equally in right of payment to our Company’s future senior
indebtedness. The Additional Notes also restrict our Company and its
subsidiaries from incurring indebtedness or other obligations, including
creating liens, merging, selling assets, making dividends, distributions or
investments, entering into transactions with affiliates, making capital
expenditures, modifying charter documents and issuing capital stock in the
future, in each case subject to certain exceptions.





As of
December 31, 2008, we had issued $19,707,900 of PIK Notes.  During the
three months ended March 31, 2009, we issued the following PIK
Notes:





·
            $1,009,206
      for accrued interest on the Loan Agreement with an exercise price is $0.30
      per share.


·
            $1,169,621
      for accrued interest from September 15, 2008 through March 15, 2009
      related to the PIK Notes with an exercise price of $0.30 per
      share.


·
            $2,200,000
      of additional principal with an exercise price of $0.04 per
      share.


39





Plainfield
Promissory Note





On
December 4, 2008, we executed a Promissory Note (the “Plainfield Note”)
promising to pay to Plainfield, the principal amount of $500,000.  We
were to pay Plainfield the principal amount in one installment of $500,000 on
the earlier of (a) January 15, 2009 or (b) the date we enter into an agreement
with Banco Internacional del Perú - Interbank pursuant to which Interbank Peru
will provide us with term loan financing, in a principal amount of not less than
$40,330,000. The Plainfield Note is a non-interest bearing note.





We did
not make the required principal payment of $500,000 on January 15,
2009.  Pursuant to the agreement, we issued 13,333,333 additional
warrants on April 8, 2009. We will convert the Plainfield Note into a
three-month term loan with an interest rate of 15% per annum.





Plainfield
2009 Note





On April
28, 2009, the Company signed a promissory note (“Plainfield 2009 Note”) to pay
Plainfield $500,000. The Plainfield 2009 Note provides that the Company will pay
the principal amount together with accrued and unpaid interest on the entire
principal amount of the Plainfield 2009 Note at 5% of the principal amount to
Plainfield in one (1) installment of $525,000 on the earlier of (a) May 30, 2009
and (b) the date the Company enters into an agreement with Interbank Peru
pursuant to which Interbank Peru will provide term loan financing for the
Company and/or one or more of its majority-owned subsidiaries, in a principal
amount of not less than $40,330,000 (May 30, 2009 or such earlier date, the
“Maturity Date”).  Any accrued interest shall be added to the
principal sum then owed by the Company to Plainfield and paid on the Maturity
Date.





The
Plainfield 2009 Note provides for certain events of default with various
remedies including acceleration or conversion, at Plainfield’s sole option, in
lieu of the other remedies for an event of default, into a PIK Note in an
aggregate principal amount of $525,000, convertible into 13,125,000 shares of
common stock, par value $.001 per share, of the Company’s common stock at a
conversion price of $0.04 per share. Plainfield may at its sole option exchange
the PIK Note at any time after the date of the event of default for (a) a
promissory note (the “Exchange Note”) issued by the Company, identical in all
respects to the PIK Note, except that the Exchange Note shall not have any
conversion or exchange rights and (b) a number of shares of common stock equal
to the number of shares that would have been issued upon the conversion of the
PIK Note pursuant to the immediately preceding sentence divided by
1.2.





After
considering all transactions with Plainfield, Plainfield and its affiliates
own:





·89,683,765 shares
of our common stock, or 52% of our issued and outstanding stock


·Warrants
exercisable into 16,666,666 shares of our common stock at an exercise price of
approximately $0.30 per share


·$21,886,637
aggregate principal amount of notes convertible into 72,955,458 shares of our
common stock at a conversion price of $0.30 due on September 12,
2012


· $2,725,000
aggregate principal amount of notes convertible into 68,125,000 shares of our
common stock at a conversion price of $0.04 due on September 12,
2012


· $37,346,939
aggregate principal amount due under the line of credit due January 12,
2011.





FDS
Note




On
December 4, 2008, we executed a Promissory Note (the “FDS Note”) promising to
pay to FDS Corporation S.A (“FDS”), the principal amount of
$1,000,000.  We were to pay FDS the principal amount in one
installment of $1,000,000 on the earlier of (a) January 15, 2009 or (b) the date
we enter into an agreement with Banco Internacional del Perú - Interbank
(“Interbank Peru”) pursuant to which Interbank Peru will provide us with term
loan financing, in a principal amount of not less than $40,330,000. The FDS Note
is a non-interest bearing note.


40





We did
not make the required principal payment of $1,000,000 on January 15,
2009.  Pursuant to the agreement, we issued 26,666,666 additional
warrants on April 8, 2009.  We will convert the FDS Note into a
three-month term loan with an interest rate of 15% per annum.





FDS
2009 Note





On April
28, 2009, the Company signed a promissory note (“FDS 2009 Note”) to pay FDS
$500,000. The FDS 2009 Note provides that the Company will pay the principal
amount together with accrued and unpaid interest on the entire principal amount
of the FDS 2009 Note at 5% of the principal amount to FDS in one (1) installment
of $525,000 on the earlier of (a) May 30, 2009 and (b) the date the Company
enters into an agreement with Interbank Peru pursuant to which Interbank Peru
will provide term loan financing for the Company and/or one or more of its
majority-owned subsidiaries, in a principal amount of not less than $40,330,000
(May 30, 2009 or such earlier date, the “Maturity Date”).  Any accrued
interest shall be added to the principal sum then owed by the Company to FDS and
paid on the Maturity Date.





The FDS
2009 Note provides for certain events of default with various remedies including
acceleration or conversion, at FDS’s sole option, in lieu of the other remedies
for an event of default, into a PIK Note in an aggregate principal amount of
$525,000, convertible into 13,125,000 shares of common stock, par value $.001
per share, of the Company’s common stock at a conversion price of $0.04 per
share. FDS may at its sole option exchange the PIK Note at any time after the
date of the event of default for (a) a promissory note (the “Exchange Note”)
issued by the Company, identical in all respects to the PIK Note, except that
the Exchange Note shall not have any conversion or exchange rights and (b) a
number of shares of common stock equal to the number of shares that would have
been issued upon the conversion of the PIK Note pursuant to the immediately
preceding sentence divided by 1.2.





Performance
Bond





On March
27, 2009, the Company entered into a performance bond agreement (the “Bond
Agreement”), with FDS Corporation (“FDS”). Under the Bond Agreement, FDS agreed
to open a financial bond in the amount of up to $2,500,000 required by the
Peruvian Authorities to provide the regulatory and other permits necessary to
commercialize the Callao Facility as a terminal and bonded warehouse under the
laws of Peru (the “FDS Bond”) for a term of up to twelve months, subject to the
Company’s option to extend the term for up to two additional twelve month
periods.  The FDS Bond accrues interest on a monthly basis in the
amount of $31,250. As additional consideration for the placement of the FDS
Bond, the Company issued to FDS seven year cashless warrants to purchase
62,500,000 shares of common stock by which FDS will have the right to purchase
one share of common stock at an exercise price of $0.05 per share for every
warrant issued (the “FDS Bond Warrants”). FDS may exchange all or any FDS Bond
Warrants at any time after the Effective Date and on or prior to March 31, 2016
for a number of shares of common stock equal to the number of shares that would
have been issued upon the exercise of the FDS Bond Warrants pursuant to Section
4 of the Bond Agreement divided by 1.2.  FDS may withdraw the FDS Bond
at any time and terminate this Agreement if there is an event of default and
Plainfield accelerates the obligations in connection with such event of default
under the Loan Agreement dated as of September 12, 2007.





Bank
Financing





We are
currently in negotiations with Interbank Peru to obtain long term financing
through a sale-leaseback arrangement.  We have received a term sheet
which includes, but is not limited to, the following
provisions:


41





·
            Principal
      amount of $43,000,000.


·
            Term
      of 72 months with interest only payments for the first 12
      months.


·
            Fixed
      interest rate which will be determined once the contracts are
      drafted.


·
            Loan
      fees of 1.6% of the principal
amount.


·
            At
      the end of the life of the loan, we will exercise its purchase option of
      0.5% of the loan.


·
            Maintain
      a reserve account which will become effective after the first year and it
      will hold the next 6 months’ worth of principal and interest payments
      throughout the remaining life of the
loan.


·
            Maintain
      a working capital account of $15,000,000 as an equity placement on us, and
      it will be managed by a controller to be determined by
      Interbank.


·
            Maintain
      certain financial and performance ratios that form part of the covenants
      to be included in the contracts.





Uncertainties and
Going-Concern





The
continuation of our business is dependent upon us raising additional financial
support and our Callao Port Facility beginning operations, or until we begin
production at the Interpacific Facility. In addition, we will require working
capital of approximately $36 million to fund the operation of the Callao Port
Facility, which includes amounts for raw materials and related taxes, and
approximately $4 million to fund the raw materials for the operation of the
Interpacific Facility. There can be no assurance that we will be able to secure
financing at terms that are favorable to us or at all. The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments. If we are not able to obtain additional financing on a
timely basis, we will be unable to conduct our operations as planned, and we
will not be able to meet our other obligations as they become due. In such
event, we will be forced to scale down or perhaps even cease our
operations.





We have
suffered recurring losses from operations. The continuation of our Company as a
going concern is dependent upon our Company attaining and maintaining profitable
operations and raising additional capital. The consolidated 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 consolidated
financial statements for the year ended December 31, 2008, our independent
auditors included an explanatory paragraph regarding concerns about our ability
to continue as a going concern. Our consolidated financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors.





Commitments and
Contingencies





We
entered into the following agreements:





a)
            On
      August 13, 2007, Pure Biofuels del Peru entered into a services agreement
      with Ocean Marine, whereby Ocean Marine agreed to render consulting,
      management and logistical support services with respect to executive
      office duties and responsibilities.  Pure Biofuels del Peru pays
      Ocean Marine $408,000 annually for these services.  The term of
      this agreement is from August 13, 2007 through August 12,
      2009.





b)
            On
      September 12, 2007, the Company entered into a registration rights
      agreement (the “ARC Registration Rights Agreement”) withARC 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.





42





c)
            During
      the three months ended March 31, 2009, the Company entered into additional
      agreements with Plainfield. See footnotes 7 and 8 for a description of
      these agreements.





Leases


d)
            On
      October 1, 2006, the Company entered into an office lease for the Company
      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 basis over the term of the
      lease.





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





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





Contractual
Obligations





Our
significant contractual obligations are as follows:





Payments due by PeriodLess than
                
                
                One to
                
                
                Three to
                
                
                More ThanOne Year
                
                
                Three Years
                
                
                Five Years
                
                
                Five Years
                
                
                TotalPromissory
      notes
                
                $
                2,550,000
                
                
                $
                -
                
                
                $
                24,086,637
                
                
                $
                -
                
                
                $
                26,636,637Line
      of credit
                
                
                -
                
                
                
                37,346,939
                
                
                
                -
                
                
                
                -
                
                
                
                37,346,939Operating
      lease obligations
                
                
                94,816
                
                
                
                141,276
                
                
                
                -
                
                
                
                -
                
                
                
                236,092Total
                
                $
                2,644,816
                
                
                $
                37,488,215
                
                
                $
                24,086,637
                
                
                $
                -
                
                
                $
                64,219,668





Off-Balance Sheet
Arrangements





Performance
Bond





On March
27, 2009, we entered into a performance bond agreement (the “Bond Agreement”),
with FDS. Under the Bond Agreement, FDS agreed to open a financial bond in the
amount of up to $2,500,000 required by the Peruvian Authorities to provide the
regulatory and other permits necessary to commercialize the Callao Facility as a
terminal and bonded warehouse under the laws of Peru (the “FDS Bond”) for a term
of up to twelve months, subject to automatic extension for up to two additional
twelve month periods.  The Bond Agreement accrues interest on a
monthly basis in the amount of $31,250. As additional consideration for the
placement of the Bond Agreement, we issued to FDS seven year cashless warrants
to purchase 62,500,000 shares of common stock by which FDS will have the right
to purchase one share of common stock at an exercise price of $0.05 per share
for every warrant issued (the “FDS Bond Warrants”). FDS may exchange all or any
FDS Bond Warrants at any time after the Effective Date and on or prior to March
31, 2016 for a number of shares of common stock equal to the number of shares
that would have been issued upon the exercise of the FDS Bond Warrants pursuant
to Section 4 of the Bond Agreement divided by 1.2.  FDS may withdraw
the FDS Bond at any time and terminate this Agreement if there is an event of
default and Plainfield accelerates the obligations in connection with such event
of default under the Loan Agreement dated as of September 12,
2007.


43





Critical Accounting
Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including
the notes thereto, and related disclosures of commitments and contingencies, if
any.  We have identified certain accounting policies that are significant
to the preparation of our financial statements.  These accounting policies
are important for an understanding of our financial condition and results of
operation.  Critical accounting policies are those that are most important
to the portrayal of our financial conditions and results of operations and
require management's difficult, subjective, or complex judgment, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.  Certain
accounting estimates are particularly sensitive because of their significance to
financial statements and because of the possibility that future events affecting
the estimate may differ significantly from management's current judgments.
 We believe the following critical accounting policies involve the most
significant estimates and judgments used in the preparation of our financial
statements.





Effective
January 1, 2009, the Company adopted SFAS 161, "Disclosures about Derivative
Instruments and Hedging Activities, and amendment of FASB No. 133", which amends
and expands the disclosure requirements of SFAS 133. SFAS 161 requires
qualitative disclosures about objectives and strategies for using derivatives
and quantitative disclosures about the fair value of any gains and losses on
derivative instruments.





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, reserves for slow moving and
obsolete inventory, future tax rates used to determine future income taxes, and
the carrying values of goodwill and warrant liability. Actual results could
differ from these estimates.





Accrued Derivative
Liabilities





The
Company applies FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.”  EITF 07-5 provides a two-step model to determine
whether a financial instrument or an embedded feature is indexed to an issuer’s
own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope
exception. This standard triggers liability accounting on all instruments and
embedded features exercisable at strike prices denominated in any currency other
than the functional currency of the operating entity in Peru.  Using
the criteria in EITF 07-5, the Company determines which instruments or embedded
features that require liability accounting and records the fair values as an
accrued derivative liability. The changes in the values of the accrued
derivative liabilities are shown in the accompanying consolidated statements of
operations as “change in fair value of accrued derivative
liabilities.”


44





Fair Value
Measurements





For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate fair value due
to their short maturities. In addition, the Company has long-term debt with
financial institutions. The carrying amounts of the line of credit and other
long-term liabilities approximate their fair value based on current rates for
instruments with similar characteristics.





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





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





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





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




The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”





We did
not identify any other non-recurring assets and liabilities that are required to
be presented on the consolidated balance sheets at fair value in accordance with
SFAS 157.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 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 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
We adopted SFAS 159 on January 1, 2008. We chose not to elect the option to
measure the fair value of eligible financial assets and
liabilities.





Concentrations





Our
operations are primarily 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
risks.





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.


45





Foreign Currency
Translation





The
reporting currency of the Company is the U.S. dollar. Our Company’s subsidiaries
use their local currencies, the PEN and the ARS, as their functional
currencies. Assets and liabilities are translated using the exchange rates
prevailing at the balance sheet date. Translation adjustments resulting from
this process are included in accumulated other comprehensive income (loss) in
the consolidated statements 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.





Revenue
Recognition





In
accordance with the Securities and Exchange Commission’s (“SEC”) Staff
Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” we recognize revenue
when it is realized or realizable and earned. The four criteria under SAB 104
are:


·           Persuasive
evidence of an arrangement exists


·           Delivery
has occurred


·           The
sales price is fixed or determinable


·           Collection
is reasonably assured





Stock-based
Compensation





We record
stock-based compensation in accordance with SFAS No. 123(R), “Share-Based
Payment” (“SFAS 123R”). SFAS 123R requires companies to measure compensation
cost for stock-based employee compensation at fair value at the grant date and
recognize the expense over the employee’s requisite service period. Under SFAS
123R, our volatility is based on the historical volatility of our stock or the
expected volatility of similar companies. The expected life assumption is
primarily based on historical exercise patterns and employee post-vesting
termination behavior. The risk-free interest rate for the expected term of the
option is based on the U.S. Treasury yield curve in effect of the time of
grant.





We used
the Black-Scholes option-pricing model which was developed for use in estimating
the fair value of options. Option-pricing models require the input of highly
complex and subjective variables including the expected life of options granted
and our expected stock price volatility over a period equal to or greater than
the expected life of the options. Because changes in the subjective assumptions
can materially affect the estimated value of our employee stock options, it is
management’s opinion that the Black-Scholes option-pricing model may not provide
an accurate measure of the fair value of our employee stock options. Although
the fair value of employee stock options is determined in accordance with SFAS
123R using an option-pricing model, that value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.





On April
27, 2007, our board of directors amended and restated our 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 our success.  The board of directors will administer the
Plan. The stockholders approved the Plan on November 19, 2007.


46





Recent
Pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that does not result in deconsolidation, requires that
a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others.  The Company adopted SFAS 160 effective January 1,
2009.  The Company has determined the adoption of SFAS 160 did not
have a material impact to the Company’s consolidated financial position or
consolidated results of operations as of March 31, 2009.





In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating
fair value measurements in accordance with FASB Statement No. 157 when
there is not an active market or where the price inputs being used represent
distressed sales. FSP FAS 157-4 provides additional guidance on the major
categories for which equity and debt securities disclosures are to be presented
and amends the disclosure requirements of FASB Statement No. 157 to require
disclosure in interim and annual periods of the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. FSP FAS 157-4
shall be applied prospectively and is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP must
also early adopt FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairment” (“FSP FAS 115-2 and
FAS 124-2”). The Company is in the process of evaluating the impact, if
any, of applying this FSP on its consolidated
financial statements.





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held
by a Transferor in Securitized Financial Assets,” to make the
other-than-temporary impairments guidance more operational and to improve the
presentation of other-than-temporary impairments in the financial statements.
This FSP will replace the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired debt security
until recovery with a requirement that management assert it does not have the
intent to sell the security, and it is more likely than not it will not have to
sell the security before recovery of its cost basis. This FSP provides increased
disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this FSP does not result in a change
in the carrying amount of debt securities, it does require that the portion of
an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP. We are currently evaluating
this new FSP but do not believe that it will have a significant impact on the
determination or reporting of our financial results.


47





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and
APB 28-1”). FSP FAS 107-1 and APB 28-1 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial
Instruments.” However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. FSP FAS 107-1 and APB
28-1 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant
assumptions during the period. The FSP shall be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP
FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. The Company
will adopt the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of FSP FAS 157-4
and FSP FAS 115-2 and FAS 124-2.





Item
3.  Quantitative and Qualitative Disclosure about Market
Risk





Not
applicable.





Item
4. Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer has evaluated
the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
March 31, 2009. Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer has concluded that, as of March 31, 2009, the Company’s
disclosure controls and procedures were ineffective. This conclusion by the
Company’s Chief Executive Officer and Chief Financial Officer does not
relate to reporting periods after March 31, 2009.





This
conclusion is based upon material weaknesses that relate to the
following:




1.  Accounting and Finance
Personnel Weaknesses – Our current accounting staff is relatively small
and we do not have the required infrastructure of meeting the higher demands of
being a U.S. public company.





2.  Lack of Internal Audit
Function – We lack sufficient resources to perform the internal audit
function.




In order
to mitigate these material weaknesses to the fullest extent possible, all
financial reports are reviewed by an outside accounting firm that is not our
audit firm. All unexpected results are investigated. At any time, if it appears
that any control can be implemented to continue to mitigate such weaknesses, it
will be immediately implemented. The Company is in the process of complying
with SOX 404 during 2009 and will be implementing additional internal controls
over accounting and financial reporting.


48


Changes in Internal Control
Over Financial Reporting





No change
in the Company’s internal control over financial reporting occurred during the
first quarter ended March 31, 2009, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our company.





ITEM
1A. RISK FACTORS





Not
applicable.





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None.





ITEM 5. OTHER INFORMATION




(a)
            None.





(b)
            There
      were no changes to the procedures by which security holders may recommend
      nominees to our board of directors.





Item
6. Exhibits




31.1
            Certification of the
      Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 200231.2
            Certification of the
      Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 200232.1
            Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
            Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




49





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




PURE
      BIOFUELS CORP.By:
                  /s/
      Luis GoyzuetaLuis
      Goyzueta
                    Chief
      Executive Officer and
Director





Date: May
15, 2009




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:





Signature
                      
                      Title
                      
                      Date/s/
      Luis Goyzueta
                      
                      Chief
      Executive Officer and Director
                      
                      May
      15, 2009Luis
      Goyzueta
                      
                      (Principal
      Executive Officer)/s/ Alberto
      Pinto
                      
                      President
      and Director
                      
                      May
      15, 2009Alberto
      Pinto/s/
      Gustavo Goyzueta
                      
                      Chief
      Financial Officer
                      
                      May
      15, 2009Gustavo
      Goyzueta
                      
                      (Principal
      Financial Officer andPrincipal
      Accounting Officer)/s/
      C. Wendell Tewell
                      
                      Chairman
      of the Board of Directors
                      
                      May
      15, 2009C.
      Wendell Tewell/s/ Laurence
      Charney
                      
                      Director
                      
                      May
      15, 2009Laurence
      Charney


50