UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-Q**




(Mark
      One)


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


For
      the
      quarterly period ended June
      30, 2008


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


For
      the
      transition period from _______ to _______.




Commission
      file number 000-50907




**PURE
      BIOFUELS CORP.**


(Exact
      Name of Registrant as Specified in Its Charter)




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




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


**401
      Beverly Hills, CA 90210**


(Address
      of Principal Executive Offices) (Zip Code)




**1-310-402-5916**


(Registrant’s
      Telephone Number, Including Area Code)




**N/A**


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




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




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





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o (Do not check if
                a smaller reporting company)
            Smaller
                reporting company x




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


As
      of August 12, 2008, the Company had 171,435,926 outstanding shares of common
      stock, par value $0.001.









TABLE
      OF
      CONTENTS





Part
                I – FINANCIAL
                INFORMATION
            
            3Item
                1. Financial Statements
            
            3Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            
            32Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            45Item
                4. Controls and Procedures
            
            45PART
                II - OTHER INFORMATION
            
            46Item
                6. Exhibits
            
            46SIGNATURES
            
            47





2


**Part
      I – FINANCIAL INFORMATION**




**Item
      1. Financial Statements**





**PURE
                BIOFUELS CORP.**(A
                Development Stage Company)**CONSOLIDATED
                BALANCE SHEETS**





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**(unaudited)**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            4,203,356
            
            $
            2,991,104Restricted
                cash
            
            
            141,904
            
            
            740,376Other
                receivables
            
            
            504,932
            
            
            325,737Prepaid
                expenses and other assets
            
            
            70,302
            
            
            516,406Due
                from related parties
            
            
            18,748
            
            
            2,907TOTAL
                CURRENT ASSETS
            
            
            4,939,242
            
            
            4,576,530VAT
                RECEIVABLE
            
            
            5,791,089
            
            
            2,613,496PREPAYMENT
                FOR EQUIPMENT PURCHASE
            
            
            431,796
            
            
            174,276PROPERTY
                PLANT AND EQUIPMENT, net
            
            
            32,800,595
            
            
            15,842,898DEBT
                ISSUANCE COSTS, net
            
            
            4,571,207
            
            
            3,926,340GOODWILL
            
            
            1,350,806
            
            
            1,337,288DEPOSIT
                FOR ACQUISITION OF IMMOBILIARIA ALPHA
            
            
            -
            
            
            199,867TOTAL
                ASSETS
            
            $
            49,884,735
            
            $
            28,670,695**LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            $
            2,247,140
            
            $
            1,918,980Due
                to prior sharholders of Interpacific Oil
            
            
            -
            
            
            996,667Due
                to related parties
            
            
            210,747
            
            
            208,638Convertible
                promissory note
            
            
            -
            
            
            60,000TOTAL
                CURRENT LIABILITIES
            
            
            2,457,887
            
            
            3,184,285CONVERTIBLE
                NOTES, net of debt discount of $14,509,833 and $9,397,920as
                of June 30, 2008 and December 31, 2007, respectively
            
            
            1,100,167
            
            
            602,080LINE
                OF CREDIT
            
            
            37,346,852
            
            
            16,400,000TOTAL
                LIABILITIES
            
            
            40,904,906
            
            
            20,186,365MINORITY
                INTEREST
            
            
            -
            
            
            -COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -STOCKHOLDERS'
                EQUITYPreferred
                stock; $0.001 par value; 1,000,000 shares authorized, no shares
                issued
            
            
            -
            
            
            -Common
                stock; $0.001 par value; 250,000,000 shares authorized;77,687,871
                and 75,319,769 shares issued and outstanding asof
                June 30, 2008 and December 31, 2007, respectively
            
            
            77,688
            
            
            75,320Additional
                paid-in capital
            
            
            40,060,102
            
            
            30,487,037Accumulated
                other comprehensive loss
            
            
            (188,412
            )
            
            (199,791
            )Deficit
                accumulated during the development stage
            
            
            (30,969,549
            )
            
            (21,878,236
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            8,979,829
            
            
            8,484,330TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            49,884,735
            
            $
            28,670,695





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




3




PURE
                BIOFUELS CORP.(A
                Development Stage Company)**CONSOLIDATED
                STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS****FOR
                THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 AND****FOR
                THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO JUNE 30,
                2008**





**For the period****from May 10, 2006****Three Months Ended June 30,**
            
            **Six Months Ended June 30,**
            
            **(Date of Inception)****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **to June 30, 2008**(unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)REVENUE
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -COST
                OF REVENUE
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -GROSS
                PROFIT
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -OPERATING
                EXPENSESConsulting
                fees
            
            
            177,744
            
            
            486,906
            
            
            987,414
            
            
            1,014,761
            
            
            2,965,710General
                and administrative
            
            
            405,553
            
            
            169,033
            
            
            1,084,436
            
            
            306,710
            
            
            2,535,569Professional
                fees
            
            
            571,935
            
            
            423,284
            
            
            1,031,462
            
            
            523,382
            
            
            3,454,299Wages
            
            
            928,573
            
            
            2,615,383
            
            
            1,948,674
            
            
            2,820,970
            
            
            7,176,420TOTAL
                OPERATING EXPENSES
            
            
            2,083,805
            
            
            3,694,606
            
            
            5,051,986
            
            
            4,665,823
            
            
            16,131,998LOSS
                FROM OPERATIONS
            
            
            (2,083,805
            )
            
            (3,694,606
            )
            
            (5,051,986
            )
            
            (4,665,823
            )
            
            (16,131,998
            )OTHER
                INCOME (EXPENSES):Interest
                and financing costs
            
            
            (57,829
            )
            
            (72,897
            )
            
            (1,055,455
            )
            
            (72,897
            )
            
            (12,409,641
            )Decrease
                in accrued derivative liability
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,624,623Other
            
            
            (160,327
            )
            
            (547
            )
            
            (157,026
            )
            
            (547
            )
            
            (169,161
            )Amortization
                of debt discounts and debt issuance costs
            
            
            (1,151,567
            )
            
            (3,160,504
            )
            
            (1,957,412
            )
            
            (3,160,504
            )
            
            (6,809,631
            )Foreign
                currency transaction loss
            
            
            (3,193,013
            )
            
            -
            
            
            (868,634
            )
            
            -
            
            
            (72,941
            )TOTAL
                OTHER EXPENSE
            
            
            (4,562,736
            )
            
            (3,233,948
            )
            
            (4,038,527
            )
            
            (3,233,948
            )
            
            (14,836,751
            )LOSS
                BEFORE PROVISION FOR INCOME TAXES
            
            
            (6,646,541
            )
            
            (6,928,554
            )
            
            (9,090,513
            )
            
            (7,899,771
            )
            
            (30,968,749
            )PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            800
            
            
            -
            
            
            800NET
                LOSS
            
            $
            (6,646,541
            )
            $
            (6,928,554
            )
            $
            (9,091,313
            )
            $
            (7,899,771
            )
            $
            (30,969,549
            )OTHER
                COMPREHENSIVE INCOME (LOSS):Foreign
                currency translation adjustment
            
            
            198,003
            
            
            (356
            )
            
            11,379
            
            
            2,085
            
            
            (188,412
            )COMPREHENSIVE
                LOSS
            
            $
            (6,448,538
            )
            $
            (6,928,910
            )
            $
            (9,079,934
            )
            $
            (7,897,686
            )
            $
            (31,157,961
            )NET
                LOSS PER SHARE - BASIC AND DILUTED
            
            $
            (0.09
            )
            $
            (0.11
            )
            $
            (0.12
            )
            $
            (0.13
            )
            $
            (0.53
            )WEIGHTED
                AVERAGE COMMON EQUIVALENTSHARES
                OUTSTANDING - BASIC AND DILUTED
            
            
            77,687,871
            
            
            62,568,642
            
            
            77,357,848
            
            
            62,365,128
            
            
            58,617,891





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




4




**PURE
                BIOFUELS CORP.**(A
                Development Stage Company)**CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO JUNE 30,
                2008**(unaudited)





**Deficit****Accumulated**
            
            **Accumulated****Additional**
            
            **Susbscriptions**
            
            **Other**
            
            **During the**
            
            **Total****Common Stock**
            
            **Paid-in**
            
            **Received**
            
            **Comprehensive**
            
            **Development**
            
            **Stockholders'****Shares**
            
            **Amount**
            
            **Capital**
            
            **In Advance**
            
            **Loss**
            
            **Stage**
            
            **Equity****Balance,
                May 10, 2006**
            
            
            **1,000**
            
            **$**
            **304**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **304**Adustment
                for change in par value
            
            
            
            
            
            (303
            )
            
            303
            
            
            
            
            
            
            
            
            
            
            
            -Recapitalization
                transactions
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Shares
                of Pure Biofuels Corp.
            
            
            71,359,405
            
            
            71,359
            
            
            1,740,626
            
            
            
            
            
            
            
            
            
            
            
            1,811,985Cancellation
                of Metasun Software Corp. shares
            
            
            (43,912,167
            )
            
            (43,912
            )
            
            43,912
            
            
            
            
            
            
            
            
            
            
            
            -Recapitalization
                Adjustment
            
            
            29,999,970
            
            
            29,999
            
            
            (210,526
            )
            
            
            
            
            
            
            
            
            
            
            (180,527
            )Shares
                acquired by legal parent
            
            
            (1,000
            )
            
            (1
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1
            )Issuance
                of common stock for cash, October 12, 2006 @ $0.75
            
            
            3,853,547
            
            
            3,854
            
            
            2,886,306
            
            
            
            
            
            
            
            
            
            
            
            2,890,160Issuance
                of common stock for cash, November 10, 2006 @ $0.75
            
            
            426,666
            
            
            427
            
            
            319,573
            
            
            
            
            
            
            
            
            
            
            
            320,000Issuance
                of common stock for cash, December 19, 2006 @ $0.75
            
            
            404,998
            
            
            405
            
            
            303,344
            
            
            
            
            
            
            
            
            
            
            
            303,749Finders
                fee
            
            
            
            
            
            
            
            
            (195,000
            )
            
            
            
            
            
            
            
            
            
            
            (195,000
            )Subscriptions
                received in advance
            
            
            
            
            
            
            
            
            
            
            
            96,277
            
            
            
            
            
            
            
            
            96,277Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,075,611
            )
            
            (1,075,611
            )**Balance,
                 December 31, 2006**
            
            
            **62,132,419**
            
            
            **62,132**
            
            
            **4,888,538**
            
            
            **96,277**
            
            
            **-**
            
            
            **(1,075,611**
            **)**
            
            **3,971,336**Issuance
                of common stock for cash, March 23, 2007 @ $0.75
            
            
            303,009
            
            
            303
            
            
            156,440
            
            
            (96,277
            )
            
            -
            
            
            -
            
            
            60,466Issuance
                of common stock for debt issuance costs, April 25, 2007 @
                $0.98
            
            
            183,674
            
            
            184
            
            
            179,816
            
            
            -
            
            
            -
            
            
            -
            
            
            180,000Issuance
                of common stock for cash, July 6, 2007 @ $0.60
            
            
            50,000
            
            
            50
            
            
            29,950
            
            
            -
            
            
            -
            
            
            -
            
            
            30,000Issuance
                of common stock for cash, July 12, 2007 @ $0.60
            
            
            250,000
            
            
            250
            
            
            149,750
            
            
            -
            
            
            -
            
            
            -
            
            
            150,000Issuance
                of common stock for cash, July 12, 2007 @ $0.60
            
            
            250,000
            
            
            250
            
            
            149,750
            
            
            -
            
            
            -
            
            
            -
            
            
            150,000Issuance
                of common stock for cash, July 20, 2007 @ $0.60
            
            
            84,000
            
            
            84
            
            
            49,916
            
            
            -
            
            
            -
            
            
            -
            
            
            50,000Issuance
                of common stock for cash, August 8, 2007 @ $0.60
            
            
            416,667
            
            
            417
            
            
            249,583
            
            
            -
            
            
            -
            
            
            -
            
            
            250,000Issuance
                of common stock with convertible debt, September 12, 2007 @
                $0.50
            
            
            11,000,000
            
            
            11,000
            
            
            5,489,000
            
            
            -
            
            
            -
            
            
            -
            
            
            5,500,000Stock
                compensation expense for options issued to employees
            
            
            -
            
            
            
            
            
            3,253,311
            
            
            -
            
            
            -
            
            
            -
            
            
            3,253,311Fair
                value of warrants issued for debt issuance costs
            
            
            -
            
            
            
            
            
            212,232
            
            
            -
            
            
            -
            
            
            -
            
            
            212,232Fair
                value of warrants issued with convertible debentures
            
            
            -
            
            
            
            
            
            507,647
            
            
            -
            
            
            -
            
            
            -
            
            
            507,647Beneficial
                conversion feature associated with convertible debentures
            
            
            -
            
            
            
            
            
            507,647
            
            
            -
            
            
            -
            
            
            -
            
            
            507,647Fair
                value of warrants issued for debt extension (704,082
                warrants)
            
            
            -
            
            
            
            
            
            390,219
            
            
            -
            
            
            -
            
            
            -
            
            
            390,219Fair
                value of warrants issued to consultant
            
            
            -
            
            
            
            
            
            54,958
            
            
            -
            
            
            -
            
            
            -
            
            
            54,958Estimated
                liquidated damages
            
            
            -
            
            
            
            
            
            (25,200
            )
            
            -
            
            
            -
            
            
            -
            
            
            (25,200
            )Existing
                shares transferred to placement agents for financing
            
            
            -
            
            
            
            
            
            4,152,000
            
            
            -
            
            
            -
            
            
            -
            
            
            4,152,000Repricing
                of warrants
            
            
            -
            
            
            
            
            
            41,697
            
            
            -
            
            
            -
            
            
            -
            
            
            41,697Transfer
                to accrued derivative liability
            
            
            -
            
            
            
            
            
            (5,907,893
            )
            
            -
            
            
            -
            
            
            -
            
            
            (5,907,893
            )Issuance
                of stock for financing costs
            
            
            650,000
            
            
            650
            
            
            408,100
            
            
            -
            
            
            -
            
            
            -
            
            
            408,750Reclassification
                of derivative liability to equity
            
            
            -
            
            
            -
            
            
            15,549,576
            
            
            -
            
            
            -
            
            
            -
            
            
            15,549,576Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (199,791
            )
            
            -
            
            
            (199,791
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (20,802,625
            )
            
            (20,802,625
            )**Balance,
                December 31, 2007**
            
            
            **75,319,769**
            
            
            **75,320**
            
            
            **30,487,037**
            
            
            **-**
            
            
            **(199,791**
            **)**
            
            **(21,878,236**
            **)**
            
            **8,484,330**Stock
                compensation expense for options issued to employees
            
            
            -
            
            
            -
            
            
            1,264,716
            
            
            -
            
            
            -
            
            
            -
            
            
            1,264,716Issuance
                of common stock for Inter Pacific Oil
            
            
            2,166,667
            
            
            2,167
            
            
            994,500
            
            
            -
            
            
            -
            
            
            -
            
            
            996,667Issuance
                of common stock for services
            
            
            15,000
            
            
            15
            
            
            5,835
            
            
            -
            
            
            -
            
            
            -
            
            
            5,850Conversion
                of convertible debt
            
            
            186,435
            
            
            186
            
            
            106,081
            
            
            -
            
            
            -
            
            
            -
            
            
            106,267Fair
                value of warrants issued as part of financing agreement
            
            
            -
            
            
            -
            
            
            573,628
            
            
            -
            
            
            -
            
            
            -
            
            
            573,628Repricing
                of warrants
            
            
            -
            
            
            -
            
            
            979,805
            
            
            -
            
            
            -
            
            
            -
            
            
            979,805Repricing
                of convertible debt
            
            
            -
            
            
            -
            
            
            5,481,833
            
            
            -
            
            
            -
            
            
            -
            
            
            5,481,833Fair
                value of benefical conversion feature for convertible debt
            
            
            -
            
            
            -
            
            
            166,667
            
            
            -
            
            
            -
            
            
            -
            
            
            166,667Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11,379
            
            
            -
            
            
            11,379Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,091,313
            )
            
            (9,091,313
            )**Balance,
                June 30, 2008**
            
            
            **77,687,871**
            
            **$**
            **77,688**
            
            **$**
            **40,060,102**
            
            **$**
            **-**
            
            **$**
            **(188,412**
            **)**
            **$**
            **(30,969,549**
            **)**
            **$**
            **8,979,829**





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





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




5




**PURE
                BIOFUELS CORP.**(A
                Development Stage Company)**CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007****AND
                FOR THE PERIOD FROM MAY 10, 2006 (DATE OF INCEPTION) TO JUNE 30,
                2008**


**For the period****Six Months**
              
              **Six Months**
              
              **from May 10, 2006****Ended**
              
              **Ended**
              
              **(date of inception)****June 30, 2008**
              
              **June 30, 2007**
              
              **to June 30, 2008**(unaudited)
              
              (unaudited)
              
              (unaudited)CASH
                  FLOW FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (9,091,313
              )
              $
              (7,899,771
              )
              $
              (30,969,549
              )Adjustment
                  to reconcile net loss to net cashprovided
                  by (used in) operating activities:Accrued
                  consulting fees
              
              
              -
              
              
              -
              
              
              97,500Depreciation
              
              
              22,380
              
              
              7,819
              
              
              68,014Stock
                  compensation expense for options issued to employees
              
              
              1,264,716
              
              
              2,362,547
              
              
              4,862,310Fair
                  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
              
              
              
              
              
              18,516
              
              
              54,958Fair
                  value of warrants issued for financing costs
              
              
              573,628
              
              
              -
              
              
              963,847Effect
                  of warrant repricing
              
              
              87,818
              
              
              -
              
              
              129,515Amortization
                  of debt discounts and debt issuance costs
              
              
              1,957,412
              
              
              3,160,504
              
              
              6,809,631Non-cash
                  financing costs
              
              
              -
              
              
              -
              
              
              9,755,635Change
                  in accrued derivative liability
              
              
              -
              
              
              -
              
              
              (4,624,623
              )Loss
                  on write off of deposit
              
              
              200,875
              
              
              
              
              
              200,875Non-cash
                  foreign currency transaction loss
              
              
              1,215,298
              
              
              -
              
              
              419,605Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              -
              
              
              (18,651
              )
              
              -Other
                  receivable
              
              
              35,121
              
              
              
              
              
              (244,932
              )Prepaid
                  expenses and deposits
              
              
              452,733
              
              
              (67,066
              )
              
              232,888Due
                  from related party
              
              
              (15,696
              )
              
              
              
              
              (15,696
              )Accounts
                  payable and accrued expenses
              
              
              (1,319,950
              )
              
              1,056,533
              
              
              (230,558
              )Due
                  to related party
              
              
              -
              
              
              -
              
              
              (140,646
              )Net
                  cash used in operating activities
              
              
              (4,564,861
              )
              
              (1,379,569
              )
              
              (12,579,109
              )CASH
                  FLOW FROM INVESTING ACTIVITIES:Acquisition
                  of Interpacific Oil S.A.C.
              
              
              -
              
              
              -
              
              
              (700,000
              )Change
                  in restricted cash
              
              
              (141,192
              )
              
              
              
              
              (141,192
              )Deposit
                  paid on acquisition of Immobiliaria Alpha
              
              
              -
              
              
              -
              
              
              (199,867
              )VAT
                  receivable
              
              
              (3,134,001
              )
              
              (379,916
              )
              
              (5,811,725
              )Net
                  cash acquired with acquisition
              
              
              
              
              
              -
              
              
              1,825,805Prepayment
                  for purchase of equipment
              
              
              (429,718
              )
              
              -
              
              
              (603,994
              )Purchase
                  of propety, plant and equipment
              
              
              (14,387,843
              )
              
              (1,868,810
              )
              
              (28,609,977
              )Net
                  cash used in investing activities
              
              
              (18,092,754
              )
              
              (2,248,726
              )
              
              (34,240,950
              )CASH
                  FLOW FROM FINANCING ACTIVITIES:Due
                  to related parties, net
              
              
              -
              
              
              (9,358
              )
              
              313Proceeds
                  from subscriptions received in advance
              
              
              -
              
              
              -
              
              
              96,277Proceeds
                  from issuance of convertible debt
              
              
              5,000,000
              
              
              3,000,000
              
              
              18,000,000Proceeds
                  from line of credit
              
              
              20,946,852
              
              
              -
              
              
              37,346,852Change
                  in interest reserve
              
              
              744,411
              
              
              -
              
              
              (255,589
              )Interest
                  payment deducted from Restricted Cash
              
              
              
              
              
              -
              
              
              285,068Paydown
                  of covertible debt
              
              
              -
              
              
              -
              
              
              (3,000,000
              )Paydown
                  of long term debt
              
              
              -
              
              
              -
              
              
              (1,200,000
              )Payment
                  of offering costs
              
              
              (1,165,617
              )
              
              (175,000
              )
              
              (3,702,416
              )Proceeds
                  from the issuance of common stock
              
              
              -
              
              
              60,466
              
              
              4,204,375Net
                  cash provided by financing activities
              
              
              25,525,646
              
              
              2,876,108
              
              
              51,774,880Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (1,655,779
              )
              
              (6,175
              )
              
              (751,465
              )NET
                  INCREASE (DECREASE) IN CASH ANDCASH
                  EQUIVALENTS
              
              
              1,212,252
              
              
              (758,362
              )
              
              4,203,356CASH
                  AND CASH EQUIVALENTS, Beginning of period
              
              
              2,991,104
              
              
              1,261,974
              
              
              -CASH
                  AND CASH EQUIVALENTS, End of period
              
              $
              4,203,356
              
              $
              503,612
              
              $
              4,203,356SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Interest
                  paid
              
              
              
              
              $
              $
                  24,000
              
              $
              790,807Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING AND FINANCING:Purchase
                  of land through long-term debt
              
              $
              -
              
              $
              -
              
              $
              1,200,000Shares
                  transferred to placements for financing
              
              $
              -
              
              $
              2,352,000
              
              $
              4,152,000Issuance
                  of common stock with convertible debenture
              
              $
              -
              
              $
              -
              
              $
              5,500,000Issuance
                  of warrants with convertible debenture
              
              
              
              
              $
              $
                  507,647
              
              $
              507,647Issuance
                  of warrants for debt extension
              
              $
              -
              
              $
              -
              
              $
              390,219Issuance
                  of warrants for consulting services
              
              $
              -
              
              $
              18,516
              
              $
              18,516Issuance
                  of common stock for debt issuance costs
              
              $
              -
              
              $
              180,000
              
              $
              180,000Issuance
                  of warrants for debt issuance costs
              
              $
              -
              
              $
              212,232
              
              $
              212,232Issuance
                  of convertible promissory note for debt issuance costs
              
              $
              60,000
              
              $
              60,000
              
              $
              120,000Issuance
                  of common stock for financing costs
              
              $
              -
              
              $
              -
              
              $
              408,750Increase
                  in accrued liability related to Interpacific Merger
              
              $
              -
              
              $
              -
              
              $
              932,104Issuance
                  of shares for purchase of Interpacific Oil S.A.C.
              
              $
              996,667
              
              $
              -
              
              $
              996,667Issuance
                  of convertible promissory note for interest payable
              
              $
              610,000
              
              $
              -
              
              
              610,000Issuance
                  of warrants as part of financing agreement
              
              $
              573,628
              
              $
              -
              
              $
              573,628Capitalize
                  interest on construction in progress
              
              $
              2,355,320
              
              $
              -
              
              $
              2,752,143Issuance
                  of common stock for convertible debt
              
              $
              106,267
              
              $
              -
              
              $
              106,267Repricing
                  of warrants
              
              $
              891,987
              
              $
              -
              
              $
              891,987Repricing
                  of convertible debenture
              
              $
              5,481,833
              
              $
              -
              
              $
              5,481,833Beneficial
                  conversion feature on issuance of convertible debt
              
              $
              166,667
              
              $
              -
              
              $
              166,667




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




6


**Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **(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 six months ended June 30, 2008 are
      not
      necessarily indicative of the results to be expected for the full year ending
      December 31, 2008.





Organization
      and Line of Business





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





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




7




**Pure
      Biofuels Corp.**


**(A
      Development Stage Company)**


**Notes
      to Consolidated Financial Statements**


**(unaudited)**




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





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





Development
      Stage Company and Going Concern





The
      Company is in the development stage since planned principal activities have
      not
      commenced and the Company has not generated any revenue. In a development stage
      company, management devotes most of its activities to developing a market for
      its products and services. These financial statements have been prepared on
      a
      going concern basis, which implies the Company will continue to realize its
      assets and discharge its liabilities in the normal course of business. The
      Company is unlikely to pay dividends or generate significant earnings in the
      immediate or foreseeable future. The continuation of the Company as a going
      concern and the ability of the Company to emerge from the development stage
      is
      dependent upon the continued financial support from its shareholders, the
      ability of the Company to obtain necessary equity and debt financing to continue
      operations and to generate sustainable revenue. There is no guarantee that
      the
      Company will be able to raise adequate equity or debt financing or generate
      profitable operations. For the six months ended June 30, 2008, the Company
      incurred a net loss of $9,091,313 and as of June 30, 2008, the Company has
      a deficit accumulated during the development stage of $30,969,549. These
      financial statements do not include any adjustments to the recoverability and
      classification of recorded asset amounts and classification of liabilities
      that
      might be necessary should the Company be unable to continue as a going concern.
      Management intends to raise additional funds through equity or debt financing.




8




**Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **(unaudited)**
 Basis
        of Presentation





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





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





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





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





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





Use
      of
      Estimates





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




9




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


Cash
      and Cash Equivalents





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





Restricted
      Cash





Restricted
      cash consists of monies restricted by the Company’s lender and monies restricted
      under a standby letter of credit. Under the Company's loan agreement, the
      Company is required to establish an interest reserve account in the amount
      of
      $1,000,000 from the proceeds of the initial borrowing on the line of credit.
      The
      interest reserve will be used to fund interest payments charged on the line
      of
      credit until the reserve has been fully exhausted. As of June 30, 2008 and
      December 31, 2007, total restricted cash related to the interest reserve
      amounted to $0 and $740,376, respectively. As of June 30, 2008 and December
      31,
      2007, total restricted cash related to the standby letter of credit amounted
      to
      $141,904 and $0, respectively.





Property,
      Plant and Equipment





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





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





Computer
                Equipment
            
            
            4
                yearsFurniture
                and Miscellaneous
            
            
            10
                yearsBuilding
                Improvements
            
            
            10
                years





Goodwill
      and Impairment





The
      Company, through the acquisition of Interpacific Oil SAC, a Peruvian
      corporation, purchased goodwill in the amount of $1,350,806. In accordance
      with
      Statement of Financial Accounting Standards No.142, “Goodwill and Other
      Intangible Assets”, requires that goodwill and certain intangible assets be
      assessed annually for impairment using fair value measurement techniques.
      Goodwill is tested for impairment on an annual basis as of the end of the
      Company's fiscal year, or when impairment indicators arise. The Company
      evaluates the recoverability of intangible assets periodically and takes into
      account events and circumstances that indicated that impairment exists. The
      Company believes that, as of June 30, 2008 and December 31, 2007, there was
      no
      significant impairment of its goodwill.




10




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


Long-Lived
        Assets
 
 The
        Company applies the provisions of Statement of Financial Accounting Standards
        No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
        144”), which addresses financial accounting and reporting for the impairment
        or
        disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
        the Results of Operations for a Disposal of a Segment of a Business.” The
        Company periodically evaluates the carrying value of long-lived assets to
        be
        held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
        to be recorded on long-lived assets used in operations when indicators of
        impairment are present and the undiscounted cash flows estimated to be generated
        by those assets are less than the assets’ carrying amounts. In that event, a
        loss is recognized based on the amount by which the carrying amount exceeds
        the
        fair market value of the long-lived assets. Loss on long-lived assets to
        be
        disposed of is determined in a similar manner, except that fair market values
        are reduced for the cost of disposal. Based on its review, the Company believes
        that, as of June 30, 2008 and December 31, 2007, there were no significant
        impairments of its long-lived assets.
 
 Fair
        Value of Financial Instruments and Concentrations
 
 On
        January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements.
        SFAS
        No. 157 defines fair value, establishes a three-level valuation hierarchy
        for
        disclosures of fair value measurement and enhances disclosures requirements
        for
        fair value measures. The carrying amounts reported in the balance sheets
        for
        receivables and current liabilities each qualify as financial instruments
        and
        are a reasonable estimate of fair value because of the short period of time
        between the origination of such instruments and their expected realization
        and
        their current market rate of interest. The three levels are defined as follow:
 
 ·
              Level
                  1 inputs to the valuation methodology are quoted prices (unadjusted)
                  for
                  identical assets or liabilities in active markets.
 
 ·
              Level
                  2 inputs to the valuation methodology include quoted prices for
                  similar
                  assets and liabilities in active markets, and inputs that are observable
                  for the asset or liability, either directly or indirectly, for
                  substantially the full term of the financial instrument.
 
 ·
              Level
                  3 inputs to the valuation methodology are unobservable and significant
                  to
                  the fair value measurement.
 
 As
        of
        June 30, 2008, the Company did not identify any assets and liabilities that
        are
        required to be presented on the balance sheet at fair value.
 
 Concentration
        of credit risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained within Peru,
        Argentina and the United States. Certain 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 June 30, 2008 and December
        31,
        2007, the Company had deposits in excess of federally insured limits totaling
        $4,480,129 and $2,845,009, respectively. The Company has not experienced
        any
        losses in such accounts and believes it is not exposed to any significant
        risks
        on its cash in bank accounts.
  11
 **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
  Foreign
        Currency Transactions and Comprehensive Income
 
 The
        reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries
        use their local currencies,  the PEN, and the ARS as their functional
        currency. Assets and liabilities are translated using the exchange rates
        prevailing at the balance sheet date. Translation adjustments resulting from
        this process are included in accumulated other comprehensive loss in the
        statement of stockholders’ equity. Transaction gains and losses that arise from
        exchange rate fluctuations on transactions denominated in a currency other
        than
        the functional currency are included in the results of operations as incurred.
 
 The
        Company recorded a translation gain of $11,379 and $2,085 for the six months
        ended June 30, 2008 and 2007, respectively. Asset and liability amounts at
        June
        30, 2008 and December 31, 2007 were translated at 2.967 PEN to $1.00 USD
        and
        2.997 PEN to $1.00 USD, respectively for the Company’s Peruvian subsidiary.
        Equity accounts were stated at their historical rate. The average translation
        rates applied to income statement accounts for the six months ended June
        30,
        2008 and 2007, 2.982 PEN and 3.184 PEN to $1.00 USD, respectively. At June
        30,
        2008 and December 31, 2007 the exchange rate for the assets and liabilities
        of
        the Company’s Argentinean subsidiary was 3.025 ARS and 3.149 ARS to $1.00 USD,
        respectively. The average translation rate applied to the income statement
        accounts for the Company’s Argentinean subsidiary for six months ended June 30,
        2008 was 3.11 ARS to $1.00 USD. Cash flows are also translated at average
        translation rates for the period. Therefore, amounts reported on the statement
        of cash flows will not necessarily agree with changes in the corresponding
        balances on the balance sheet.
 
 Foreign
        Currency Transaction Gains and Losses
 
 Transaction
        gains and losses that arise from exchange rate fluctuations on transactions
        denominated in a currency other than the functional currency are included
        in the
        results of operations as incurred. For the three and six months ended June
        30,
        2008, the Company recorded net transaction losses of $3,193,013 and $868,634,
        respectively. There were no transaction gains or losses for the three and
        six
        months ended June 30, 2007. This loss represents the foreign currency loss
        of
        borrowing $US dollars on the line of credit and converting them into Peruvian
        Nuevos Soles. Ultimate settlement of this debt will be in $US dollars.
        Historically, the Company has not entered any currency trading or hedging
        transactions, although there is no assurance that the Company will not enter
        into such transactions in the future.
  12
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **(unaudited)**
  Income
        Taxes
 
 Income
        taxes are provided based upon the liability method of accounting in accordance
        with SFAS No. 109, “Accounting for Income Taxes”. Pursuant to SFAS No. 109 the
        Company is required to compute deferred income tax assets for net operating
        losses carried forward. The potential benefits of net operating losses have
        not
        been recognized in these financial statements because the Company cannot
        be
        assured it is more likely than not it will utilize the net operating losses
        carried forward in future years.
 
 The
        Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
        Taxes”, during 2007. A tax position is recognized as a benefit only if it is
“more likely than not” that the tax position would be sustained in a tax
        examination, with a tax examination being presumed to occur. The amount
        recognized is the largest amount of tax benefit that is greater than 50%
        likely
        of being realized on examination. For tax positions not meeting the “more likely
        than not” test, no tax benefit is recorded. The adoption had no affect on the
        Company’s financial statements.
 
 Basic
        and Diluted Losses Per Share
 
 Earnings
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings Per Share”. SFAS No. 128 superseded
        Accounting Principles Board Opinion No.15 (APB 15). Net earnings per share
        for
        all periods presented have been restated to reflect the adoption of SFAS
        No.
        128. Basic earnings per share is based upon the weighted average number of
        common shares outstanding. Diluted earnings per share is based on the assumption
        that all dilutive convertible shares and stock options were converted or
        exercised. Dilution is computed by applying the treasury stock method. Under
        this method, options and warrants are assumed to be exercised at the beginning
        of the period (or at the time of issuance, if later), and as if funds obtained
        thereby were used to purchase common stock at the average market price during
        the period. All warrants and options were excluded from the diluted loss
        per
        share due to the anti-diluted effect.
 
 Stock-Based
        Compensation
 
 On
        April
        27, 2007, our board of directors amended and restated the Company’s stock option
        plan (the “Plan”) to increase the number of available options from a total of
        18,000,000 to 21,000,000 options that enables it to grant options to employees,
        including its officers and directors, and its subsidiaries and other persons
        who
        contribute to the success of the Company.  The board of directors will
        administer the Plan. The Plan is subject to shareholder approval, which was
        obtained on November 19, 2007. The Company records stock-based compensation
        in
        accordance with SFAS No. 123R “Share Based Payments”, using the fair value
        method. The Company recognized $632,358 and $1,264,716 in share-based
        compensation expense for the three and six months ended June 30, 2008,
        respectively. There were no share based payments recognized for the three
        and
        six months ended June 30, 2007.
 13
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 Statement
        of Cash Flows
 
 In
        accordance with Statement of Financial Accounting Standards No. 95, “Statement
        of Cash Flows,” cash flows from the Company’s operations are calculated based
        upon the local currencies. As a result, amounts related to assets and
        liabilities reported on the statement of cash flows will not necessarily
        agree
        with changes in the corresponding balances on the balance sheet.
 
 Segment
        Reporting
 
 Statement
        of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about
        Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
        is based on the way a company’s management organizes segments within the company
        for making operating decisions and assessing performance. The Company has
        determined that it has three reportable segments, U.S., Peru and Argentina
        (See
        Note 13).
 
 Reclassification
 
 Certain
        reclassifications have been made to the 2007 financial statements to conform
        to
        the 2008 financial statement presentation. These reclassifications had no
        effect
        on net income or cash flows as previously reported.
 
 Recent
        Pronouncements
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
        Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting
        enterprise accounts for the acquisition of a business. SFAS No. 141
        (Revised 2007) requires an acquiring entity to recognize all the assets acquired
        and liabilities assumed in a transaction at the acquisition-date fair value,
        with limited exceptions, and applies to a wider range of transactions or
        events.
        SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or
        after December 15, 2008 and early adoption and retrospective application is
        prohibited. The Company believes adopting SFAS No. 141R will significantly
        impact its financial statements for any business combination completed after
        December 31, 2008.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements”, which is an amendment of Accounting Research
        Bulletin (“ARB”) No. 51.  This statement clarifies that a
        noncontrolling interest in a subsidiary is an ownership interest in the
        consolidated entity that should be reported as equity in the consolidated
        financial statements.  This statement changes the way the consolidated
        income statement is presented, thus requiring consolidated net income to
        be
        reported at amounts that include the amounts attributable to both parent
        and the
        noncontrolling interest.  This statement is effective for the fiscal
        years, and interim periods within those fiscal years, beginning on or after
        December 15, 2008.  Based on current conditions, the Company does not
        expect the adoption of SFAS 160 to have a significant impact on its results
        of
        operations or financial position.
 14
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities”. This Statement permits entities to
        choose to measure many financial assets and financial liabilities at fair
        value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected are reported in earnings. SFAS No. 159 is effective as of the beginning
        of an entity’s first fiscal year that begins after November 15, 2007. The
        Company adopted SFAS No. 159 on January 1, 2008. The Company chose not to
        elect
        the option to measure the fair value of eligible financial assets and
        liabilities.
  In
        June
        2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
        Nonrefundable Advance Payments for Goods or Services Received for use in
        Future
        Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
        nonrefundable advance payments for goods or services that used or rendered
        for
        research and development activities should be expensed when the advance payment
        is made or when the research and development activity has been performed.
        Management is currently evaluating the effect of this pronouncement on financial
        statements.
  In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        No. 07-5”). This Issue is effective for financial statements issued for fiscal
        years beginning after December 15, 2008, and interim periods within those
        fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own
        stock and (b) classified in stockholders’ equity in the statement of
        financial position would not be considered a derivative financial instrument.
        EITF No.07-5 provides a new two-step model to be applied in determining whether
        a financial instrument or an embedded feature is indexed to an issuer’s own
        stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
        The Company believes adopting this statement will have a material impact
        on the
        financial statements because among other things, any option or warrant
        previously issued and all new issuances denominated in US dollars will be
        required to be carried as a liability and marked to market each reporting
        period.
 
 In
        April
        2008, the FASB issued 142-3 “Determination of the useful life of Intangible
        Assets”, which amends the factors a company should consider when developing
        renewal assumptions used to determine the useful life of an intangible asset
        under SFAS142. This Issue is effective for financial statements issued for
        fiscal years beginning after December 15, 2008, and interim periods within
        those
        fiscal years. SFAS 142 requires companies to consider whether renewal can
        be
        completed without substantial cost or material modification of the existing
        terms and conditions associated with the asset. FSP 142-3 replaces the previous
        useful life criteria with a new requirement—that an entity consider its own
        historical experience in renewing similar arrangements. If historical experience
        does not exist then the Company would consider market participant assumptions
        regarding renewal including 1) highest and best use of the asset by a market
        participant, and 2) adjustments for other entity-specific factors included
        in
        SFAS 142. The Company is currently evaluating the impact that adopting SFAS
        No.142-3 will have on its financial statements
 15
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 **Note
        3 – VAT Receivable**
 
 At
        June
        30, 2008 and December 31, 2007, the Company recognized a VAT (value added
        tax)
        receivable of $5,791,089 and $2,613,496, respectively in Peru. VAT is charged
        at
        a standard rate of 19% and the Company obtains income tax credits for VAT
        paid
        in connection with the purchase of capital equipment and other goods and
        services employed in its operations. The Company is entitled to use the credits
        against its Peruvian income tax liability or to receive a refund credit against
        VAT payable or sales. As the Company does not anticipate incurring either
        a
        Peruvian tax or a VAT liability during the next fiscal year, the receivable
        has
        been classified as a long-term asset.
 
 **Note
        4 – Property, Plant and Equipment**
 
 Property,
        plant and equipment consisted of the following at June 30, 2008 and December
        31,
        2007:
 
 June
                  30,
                2008
              
              December 31,
                2007Land
              
              $
              3,409,944
              
              $
              3,375,818Plant
                  under construction
              
              
              27,764,178
              
              
              11,708,162Building
                  improvements
              
              
              137,030
              
              
              39,643Equipment
              
              
              1,248,423
              
              
              685,491Furniture
                  and miscellaneous
              
              
              307,092
              
              
              76,89132,866,667
              
              
              15,886,005Accumulated
                  depreciation
              
              
              (66,072
              )
              
              (43,107
              )Property,
                  Plant and Equipment, net
              
              $
              32,800,595
              
              $
              15,842,898
 
 Depreciation
        expense amounted to $11,504 and $22,380 for the three and six months ended
        June
        30, 2008, $4,149 and $7,819 for the three and six months ended June 30, 2007,
        respectively, and $68,014 for the period from May 10, 2006 (inception) to
        June
        30, 2008. For the six months ended June 30, 2008 and 2007, interest capitalized
        to Property, Plant and Equipment amounted to $2,355,320 and $0, respectively.
 
 During
        2008 and 2007, the Company had construction in progress related to the
        construction of the Company’s biodiesel refinery that will be completed and
        tested during August 2008. Total estimated project completion costs for the
        project amounts to $28,800,000. At June 30, 2008 and December 31, 2007 the
        construction in progress accounts includes capitalized interest of $2,752,143
        and $396,823, respectively.
 16
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 **Note
        5 – Convertible Debt**
 
 On
        September 12, 2007, the Company entered into a securities purchase agreement
        (the “Purchase Agreement”), with Plainfield Special Situations Master Fund
        Limited (“PSSM”), Plainfield Peru I LLC (“LLCI”) and Plainfield Peru II LLC
        (“LLC II” and together with LLCI, “Plainfield”) pursuant to which the Company
        agreed to sell to the Plainfield (1) 11,000,000 shares of the Company’s common
        stock (the “Shares”), (2) $10,000,000 aggregate principal amount of the 10%/12%
        senior convertible PIK election notes due September 12, 2012, (the “Notes”), and
        (3) warrants (the “Warrants,” and, together with the Shares and the Notes, the
“Securities”) to purchase up to 56,938,245 shares of the Company’s common stock.
        The Notes are convertible into 16,666,667 shares of the Company’s common stock
        at the option of the holder of Notes at any time after November 19, 2007,
        the
        date when the Company obtained stockholder approval to increase the number
        of
        authorized shares of common stock of the Company from 93,750,000 to a number
        sufficient to support the issuance of the common stock underlying the Notes
        and
        the Warrants, and on or prior to September 12, 2012, at a conversion price
        of
        $0.60 per share. The conversion price is subject to adjustment in accordance
        with the terms of the Purchase Agreement. The Company will pay interest on
        the
        Notes semi-annually in arrears on March 15 and September 15 of each year,
        commencing March 15, 2008. On March 15, 2008, the Company issued a $610,000
        aggregate principal amount of PIK Interest Notes. Subject to the conversion
        rights set forth below, the Company is obligated to pay 100% of the principal
        amount of the Notes, plus accrued and unpaid interest, in cash on September
        12,
        2012 (the “Maturity Date”), provided, however, that the Company may, at its
        option, may elect to pay interest on the Notes (i) entirely in cash, or (ii)
        entirely by issuing additional Notes with an effective interest rate of 12%
        (“PIK Interest”). The first payment of interest shall be paid in PIK Interest.
        The Notes are senior unsecured obligations of the Company and rank equally
        in
        right of payment to the Company’s future senior indebtedness. The Notes also
        restrict the Company and its subsidiaries from incurring indebtedness or
        other
        obligations, including creating liens, merging, selling assets, making
        dividends, distributions or investments, entering into transactions with
        affiliates, making capital expenditures, modifying charter documents and
        issuing
        capital stock in the future, in each case subject to certain exceptions.
        Furthermore, the Company agreed to take all necessary actions to cause Erich
        Reehl to be elected as a director of the board of directors or the Company.
 
 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.
 17
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 The
        Additional Notes are convertible into 16,666,667 shares of common stock at
        the
        option of the holder of Additional Notes at any time after the Amendment
        Date
        and on or prior to September 12, 2012, at a conversion price of $0.30 per
        share.
        The conversion price is subject to adjustment in accordance with the terms
        of
        the Amended Purchase Agreement. Concurrent with the issuance of the Additional
        Notes, pursuant to the terms of the Amended Purchase Agreement, the conversion
        price of the Original Notes and $610,000 aggregate principal amount of PIK
        Interest Notes issued on March 15, 2008 as payment of interest on the Original
        Notes, was adjusted to $0.30.
 
 The
        Company will pay interest on the Additional Notes semi-annually in arrears
        on
        March 15 and September 15 of each year, commencing September 15, 2008. Subject
        to the conversion rights set forth below, the Company is obligated to pay
        100%
        of the principal amount of the Additional Notes, plus accrued and unpaid
        interest, in cash on September 12, 2012 (the “Maturity Date”), provided,
        however, that the Company may, at its option, may elect to pay interest on
        the
        Additional Notes (i) entirely in cash, or (ii) entirely by issuing additional
        Notes with an effective interest rate of 12% (“PIK Interest Notes”). The first
        payment of interest shall be paid in PIK Interest Notes.
 
 The
        Additional Notes are senior unsecured obligations of the Company and rank
        equally in right of payment to the Company’s future senior indebtedness. The
        Additional Notes also restrict the Company and its subsidiaries from incurring
        indebtedness or other obligations, including creating liens, merging, selling
        assets, making dividends, distributions or investments, entering into
        transactions with affiliates, making capital expenditures, modifying charter
        documents and issuing capital stock in the future, in each case subject to
        certain exceptions.
 
 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.
 18
  **Pure
          Biofuels Corp.**
 **(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.
 
 On
        April
        18, 2008, the Company, as Guarantor, entered into a Second Amendment to Loan
        Documents (the “ Amendment ”)
        with
        Pure Biofuels Del Peru S.A.C. and Palma Industrial S.A.C., each a 99.9% owned
        subsidiary of the Company (the “ Borrowers ”)
        ,
        Plainfield Special Situations Master Fund Limited, as the Lender and
        Administrative Agent (“ Plainfield ”
or
        the
“ Administrative
        Agent ”)
        and
        the other credit parties thereto. The Amendment amends the loan agreement
        (the “ Loan
        Agreement ”)
        and
        certain related documents (together with the Loan Agreement, the “ Loan
        Documents ”)
        entered into by the Company, the Borrowers and Plainfield on September 12,
        2007
        as amended by an amendment executed on March 13, 2008.
 
 Pursuant
        to the terms of the Amendment, available borrowings under the Loan Agreement
        were increased by $17,346,939, such that the maximum aggregate principal
        amount
        of loans available under the Loan Agreement is $37,346,939. Prior to the
        execution of the Amendment, the Company had borrowed $20,000,000 under the
        Loan
        Agreement. On April 18, 2008, the Company borrowed an additional $4,413,265,
        on
        April 28, 2008, the Company borrowed an additional $4,120,746, on May 7,
        2008,
        the Company borrowed an addition $3,437,075, and on May 19, 2008, the Company
        borrowed an additional $5,375,853 under the Loan Agreement.
 
 Also
        pursuant to the Amendment, interest under the Loan Agreement from and including
        March 12, 2008 to but excluding October 1, 2008, shall accrue and be due
        and
        payable in four equal installments to be paid on October 1, 2008, November
        1,
        2008, December 1, 2008 and January 1, 2009.
 
 Obligations
        under the Loan Agreement are secured by liens on substantially all of the
        assets
        of the Company, the Borrowers and each of the Borrowers’ subsidiaries. However,
        pursuant to the Amendment, Plainfield agreed to release any liens or security
        interests on inventory (including raw materials, finished product, byproducts
        and inventory in process) and accounts receivable and the proceeds therefrom
        of
        the Borrowers.
 19
  **Pure
          Biofuels Corp.**
 **(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).
  Upon
        the
        closing of the Loan Amendment, Plainfield and its affiliates will own (1)
        11,650,000 shares of the Company’s common stock; (2) warrants exercisable into
        59,227,517 shares of the Company’s common stock at an exercise price of
        approximately $0.30 per share and (3) $15,610,000 aggregate principal amount
        of
        notes convertible into 52,033,333 shares of the Company’s common stock at a
        conversion price of $0.30. If the Warrant Issuance were completed, Plainfield
        and its affiliates would also own warrants to purchase an amount of shares
        of
        the Company’s common stock equal to $17,346,939 at a maximum conversion price of
        $0.30, or a minimum of 57,823,130 shares. Plainfield is the sole lender and
        administrative agent under the Loan Agreement. In addition, two of the Company’s
        five current directors, including the Chairman of the Board, are affiliates
        of
        Plainfield and Plainfield has the right to designate up to a total of three
        directors to the Company’s Board of Directors, which the Company has agreed will
        consist of no more than six directors.
 
 Total
        interest incurred for the three and six months ended June 30, 2008 related
        to
        the convertible debentures amounted to $468,300 and $779,887, respectively,
        which was capitalized in Property, Plant and Equipment.
 
 **Note
        6 – Convertible Promissory Note**
 
 On
        April
        19, 2007, the Company issued a convertible promissory note in the amount
        of
        $60,000 to the placement agent in the above mentioned Debenture. The note
        was
        due on June 18, 2007 and the Company has the option of converting the note
        into
        shares of the Company’s common stock at a conversion price of $0.94. The Company
        has currently not issued the 63,830 shares that were due upon the conversion
        of
        the note on June 19, 2007. The $60,000 note has been capitalized as debt
        issuance costs and is being amortized over the term of the Debenture. For
        the
        year ended December 31, 2007, the Company amortized $60,000, of the aforesaid
        debt issuance costs as other expense in the accompanying consolidated statements
        of operations. This promissory note was converted into 186,436 of the Company’s
        common stock in January 2008.
 20
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
  **Note
        7 – Line of Credit**
 
 On
        September 12, 2007, the Company entered into a $20,000,000 Loan Agreement,
        between the Company, as Guarantor, and Pure Biofuels Del Peru S.A.C. and
        Palma
        Industrial S.A.C., each a 99.9% owned subsidiary of the Company, various
        lenders
        and PSSM, as Administrative Agent.   The outstanding balance at June 30,
        2008 and December 31, 2007 is $37,346,852 and $16,400,000, respectively.
        Total
        interest expense for the three and six months ended June 30, 2008 amounted
        to
        $1,112,071 and $1,702,740, respectively, which was capitalized in Property,
        Plant and Equipment.
 
 On
        March
        13, 2008, the Company, Pure Biofuels del Peru, and Palma Industrial entered
        into
        an agreement with Plainfield pursuant to which the Borrowers may draw down
        an
        additional $818,000 (the “Additional Loan”) under the Loan Agreement. Pursuant
        to the terms of the agreement, the Company reset the exercise price of
        Plainfield’s warrants to purchase 59,104,912 shares of the Company’s common
        stock from $0.60 to $0.30.
 
 During
        2008, in connection with the additional issuance of the Line of Credit, the
        Company paid approximately $710,000 in debt issuance costs which have been
        capitalized as debt issuance costs and are being amortized over the term
        of the
        Line of Credit. For the three and six months ended June 30, 2008, the Company
        amortized a total of $83,943 and $128,464, respectively, of the debt issuance
        costs, related to the line of credit, as amortization of debt discounts and
        debt
        issuance costs in the accompanying consolidated statements of operations.
 
 **Note
        8 – Accrued Derivative Liability**
 
 As
        a
        result of the Company issuing the Notes and Warrants described in Note 5
        above,
        it did not have enough authorized shares to satisfy the conversion of all
        the
        warrants and options outstanding during 2007. Therefore, the outstanding
        options
        and warrants were recorded at fair value and shown as accrued derivative
        liability at the inception of the Note. The fair value of the outstanding
        options and warrants (excluding the 56,938,245 Warrants which were recorded
        as a
        derivative liability at issuance) of $5,907,893 was transferred from additional
        paid in capital to accrued derivative liability on September 12, 2007. The
        fair
        value of outstanding options and warrants was recorded as accrued derivative
        liability at each balance sheet date until November 19, 2007, the date the
        Company increased its authorized shares. The fair value was determined using
        the
        Black-Scholes option pricing model and the following
        assumptions:  term of 1 year, a risk free interest rate
        of 5.0%, a dividend yield of 0% and volatility of 114%. In addition,
        the fair value of the beneficial conversion feature associated with the Notes
        was also recorded as accrued derivative liability. The change in fair value
        of
        the accrued derivative liability from September 12, 2007 to November 19,
        2007
        was $4,624,623 was reflected as an increase to other income in the statement
        of
        operations for the year ended December 31, 2007.
 
 On
        November 19, 2007, the authorized shares were increased to 250,000,000 which
        provided enough authorized shares to satisfy the conversion of all the warrants
        and options outstanding. Therefore, the Company reclassified the derivative
        liability into equity at the fair value on the date of the increase in
        authorized shares. The fair value at the date of transfer was $15,549,576.
 21
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 **Note
        9 – Related Party Transactions**
 
 The
        Company entered into the following transactions with related parties:
 
 a)
              On
                  August 6, 2007, the Company entered into an integral service
                  agreement with Ocean Marine SAC, a company controlled by certain
                  officers
                  of the Company, to provide certain advisory services related to
                  use and
                  handling of biodiesel to the Company. The agreement provides for
                  a lumpsum
                  payment of $309,166.37 retroactive from September 15, 2006 to June
                  30, 2007 for the services rendered by Ocean Marine and a fee of
                  $34,000
                  per month to Ocean Marine from July 1, 2007 thru August 12, 2009.
                  Total
                  consulting expenses incurred under this agreement totaled $102,000
                  and
                  $187,000 for the three and six months ended June 30, 2008.
 
 b)
              Plainfield
                  is a related party as they are a major shareholder of the Company.
                  See
                  transactions with Plainfield in notes 5, 7, 11 and 15.
 
 c)
              As
                  of June 30, 2008 and December 31, 2007, the Company has loans due
                  to
                  shareholders in the amount of $210,747 and $208,638.
 
 These
        transactions were recorded at the exchange amount which is the amount agreed
        to
        by the related parties.
 
 **Note
        10 – Commitments**
 
 **The
        Company entered into the following agreements:**
 
 a)****
              On
                  June 22, 2007, our Company, Luis Goyzueta, David Clifton, Hiroshi
                  Dejaeghere and Joy Clifton (Messrs. Goyzueta, Clifton, Dejaeghere
                  and
                  Clifton, together, the “Transferring Shareholders”) entered into an escrow
                  agreement with U.S. Bank National Association, as the escrow agent,
                  ARC
                  Investment Partners, LLC, (“ARC”), Tapirdo Enterprises, LLC, (“Tapirdo”),
                  and SGM Capital, LLC, (“SGM”), pursuant to which the Transferring
                  Shareholders agreed to transfer (i) 3,000,000 shares of our Company’s
                  common stock to ARC (ii) 2,000,000 shares of our Company’s common stock to
                  Tapirdo and (iii) 1,000,000 shares of our Company’s common stock to SGM
                  (collectively, the “Shares”) upon the Company entering into a financing
                  transaction or series of transactions pursuant to which the Company
                  plans
                  to raise gross proceeds of at least $7.5 million. As a result of
                  the
                  closing of the $3 million financing on April 19, 2007, ARC, Tapirdo
                  and
                  SGM were entitled to their respective portions of 40% of the Shares.
                  On
                  July 10, 2007 the escrow agent transferred such shares. The value
                  of the
                  shares was $2,352,000 and has been recorded as debt issuance costs
                  associated with the $3,000,000 convertible debenture**.**In
                  addition as a result of the closing of the $30 million financing
                  on
                  September 12, 2007, ARC, Tapirdo and SGM were entitled to their
                  respective
                  portions of remaining 60% of the Shares. The value of the shares
                  was
                  $1,800,000 and has been recorded as debt issuance costs associated
                  with
                  the $10,000,000 convertible debenture**.**
 22
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 b)
              The
                  Company is required to pay the remaining $60,000 plus VAT in 2007,
                  pursuant to an engineering contract between the Company and Polindustria
                  with the orginal contract amount of $120,000. During the year ended
                  December 31, 2007, the Company paid a total of $54,264 to Polindustria,
                  comprised of $45,600 in payments and $8,664 in VAT. The Company
                  paid the
                  remaining $14,400 during the six months ended June 30, 2008.
 
 c)
              On
                  August 13, 2007, Pure Biofuels del Peru entered into a services
                  agreement
                  with Ocean Marine S.A.C. (“Ocean Marine”), a Peruvian Corporation, whereby
                  Ocean Marine agreed to render consulting, management and logistical
                  support services to Pure Biofuels del Peru. Pursuant to the services
                  agreement, Luis Goyzueta, our Chief Executive Officer and a director,
                  will
                  receive $130,000 aggregate salary per year, Gustavo Goyzueta, our
                  Chief
                  Financial Officer, will receive a salary of $90,000 and Alberto
                  Pinto, our
                  Chief Operations Officer and a director, will receive a salary
                  of
                  $120,000. All of the foregoing compensation is payable retroactive
                  to
                  September 15, 2006. The term of this agreement is from August 13,
                  2007
                  through August 12, 2009.
 
 d)
              On
                  September 4, 2007, the Company and each of Luis Goyzueta, our Chief
                  Executive Officer, Gustavo Goyzueta, our Chief Financial Officer,
                  Carlos
                  Pinto, our Chief Operating Officer, Steven Magami, our director,
                  and Adam
                  Roseman, former Chairman of the Board of Directors, amended the
                  Nonstatutory Stock Option Agreement (the “Plan”) entered into between each
                  of them and the Company on June 11, 2007, in order to (1) reduce
                  the
                  exercise price of shares issued under the Plan from $0.98 per share
                  to the
                  greater of (i) $0.60, or (ii) the Fair Market Value (as defined
                  in the
                  Plan) of the Company’s common stock on the date that the board of
                  directors approves the amendment and (2) provide that none of the
                  options
                  may be exercised before the date on which we obtain shareholder
                  approval
                  of an amendment to the Company’s Articles of Incorporation to increase the
                  number of authorized shares of common stock from 93,750,000 shares
                  to at
                  least 250,000,000 shares.
 
 e)
              On
                  September 12, 2007, certain of our stockholders (the “Stockholders”)
                  entered into a voting agreement (the “Voting Agreement”) with PSSM and
                  Plainfield. Pursuant to the Voting Agreement, the Stockholders
                  agreed to
                  vote all common stock of the Company beneficially owned by them
                  at any
                  regular or special meeting of the stockholders of the Company in
                  favor of
                  a proposal to (i) increase the number of authorized shares of common
                  stock
                  of the Company from 93,750,000 to a number sufficient to support
                  the
                  issuance of the common stock underlying the Notes (as defined below
                  and
                  including any Notes issued in lieu of interest thereon) (the date
                  of such
                  amendment, the “Amendment Date”) and the Warrants (as defined below) and
                  (ii) delete Article 15 from the Articles of Incorporation of the
                  Company.
                  The Voting Agreement shall terminate upon the earlier of (i) stockholder
                  approval of the actions set forth above, or (ii) January 31, 2008.
 23
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 f)
              On
                  September 12, 2007, a stockholders agreement (the “Stockholders
                  Agreement”) was executed among Luis Goyzueta, our Chief Executive Officer
                  and a director, Plainfield and the Company. Under the Stockholders
                  Agreement, Mr. Goyzueta agreed to vote or take any such other action
                  as
                  may be reasonably requested to cause an individual designated by
                  Plainfield or any permitted transferee of more than 50% of the
                  Notes (as
                  defined below) held by Plainfield to be elected as a director of
                  the
                  Company. He further agreed to retain his voting rights and to not
                  sell,
                  dispose of or otherwise transfer record or beneficial ownership
                  of any
                  common stock unless the transferee agrees to abide by the terms
                  of the
                  Stockholders Agreement.
 
 g)
              On
                  September 12, 2007, the Company entered into a registration rights
                  agreement (the “ARC Registration Rights Agreement”) with****ARC
                  Investment Partners, LLC, Tapirdo Enterprises, LLC (an affiliate
                  of Adam
                  Roseman), and SGM Capital, LLC (an affiliate of Steven Magami)
                  (collectively, the “ARC Holders”) in which the Company granted to each of
                  the ARC Holders the right to request two demand registrations.
                  In
                  addition, the ARC Holders were granted certain shelf registration
                  and
                  piggyback registration rights.
  
 During
        the six months ended June 30, 2008, the Company entered into additional
        agreements with Plainfield. See Notes 5, 7, 11 and 15 for summaries of these
        agreements.
 
 **Leases**
 h)
              On
                  October 1, 2006, the Company entered into a lease for premises
                  in Lima,
                  Peru. Under the terms of the lease, the Company is required to
                  make
                  monthly payments of $6,013 for the first year. The monthly payment
                  will
                  increase by 3% annually until September 2009. The office lease
                  contains
                  certain rent escalation clauses over the life of the lease. The
                  total
                  amount of rental payments due over the lease term is being charged
                  to rent
                  expense on a straight-line method over the term of the lease.
 
 i)
              On
                  October 10, 2006, the Company entered into a lease for premises
                  in
                  Vancouver, British Columbia. Under the terms of the lease, the
                  Company is
                  required to make monthly payments of $3,000, plus applicable taxes,
                  until
                  October 2008. This lease was terminated during the year ended December
                  31,
                  2007.
 
 j)
              On
                  June 1, 2007, the Company entered into a lease for premises in
                  Chorrilos,
                  Peru. Under the terms of the lease, the Company is required to
                  make
                  monthly payments of $1,350 for the first year, $1,400 for the second
                  year,
                  and $1,500 for the third year until the expiration of the lease
                  on May 31,
                  2010.
 
 k)
              On
                  January 8, 2007, the Company entered into a lease for premises
                  in Buenos
                  Aires, Argentina. Under the terms of the lease, the Company is
                  required to
                  make monthly payments of approximately $2,000, plus applicable
                  taxes until
                  August 2007. On August 1, 2007 the Company entered into a new lease
                  for
                  the premises in Buenos Aires, Argentina. Under the terms of the
                  lease, the
                  Company is required to make monthly payments of $2,500 for the
                  first year,
                  $2,750 for the second year, and $3,025 for the third year until
                  the
                  expiration of the lease on July 31, 2010. On May 2008, the lease
                  for the
                  office premises in Buenos Aires was
                  canceled.
 24
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 During
        the three and six months ended June 30, 2008, the Company had lease expense
        in
        the amount of $22,239 and $44,478, respectively, and $16,274 and $33,348
        lease
        expense for the three and six months ended June 30, 2007,
        respectively.
 
 The
        future minimum lease payments are as follows:
 
 PERIOD ENDING
                JUNE 30,
              
              AMOUNT2009
              
              $
              161,1122010
              
              
              169,1672011
              
              
              88,9562012
                  and thereafter
              
              
              72,156$
              491,391
 
 **Note
        11– Stockholders’ Equity**
 
 Common
        Stock
 
 Effective
        August 7, 2006, the Company effected a one and one-quarter (1.25) for one
        (1)
        forward stock split of the authorized, issued and outstanding common stock,
        without a change to the par value. As a result, the authorized share capital
        increased from 75,000,000 shares of common stock with a par value of $0.001
        to
        93,750,000 shares of common stock with a par value of $0.001. On November
        19,
        2007, the Company held a stockholders’ meeting and amended its articles of
        incorporation to increase the number of authorized common shares to 250,000,000
        and to authorize 1,000,000 shares of preferred stock, par value $0.001.
 
 On
        March
        23, 2007, the Company completed a private placement of 303,009 units at $0.75
        per unit for total proceeds of $227,257. Each unit consists of one common
        share
        and one-half common share purchase warrant. Each whole warrant entitles the
        holder to purchase one common share in the capital of the Company for a period
        of one year at a price of $1.50 per share. The value of the warrants was
        calculated using the Black-Scholes pricing mode with the following assumptions:
        exercise price of $1.50; share price of $1.27; risk free interest rate of
        4.69%;
        expected life of 1 year and a volatility rate of 103%.
 25
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 On
        April
        25, 2007, the Company issued a total of 183,674 shares of common stock to
        the
        placement agent for the Debenture discussed in Note 6. The shares were valued
        at
        $180,000 and have been capitalized as debt issuance cost and are being amortized
        over the term of the Debenture. For the year ended December 31, 2007 the
        company
        amortized $180,000, of the aforesaid debt issuance costs as other expense
        in the
        accompanying consolidated statements of operations.
 
 In
        June
        2007, the Company issued warrants to purchase 25,000 shares of common stock
        pursuant to a consulting agreement. The Company valued these warrants at
        $18,516
        using the Black Scholes model with the following factors: market price of
        $1.01;
        volatility of 92%; risk free rate of 5%; exercise price of $1.01; and an
        estimated life of 5 years. The fair value of the warrants has been expensed
        as
        consulting expense in the accompanying consolidated statements of operations.
 
 In
        July
        2007, the Company issued warrants to purchase 50,000 shares of common stock
        pursuant to a consulting agreement. The Company valued these warrants at
        $28,680
        using the Black Scholes model with the following factors: market price of
        $0.75;
        volatility of 98%; risk free rate of 5%; exercise price of $1.01; and an
        estimated life of 5 years. The fair value of the warrants has been expensed
        as
        consulting expense in the accompanying consolidated statements of operations.
 
 In
        July
        2007, the Company issued warrants to purchase 15,000 shares of common stock
        pursuant to a consulting agreement. The Company valued these warrants at
        $4,626
        using the Black Scholes model with the following factors: market price of
        $0.80;
        volatility of 96%; risk free rate of 5%; exercise price of $0.80; and an
        estimated life of 5 years. The fair value of the warrants has been expensed
        as
        consulting expense in the accompanying consolidated statements of operations.
 
 In
        August
        2007, the Company issued warrants to purchase 15,000 shares of common stock
        pursuant to a consulting agreement. The Company valued these warrants at
        $3,136
        using the Black Scholes model with the following factors: market price of
        $0.51;
        volatility of 103%; risk free rate of 5%; exercise price of $0.51; and an
        estimated life of 5 years. The fair value of the warrants has been expensed
        as
        consulting expense in the accompanying consolidated statements of operations.
 
 In
        addition, the Company also issued to the placement agent a total of 300,000
        warrants to purchase shares of the Company’s common stock. The Company valued
        these warrants at $212,232 using the Black Scholes model with the following
        factors: market price of $0.98; volatility of 92%; risk free rate of 5%;
        exercise price of $1.01; and an estimated life of 5 years. The fair value
        of the
        warrants has been capitalized as debt issuance cost and is being amortized
        over
        the term of the Debenture. For the year ended December 31, 2007 the company
        amortized $212,232, of the aforesaid debt issuance costs as other expense
        in the
        accompanying consolidated statements of operations.
  26
  **Pure
        Biofuels Corp.**
 **(A
        Development Stage Company)**
 **Notes
        to Consolidated Financial Statements**
 **(unaudited)**
 
 The
        Maturity Date of the Debentures was extended to October 19, 2007. As a result,
        the interest on the note was increased to 18% and 704,082 warrants were issued
        with an exercise price of $0.60, the trading price of the stock on the date
        the
        loan was extended. The Company valued these warrants at $390,219 using the
        Black
        Scholes model with the following factors: market price of $0.75; volatility
        of
        99%; risk free rate of 5%; exercise price of $1.01; and an estimated life
        of 5
        years. The fair value of the warrants has been expensed as other expense
        in the
        accompanying consolidated statements of operations.
 
 In
        July
        and August 2007, the Company completed private placement offerings that resulted
        in the sale of an aggregate of 1,050,667 shares at $0.60 per shares for gross
        proceeds of $630,000. These private placement offerings contained an obligation
        for the Company to register these shares on a registration statement with
        the
        SEC. If the Company fails to register these shares on a timely basis it will
        be
        subject to liquidated damages of 1% per month for each month the shares are
        not
        registered. The Company has accrued $25,200 in liquidated damages associated
        with the issuance of these 1,050,667 shares. In addition, in connection with
        these private placement offerings the Company issued a total of 1,050,667
        warrants to purchase share of the Company’s common stock with an exercise price
        of $0.80 per share.
 
 On
        September 12, 2007, the Company issued 11,000,000 shares in connection with
        a
        $10,000,000 Convertible Notes offering.
 
 On
        September 12, 2007, the Company issued warrants to purchase 350,000 shares
        of
        common stock pursuant to consulting agreements. The Company valued these
        warrants at $75,136 using the Black Scholes model with the following factors:
        market price of $0.50; volatility of 109%; risk free rate of 5%; exercise
        price
        of $0.50; and an estimated life of 1 year. The fair value of the warrants
        has
        been expensed as consulting expense in the accompanying consolidated statements
        of operations.
 
 During
        the fourth quarter of 2007, the Company issued a total of 650,000 shares
        of
        common stock valued at $408,750 i n consideration for the lender under the
        loan
        agreement and administrative agent entering into the waiver agreement .
 
 On
        January 15, 2008, the Company issued 15,000 shares for consulting services
        in
        accordance with the consulting agreement. The consulting services were valued
        $5,850 and have been expensed as professional fees in the accompanying
        consolidated statements of operations.
 
 On
        January 18, 2008, the Company entered into a Complete Settlement and Release
        Agreement with Wharton and Wharton Capital Markets, LLC pursuant to which
        the
        Company delivered to Wharton an aggregate of 186,435 shares of Common Stock
        in
        exchange for a $60,000 aggregate principal amount convertible promissory
        note
        and related accrued interest issued to Wharton by the Company on April 19,
        2007
        and in consideration of the complete settlement and release of any claims
        related to the April 18 Agreement. Notwithstanding the foregoing, no claims
        were
        released with respect to the future closing of any financial transaction
        between
        the Company and either Fusion Capital Partners, LLC or Alex Greystoke, or
        any of
        their respective affiliates, associates, successors or assigns.
 27
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 On
        January 24, 2008 the Company issued warrants to purchase 2,289,272 shares
        of
        common stock pursuant to the Securities Purchase Agreement with Plainfield.
        The
        Company valued these warrants at $573,628 using the Black Scholes model with
        the
        following factors: market price of $0.40; volatility of 102%; risk free rate
        of
        2.9%; exercise price of $0.60; and an estimated life of 5 years. The fair
        value
        of the warrants has been expensed as financing expense in the accompanying
        consolidated statements of operations.
 
 On
        January 26, 2008, the Company issued 2,166,667 shares pursuant to the purchase
        agreement of Interpacific Oil S.A.C. These shares were valued at $996,667.
 
 On
        March
        13, 2008, pursuant to the financing agreement entered into with Plainfield,
        the
        Company reset the conversion price of Plainfield’s convertible notes into the
        Company’s common stock from $0.60 to $0.30. The difference in fair value between
        the value of the beneficial conversion feature at March 13, 2008 before the
        price was reset and the value of the beneficial conversion feature after
        the
        price was reset was $5,481,833. The aforesaid value was recorded as debt
        discount and will be amortized over the life of the note. The Company amortized
        $357,435 and $363,455 during the three and six months ended June 30, 2008
        which
        is recorded as interest and financing costs in the accompanying consolidated
        statements of operations.
 
 On
        March
        13, 2008, pursuant to the financing agreement entered into with Plainfield,
        the
        Company reset the exercise price of Plainfield’s warrants to purchase 59,104,912
        shares of the Company’s common stock form $0.60 to $0.30. The difference in fair
        value between the value of the warrants at March 13, 2008 before the price
        was
        reset and the value of the warrants after the price was reset was $2,423,951.
        However, the maximum discount that could be applied to the convertible notes
        is
        $891,987. The aforesaid value was recorded as debt discount and will be
        amortized over the life of the note. The Company amortized $49,374 and $59,140
        during the three and six months ended June 30, 2008 which is recorded as
        interest and financing costs in the accompanying consolidated statements
        of
        operations. The Company also recorded as interest and financing costs $87,818
        related to re-priced Plainfield warrants not recorded as discount.
 
 On
        March
        13, 2008, pursuant to the financing agreement entered into with Plainfield,
        the
        Company recorded $166,667 as a beneficial conversion feature. The value of
        the
        beneficial conversion feature was based on $5,000,000 of convertible debt,
        $0.31
        market price of share, and $0.30 conversion price. The $166,667 was recorded
        as
        a debt discount and will be amortized over the life of the note. The Company
        amortized $9,299 and $9,810 during the three and six months ended June 30,
        2008
        which is recorded as interest and financing costs in the accompanying
        consolidated statements of operations.
 
 Stock
        Options
 
 In
        2006,
        the Company adopted a Stock Option and Award Plan (the “Plan”) initially
        reserving an aggregate of 18,000,000 shares of the Company’s common stock (the
“Available Shares”) for issuance pursuant to the exercise of stock options. The
        plan options were increased to 21,000,000 in April 2007, subject to shareholder
        approval which was obtained in November 2007.
 28
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 The
        Plan
        provides for the granting at the discretion of the Board of Directors stock
        options, stock appreciation rights, stock awards, phantom stock, performance
        awards, and other stock-based awards. Participation in the plan is open to
        all
        employees, officers, and directors of, and other individuals providing bona
        fide
        services to or for the Company.
 
 On
        September 4, 2007, the Company and each of Luis Goyzueta, our Chief Executive
        Officer, Gustavo Goyzueta, our Chief Financial Officer, Carlos Pinto, our
        Chief
        Operating Officer, Steven Magami, Director, and Adam Roseman, our former
        Chairman of the Board of Directors, amended the Nonstatutory Stock Option
        Agreement entered into between each of them and the Company on June 11, 2007,
        in
        order to (1) reduce the exercise price of shares issued under the Nonstatutory
        Stock Option Agreement from $0.98 per share to the greater of (i) $0.60,
        or (ii)
        the Fair Market Value (as defined in the Nonstatutory Stock Option Agreement)
        of
        the Company’s common stock on the date that the board of directors approves the
        amendment and (2) provide that none of the options may be exercised before
        the
        date on which we obtain shareholder approval of an amendment to the Company’s
        Articles of Incorporation to increase the number of authorized shares of
        common
        stock from 93,750,000 shares to at least 250,000,000 shares.
 
 During
        May 2008, the Company issued 2,440,000 stock options to employees during
        the
        second quarter of 2008. The fair values of employee stock options are estimated
        for the calculation of the pro forma adjustments in the above table at the
        date
        of grant using the Black-Scholes option-pricing model with the following
        weighted-average assumptions: expected volatility of 110%; average risk-free
        interest rate of 3.39%; expected life of 5.0 years; no expected dividend
        yield;
        and amortized over the vesting period of three years. We recognized $1,264,716
        and $632,358 in share-based compensation expense for the six months and three
        months ended June 30, 2008, respectively.
 
 The
        following summarizes the stock options transactions for the six months ended
        June 30, 2008:
  WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateNumber of
              
              Exercise
              
              Contractual
              
              IntrinsicOptions
              
              Price
              
              Life (in years)
              
              ValueOutstanding,
                  December 31, 2007
              
              
              14,000,000
              
              $
              0.6
              
              
              9.45Granted
              
              
              2,440,000
              
              $
              0.6Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (1,093,750
              )
              $
              0.6Outstanding,
                  June 30, 2008
              
              
              15,346,250
              
              $
              0.6
              
              
              9.1
              
              
              -Exercisable,
                  June 30, 2008
              
              
              8,266,250
              
              $
              0.6
              
              
              9.02
              
              
              -
 29
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 The
        Company has recorded wages expense in the amount of $632,358 and $1,264,716
        to
        reflect the value of these options for the three and six months ended June
        30,
        2008, respectively. The Company recorded wages expense for options issued
        of
        $2,362,547 and $2,362,547 for the three and six months ended June 30,
        2007.
 
 **Note
        12 – Warrants**
 
 The
        following summarizes the stock purchase warrant transactions for the six
        months
        ended June 30, 2008:
 
 WeightedWeighted
              
              AverageAverage
              
              RemainingNumber of
              
              Exercise
              
              ContractualWarrants
              
              Price
              
              Life (in years)Outstanding,
                  December 31, 2007
              
              
              60,303,581
              
              $
              0.6Granted
              
              
              2,289,272
              
              $
              0.3Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (151,505
              )
              $
              1.5Outstanding,
                  June 30, 2008
              
              
              15,346,250
              
              $
              0.6
              
              
              6.35
 
 **Note
        13 – Segmented Information**
 
 The
        Company’s operations are conducted in three reportable segments, U.S., Peru and
        Argentina. The net loss and net identifiable assets by reportable segments
        are
        as follows:
 
 U.S.
              
              Peru
              
              Argentina
              
              TotalNet
                  loss
              
              $
              (5,303,386
              )
              $
              (3,667,845
              )
              $
              (120,082
              )
              $
              (9,091,313
              )Property,
                  plant and equipment
              
              $
              795,600
              
              $
              31,989,961
              
              $
              15,034
              
              $
              32,800,595Total
                  Assets
              
              $
              4,307,490
              
              $
              45,406,268
              
              $
              170,977
              
              $
              49,884,735
 
 **Note
        14 – Acquisitions**
 
 Inmobiliaria
        Alpha S.A.C.
 
 On
        December 20, 2007, the Company, Palma Industrial S.A.C., a Peruvian corporation
        and 99.9% owned subsidiary of the Company, Inmobiliaria Alpha  S.A.C.,
        a
        Peruvian corporation (“Alpha”), and certain stockholders of Alpha entered into
        an Agreement and Plan of Merger, pursuant to which Palma Industrial will
        acquire
        all of the outstanding capital stock of Alpha, with Palma Industrial continuing
        as the surviving corporation. Of the total acquisition price of $3,850,000,
        as
        of December 31, 2007, approximately $200,000 has been provided to Alpha for
        a
        deposit on this acquisition. This agreement expired on March 31, 2008 and
        the
        Company was not able to negotiate an extension in favorable terms. The deposit
        to guarantee the acquisition has been expensed in the statement operations
        for
        the six months ended June 30, 2008.
 30
  **Pure
          Biofuels Corp.**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **(unaudited)**
 **Note
        15 – Subsequent Events**
 
 Plainfield
        Warrant Exchange Agreement
 
 On
        August
        5, 2008, the Company and Plainfield entered into a Warrant Exchange Agreement
        (the “Agreement”). Plainfield (A) was a holder of warrants to purchase (i)
        59,104,912 shares of the Company’s common stock, $0.001 par value (the “Common
        Stock”), at an exercise price of $0.30; and (ii) 122,605 shares of Common Stock
        at an exercise price of $0.01; and (B) had the right to acquire warrants
        to
        purchase 57,823,130 shares of Common Stock at an exercise price to be determined
        but not greater than $0.30 (the “Warrant Rights” and together with the warrants
        described in subclause (A), the “Warrants”). Plainfield and the Company
        consummated an exchange of the Warrants pursuant to the terms of the Agreement.
        Plainfield exchanged all of the Warrants for 78,033,765 shares of Common
        Stock
        (the “Exchange Shares”). Upon issuance of the Exchange Shares to Plainfield, the
        Warrants were rendered null and void and of no further force or
        effect.
 
 Upon
        the
        closing of the Agreement, Plainfield and its affiliates own (1) 89,683,765
        shares of Common Stock, or approximately 57.6% or our outstanding Common
        Stock;
        and (2) $15,610,000 aggregate principal amount of notes convertible into
        52,033,333 shares of Common Stock at a conversion price of $0.30. Plainfield
        is
        also the sole lender and administrative agent under the Company’s Loan
        Agreement, which has a principal aggregate amount of $37,346,939 outstanding.
 
 Private
        placement of Common Stock
 
 On
        August
        8, 2008, the Company completed a private placement of 15,714,287 shares of
        the
        Company’s common stock at a price of $0.35 per share for total gross proceeds of
        $5,500,000.
 31
 **Item
        2. Management’s Discussion and Analysis or Plan of Operation** ****
 
 **Forward-looking
        statements**
 
 The
        following discussion of our financial condition and results of operations
        should
        be read in conjunction with the financial statements and the related notes
        thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly
        report on Form 10-Q contains certain forward-looking statements and our future
        operating results could differ materially from those discussed herein. Certain
        statements contained in this discussion, including, without limitation,
        statements containing the words "believes", "anticipates," "expects" and
        the
        like, constitute "forward-looking statements" within the meaning of Section
        27A
        of the Securities Act of 1933, as amended, and Section 21E of the Securities
        Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue
“penny stock,” as such term is defined in Rule 3a51-1 promulgated under the
        Exchange Act, we are ineligible to rely on these safe harbor provisions.
        Such
        forward-looking statements involve known and unknown risks, uncertainties
        and
        other factors which may cause our actual results, performance or achievements
        to
        be materially different from any future results, performance or achievements
        expressed or implied by such forward-looking statements. Given these
        uncertainties, readers are cautioned not to place undue reliance on such
        forward-looking statements. We disclaim any obligation to update any such
        factors or to announce publicly the results of any revisions of the
        forward-looking statements contained herein to reflect future events or
        developments.
 
 **Overview**
 
 We
        intend
        to construct and operate a 52.5 million gallon biodiesel production plant
        at a
        site near the Callao Port in Lima, Peru, (“Callao Port Facility”), and operate a
        10.0 million gallon biodiesel production plant that we acquired from
        Interpacific Oil, (“Interpacific”, or the “Interpacific Facility”), on December
        4, 2007. Currently, we are a development stage company with no revenues from
        operations. To date, our efforts have been devoted principally to developing
        plans for the construction of the Callao Port Facility, engaging service
        providers and related activities. We anticipate that we will need an additional
        $8.9 million in financing in order to complete the Callao Port Facility and
        an
        additional $400,000 to complete testing of the Interpacific Facility. In
        addition, we will require working capital of approximately $50 million to
        fund
        the operation of the Callao Port Facility, which includes amounts for raw
        materials and related taxes, and approximately $4 million to fund the raw
        materials for the operation of the Interpacific Facility. There can be no
        assurance that we will be able to secure financing at terms that are favorable
        to us or at all.
 
 In
        addition, we will seek to generate additional revenue by leasing to third
        parties the use of our storage tanks at the Callao Port Facility. There can
        be
        no assurance that we will be able to lease any unused storage tanks on terms
        that are favorable to us or at all.
 
 The
        Callao Port Facility will have a design capacity of approximately 52.5 million
        gallons of biodiesel per year. In addition, we expect the plant will produce
        approximately 9 million gallons of crude glycerin each year. The plant will
        consist principally of a materials handling and storage area, a
        transesterification reactor in which the biodiesel is produced, a storage
        and
        loading area for biodiesel and glycerin, truck scales and an administrative
        office.
  32
 
 On
        December 4, 2007, we completed the acquisition of the Interpacific Facility,
        which opened in 2001 and was one of the first biodiesel production facilities
        ever constructed in Peru. We have expanded the Interpacific Facility from
        7.2
        MMgy to 10 MMgy.
 
 On
        January 23, 2008, we and our 99.9% owned subsidiary, Pure Biofuels del Peru
        S.A.C., a Peruvian corporation, entered into an amendment to the merger
        agreement (the “Amendment”) with Interpacific and certain Interpacific
        stockholders (the “Interpacific Stockholders”). Pursuant to the Amendment,
        $700,000 cash consideration and 2,166,667 shares of common stock payable
        to the
        Interpacific Stockholders in consideration of the merger is payable within
        three
        days of the execution of the Amendment instead of 90 days after closing,
        as
        contemplated by the merger agreement. To date, no other consideration has
        been
        paid pursuant to the merger agreement.
 
 We
        plan
        to be self sufficient with our primary raw material, vegetable oil. This
        composes approximately 94% of our estimated production costs. As part of
        this
        vertical integration, we intend to raise $16 million within the next 6 months
        in
        order to plant roughly 12,000 hectares of Jatropha. Our studies show that
        this
        will yield, conservatively, 3 metric tons of oil per hectare by 2010, once
        the
        plants reach maturity. This will supply around 8% of our raw material
        requirements and our long term objective is to develop sufficient crops in
        order
        to be 100% self sufficient. We plant to use alternative non-edible crops
        like
        Jatropha, which can be planted in arid lands unsuitable for most food crops.
        Finally, we intend to raise an additional $20 million for an oil extraction
        plant for our Jatropha plantations and additional tanks for our storage terminal
        facility. There can be no assurance that we will be able to secure any such
        financing at terms that are favorable to us or at all, or, even if we secure
        such financing, that we will ever become self sufficient as described
        above.
 
 The
        construction of our Callao Port Facility has been completed and testing is
        currently being done. Assuming the tests are successful and we secure sufficient
        financing, we are targeting to begin operations during the third quarter
        of
        2008. As for the Interpacific Facility, testing has already been completed
        and
        we expect to generate revenues by September 2008.
 
 **Results
        of Operations**
 
 *For
        the three month period ended June 30, 2008 vs. the three month period ended
        June
        30, 2007*
 
 We
        generated no revenues during both the three month period ended June 30, 2008
        and
        the three month period ended June 30, 2007
 
 Consulting
        fees were $177,744 for the three months ended June 30, 2008 compared to $486,906
        for the three months ended June 30, 2007 for a decrease of $309,162, or (63%).
        The decrease in consulting fees is because the Company paid more consulting
        fees
        during the initial phase of the plant construction which occurred during
        2007
        and the first quarter of 2008.
 
 General
        and administrative expenses were $405,553 for the three months ended June
        30,
        2008 compared to $169,033 for the three months ended June 30, 2007 for an
        increase of $236,520, or 140%. The increase is due to increase costs as the
        Company is building internal infrastructure to support the operation of the
        plants that are being constructed.
 33
 Professional
        fees were $571,935 for the three months ended June 30, 2008 compared to $423,284
        for the three months ended June 30, 2007 for an increase of $148,651, or
        35%.
        The increase in fees is due to the increase in legal fees and accounting
        fees.
        The increase in legal fees is due to the financing agreements and acquisitions
        that we entered into since June 30, 2007.
 
 We
        estimate that our organization and financing costs for the next twelve month
        period will be approximately $4,000,000. These costs will primarily consist
        of
        legal, administrative, compliance, and other expenses.
 
 Wages
        were $928,573 for the three months ended June 30, 2008 compared to $2,615,383
        for the three months ended June 30, 2007 for a decrease of $1,686,810, or
        (64%).
        The decrease in wages is due to the decrease in stock compensation expense
        for
        options issued to employees offset by an increase in employees as we continue
        to
        hire people as we continue to grow. Stock compensation expenses were $632,358
        for the three months ended June 30, 2008 compared to $2,362,547 for the three
        months ended June 30, 2007 for a decrease of $1,730,189 or (73%).
 
 Interest
        and financing costs were $57,829 for the three months ended June 30, 2008
        compared to $72,897 for the three months ended June 30, 2007 for a decrease
        of
        $15,068, or (21%).
 
 Amortization
        of debt discounts and debt issuance costs were $1,151,567 for the three months
        ended June 30, 2008 compared to $3,160,504 for the three months ended June
        30,
        2007, for a decrease of $2,008,937, or (64%). The decrease is because the
        Company amortized $2,357,195 related to debt incurred during the second quarter
        2007 which had a three month maturity date offset by an increase in debt
        issue
        costs associated with obtaining financing in order to construct the biodiesel
        plants. Included in the expense are amount related to debt issuance costs
        paid
        to third parties in order to secure financing as well as discounts on the
        debt
        related to beneficial conversion features and warrants associated with the
        debt.
 
 Foreign
        currency transaction losses were $3,193,013 for the three months ended June
        30,
        2008 compared to $0 for the three months ended June 30, 2007, for an increase
        of
        $3,193,013. The increase is due to the line of credit which was denominated
        and
        payable in U.S. dollars. Because the U.S. dollar has increased in
        value compared to the Peruvian Soles, we need more Peruvian Soles to repay
        the
        line of credit.
 
 *For
        the six month period ended June 30, 2008 vs. the six month period ended June
        30,
        2007*
 
 We
        generated no revenues during both the six month period ended June 30, 2008
        and
        the six month period ended June 30, 2007.
 
 Consulting
        fees were $987,414 for the six months ended June 30, 2008 compared to $1,014,761
        for the six months ended June 30, 2007 for a decrease of $27,347, or (3%).
        The
        decrease in consulting fees is because the Company paid more consulting fees
        during the initial phase of the plant construction which occurred during
        2007
        and the first quarter of 2008.
 
 General
        and administrative expenses were $1,084,436 for the six months ended June
        30,
        2008 compared to $306,710 for the six months ended June 30, 2007 for an increase
        of $777,726, or 254%. The increase is due to increase costs as the Company
        is
        building internal infrastructure to support the operation of the plants that
        are
        being constructed.
 34
 Professional
        fees were $1,031,462 for the six months ended June 30, 2008 compared to $523,382
        for the six months ended June 30, 2007 for an increase of $508,080, or 97%.
        The
        increase in fees is due to the increase in legal fees and accounting fees.
        The
        increase in legal fees is due to the financing agreements and acquisitions
        that
        we entered into since June 30, 2007.
 
 We
        estimate that our organization and financing costs for the next twelve month
        period will be approximately $4,000,000. These costs will primarily consist
        of
        legal, administrative, compliance, and other expenses.
 
 Wages
        were $1,948,674 for the six months ended June 30, 2008 compared to $2,820,970
        for the six months ended June 30, 2007 for a decrease of $872,296, or (31%).
        The
        decrease in wages is due to the decrease in stock compensation expense for
        options issued to employees offset by an increase in employees as we continue
        to
        hire people as we continue to grow. Stock compensation expenses were $1,264,716
        for the six months ended June 30, 2008 compared to $2,362,547 for the six
        months
        ended June 30, 2007 for a decrease of $1,097,831 or (45%).
 
 Interest
        and financing costs were $1,055,455 for the six months ended June 30, 2008
        compared to $72,897 for the six months ended June 30, 2007 for an increase
        of
        $982,558, or 1,348%. The increase is directly related to the additional
        financing that we have received to construct our biodiesel plants. The interest
        and financing costs include both interest on the convertible debt and the
        fair
        market value of warrants issued as part of the financing agreements.
 
 Amortization
        of debt discounts and debt issuance costs were $1,957,412 for the six months
        ended June 30, 2008 compared to $3,160,504 for the six months ended June
        30,
        2007, for a decrease of $1,203,092, or (38%). The decrease is because the
        Company amortized $2,357,195 related to debt incurred during the second quarter
        2007 which had a three month maturity date offset by an increase in debt
        issue
        costs associated with obtaining financing in order to construct the biodiesel
        plants. Included in the expense are amount related to debt issuance costs
        paid
        to third parties in order to secure financing as well as discounts on the
        debt
        related to beneficial conversion features and warrants associated with the
        debt.
 
 Foreign
        currency transaction losses were $868,634 for the six months ended June 30,
        2008
        compared to $0 for the six months ended June 30, 2007, for an increase of
        $868,634. The increase is due to the line of credit which was denominated
        and
        payable in U.S. dollars. Because the U.S. dollar has increased in
        value compared to the Peruvian Soles, we need more Peruvian Soles to repay
        the
        line of credit.
 
 **Liquidity
        and Capital Resources**
 
 ***General***
 
 As
        of
        June 30, 2008, we had $4,203,356 in cash and cash equivalents. In addition,
        for
        the six months ended June 30, 2008, our cash used in operating activities
        was
        $4,564,861 compared to our cash used in operating activities of $1,379,569
        for
        the six months ended June 30, 2007. The cash used in operating activities
        was
        comprised primarily of our net loss of $9,091,313 and a decrease of accounts
        payable and accrued expenses of $1,319,950 offset by stock compensation expense
        of $1,264,716, amortization of debt discounts and debt issuance costs of
        $1,957,412, a noncash foreign currency transaction loss of $1,215,298, the
        fair
        value of warrants issued for financing costs of $573,628 and a decrease in
        prepaid expenses and deposits of $452,733. For the six months ended June
        30,
        2007, the cash used in operating activities of $1,379,569 was primarily due
        to
        our net loss of $7,899,771 offset by an increase in accounts payable and
        accrued
        expenses of $1,056,533, stock compensation expense for option of $2,362,547,
        and
        amortization of debt discounts and debt issuance costs of $3,160,504.
  35
 
 During
        the six months ended June 30, 2008 and 2007, we used $18,092,754 and $2,248,726
        in investing activities, respectively. For the six months ended June 30,
        2008
        and 2007, we used $14,387,843 and $1,868,810, respectively for the purchase
        of
        property, plant, and equipment. Our VAT credit increased by $3,134,001 and
        $379,916 for the six months ended June 30, 2008 and 2007,
        respectively.
 
 During
        the six months ended June 30, 2008 and 2007, cash provided by financing
        activities was $25,525,646 and $2,876,108, respectively. During the six months
        ended June 30, 2008, we received $5,000,000 from the issuance of convertible
        debt and $20,946,852 from additional draw downs on our line of credit. We
        paid
        $1,165,617 in offering costs associated with the convertible debt and the
        line
        of credit.
 
 The
        construction of our Callao Port Facility has been completed and testing is
        currently being done. Assuming the tests are successful and we secure sufficient
        financing, we are targeting to begin operations during the third quarter
        of
        2008.
 
 As
        for
        the Interpacific Facility, testing has already been completed and we expect
        to
        generate revenues by September 2008.
 
 In
        addition to the $30,000,000 financing completed on September 12, 2007, and
        the
        additional approximately $22.3 million obtained under amendments to the
        $30,000,000 financing, we will need additional financing of approximately
        $50
        million as working capital needed to operate our Callao Port Facility. The
        financing needed for our Interpacific facility has already been secured,
        both
        capital expenditures and working capital.
 
 Our
        capital expenditures for the Callao refinery during the next twelve month
        period
        are expected to be approximately $5 million, which will be expended as the
        remaining contractors finish off their tested work. In addition, we intend
        to
        raise $16 million within the next 6 month period for our Jatropha plantations
        as
        part of our vertical integration strategy. Finally, we intend to raise $20
        million within the next 12 month period for an oil extraction plant and
        additional tanks. There can be no assurance that we will be able to secure
        financing terms that are favorable to us or at all.
 
 ***Financings***
 
 To
        date,
        we have had negative cash flows from operations and we have been dependent
        on
        sales of our equity securities and debt financing to meet our cash requirements.
        On August 8, 2008, we completed a private placement of 15,714,287 shares
        of the
        Company’s common stock at a price of $0.35 per share for total gross proceeds of
        $5,500,000.
 36
 
 On
        September 12, 2007, the Company entered into a securities purchase agreement
        (the “Purchase Agreement”), with Plainfield Special Situations Master Fund
        Limited (“PSSM”), Plainfield Peru I LLC (“LLCI”) and Plainfield Peru II LLC
        (“LLC II” and together with LLCI, “Plainfield”) pursuant to which the Company
        agreed to sell to the Plainfield $10,000,000 aggregate principal amount of
        the
        10%/12% senior convertible PIK election notes due September 12, 2012, (the
        “Notes” or “Original Notes”). The Notes are convertible into 16,666,667 shares
        of the Company’s common stock at the option of the holder of Notes at any time
        after November 19, 2007, the date when the Company obtained stockholder approval
        to increase the number of authorized shares of common stock of the Company
        from
        93,750,000 to a number sufficient to support the issuance of the common stock
        underlying the Notes and the Warrants, and on or prior to September 12, 2012,
        at
        a conversion price of $0.60 per share. The conversion price is subject to
        adjustment in accordance with the terms of the Purchase Agreement. The Company
        will pay interest on the Notes semi-annually in arrears on March 15 and
        September 15 of each year, commencing March 15, 2008. On March 15, 2008,
        the
        Company issued a $610,000 aggregate principal amount of PIK Interest Notes.
        Subject to the conversion rights set forth below, the Company is obligated
        to
        pay 100% of the principal amount of the Notes, plus accrued and unpaid interest,
        in cash on September 12, 2012 (the “Maturity Date”), provided, however, that the
        Company may, at its option, may elect to pay interest on the Notes (i) entirely
        in cash, or (ii) entirely by issuing additional Notes with an effective interest
        rate of 12% (“PIK Interest”). The first payment of interest shall be paid in PIK
        Interest. The Notes are senior unsecured obligations of the Company and rank
        equally in right of payment to the Company’s future senior indebtedness. The
        Notes also restrict the Company and its subsidiaries from incurring indebtedness
        or other obligations, including creating liens, merging, selling assets,
        making
        dividends, distributions or investments, entering into transactions with
        affiliates, making capital expenditures, modifying charter documents and
        issuing
        capital stock in the future, in each case subject to certain exceptions.
        Furthermore, the Company agreed to take all necessary actions to cause Erich
        Reehl to be elected as a director of the board of directors or the Company.
 
 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 the Amended Purchase
        Agreement, the Company agreed to sell to Plainfield $5,000,000 aggregate
        principal amount of its 10%/12% senior convertible PIK election notes due
        September 12, 2012, (the “Additional Notes”, and, together with the Original
        Notes, the “Notes”). The terms of the Additional Notes are substantially the
        same as the Original Notes except for the conversion price as described below.
 
 The
        Additional Notes are convertible into 16,666,667 shares of common stock at
        the
        option of the holder of Additional Notes at any time after the Amendment
        Date
        and on or prior to September 12, 2012, at a conversion price of $0.30 per
        share.
        The conversion price is subject to adjustment in accordance with the terms
        of
        the Amended Purchase Agreement. Concurrent with the issuance of the Additional
        Notes, pursuant to the terms of the Amended Purchase Agreement, the conversion
        price of the Original Notes and $610,000 aggregate principal amount of PIK
        Interest Notes issued on March 15, 2008 as payment of interest on the Original
        Notes, was adjusted to $0.30.
 
 The
        Company will pay interest on the Additional Notes semi-annually in arrears
        on
        March 15 and September 15 of each year, commencing September 15, 2008. Subject
        to the conversion rights set forth below, the Company is obligated to pay
        100%
        of the principal amount of the Additional Notes, plus accrued and unpaid
        interest, in cash on September 12, 2012 (the “Maturity Date”), provided,
        however, that the Company may, at its option, may elect to pay interest on
        the
        Additional Notes (i) entirely in cash, or (ii) entirely by issuing additional
        Notes with an effective interest rate of 12% (“PIK Interest Notes”). The first
        payment of interest shall be paid in PIK Interest Notes.
 37
  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.
 
 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.
 
 On
        April
        18, 2008, the Company, as Guarantor, entered into a Second Amendment to Loan
        Documents (the “ Amendment ”)
        with
        Pure Biofuels Del Peru S.A.C. and Palma Industrial S.A.C., each a 99.9% owned
        subsidiary of the Company (the “ Borrowers ”)
        ,
        Plainfield Special Situations Master Fund Limited, as the Lender and
        Administrative Agent (“ Plainfield ”
or
        the
“ Administrative
        Agent ”)
        and
        the other credit parties thereto. The Amendment amends the loan agreement
        (the “ Loan
        Agreement ”)
        and
        certain related documents (together with the Loan Agreement, the “ Loan
        Documents ”)
        entered into by the Company, the Borrowers and Plainfield on September 12,
        2007
        as amended by an amendment executed on March 13, 2008.
 38
  Pursuant
        to the terms of the Amendment, available borrowings under the Loan Agreement
        were increased by $17,346,939, such that the maximum aggregate principal
        amount
        of loans available under the Loan Agreement is $37,346,939. Prior to the
        execution of the Amendment, the Company had borrowed $20,000,000 under the
        Loan
        Agreement. On April 18, 2008, the Company borrowed an additional $4,413,265,
        on
        April 28, 2008, the Company borrowed an additional $4,120,746, on May 7,
        2008,
        the Company borrowed an addition $3,437,075, and on May 19, 2008, the Company
        borrowed an additional $5,375,853 under the Loan Agreement.
 
 Also
        pursuant to the Amendment, interest under the Loan Agreement from and including
        March 12, 2008 to but excluding October 1, 2008, shall accrue and be due
        and
        payable in four equal installments to be paid on October 1, 2008, November
        1,
        2008, December 1, 2008 and January 1, 2009.
 
 Obligations
        under the Loan Agreement are secured by liens on substantially all of the
        assets
        of the Company, the Borrowers and each of the Borrowers’ subsidiaries. However,
        pursuant to the Amendment, Plainfield agreed to release any liens or security
        interests on inventory (including raw materials, finished product, byproducts
        and inventory in process) and accounts receivable and the proceeds therefrom
        of
        the Borrowers.
 
 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).
 
 Total
        interest incurred for the three and six months ended June 30, 2008 related
        to
        the convertible debentures amounted to $468,300 and $779,887, respectively,
        which was capitalized in Property, Plant and Equipment.
 39
 ***Line
        of Credit***
 
 On
        September 12, 2007, the Company entered into a $20,000,000 Loan Agreement,
        between the Company, as Guarantor, and Pure Biofuels Del Peru S.A.C. and
        Palma
        Industrial S.A.C., each a 99.9% owned subsidiary of the Company, various
        lenders
        and PSSM, as Administrative Agent.   The outstanding balance at June 30,
        2008 and December 31, 2007 is $37,346,852 and $16,400,000, respectively.
        Total
        interest expense for the three and six months ended June 30, 2008 amounted
        to
        $1,112,071 and $1,702,740.
  On
        March
        13, 2008, the Company, Pure Biofuels del Peru, and Palma Industrial entered
        into
        an agreement with Plainfield pursuant to which the Borrowers may draw down
        an
        additional $818,000 (the “Additional Loan”) under the Loan Agreement. Pursuant
        to the terms of the agreement, the Company reset the exercise price of
        Plainfield’s warrants to purchase 59,104,912 shares of the Company’s common
        stock from $0.60 to $0.30.
 
 **Uncertainties
        and Going Concern**
 
 The
        continuation of our business is dependent upon us raising additional financial
        support and our Callao Port Facility beginning operations, or until we begin
        production at the Interpacific Facility. In addition, we will require working
        capital of approximately $50 million to fund the operation of the Callao
        Port
        Facility, which includes amounts for raw materials and related taxes, There
        can
        be no assurance that we will be able to secure financing at terms that are
        favorable to us or at all. The issuance of additional equity securities by
        us
        could result in a significant dilution in the equity interests of our current
        stockholders. Obtaining commercial loans, assuming those loans would be
        available, will increase our liabilities and future cash commitments. If
        we are
        not able to obtain additional financing on a timely basis, we will be unable
        to
        conduct our operations as planned, and we will not be able to meet our other
        obligations as they become due. In such event, we will be forced to scale
        down
        or perhaps even cease our operations.
 
 We
        have
        suffered recurring losses from operations. The continuation of our Company
        as a
        going concern is dependent upon our Company attaining and maintaining profitable
        operations and raising additional capital. The financial statements do not
        include any adjustment relating to the recovery and classification of recorded
        asset amounts or the amount and classification of liabilities that might
        be
        necessary should our Company discontinue operations.
 
 Due
        to
        the uncertainty of our ability to meet our current operating expenses and
        the
        capital expenses noted above, in their report on the annual financial statements
        for the year ended December 31, 2007, our independent auditors included an
        explanatory paragraph regarding concerns about our ability to continue as
        a
        going concern. Our financial statements contain additional note disclosures
        describing the circumstances that lead to this disclosure by our independent
        auditors
 
 **Commitments
        and Contingencies**
 
 On
        August
        13, 2007, Pure Biofuels del Peru entered into a services agreement with Ocean
        Marine S.A.C. (“Ocean Marine”), a Peruvian Corporation, whereby Ocean Marine
        agreed to render consulting, management and logistical support services to
        Pure
        Biofuels del Peru. Pursuant to the services agreement, Luis Goyzueta, our
        Chief
        Executive Officer and a director, will receive $130,000 aggregate salary
        per
        year, Gustavo Goyzueta, our Chief Financial Officer, will receive a salary
        of
        $90,000 and Alberto Pinto, our Chief Operations Officer and a director, will
        receive a salary of $120,000. All of the foregoing compensation is payable
        retroactive to September 15, 2006. The term of this agreement is from August
        13,
        2007 through August 12, 2009.
 40
  On
        September 12, 2007, our Company entered into a registration rights agreement
        (the “ARC Registration Rights Agreement”) with **** ARC
        Investment Partners, LLC, Tapirdo Enterprises, LLC (an affiliate of Adam
        Roseman), and SGM Capital, LLC (an affiliate of Steven Magami) (collectively,
        the “ARC Holders”) in which our Company granted to each of the ARC Holders the
        right to request two demand registrations. In addition, the ARC Holders were
        granted certain shelf registration and piggyback registration rights.
 
 During
        the six months ended June 30, 2008, our Company entered into addition agreements
        with Plainfield. See Notes 5, 11 and 15 for summaries of these agreements.
 
 On
        October 1, 2006, our Company entered into a lease for premises in Lima, Peru.
        Under the terms of the lease, our Company is required to make monthly payments
        of $6,013 for the first year. The monthly payment will increase by 3% annually
        until September 2009. The office lease contains certain rent escalation clauses
        over the life of the lease. The total amount of rental payments due over
        the
        lease term is being charged to rent expense on a straight-line method over
        the
        term of the lease.
 
 On
        October 10, 2006, our Company entered into a lease for premises in Vancouver,
        British Columbia. Under the terms of the lease, our Company is required to
        make
        monthly payments of $3,000, plus applicable taxes, until October 2008. This
        lease was terminated during the year ended December 31, 2007.
 
 On
        June
        1, 2007, our Company entered into a lease for premises in Chorrilos, Peru.
        Under
        the terms of the lease, our Company is required to make monthly payments
        of
        $1,350 for the first year, $1,400 for the second year, and $1,500 for the
        third
        year until the expiration of the lease on May 31, 2010.
 
 The
        future minimum lease payments are as follows:
 
 PERIOD ENDING
                JUNE 30,
              
              AMOUNT2009
              
              $
              161,1122010
              
              
              169,1672011
              
              
              88,9562012
                  and thereafter
              
              
              72,156$
              491,391
 
 
 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.
 41
  **Off-Balance
        Sheet Arrangements**
 
 We
        do not
        maintain any off-balance sheet arrangements, transactions, obligations or
        other
        relationships with unconsolidated entities that would be expected to have
        a
        material current or future effect upon our financial condition or results
        of
        operations.
 
 **Critical
        Accounting Policies**
 
 *Basis
        of Presentation*
 
 The
        consolidated financial statements include the accounts of our company and
        its
        99.99% owned subsidiaries, Pure Biofuels del Peru S.A.C. and Palma Industrial
        S.A.C., Palma Industrial’s 99.9% owned subsidiaries Aceite Pucallpa S.A.C.,
        Palmas de Oriente S.A.C., Palmas Tropicales, S.A.C., Pucapalma S.A.C. and
        Ecopalma, S.A.C. and Pure Biofuels del Peru’s 95% owned subsidiary, Pure
        Biocarburantes, S.A. All intercompany transactions and balances have been
        eliminated. We are a development stage company as defined by Statement of
        Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting for
        Development Stage Enterprises.” Our fiscal year end is December 31.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with U.S. generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Significant areas requiring the use of management estimates relate to the
        determination of depreciation rates for equipment and future tax rates used
        to
        determine future income taxes. Actual results could differ from these
        estimates.
 
 *Financial
        Instruments/Concentrations*
 
 The
        fair
        value of our financial instruments which include cash, accounts payable and
        accrued liabilities, and due to related parties were estimated to approximate
        their carrying value due to the immediate or relatively short maturity of
        these
        instruments. The fair value of long term debt approximates its carrying value.
        Our operations are in Peru and virtually all of our assets and liabilities
        are
        giving rise to market risks from changes in foreign currency rates. The
        financial risk is the risk to our operations that arise from fluctuations
        in
        foreign exchange rates and the degree of volatility of these rates. Currently,
        we do not use derivative instruments to reduce our exposure to foreign currency
        risk.
 
 *Property,
        Plant and Equipment*
 
 Property,
        plant and equipment are recorded at cost. The Company provides for depreciation
        at the following annual rates:
 
 Computer
                  Equipment
              
              
              25% straight lineFurniture
                  & Miscellaneous
              
              
              10% straight lineBuilding
                  Improvements
              
              
              10% straight line
 42
  *Long-lived
        Assets*
 
 In
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”, the carrying value of intangible assets and other long-lived
        assets is reviewed on a regular basis for the existence of facts or
        circumstances that may suggest impairment. We recognize impairment when the
        sum
        of the expected undiscounted future cash flows is less than the carrying
        amount
        of the asset. Impairment losses, if any, are measured as the excess of the
        carrying amount of the asset over its estimated fair value.
 
 *Foreign
        Currency Translation*
 
 Our
        functional and reporting currency is the U.S. dollar. Monetary assets and
        liabilities denominated in foreign currencies are translated using the exchange
        rate prevailing at the balance sheet date. Gains and losses arising on
        translation or settlement of foreign currency denominated transactions or
        balances are included in the determination of income. Foreign currency
        transactions are primarily undertaken in Peruvian Nuevos Soles and Argentinean
        Pesos. We have not, to the date of these financials statements, entered into
        derivative instruments to offset the impact of foreign currency
        fluctuations.
 
 *Basic
        and Diluted Net Loss per Share*
 
 We
        compute net loss per share in accordance with SFAS No. 128, “Earnings per Share”
which requires presentation of both basic and diluted earnings per share
        (EPS)
        on the face of the statement of operations. Basic EPS is computed by dividing
        net income (loss) available to common shareholders (numerator) by the weighted
        average number of common shares outstanding (denominator) during the period.
        Diluted EPS gives effect to all dilutive potential common shares outstanding
        during the period including stock options, using the treasury stock method,
        and
        convertible preferred stock, using the if-converted method. In computing
        diluted
        EPS, the average stock price for the period is used in determining the number
        of
        shares assumed to be purchased from the exercise of stock options or warrants.
        Diluted EPS excludes all potentially dilutive common shares if their effect
        is
        anti-dilutive.
 
 *Stock-based
        Compensation*
 
 We
        record
        stock-based compensation in accordance with SFAS No. 123R “Share Based
        Payments”, using the fair value method. On November 1, 2006, we approved a stock
        option plan (the “Plan”) that enables us to grant options to employees,
        including our officers and directors, and our subsidiaries and other individuals
        who contribute to our success. Our board of directors will administer the
        Plan
        whereby it may, from time to time, grant up to a total of 21,000,000 stock
        options. The stock options granted under the Plan shall vest and become
        exercisable at such time and such terms as our board of directors may determine
        at the time of the grant of the options. On April 27, 2007, our board of
        directors amended and restated the Plan. This plan was approved by our security
        holders on November 19, 2007.
 
 The
        Company issued 2,440,000 stock options to employees during the second quarter
        of
        2008. The fair values of employee stock options are estimated for the
        calculation of the pro forma adjustments in the above table at the date of
        grant
        using the Black-Scholes option-pricing model with the following weighted-average
        assumptions: expected volatility of 110%; average risk-free interest rate
        of
        3.39%; expected life of 5.0 years; no expected dividend yield; and amortized
        over the vesting period of three years. We recognized $1,264,716 and $632,358
        in
        share-based compensation expense for the six months and three months ended
        June
        30, 2008, respectively.
 43
 *Recent
        Pronouncements*
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
        Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting
        enterprise accounts for the acquisition of a business. SFAS No. 141
        (Revised 2007) requires an acquiring entity to recognize all the assets acquired
        and liabilities assumed in a transaction at the acquisition-date fair value,
        with limited exceptions, and applies to a wider range of transactions or
        events.
        SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or
        after December 15, 2008 and early adoption and retrospective application is
        prohibited. The Company believes adopting SFAS No. 141R will significantly
        impact its financial statements for any business combination completed after
        December 31, 2008.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements”, which is an amendment of Accounting Research
        Bulletin (“ARB”) No. 51.  This statement clarifies that a
        noncontrolling interest in a subsidiary is an ownership interest in the
        consolidated entity that should be reported as equity in the consolidated
        financial statements.  This statement changes the way the consolidated
        income statement is presented, thus requiring consolidated net income to
        be
        reported at amounts that include the amounts attributable to both parent
        and the
        noncontrolling interest.  This statement is effective for the fiscal
        years, and interim periods within those fiscal years, beginning on or after
        December 15, 2008.  Based on current conditions, the Company does not
        expect the adoption of SFAS 160 to have a significant impact on its results
        of
        operations or financial position.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities”. This Statement permits entities to
        choose to measure many financial assets and financial liabilities at fair
        value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected are reported in earnings. SFAS No. 159 is effective as of the beginning
        of an entity’s first fiscal year that begins after November 15, 2007. The
        Company adopted SFAS No. 159 on January 1, 2008. The Company chose not to
        elect
        the option to measure the fair value of eligible financial assets and
        liabilities.
  In
        June
        2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
        Nonrefundable Advance Payments for Goods or Services Received for use in
        Future
        Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
        nonrefundable advance payments for goods or services that used or rendered
        for
        research and development activities should be expensed when the advance payment
        is made or when the research and development activity has been performed.
        Management is currently evaluating the effect of this pronouncement on financial
        statements.
  44
  In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        No. 07-5”). This Issue is effective for financial statements issued for fiscal
        years beginning after December 15, 2008, and interim periods within those
        fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own
        stock and (b) classified in stockholders’ equity in the statement of
        financial position would not be considered a derivative financial instrument.
        EITF No.07-5 provides a new two-step model to be applied in determining whether
        a financial instrument or an embedded feature is indexed to an issuer’s own
        stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
        The Company believes adopting this statement will have a material impact
        on the
        financial statements because among other things, any option or warrant
        previously issued and all new issuances denominated in US dollars will be
        required to be carried as a liability and marked to market each reporting
        period.
 
 In
        April
        2008, the FASB issued 142-3 “Determination of the useful life of Intangible
        Assets”, which amends the factors a company should consider when developing
        renewal assumptions used to determine the useful life of an intangible asset
        under SFAS142. This Issue is effective for financial statements issued for
        fiscal years beginning after December 15, 2008, and interim periods within
        those
        fiscal years. SFAS 142 requires companies to consider whether renewal can
        be
        completed without substantial cost or material modification of the existing
        terms and conditions associated with the asset. FSP 142-3 replaces the previous
        useful life criteria with a new requirement—that an entity consider its own
        historical experience in renewing similar arrangements. If historical experience
        does not exist then the Company would consider market participant assumptions
        regarding renewal including 1) highest and best use of the asset by a market
        participant, and 2) adjustments for other entity-specific factors included
        in
        SFAS 142. The Company is currently evaluating the impact that adopting SFAS
        No.142-3 will have on its financial statements
 
 **Item
        3. Quantitative and Qualitative Disclosure about Market
        Risk**
 
 Not
        applicable.
 
 **Item
        4. Controls and Procedures**
 
 Evaluation
        of Disclosure Controls and Procedures
 
 Under
        the
        direction of our Chief Executive Officer and Chief Financial Officer, we
        evaluated our disclosure controls and procedures and concluded that our
        disclosure controls and procedures were not effective as of June 30, 2008
        due to
        the following: As our business has developed during the current fiscal year
        and
        as we anticipate our business will continue to develop in the future, our
        internal controls have not kept pace with our existing and anticipated future
        business development and as such we have material weaknesses in thatdue
        to
        our current financial situation, we lack sufficient financial resources to
        implement a fully effective internal controls and procedures infrastructure
        for
        our current and anticipated future business conditions.
  There
        were no changes in our internal control over financial reporting during the
        period ended June 30, 2008, that have materially affected, or are reasonably
        likely to materially affect, our internal control over financial
        reporting.
 45
 **PART
        II. OTHER INFORMATION**
 
 **Item
        6. Exhibits**
  **Exhibit No.**
              
              **Description
                    of Exhibit**10.1
              
              Warrant
                  Exchange Agreement, dated as of August 5, 2008, by and between
                  Pure
                  Biofuels Corp. and Plainfield Peru II LLC. (incorporated by reference
                  from
                  the Current Report on Form 8-K filed on August 6, 2008 (Commission
                  File
                  No. 000-50903))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
  46
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  **PURE
                  BIOFUELS CORP.**Date:
                  August 19, 2008
              By:
              /s/
                  Luis GoyzuetaLuis
                  Goyzueta,
                Chief
                  Executive Officer and DirectorDate:
                  August 19, 2008
              By:
              /s/
                  Gustavo GoyzuetaGustavo
                  Goyzueta,
                Chief
                  Financial Officer
  47