**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-KSB**




þ
            
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the fiscal year ended December 31, 2006****Or**o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**Commission
      file number 0-21982**




**ALLEGRO
      BIODIESEL CORPORATION**


(Name
      of
      small business issuer in its charter)




**DELAWARE**
            
            **41-1663185**(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification Number)**6033
                West Century Blvd., Suite 1090**
              **Los
                Angeles, California 90045**
            
            **90045**(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number, including area code: **(310) 670-2093**





Securities
      registered pursuant to Section 12(b) of the Act: None


Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par
      value





Check
      whether the issuer is not required to file reports pursuant to Section 13
      of Section 15(d) of the Exchange Act.





Yes o No þ





Check
      whether the issuer (1)  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 issuer was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.





Yes þ No o





Check
      if there is no disclosure of delinquent filers pursuant to Item 405 of
      Regulation SB is contained in this form and no disclosure will be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form
      10-KSB or any amendment to this Form 10-KSB. o





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12 b-2 of the Exchange Act).





Yes o No þ





The
      issuer’s revenues for its most recent fiscal year were $1,802,926.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of April
      6,
      2007, was $1,491,350.





As
      of April 6, 2007, the issuer had 18,384,555 shares of Common Stock
      outstanding.









**ALLEGRO
      BIODIESEL CORPORATION**





**Annual
      Report on Form 10-KSB**


**For
      the year ended December 31, 200**  **6**




**PART
                I.**Item 1.
                Description of Business
            
            1Item 2.
                Description of Property
            
            5Item 3.
                Legal Proceedings
            
            5Item 4.
                Submission of Matters to a Vote of Security Holders
            
            5**PART
                II.**Item 5.
                Market for Common Equity and Related Stockholder Matters
            
            6Item 6.
                Management’s Discussion and Analysis or Plan of Operation
            
            6Item 7.
                Financial Statements
            
            F-1Item 8.
                Changes In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            14Item 8A.
                Controls and Procedures
            
            15Item 8B.
                Other Information
            
            15**PART
                III.**Item 9.
                Directors and Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act
            
            15Item 10.
                Executive Compensation
            
            18Item 11.
                Security Ownership of Certain Beneficial Owners and Management and
                Related
                Stockholder Matters
            
            21Item 12.
                Certain Relationships and Related Transactions, and Director
                Independence.
            
            22Item 13.
                Exhibits
            
            24Item 14.
                Principal Accountant Fees and Services
            
            25Signatures
            
            27









**PART
      I**





**Item
      1. Description of Business**





**Description
      of Our Business**





We
      are in
      the business of producing and distributing biodiesel fuel. We own and operate
      a
      biodiesel production facility at a 320-acre site in Pollock, Louisiana (the
      “Pollock Facility”). The Pollock Facility uses renewable agricultural-based
      feedstock (primarily soybean oil) to produce biodiesel. We began biodiesel
      fuel
      production and sales in April 2006, making us the first operational producer
      of
      biodiesel in the state of Louisiana. Our current production capacity is
      estimated to be 12 million gallons of biodiesel per year.





Our
      primary source of revenue is the sale of biodiesel, both in blended and
      unblended forms with petroleum-based diesel fuel. We produce biodiesel that
      meets or exceeds the ASTM D6751 specification, and sell fuel primarily to
      wholesalers who purchase pure biodiesel (known as B100) or blended fuel such
      as
      B20 (which is a blend of 20 percent biodiesel, and 80 percent petrodiesel).
      Our
      sales are dependent on the volume and price of the biodiesel fuel we sell.
      The
      selling prices we realize for our biodiesel are closely linked to market prices
      of petroleum-based diesel fuel, the supply and demand for biodiesel, as well
      as
      the tax incentives offered by federal and state governments for the production
      and blending of alternative fuels.





Furthermore,
      the amount of revenue that we may recognize from the sale of a gallon of
      biodiesel may depend on whether it is sold as a blended product with petroleum
      diesel (whereby we collect a $1.00 per gallon federal excise tax credit in
      addition to the sale price of the fuel), as an unblended B100 product (whereby
      a
      buyer who is a registered blender with the IRS pays us a premium price of
      approximately $1.00 per gallon over the market price of diesel fuel, and then
      may collect the tax credit), or under a tolling arrangement (whereby a customer
      provides feedstock, such as soybean oil, which we then convert into biodiesel
      fuel for a fee or a toll).





Our
      gross
      margin is driven by the cost of feedstock (primarily soybean oil) and other
      chemical inputs used in our production of biodiesel fuel. We purchase feedstock
      and other inputs both on the spot market and pursuant to fixed, short-term
      supply agreements. Our profit margins and financial condition are significantly
      affected by the cost and supply of soybean oil feedstock and other inputs in
      the
      commodity markets.





**Our
      History and Recent Developments**





We
      were
      incorporated in the State of Minnesota in 1990. From our inception in 1990
      through January 2005, operating as Diametrics Medical, Inc., we were involved
      with the development, production and distribution of medical devices. All such
      operations were discontinued during 2005. From January 2005 to
      September 19, 2006, we were considered a “shell company” as defined by the
      Securities and Exchange Commission, and our business activities were primarily
      focused on raising additional financing and the pursuit of a strategic
      transaction.





On
      November 21, 2005, BCC Acquisition II, LLC (“BCCAII”) and certain of the
      holders of our subordinated convertible debt, who collectively beneficially
      owned securities representing approximately 64% of our fully diluted common
      stock, entered into an agreement to sell their securities to Ocean Park
      Advisors, LLC, a California-based advisory firm (“OPA”), and M.A.G. Capital, LLC
      (“MAG”), a current shareholder of the Company, for a nominal amount of cash. In
      connection with the closing of this transaction, our Board of Directors and
      Chief Financial Officer at that time resigned and W. Bruce Comer III and Heng
      Chuk, principals of OPA, became members of the Board. Additionally,
      Messrs. Comer and Chuk became the Chief Executive Officer and the Chief
      Financial Officer of the Company, respectively.





On
      December 6, 2005, we concluded an exchange of certain securities (the
“Exchange Offering”). MAG, its affiliated funds, and other investors who held
      our 2005 Subordinated Convertible Notes, the 2007 Senior Secured Convertible
      Notes, our Senior Secured Convertible Notes issued May 2, 2005, and our
      Series F and G Convertible Preferred Stock, exchanged their securities for
      shares of newly created Series H Convertible Preferred Stock (the
“Series H”), and OPA exchanged its securities for shares of newly created
      Series I Convertible Preferred Stock (the “Series I”). Pursuant to
      this transaction, 10,000 and 15,000 shares of the Series F and
      Series G Convertible Preferred Stock, respectively, were cancelled and
      27,889 and 13,794 shares of the Series H and Series I, respectively,
      were issued.




On
      December 6, 2005, Monarch Pointe Fund, Ltd., a fund affiliated with MAG,
      and Asset Managers International Limited, each entered into an agreement to
      loan
      us up to $375,000 (for an aggregate of up to $750,000), in the form of
      Convertible Secured Promissory Notes (the “Convertible Notes”), to use for
      (i) the payment of certain expenses, including the payment of $75,000 to
      OPA as compensation for its services in structuring the transactions mentioned
      above, (ii) to settle with certain creditors, and (iii) to develop and
      pursue strategic alternatives. On the same date, we made an initial draw of
      $450,000 under the Convertible Secured Promissory Notes. The remaining $300,000
      was drawn upon in January 2006.




1




On
      June 15, 2006, our Board of Directors approved a one for one hundred
      reverse stock split of our common stock. The record date of the stock split
      was
      June 30, 2006.





On
      September 20, 2006, we acquired Vanguard Synfuels, L.L.C. (“Vanguard”), a
      producer of biodiesel fuel that owns and operates a production facility located
      in Pollock, Louisiana (the “Acquisition”). The aggregate purchase price for 100%
      of the membership interests of Vanguard consisted approximately $17.7 million
      in
      cash and the issuance of 4,300 shares of our Series K Convertible Preferred
      Stock (which was subsequently converted into approximately 11.1 million
      shares of our common stock) in a transaction intended to qualify as a tax-free
      exchange. Of the purchase price, approximately $1.77 million and 430 shares
      of
      the Series K Convertible Preferred Stock (subsequently converted into 11,110,000
      shares of common stock) were placed into escrow for our benefit against any
      breaches of or inaccuracies in the former Vanguard members’ representations and
      warranties, with any remaining funds and shares to be released from escrow
      18
      months from the closing of the Acquisition. We also repaid $0.8 million in
      outstanding loans Vanguard owed to certain of its members, and provided a
      guaranty for Vanguard’s outstanding debt to First South Farm Credit, ACA of $3.2
      million under Vanguard’s existing credit facility (the “First South credit
      agreement”).





In
      connection with the Acquisition, we received $28.5 million in gross proceeds
      from the issuance of Series J Convertible Preferred Stock (of which $17.7
      million was used to purchase the equity interests of Vanguard, as described
      above). The Series J Convertible Preferred Stock is convertible into our common
      stock at a conversion price of $0.7587 per share. Concurrently with the closing
      of the Acquisition, the holders of the Series I Convertible Preferred Stock,
      the
      holders of certain warrants and the holders of the $750,000 Convertible Secured
      Promissory Notes dated December 6, 2005, converted such securities into
      3,091,482 shares of our common stock. In addition, Ocean Park Advisors, LLC,
      the
      holder of all of the Company’s Series I Convertible Preferred Stock, waived
      certain anti-dilution rights held in connection with such preferred stock in
      exchange for the consideration of warrants issued to Ocean Park Advisors to
      purchase approximately 4.8 million common shares at an exercise price of
      $0.7587 per share.





Furthermore,
      concurrently with the closing of the Acquisition, we entered into a management
      services agreement with Ocean Park Advisors. Under that agreement, certain
      principals and consultants of Ocean Park Advisors provide services to us
      (including the duties of W. Bruce Comer III as Chief Executive Officer and
      Heng
      Chuk as Chief Financial Officer). In connection with the management services
      agreement, we granted stock options to Ocean Park Advisors for 2,069,109 shares
      of our common stock, which have an exercise price of $0.7587 per
      share.





Certain
      of the transactions entered into in connection with the Acquisition were subject
      to the approval of our stockholders. On November 28, 2006, the stockholders
      approved and ratified those transactions at a special meeting of shareholders.
      The proposals approved and ratified were:





1.
            Our
                reincorporation in the State of Delaware and other related changes
                in the
                rights of our stockholders (the
                “Reincorporation”);





2.
            Our
                2006 Incentive Compensation Plan, as amended;
                and





3.
            Indemnity
                agreements previously entered into between us and certain of our
                directors.





Immediately
      following the approval of the Reincorporation by the stockholders, we
      consummated the Reincorporation, and in connection therewith, our corporate
      name
      was changed to “Allegro Biodiesel Corporation” and our new trading symbol became
      OTC: ABDS.  The Reincorporation resulted in an increase in the number of
      our authorized shares of common stock to 150,000,000 shares and our authorized
      shares of preferred stock to 50,000,000 shares.





Upon
      the
      effectiveness of the Reincorporation, (i) each share of our Series H
      Convertible Preferred Stock was automatically converted into shares of Series
      B
      Convertible Preferred Stock, on a one-for-one basis; (ii) each share of our
      Series J Convertible Preferred Stock was automatically converted into shares
      of
      Series A Convertible Preferred Stock, on a one-for-ten thousand basis; and
      (iii) each share of our Series K Convertible Preferred Stock was
      automatically converted into 2,583.7209 shares of common stock (for an aggregate
      of 11.11 million shares of common stock).





As
      of
      December 31, 2006, we failed to comply with certain covenants under the First
      South credit agreement, relating to a minimum cash flow coverage ratio and
      working capital balance. On February 20, 2007, we received a waiver of our
      non-compliance with these covenants from First South through July 1, 2007 and
      an
      acknowledgement that we were not in default of the credit agreement as of such
      date. On April 2 ,
      2007,
      we received from First South a letter of approval by its loan committee of
      certain amendments to our credit agreement. The approval letter is binding,
      and
      the parties are finalizing a formal second amendment to the First South Credit
      agreement which will reflect such amendments. The amendments include a 2-year
      renewal of our line of credit (so that the outstanding principal balance under
      the line is now due on July 1, 2009) and a modification of the cash flow
      coverage ratio and working capital balance covenants. As of the date of this
      report, we are in compliance with all applicable covenants under the First
      South
      credit agreement.





2




**The
      Product**





Biodiesel
      is an alternative fuel (i.e., not derived from petroleum) that has important
      environmental and economic advantages over petroleum-based diesel
      (“petrodiesel”). It is derived from renewable agricultural-based resources,
      including vegetable oils, recycled grease and animal fats, and has significant
      environmental benefits. According to the Methanol Institute and International
      Fuel Quality Center, biodiesel is non-toxic and bio-degradable with no emissions
      of sulfur and significantly lower emissions of particulate matter, carbon
      monoxide, and hydrocarbons than petrodiesel when burned. According to U.S.
      Department of Energy studies, the use of 100% biodiesel (B100) results in a
      78.5% net reduction in carbon dioxide released into the atmosphere as compared
      to petrodiesel. Biodiesel is a registered fuel with the Environmental Protection
      Agency (“EPA”) and is recognized by the Department of
      Transportation.





Biodiesel
      can be blended with petrodiesel, or it can be used entirely on its own (known
      as
      B100 fuel, or 100% biodiesel) in diesel engines without major modifications.
      The
      diesel engine was originally developed in 1892 by Rudolph Diesel specifically
      to
      be run on vegetable oils (his prototypes used peanut oil), and to be more
      efficient than gasoline engines. In the United States, the most common blends
      are between 2% to 20% biodiesel (B2 to B20). According to the National Biodiesel
      Board, most major engine companies have stated formally that the use of blends
      up to B20 will not void their parts and workmanship warranties.





**Biodiesel
      Tax Credit**





Biodiesel’s
      potential to reduce dependence on foreign petroleum imports in the United States
      and to support domestic agriculture has prompted the introduction of favorable
      legislation to encourage its use and production, and to spur investment in
      the
      industry. In October 2004, Congress passed a biodiesel tax incentive as part
      of
      the American Jobs Creation Act. The incentive allows diesel “blenders,” as
      registered with the Internal Revenue Service (the “IRS”), to claim an excise tax
      credit of $1.00 per gallon for biodiesel made from virgin vegetable oil or
      animal fats, and $0.50 per gallon for biodiesel made from non-virgin oil. This
      tax credit allows producers of biodiesel to compete effectively with
      petrodiesel. Originally scheduled to expire at the end of 2006, the tax credit
      was extended by the Energy Policy Act of 2005 (“EPAct”) to the end of
      2008.





**Biodiesel
      Pricing**





The
      price
      of biodiesel is closely linked with the price of petrodiesel, which has
      increased dramatically in recent years with the rapid rise in oil prices. As
      of
      the date of this report, the national average wholesale price of diesel (before
      tax) is approximately $2.00 per gallon. Because biodiesel is currently eligible
      for the $1 per gallon federal excise tax credit, it is generally sold at a
      wholesale price approximately $1 higher than the wholesale price of petrodiesel.
      Alternatively, a producer of biodiesel who is also registered as a blender
      may
      blend the product with petrodiesel, sell the blended diesel (at the wholesale
      price) and then claim the tax credit directly. We are a blender registered
      with
      the IRS.





**Production
      Economics**





The
      primary biodiesel production cost is feedstock (primarily soybean oil) and
      other
      chemical input costs. Since April 2006, our feedstock and chemical input costs
      have been approximately $2.60 - 2.75 per gallon of biodiesel produced. The
      nationwide average wholesale price of biodiesel is currently approximately
      $3.00
      per gallon. The margin between the sales price and feedstock costs may be used
      to cover fixed production costs and operating expenses (including Selling,
      General and Administrative Expenses). In recent months, our fixed production
      costs have been approximately $50,000 per month (or less than $0.5 million
      on an
      annualized basis). Our operating expenses have been approximately $250,000
      per
      month, but are expected to increase as a result of the planned expansion of
      our
      production, business development and operating activities.





The
      amount of revenue that we may recognize in our financial statements from the
      sale of a gallon of biodiesel may depend on how it is sold. The three typical
      modes of sale are outlined below:





·
            Sale
                of biodiesel and its tax credit. The Company sells the biodiesel
                and does
                not claim the excise tax credit; the blender does so. The blender
                might
                therefore pay a premium of approximately $1.00 over the wholesale
                price
                without such excise tax credit. The Company recognizes the full receipt
                as
                revenue in such a transaction.





·
            Sale
                of biodiesel without its tax credit. The Company sells biodiesel
                blended
                with petrodiesel (e.g., B99) and claims the excise tax credit; the
                buyer
                does not. The Company recognizes as revenue only the wholesale price
                it
                receives.




3




·
            Sale
                under a tolling agreement (whereby the customer provides soybean
                oil to
                the Company to process into biodiesel, and pays a fixed price per
                gallon
                for such processing). The Company recognizes revenue in the amount
                of the
                processing fee earned. Such processing fee per gallon would be
                significantly lower than the wholesale price: typically, the processing
                fee is comparable to the difference between the price of biodiesel
                and the
                cost of feedstock oil. Similarly, the cost of the feedstock oil would
                not
                be recorded as an expense.





**Market
      Size**




Biodiesel
      is a substitute or additive fuel to petrodiesel. As a result, its market is
      closely tied to that of petrodiesel. Energy Information Administration
      statistics show that total annual diesel consumption in the United States is
      approximately 60 billion gallons. According to the United States Department
      of
      Agriculture, biodiesel constituted 75 million gallons (or approximately
      0.2%) of this amount in 2005. Usage has increased significantly over the past
      several years (only 2 million gallons of biodiesel were produced in the
      United States in 2000), and biodiesel industry experts expect demand and
      production to continue to grow rapidly. The National Biodiesel Board has
      estimated that 200 million gallons of biodiesel were produced nationwide in
      2006.




Projections
      for biodiesel’s growth in the US may have been inspired in part by the success
      of the industry in Europe, where biodiesel has been used since the early 1990’s
      and has already entered mainstream usage. The Methanol Institute estimates
      that
      nearly 750 million gallons of biodiesel were produced in the European Union
      in 2005, representing approximately 5% of total diesel usage.





**Usage
      Mandates**





Certain
      states—including Louisiana, Minnesota, Washington and Illinois—have enacted
      biodiesel usage mandates. For instance, Minnesota’s B2 mandate requires that all
      diesel sold in the state have a 2% biodiesel blend. According to the Methanol
      Institute and the International Fuel Quality Center, approximately 31 states
      provide either user or producer incentives for biodiesel (typically in the
      form
      of tax incentives), and the number of states considering further affirmative
      legislation for biodiesel continues to increase.





The
      federal government is also introducing regulatory provisions to directly
      increase the usage of biodiesel. In 2005, the government passed the United
      States Renewable Fuel Standard, mandating that governmental groups (federal,
      state and local governments and agencies) use 7.5 billion gallons of alternative
      fuels by 2012. The EPAct amended and expanded the scope of the Energy
      Conservation Reauthorization Act of 1998 to include biodiesel as a way to meet
      the alternative fuel use requirements.




Furthermore,
      the EPA recently announced significant reductions in the required emissions
      certification levels of all on-road diesel engines. Beginning in year 2006,
      sulfur levels in diesel fuel for on-road use are required to be reduced to
      a
      maximum of 15 parts per million (ppm), down from the current maximum of 500
      ppm.
      A similar reduction for the off-road market will be required in 2007, and for
      the marine and rail markets in 2008. However, reducing sulfur in diesel to
      15
      ppm substantially reduces its lubricity, enhancing the need for a lubricity
      additive. Biodiesel is well-positioned to be this additive. Biodiesel has a
      much
      higher lubricity than petrodiesel and contains no sulfur. According to the
      National Biodiesel Board, a 2% blend of biodiesel can restore the lubricity
      of
“Ultra Low Sulfur” diesel fuel. Nonetheless, there is no guarantee that
      biodiesel will become a widely-used lubricity additive. Currently, most of
      the
      Ultra Low Sulfur diesel fuel sold in the United States does not contain
      biodiesel.





**Biodiesel
      in Louisiana**




The
      state
      of Louisiana has enacted an alternative renewable fuel usage mandate that will
      become effective six months following the month in which annualized production
      of biodiesel in Louisiana equals or exceeds 10 million gallons (i.e.,
      834,000 gallons produced in a month), though the state may waive or extend
      the
      six-month grace period should it find that the quality or supply of biodiesel
      is
      lacking. The mandate requires that 2% of the total diesel fuel sold by blenders
      and distributors in the state be an alternative renewable fuel (such as
      biodiesel), produced from domestically-grown feedstock. Fulfilling the 2%
      mandate will require approximately 15 million gallons of biodiesel or
      alternative diesel fuel annually, based on the state’s aggregate use of
      approximately 760 million gallons of diesel in 2005.





**Insurance
      Policies**





We
      maintain insurance policies covering our property and business, pollution
      liability, workers compensation, directors and officers’ liability and general
      liability. However, as biodiesel is a relatively new and unique product, it
      is
      unclear whether standard insurance policies cover claims arising from the
      production, use or transport of biodiesel. Furthermore, there can be no
      assurance that the policy coverage limits are adequate or sufficient in the
      event of an accident, negligence or an act of God.





**Employees**





Excluding
      the executive management team, we currently employ 14 persons on a full-time
      basis. Of these persons, approximately 8 are engaged in operations and
      production, 2 are engaged in operations management, 2 are engaged in
      environmental/chemist matters, and 2 are engaged in administrative and marketing
      functions.




4





On
      the
      closing date of the Acquisition, we entered into employment agreements with
      Darrell Dubroc and Tim A. Collins, who were previously the Chief Executive
      Officer and Chief Financial Officer of Vanguard, respectively. Mr. Dubroc
      now serves as our President and Chief Operating Officer, and Mr. Collins
      serves as our Executive Vice President of Business Development. See
“Management—Employment and Management Agreements.”




W.
      Bruce
      Comer III and Heng Chuk are our Chief Executive Officer and Chief Financial
      Officer, respectively. On the closing date of the Acquisition, the Company
      entered into a management services agreement with Ocean Park Advisors, LLC,
      pursuant to which certain of OPA’s professionals (including but not limited to
      Messrs. Comer and Chuk) and consultants will perform general and administrative
      functions for us.





On
      March
      14, 2006, we entered into a services agreement with PV Asset Management, LLC,
      a
      company controlled by Paul Galleberg, one of our directors. Pursuant to that
      agreement, which was effective as of February 5, 2007, Mr. Galleberg will
      provide management and consulting services for us. See Item 12 “Certain
      Relationships and Related Transactions, and Director Independence.”




**Item
      2. Description of Properties**





Our
      principal executive office is located at 6033 West Century Blvd., Suite 1090,
      Los Angeles, California 90045. Our other principal properties are as
      follows:





**Location
                of Property**
            
            **Use of Facility**
            
            **Approximate**
              **Size**Pollock,
                Louisiana (1)
            
            Production
                of biodiesel fuel
            
            320
                acresAlexandria,
                Louisiana (2)
            
            Office
            
            1,637
                sq. ft.Los
                Angeles, California (3)
            
            Office
            
            2,082
              sq. ft.





*(1)
      Property is owned by the Company..*





*(2)
      36 month lease which begins on February 1, 2007, at the rate of $1.25 per square
      foot per month.*




*(3) 18
      month lease which begins on February 1, 2007 at the rate of $1.50 per square
      foot per month from February 1, 2007 to January 31, 2008 and  at the rate
      of $1.55 from February 1, 2008 to July 31, 2008.*





**Item
      3. Legal Proceedings**





We
      are
      currently not subject to any material pending or threatened legal
      proceedings.




**Item
      4. Submission of Matters to a Vote of Security Holders**





None   .





5


**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**




Our
      common stock is approved for quotation on the Over-the-Counter Bulleting Board
      under the trading symbol “ABDS”. The following table sets forth the high and low
      sales prices for our common stock for the periods noted, as reported by the
      National Daily Quotation Service and the Over-The-Counter Bulletin Board.
      Quotations reflect inter-dealer prices, without retail mark-up, markdown or
      commission and may not represent actual transactions.




**High**
            
            **Low****2005**First
                Quarter
            
            $
            4.30
            
            $
            3.10Second
                Quarter
            
            
            3.20
            
            
            1.60Third
                Quarter
            
            
            2.00
            
            
            0.80Fourth
                Quarter
            
            
            12.00
            
            
            1.30


**2006**First
                Quarter
            
            
            18.00
            
            
            5.00Second
                Quarter
            
            
            14.00
            
            
            7.00Third
                Quarter
            
            
            10.00
            
            
            3.00Fourth
                Quarter
            
            
            5.25
            
            
            2.25





There
      were approximately 347 common shareholders of record as of April 6, 2007. We
      have not paid any dividends on our common stock since its inception and we
      do
      not anticipate paying cash dividends in the foreseeable future  .





**Item
      6.** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**





This
      annual report on Form 10-KSB of Allegro Biodiesel Corporation for the year
      ended
      December 31, 2006 contains forward-looking statements, principally in this
      Section and “Business.” Generally, you can identify these statements because
      they use words like “anticipates,” “believes,” “expects,” “future,” “intends,”
“plans,” and similar terms. These statements reflect only our current
      expectations. Although we do not make forward-looking statements unless we
      believe we have a reasonable basis for doing so, we cannot guarantee their
      accuracy and actual results may differ materially from those we anticipated
      due
      to a number of uncertainties, many of which are unforeseen, including, among
      others, the risks we face as described in this filing. You should not place
      undue reliance on these forward-looking statements which apply only as of the
      date of this annual report. These forward-looking statements are 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, and are intended
      to be covered by the safe harbors created thereby. To the extent that such
      statements are not recitations of historical fact, such statements constitute
      forward-looking statements that, by definition, involve risks and uncertainties.
      In any forward-looking statement where we express an expectation or belief
      as to
      future results or events, such expectation or belief is expressed in good faith
      and believed to have a reasonable basis, but there can be no assurance that
      the
      statement of expectation of belief will be accomplished.





We
      believe it is important to communicate our expectations to our investors. There
      may be events in the future, however, that we are unable to predict accurately
      or over which we have no control. The risk factors listed in this filing, as
      well as any cautionary language in this annual report, provide examples of
      risks, uncertainties and events that may cause our actual results to differ
      materially from the expectations we describe in our forward-looking statements.
      Factors that could cause actual results or events to differ materially from
      those anticipated, include, but are not limited to: our ability to successfully
      develop new products; the ability to obtain financing for product development;
      changes in product strategies; general economic, financial and business
      conditions; changes in and compliance with governmental healthcare and other
      regulations; changes in tax laws; and the availability of key management and
      other personnel.





**Overview**




We
      are in
      the business of producing and distributing biodiesel fuel. We began biodiesel
      fuel production and sales in April 2006, making us the first operational
      producer of biodiesel in Louisiana. Our biodiesel fuel production facility
      is
      located on a 320-acre site in Pollock, Louisiana (the “Pollock Facility”). The
      Pollock Facility uses renewable agricultural-based feedstock (primarily soybean
      oil) to produce biodiesel. Our current production capacity is estimated to
      be 12
      million gallons of biodiesel per year.




6





Our
      primary source of revenue is the sale of biodiesel fuel, both in blended and
      unblended forms with petroleum-based diesel fuel. We produce biodiesel that
      meets or exceeds the ASTM D6751 specification and sell it primarily to
      wholesalers who purchase pure biodiesel (known as B100) or blended fuel such
      as
      B20 (which is a blend of 20 percent biodiesel and 80 percent diesel). Our sales
      are dependent on the volume and price of the biodiesel fuel we sell. The selling
      prices we realize for our biodiesel are closely linked to the market prices
      of
      petroleum-based diesel fuel, the supply and demand for biodiesel, as well as
      the
      tax incentives offered by federal and state governments for the production
      and
      blending of alternative fuels.





Furthermore,
      the amount of revenue that we may recognize from the sale of a gallon of
      biodiesel may depend on whether it is sold as a blended product with petroleum
      diesel (whereby we collect a $1.00 per gallon federal excise tax credit in
      addition to the sale price of the fuel), as an unblended B100 product (whereby
      a
      buyer who is a registered blender with the IRS pays us a premium of
      approximately $1.00 per gallon over the market price of diesel fuel, and then
      may collect the tax credit), or under a tolling arrangement (whereby a customer
      provides feedstock, such as soybean oil, which we then convert into biodiesel
      fuel for a fee or a toll).





Our
      gross
      margin is driven by the cost of feedstock (primarily soybean oil) and other
      chemical inputs used in our production of biodiesel fuel. We purchase feedstock
      and other inputs both on the spot market and pursuant to fixed, short-term
      supply agreements. Our profit margins and financial condition are significantly
      affected by the cost and supply of soybean oil feedstock and other inputs in
      the
      commodity markets.




**Strategy**




The
      Pollock Facility has been actively producing biodiesel since April 2006. We
      plan
      to increase our production and sales of biodiesel to utilize the full 12 million
      gallons estimated annual capacity of the Pollock Facility. We expect to
      accomplish this objective through direct sales of pure biodiesel fuel,
      biodiesel-blended diesel fuel, and sales via tolling arrangements. The actual
      revenue we recognize for biodiesel may vary depending on the form of sale.





Due
      to
      the fact that feedstock is a primary component of our production costs, we
      may
      pursue additional improvements to the Pollock Facility to enable the use of
      lower-cost feedstock (such as crude soybean oil), increase production yields,
      and lower direct production costs. It is expected that such improvements may
      require $1-2 million in capital expenditures. Additionally, as our business
      grows, we may pursue an expansion of the facility to increase its biodiesel
      production capacity to 20 million gallons annually. It is expected that
      such capacity expansion would require approximately $2-3 million in capital
      expenditures.




An
      additional objective for fiscal 2007 is to develop or acquire additional
      biodiesel production facilities, as well as transportation or distribution
      assets. A key element of our long-term strategy is vertical integration, and
      to
      this end we may seek to develop, acquire or participate in projects relating
      to
      the transportation, marketing or distribution of fuel. Future expansion and
      acquisitions may be funded through the issuance of debt or equity securities
      or
      a combination thereof.





**Critical
      Accounting Policies**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the U.S., which requires us to make estimates
      and assumptions in certain circumstances that affect amounts reported. In
      preparing these financial statements, management has made its best estimates
      and
      judgments of certain amounts, giving due consideration to materiality. We
      believe that of our significant accounting policies (more fully described in
      notes to the consolidated financial statements), the following are particularly
      important to the portrayal of our results of operations and financial position
      and may require the application of a higher level of judgment by our management,
      and as a result are subject to an inherent degree of uncertainty.





*Estimates*





Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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 consolidated
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. By their nature, these estimates and judgments are subject
      to an inherent degree of uncertainty. We review our estimates on an on-going
      basis, including those related to sales allowances, the allowance for doubtful
      accounts, inventories and related reserves, long-lived assets, income taxes,
      litigation and stock-based compensation. We base our estimates on our historical
      experience, knowledge of current conditions and our beliefs of what could occur
      in the future considering available information. Actual results may differ
      from
      these estimates, and material effects on our operating results and financial
      position may result. We believe the following critical accounting policies
      involve our more significant judgments and estimates used in the preparation
      of
      our consolidated financial statements.




7




*Revenue
      Recognition*




We
      generate our revenues from the sale of biodiesel fuel and recognize revenue
      when
      the following fundamental criteria are met:




·
            
            persuasive
                evidence that an arrangement exists;




·
            
            the
                products and services have been delivered;




·
            
            selling
                prices are fixed and determinable and not subject to refund or adjustment;
                and




·
            
            collection
                of amounts due is reasonably assured.




Delivery
      occurs when goods are shipped and title and risk of loss transfer to the
      customer, in accordance with the terms specified in the arrangement with the
      customer. Revenue recognition is deferred in all instances where the earnings
      process is incomplete. We provide for sales returns and allowances in the same
      period as the related revenues are recognized. We base these estimates on our
      historical experience or the specific identification of an event necessitating
      a
      reserve. To the extent actual sales returns differ from our estimates; our
      future results of operations may be affected. Should changes in conditions
      cause
      management to determine that these criteria are not met for certain future
      transactions, revenue recognized for any reporting period could be adversely
      affected.




We
      record
      revenues from federal incentive programs related to the production of biodiesel
      when we sell certain blends of biodiesel fuel to certified blenders.




When
      we
      sell biodiesel fuel to non-certified blenders we may be eligible for certain
      federal incentive programs. When all requirements of the applicable incentive
      program have been met, generally occurring at the time of sale, we record a
      reduction to cost of sales for the credit we are to receive.




*Accounts
      Receivable*




We
      perform ongoing credit evaluations of our customers and adjust credit limits
      based upon payment history and the customer's current credit worthiness, as
      determined by our review of their current credit information. We continuously
      monitor collections and payments from our customers and maintain an allowance
      for doubtful accounts based upon our historical experience and any specific
      customer collection issues that we have identified. While our credit losses
      have
      historically been within our expectations and the allowance established, we
      may
      not continue to experience the same credit loss rates as we have in the past.
      Our accounts receivable are concentrated in a relatively few number of
      customers. Therefore, a significant change in the liquidity or financial
      position of any one customer could make it more difficult for us to collect
      our
      accounts receivable and require us to increase our allowance for doubtful
      accounts, which could have a material adverse impact on our consolidated
      financial position, results of operations and cash flows.




*Inventories*




We
      seek
      to purchase and maintain raw materials at sufficient levels to meet lead times
      based on forecasted demand. If forecasted demand exceeds actual demand, we
      may
      need to provide an allowance for excess or obsolete quantities on hand. We
      also
      review our inventories for changes in the market prices of biodiesel fuel and
      provide reserves as deemed necessary. If actual market conditions are less
      favorable than those projected by management, additional inventory reserves
      may
      be required. We state our inventories at the lower of cost, using the first-in,
      first-out method on an average costs basis, or market.




We
      adopted SFAS No. 151, “Inventory Costs, an amendment of Accounting Research
      Bulletin (ARB) No. 43, Chapter 4” beginning January 1, 2006, with no
      material effect on our financial condition or results of operations. Abnormal
      amounts of idle facility expense, freight, handling costs, and wasted materials
      (spoilage) are recognized as current-period charges. Fixed production
      overhead is allocated to the costs of conversion into inventories based on
      the
      normal capacity of the production facilities. We utilize an expected normal
      level of production units, based on our plant capacity. To the extent we do
      not
      achieve a normal expected production levels, we charge such under-absorption
      of
      fixed overhead to operations.




*Long-lived
      Assets*




We
      continually monitor and review long-lived assets, including fixed assets,
      goodwill and intangible assets, for impairment whenever events or changes in
      circumstances indicate that the carrying amount of any such asset may not be
      recoverable. The determination of recoverability is based on an estimate of
      the
      cash flows expected to result from the use of an asset and its eventual
      disposition. The estimate of cash flows is based upon, among other things,
      certain assumptions about expected future operating performance, growth rates
      and other factors. Our estimates of cash flows may differ from actual cash
      flows
      due to, among other things status of federal and state fuel tax credit programs,
      market spot rates for raw material used in our production process, market spot
      rates for biodiesel, all which can cause materially changes our operating
      performance. If the sums of the cash flows are less than the carrying value,
      we
      recognize an impairment loss, measured as the amount by which the carrying
      value
      exceeds the fair value of the asset.




8




*Accounting
      for Income Taxes*




We
      account for income taxes under the provisions of Statement of Financial
      Accounting Standards (SFAS) No. 109, *Accounting
      for Income Taxes* .
      Under
      this method, we determine deferred tax assets and liabilities based upon the
      difference between the financial statement and tax bases of assets and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to affect taxable income. The tax consequences of
      most
      events recognized in the current year's financial statements are included in
      determining income taxes currently payable. However, because tax laws and
      financial accounting standards differ in their recognition and measurement
      of
      assets, liabilities, equity, revenues, expenses, gains and losses, differences
      arise between the amount of taxable income and pre-tax financial income for
      a
      year and between the tax bases of assets or liabilities and their reported
      amounts in the financial statements. Because it is assumed that the reported
      amounts of assets and liabilities will be recovered and settled, respectively,
      a
      difference between the tax basis of an asset or a liability and its reported
      amount on the consolidated balance sheet will result in a taxable or a
      deductible amount in some future years when the related liabilities are settled
      or the reported amounts of the assets are recovered. We then assess the
      likelihood that our deferred tax assets will be recovered from future taxable
      income and unless we believe that recovery is more likely than not, we must
      establish a valuation allowance.




We
      have
      provided a full valuation allowance against our U.S federal and state deferred
      tax assets. If sufficient evidence of our ability to generate future U.S federal
      and/or state taxable income becomes apparent, we may be required to reduce
      our
      valuation allowance, resulting in income tax benefits in our statement of
      operations. We evaluate the realizability of our deferred tax assets and assess
      the need for a valuation allowance quarterly.




*Stock-Based
      Compensation*




We
      account for stock-based compensation in accordance with SFAS No. 123R,
“Share-Based Payment.” SFAS 123R requires that we account for all stock-based
      compensation transactions using a fair-value method and recognize the fair
      value
      of each award as an expense, generally over the service period. The fair value
      of stock options is based upon the market price of our common stock at the
      grant
      date. We estimate the fair value of stock option awards, as of the grant date,
      using the Black-Scholes option-pricing model. The use of the Black-Scholes
      model
      requires that we make a number of estimates, including the expected option
      term,
      the expected volatility in the price of our common stock, the risk-free rate
      of
      interest and the dividend yield on our common stock. If our expected option
      term
      and stock-price volatility assumptions were different, the resulting
      determination of the fair value of stock option awards could be materially
      different and our results of operations could be materially impacted.





*Accounting
      for Conversion Features and Warrants Issued with Convertible Debt*





During
      2005, our derivative financial instruments consisted of embedded derivatives
      related to the issuance of our $1.8 million convertible senior secured notes.
      These embedded derivatives included the conversion feature and the detachable
      warrants. As of the inception date of the agreement, the debt was not considered
      conventional as defined in EITF 05-2, “The Meaning of Conventional Convertible
      Debt Instruments” in issue No. 00-19). The accounting treatment of derivative
      financial instruments require that we record the derivatives and related
      warrants at their fair values and record them at fair value as of each
      subsequent balance sheet date. In addition, under the provisions of EITF Issue
      No. 00-19, as a result of entering into the convertible senior notes, we are
      required to classify all other non-employee stock options and warrants as
      derivative liabilities and record them at fair value at each reporting date.
      Any
      change in fair value is recorded as non-operating, non-cash income or expense
      at
      each reporting date. The derivatives were valued using the Black-Scholes Option
      Pricing Model and were classified in the consolidated balance sheets as
      long-term liabilities, prior to their extinguishment as part of the Exchange
      Offering.





*Equity
      Instruments Issued with Registration Rights Agreement*




We
      account for these penalties as contingent liabilities, applying the accounting
      guidance of SFAS No. 5, “Accounting for Contingencies”. This accounting is
      consistent with views established by the Emerging Issues Task Force (EITF)
      in
      its consensus set forth in EITF 05-04 (view C) and FASB Staff Positions FSP
      EITF
      00-19-2 “Accounting for Registration Payment Arrangements”, which was issued
      December 21, 2006. Accordingly, we recognize the damages when it becomes
      probable that they will be incurred and amounts are reasonably estimable. We
      concluded the registration rights did not represent a liability at this time.




**Recent
      Accounting Pronouncements**




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and
      SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
SFAS No. 154 applies to all voluntary changes in accounting principle and
      requires retrospective application (a term defined by the statement) to prior
      periods’ financial statements, unless it is impracticable to determine the
      effect of a change. It also applies to changes required by an accounting
      pronouncement that does not include specific transition provisions. SFAS 154
      is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. We adopted SFAS No. 154 as of
      January 1, 2006 with no material impact on our financial condition or
      results of operations.




9




In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for
      uncertainty in income taxes recognized in the financial statements in accordance
      with FASB Statement No. 109, “Accounting for Income Taxes”. This
      pronouncement recommends a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in the Company’s tax return. FIN 48 also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods and disclosure requirements for uncertain tax positions. The accounting
      provisions of FIN 48 will be effective for the Company beginning January 1,
      2007. We are currently in the process of evaluating the effect, if any, the
      adoption of FIN 48 will have on its financial statements.





**Results
      of Operations**





**Results
      of Operations for the Years Ended December 31, 2006 and 2005**





As
      a
      result of the Acquisition, our new business is the production of biodiesel
      fuel,
      the development of biodiesel production facilities and the distribution of
      fuel.
      Prior to the Acquisition, we were considered a “shell company” as defined by the
      Securities and Exchange Commission with our business activities primarily
      focused on raising additional financing and the pursuit of a strategic
      transaction. We were previously involved with the development, production and
      distribution of medical devices since our inception; all such operations were
      discontinued during 2005. Our financial results for the year ended December
      31,
      2005, as compared to the year ended December 31, 2006, are not meaningful.
      Accordingly, only the results of the post-acquisition company will be discussed,
      unless we determine certain pre-Acquisition information may be
      useful.





*Sales*




From
      the
      date of the Acquisition (September 20, 2006) through December 31, 2006, we
      generated $1,802,926 in revenue through sales of biodiesel including excise
      tax
      credits of $618,155 generated by the sale of blended biodiesel
      fuel.





*Gross
      Profit (Loss)*




Our
      gross
      loss represents revenues less the cost of goods sold. Our cost of goods sold
      consists of raw materials including the cost of vegetable oils, chemicals,
      labor
      and overhead incurred with the production of biodiesel.





Our
      gross
      loss for the period from September 20, 2006 to December 31, 2006 primarily
      resulted from our sub-scale production level during the period. We were
      operating at approximately 22% of planned production capacity during this
      period, resulting in lower efficiencies, higher usage and cost of chemical
      inputs, and high fixed operating costs in relation to our output.





*Selling,
      General and Administrative Expenses*




Our
      selling, general and administrative expenses (SG&A) include personnel costs,
      product marketing, the costs of corporate functions (including our Services
      Agreement with Ocean Park Advisors, LLC), accounting, transaction costs, legal,
      public company, information systems and non-cash stock-based
      compensation.





During
      2006, we incurred $25,404,059 of SG&A expenses including $1,358,755 incurred
      by Vanguard from the date of the Acquisition to December 31, 2006. Included
      in
      these costs are non-cash, nonrecurring expenses incurred in connection with
      the
      Acquisition, granting of stock options and issuance of warrants. The stock
      options and warrants were valued using the Black-Scholes option pricing model.
      The charges include the following items:





·
            $14,807,934,
                representing the fair value of warrants granted to Ocean Park Advisors,
                LLC for the waiving of anti-dilution provisions held in connection
                with
                the Series I convertible preferred stock;
                and





·
            $6,044,040
                for the fair value of vested stock options granted to Ocean Park
                Advisors,
                LLC in connection with its Services Agreement with
                us.





*Impairment
      of Goodwill*




In
      connection with the Acquisition, we utilized the quoted closing market price
      of
      $3.10 per share of common stock for financial reporting purposes to compute
      the
      purchase price and to perform our purchase price allocation, which resulted in $71,207,293 of goodwill. We then assessed this
      carrying amount of the resulting goodwill, and determined that such amount
      exceeded the implied fair value for such goodwill. Since the carrying value
      of
      the goodwill was greater than its implied fair value, we recognized an
      impairment loss of $51,012,250 on the date of the Acquisition.




10





The
      implied fair value of goodwill was derived from our valuation of Vanguard which
      was performed prior to the Acquisition. Based on Vanguard’s future projected
      discounted cash flows at that time, we determined the valuation of Vanguard
      was
      approximately $22.0 million. Such valuation was reflected in the cash purchase
      price of $17,699,378 paid for 80% of the Vanguard membership interests. The
      remaining 20% of the Vanguard membership interests were acquired through the
      issuance of 4,300 shares of our Series K convertible preferred stock with a
      fair
      value of $34,441,000 based on the quoted closing price of our stock on the
      date
      the Acquisition. We also incurred direct acquisition costs totaling $21,271,872.
      Included in the direct acquisition costs are the fair value of warrants to
      purchase up to 6,500,000 shares of common stock issued to M.A.G. Capital, LLC
      (“MAG”), the largest beneficial owner of our equity securities. These warrants
      were granted in exchange for MAG’s assignment of the rights they held to acquire
      Vanguard.  We also paid MAG a cash due-diligence fee of $435,000 and
      incurred legal and other direct acquisition costs of $249,721. The fair value
      of
      the MAG warrants was valued at $19,872,178.





*Interest
      Expense*




Subsequent
      to September 20, 2006, interest expense resulted from outstanding principal
      amounts under our line of credit and notes payable agreements assumed in
      connection with the Acquisition. See “Liquidity and Capital Resources”. From
      December 2005 through September 19, 2006, we had convertible notes with an
      aggregate outstanding principal balance ranging from $400,000 to $750,000,
      which
      were converted into common stock on September 20, 2006. From
      January 1, 2005 to December 5, 2005 we had approximately $9,250,000 of
      convertible notes outstanding which were exchanged for shares of Series H and
      I
      convertible preferred stock on December 6, 2005.





Interest
      expense for 2006 totaled $879,029, including $737,443 of non-cash accretion
      for
      the $750,000 convertible notes which were cancelled and converted into
      common stock on September 20, 2006. The remaining interest expense is
      attributable to Vanguard’s line of credit and notes payable from the date of the
      Acquisition to December 31, 2006.





During
      2005, we incurred interest expense including accretion of interest of
      $7,891,364, relating to our previously outstanding senior secured convertible
      notes and convertible subordinated notes.





*Other
      Income*




Other
      income for 2006 totaled $142,781, and consisted primarily of proceeds received
      from the sale in July 2006 of our equity interests in TGC Research Limited,
      a
      subsidiary that held intellectual property assets related to Diametrics’
previously discontinued business operations, to Glumetrics, Inc. During 2005,
      other income totaled $647,505 and consisted primarily of settlement agreements
      with certain vendors for forgiveness of trade accounts payable and accrued
      expenses.





*Change
      in Fair Value of Derivative Liabilities*




The
      change in the fair value of derivative liabilities for 2006 totaled $0, as
      compared to a loss of $701,347 for 2005. As part of an exchange offering
      undertaken by us in December 2005, the underlying securities were exchanged
      for
      shares of preferred stock. As such, our liabilities under the convertible
      instrument were terminated.





*Income
      Taxes*




The
      benefit from income taxes for the year ended December 31, 2006 resulted from
      operating losses incurred. Such losses were recognized to the extent of our
      deferred income tax liabilities. The amount of our deferred tax assets in excess
      of our liabilities has been recorded as deferred tax assets, which have been
      provided a valuation allowance of approximately $9,100,000. As a result of
      our
      recent operating losses and our expectation of future operating results, we
      determined that it is more likely than not that the U.S. federal and state
      income tax benefits (principally net operating losses we can carry forward
      to
      future years) which arose during the year ended December 31, 2006 will not
      be
      realized. We do not expect to recognize any income tax benefits relating to
      future operating losses until we believe that such tax benefits are more likely
      than not to be realized.





At
      December 31, 2005, we had no available U.S. tax net operating loss
      carryforwards. Pursuant to the Tax Reform Act of 1986, utilization of a
      company’s net operating loss carryforwards is limited when continuity of
      business operations is not maintained and when there is a “change in
      ownership”.





**Liquidity
      and Capital Resources**





The
      accompanying consolidated financial statements have been prepared on a
      going-concern basis, which contemplates the realization of assets and
      satisfaction of liabilities and other commitments in the normal course of
      business.





Our
      principal sources of liquidity consist of cash and cash equivalents, cash
      generated from product sales, the issuance of equity securities and debt that
      we
      assumed in connection with the Acquisition. In addition to funding operations,
      our principal short-term and long-term liquidity needs have been, and are
      expected to be, the debt service requirements of our line of credit and notes
      payable, capital expenditures and general corporate purposes. In addition,
      as
      our production operations ramp up, we anticipate significant purchases of
      soybean oil and other materials necessary for biodiesel production. At December
      31, 2006, our cash and cash equivalents totaled $5,578,291 and we had working
      capital of $4,499,520.




11





At
      December 31, 2006, we had $3,167,379 in bank debt outstanding under a credit
      agreement with First South Farm Credit, ACA. The credit agreement provides
      for
      borrowings of up to $3,500,000, which includes a line of credit and a term
      loan.
      The line of credit provides for borrowings of up to $2,000,000, bearing interest
      at the lender’s referenced prime rate plus 1.0%, or 9.25% per annum at
      December 31, 2006, and is payable monthly with the outstanding principal balance
      due on July 1, 2009. At December 31, 2006, the amount available under the line
      of credit was $332,671.




The
      term
      loan provides for borrowings of up to $1,500,000, which is secured by
      substantially all of our assets. The loan bears interest at the lender’s
      referenced prime rate plus 1.25%, or 9.50% per annum as at
      December 31, 2006 and is payable quarterly. Commencing January 1,
      2007, was required to make its first of 10 annual principal payments of $150,000
      each. At December 31, 2006, the principal amount of $1,500,000 was outstanding
      under the term loan.




The
      credit agreement originally required us to achieve by December 31, 2006 and
      maintain thereafter certain financial and non-financial covenants based on
      Vanguard’s working capital and net assets position, the most restrictive of
      which was maintaining a cash flow coverage ratio of at least 1.25 to 1.00 as
      measured at each fiscal year-end. As of December 31, 2006, we were not in
      compliance with the covenants to i) maintain the minimum cash flow coverage
      ratio, and ii) maintain a minimum working capital balance of $750,000. On
      February 28, 2007, we received a waiver of these covenants from First South
      through July 1, 2007 and an acknowledgement that we were not in default of
      the
      credit agreement as of such date.





As
      of
      December 31, 2006, we failed to comply with certain covenants under the First
      South credit agreement, relating to a minimum cash flow coverage ratio and
      working capital balance. On February 20, 2007, we received a notice waiver
      of
      our non-compliance with these covenants from First South through July 1, 2007
      and an acknowledgement that we were not in default of the credit agreement
      as of
      such date. On April 2, 2007, we received from First South a
      letter of approval by its loan committee of certain amendments to our
      credit agreement. The approval letter is binding, and the parties are finalizing
      a formal second amendment to the First South Credit agreement which will reflect
      such amendments. The amendments include a two-year renewal of our line of credit
      (so that the outstanding principal balance under the line is now due on July
      1,
      2009) and a modification of the cash flow coverage ratio and working capital
      balance covenants. As of the date of this report, we are in compliance with
      all
      applicable covenants under the First South credit agreement. The
      amount outstanding under the line of credit at December 31, 2006 was $1,667,378
      and has been classified as long-term debt in the accompanying consolidated
      financial statements.


Pending
      further review by the Louisiana Department of Revenue and in the absence of
      remedial legislative action by the State of Louisiana, in July 2007 we may
      be
      required to post a $2,000,000 surety bond against our collection of motor fuels
      sales taxes, for which the surety company may ask us to put up cash collateral
      for a substantial portion or all of such amount. If implemented, this
      requirement would reduce our immediately-available cash funds until such time
      as
      the bond and collateral are released. As of the date of this report, no further
      action is presently required of us with respect to the surety bond.




We
      believe that our existing sources of liquidity, along with cash expected to
      be
      generated from product sales, will be sufficient to fund our operations,
      anticipated capital expenditures, working capital and other financing
      requirements for at least the next 12 months. We will need to continue a focused
      program of capital expenditures to effect our production capacity expansion
      and
      efficiency improvement plans. In order to fund capital expenditures or increase
      our working capital above our current plan, or complete any acquisitions, we
      may
      seek to obtain additional debt or equity financing. We may also need to seek
      to
      obtain additional debt or equity financing if we experience downturns or
      cyclical fluctuations in our business that are more severe or longer than
      anticipated, or if we fail to achieve anticipated revenue, experience
      significant increases in the cost of inputs we use to produce biodiesel fuel,
      declines in the selling prices of our biodiesel fuel, or increases in our
      expense levels, or if we engage in additional strategic transactions. However,
      we cannot assure you that such financing will be available to us on favorable
      terms, or at all.





The
      following table sets forth our cash flows for the years ended December 31,
      2006
      and 2005.





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **Change****Provided
                by (used in):**Operating
                activities
            
            $
            (3,519,389
            )
            $
            (1,314,973
            )
            $
            (2,204,416
            )Investing
                activities
            
            
            (19,063,159
            )
            
            —
            
            
            (19,063,159
            )Financing
                activities
            
            
            27,780,012
            
            
            600,000
            
            
            27,180,012$
            5,197,464
            
            $
            (714,973
            )
            $
            5,912,437





*Operating
      Activities*




Operating
      cash flows during 2006 reflect our net loss of $75,249,814 and increased working
      capital requirements, substantially offset by non-cash charges (depreciation,
      amortization, stock-based compensation, impairment of goodwill, accretion of
      convertible notes, and nonrecurring indirect transaction related charges) of
      $75,305,235.




12




Operating
      cash flows for 2005 reflect the operating losses of our former medical device
      business, partially offset by non-cash expenses relating to convertible notes
      and derivative liabilities which were both extinguished in December 2005.




*Investing
      Activities*




We
      expect
      future capital expenditures may include equipment for the expansion of
      production capacity, expenditures to upgrade our biodiesel plant, investments
      in
      assets relating to sourcing of biodiesel feedstock and relating to fuel
      distribution.




During
      fiscal 2006, we paid $18,538,953 in cash to acquire Vanguard and made $524,206
      of capital expenditures to upgrade and expand the production capacity of our
      plant.




*Financing
      Activities*




During
      fiscal 2006, we received net proceeds of $28,240,000 from the issuance of
      $28,500,000 of Series J convertible preferred stock (subsequently exchanged
      for
      Series A convertible preferred stock upon our reincorporation), partially offset
      by the repayment of $759,988 of notes payable assumed in connection with the
      Acquisition. Cash provided by financing activities in 2005 consisted of net
      proceeds from the sale of $600,000 principal amount of senior convertible
      promissory notes, of which $150,000 was subsequently cancelled and exchanged
      for
      Series H preferred stock on December 5, 2005 as a result of the Exchange
      Offering, and of which $450,000 was converted into common stock on September
      20,
      2006.




*Income
      Tax Carryforwards*




At
      December 31, 2006, we had $1,362,679 available U.S. tax net operating loss
      carryforwards.





**Disclosure
      of Contractual Obligations**





The
      following table summarizes our commitments to settle contractual obligations
      in
      cash as of December 31, 2006:




**Year
                ending December 31,****2007**
            
            **2008**
            
            **Thereafter**
            
            **Total**Long-term
                debt (1)
            
            $
            150,000
            
            $
            150,000
            
            $
            2,837,378
            
            $
            3,167,379Operating
                leases
            
            
            68,312
            
            
            51,883
            
            
            —
            
            
            120,194Total
                contractual obligations
            
            $
            218,312
            
            $
            201,883
            
            $
            2,837,378
            
            $
            3,287,573





**Disclosure
      of Off-Balance Sheet Arrangements:**





None





13




**Item 7.
      Financial Statements**


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Shareholders and Board of Directors
 Allegro
        Biodiesel Corporation
  We
        have
        audited the accompanying consolidated balance sheet of Allegro Biodiesel
        Corporation (formerly Diametrics Medical, Inc.) and its subsidiaries
        (collectively “Allegro”) as of December 31, 2006, and the related
        statements of operations, shareholders’ equity (deficit) and cash flows for each
        of the two years in the period ended December 31, 2006. These consolidated
        financial statements are the responsibility of Allegro’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Allegro Biodiesel
        Corporation and subsidiaries as of December 31, 2006, and the results of
        their operations and their cash flows for each of the two years in the period
        ended December 31, 2006, in conformity with accounting principles generally
        accepted in the United States.
  /s/
        McKennon Wilson & Morgan LLP
  Irvine,
        California
 April
        6,
        2007
  F-1
  **ALLEGRO
        BIODIESEL CORPORATION**
 **(FORMERLY
        DIAMETRICS MEDICAL, INC.)**
 
 **CONSOLIDATED
        BALANCE SHEET**
  December
                  31, 2006**Assets
                  (Note 8)**Current
                  assets:Cash
                  and cash equivalents
              
              $
              5,578,291Accounts
                  receivable, no allowance provided
              
              
              514,731Inventories,
                  net (Note 4)
              
              
              657,245Other
                  current assets
              
              
              200,411Total
                  current assets
              
              
              6,950,678Property
                  and equipment, net (Note 5)
              
              
              4,737,033Intangible
                  assets, net (Note 6)
              
              
              4,300,650Goodwill
                  (Note 2)
              
              
              19,978,894Other
                  assets
              
              
              26,296Deferred
                  income taxes (Note 10)
              
              
              362,160Total
                  assets
              
              $
              36,355,711**Liabilities
                  and Shareholders’ Equity**Current
                  liabilities:Line
                  of credit (Note 8)
              
              $
              150,000Accounts
                  payable
              
              
              690,944Accrued
                  expenses
              
              
              1,248,053Deferred
                  income taxes (Note 10)
              
              
              362,160Total
                  current liabilities
              
              
              2,451,157Notes
                  payable and line of credit (Note 8)
              
              
              3,017,379Total
                  liabilities
              
              
              5,468,536Commitments
                  and contingencies (Note 11)
              
              
              --Shareholders’
                  equity (Notes 9 and 12) :Convertible
                  preferred stock, $1.00 par value; 50,000,000 shares
                  authorized:Issued
                  and outstanding shares—28,527,224
              
              
              312,224Common
                  stock, $1.00 par value: 150,000,000 shares authorized,
                Issued
                  and outstanding shares—14,619,458
              
              
              146,195Additional
                  paid-in capital
              
              
              311,836,455Accumulated
                  deficit
              
              
              (281,407,699
              )Total
                  shareholders’ equity
              
              
              30,887,175Total
                  liabilities and shareholders’ equity
              
              $
              36,355,711
 
 See
        accompanying notes to these consolidated financial statements.
  F-2
  **ALLEGRO
        BIODIESEL CORPORATION**
 **(FORMERLY
        DIAMETRICS MEDICAL, INC.)**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  **Year
                  Ended December 31,****2006**
              
              **2005**Sales,
                  including excise tax credits of $618,155
              
              $
              1,802,926
              
              $
              —Cost
                  of sales, including excise tax credits of $57,184
              
              
              2,000,089
              
              
              —Gross
                  profit (loss)
              
              
              (197,163
              )
              
              --Operating
                  expenses:Research
                  and development
              
              
              --
              
              
              477,432Selling,
                  general and administrative
              
              
              25,404,059
              
              
              1,515,723Amortization
                  of intangible assets (Note 6)
              
              
              226,350
              
              
              —Impairment
                  of goodwill (Note 2 )
              
              
              51,012,250
              
              
              —Restructuring
                  and other nonrecurring charges
              
              
              --
              
              
              93,314Total
                  operating expenses
              
              
              76,642,659
              
              
              2,086,469Operating
                  loss
              
              
              (76,839,822
              )
              
              (2,086,469
              )Interest
                  income
              
              
              68,096
              
              
              —Interest
                  expense
              
              
              (879,029
              )
              
              (7,891,364
              )Loss
                  on change in fair value of derivatives
              
              
              --
              
              
              (701,347
              )Other
                  income (expense), net
              
              
              142,871
              
              
              647,505Loss
                  before income taxes
              
              
              (77,507,884
              )
              
              (10,031,675
              )Income
                  tax benefit (Note 10)
              
              
              2,258,070
              
              
              —Net
                  loss
              
              
              (75,249,814
              )
              
              (10,031,675
              )Deemed
                  dividend on convertible preferred stock
              
              
              (28,500,000
              )
              
              —Loss
                  attributable to common shareholders
              
              $
              (103,749,814
              )
              $
              (10,031,675
              )Net
                  loss per share, basic and diluted
              
              $
              (46.84
              )
              $
              (28.56
              )Weighted
                  average number of common shares under in per share
                  calculations
              
              
              2,214,966
              
              
              351,218
 
 See
        accompanying notes to these consolidated financial statements.
  F-3
  **ALLEGRO
        BIODIESEL CORPORATION**
 **(FORMERLY
        DIAMETRICS MEDICAL, INC.)**
 
 **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)**
  **Preferred
                  Shares**
              
              **Preferred
                  Stock**
              
              **Common
                  Shares**
              
              **Common
                  Stock**
              
              **Additional
                  Paid-in Capital**
              
              **Accumulated
                  Deficit**
              
              **Total
                  Stockholders' Equity (Deficit)**Balance,
                  December 31, 2004
              
              
              25,000
              
              $
              250
              
              
              351,218
              
              $
              351,218
              
              $
              163,556,121
              
              $
              (166,992,877
              )
              $
              (3,085,288
              )Exchange
                  of convertible notes and Series F&G convertible preferred stock for
                  Series H & Series I convertible preferred stock
              
              
              16,683
              
              
              167
              
              
              -
              
              
              -
              
              
              12,325,209
              
              
              -
              
              
              12,325,376Beneficial
                  conversion feature on senior convertible notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              450,000
              
              
              -
              
              
              450,000Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (10,031,675
              )
              
              (10,031,675
              )Balance,
                  December 31, 2005
              
              
              41,683
              
              
              417
              
              
              351,218
              
              
              351,218
              
              
              176,331,330
              
              
              (177,024,552
              )
              
              (341,587
              )Beneficial
                  conversion value related to convertible senior notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              300,000
              
              
              -
              
              
              300,000Conversion
                  of convertible preferred stock into common stock
              
              
              (18,106
              )
              
              (18,095
              )
              
              12,492,359
              
              
              1,490,850
              
              
              (1,472,443
              )
              
              -
              
              
              312Stock
                  compensation expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,599,936
              
              
              -
              
              
              2,599,936Sale
                  of Series A convertible preferred stock, net of offering costs
                  of
                  $260,000
              
              
              2,850
              
              
              2,850
              
              
              -
              
              
              -
              
              
              28,237,150
              
              
              -
              
              
              28,240,000Beneficial
                  conversion value on Series J preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              28,500,000
              
              
              (28,500,000
              )
              
              -Value
                  assigned to stock options and warrants issued to Ocean Park Advisors
                  LLC
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,851,975
              
              
              -
              
              
              20,851,975Value
                  assigned to the issuance of common stock warrants to MAG Capital
                  LLC in
                  connection with the acquisition of Vanguard Synfuels, LLC
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,872,178
              
              
              -
              
              
              19,872,178Conversion
                  of convertible debt into common stock
              
              
              -
              
              
              -
              
              
              1,631,350
              
              
              1,631,350
              
              
              (750,000
              )
              
              (74,842
              )
              
              806,508Issuance
                  of common stock through the cashless exercise of warrants
              
              
              -
              
              
              -
              
              
              80,733
              
              
              80,733
              
              
              (80,733
              )
              
              -
              
              
              -Issuance
                  of Series K convertible preferred stock in connection with the
                  acquisition
                  of Vanguard Synfuels LLC.
              
              
              4,300
              
              
              4,300
              
              
              -
              
              
              -
              
              
              34,436,700
              
              
              -
              
              
              34,441,000Conversion
                  of Series J convertible preferred stock into Series A convertible
                  preferred stock
              
              
              28,497,150
              
              
              282,150
              
              
              -
              
              
              -
              
              
              (282,150
              )
              
              -
              
              
              -Stock
                  split
              
              
              (653
              )
              
              40,602
              
              
              63,798
              
              
              66,407
              
              
              (107,009
              )
              
              -
              
              
              -Amendment
                  to the par value of common stock in connection with the
                  Reincorporation
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,474,363
              )
              
              3,399,521
              
              
              74,842
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (75,249,814
              )
              
              (75,249,814
              )Accrual
                  of dividends on Series A convertible preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (633,333
              )
              
              (633,333
              )Balance,
                  December 31, 2006
              
              
              28,527,224
              
              $
              312,224
              
              
              14,619,458
              
              $
              146,195
              
              $
              311,836,455
              
              $
              (281,407,699
              )
              $
              30,887,175
  See
        accompanying notes to these consolidated financial
        statements.
  F-4
  **ALLEGRO
        BIODIESEL CORPORATION**
 **(FORMERLY
        DIAMETRICS MEDICAL, INC.)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 **Year
                  Ended**
                **December
                  31,****2006**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (75,249,814
              )
              $
              (10,031,675
              )Adjustments
                  to reconcile net loss to net cash flows from operating
                  activities:Depreciation
                  and amortization
              
              
              311,923
              
              
              3,171Stock-based
                  compensation
              
              
              23,177,750
              
              
              --Impairment
                  of goodwill
              
              
              51,078,119
              
              
              --Accretion
                  of convertible notes and amortization of debt issue costs
              
              
              737,443
              
              
              7,917,942Unrealized
                  gain on change in warrant and derivative liabilities
              
              
              --
              
              
              701,347Gain
                  on settlement of creditor obligations
              
              
              --
              
              
              (633,004
              )Changes
                  in operating assets and liabilities, net of operating assets acquired
                  and
                  liabilities assumed:Accounts
                  receivable
              
              
              (369,273
              )
              
              --Inventories
              
              
              (414,017
              )
              
              --Prepaid
                  expenses and other assets
              
              
              (105,878
              )
              
              64,829Accounts
                  payable
              
              
              (643,389
              )
              
              362,798Accrued
                  expenses
              
              
              215,817
              
              
              299,619Deferred
                  income taxes
              
              
              (2,258,070
              )
              
              --Net
                  cash used in continuing operating activities
              
              
              (3,519,389
              )
              
              (1,314,973
              )**Cash
                  flows from investing activities**Capital
                  expenditures
              
              
              (524,206
              )
              
              --Acquisition
                  of Vanguard Synfuels LLC, net of cash acquired
              
              
              (18,538,953
              )
              
              --Net
                  cash used in investing activities
              
              
              (19,063,159
              )
              
              --**Cash
                  flows from financing activities**Proceeds
                  from the issuance of convertible promissory notes
              
              
              300,000
              
              
              600,000Repayment
                  of notes payable
              
              
              (759,988
              )
              
              --Net
                  proceeds from the issuance of convertible preferred stock
              
              
              28,240,000
              
              
              --Net
                  cash provided by financing activities
              
              
              27,780,012
              
              
              600,000Net
                  increase (decrease) in cash and cash equivalents
              
              
              5,197,464
              
              
              (714,973
              )Cash
                  and cash equivalents at beginning of period
              
              
              380,827
              
              
              1,095,800Cash
                  and cash equivalents at end of period
              
              $
              5,578,291
              
              $
              380,827Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for income taxes
              
              $
              --
              
              $
              —Cash
                  paid during the period for interest
              
              $
              13,548
              
              $
              —Supplemental
                  disclosure of non-cash investing and financing activities:Issuance
                  of Series K convertible preferred stock in connection with the
                  acquisition
                  of Vanguard Synfuels LLC
              
              $
              34,441,000
              
              $
              —Conversion
                  of convertible debt into common stock
              
              $
              750,000
              
              $
              —
  See
        accompanying notes to these consolidated financial statements.
  F-5
  **ALLEGRO
        BIODIESEL CORPORATION**
 **(FORMERLY
        DIAMETRICS MEDICAL, INC.)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.** **Organization
        and Business**
 
 *Organization*
  On
        September 20, 2006, Allegro Biodiesel Corporation (formerly known as Diametrics
        Medical, Inc., and herein referred to as the “Company”, “Allegro” or
“Diametrics”) acquired Vanguard Synfuels, LLC (“Vanguard”), a producer of
        biodiesel fuel that owns and operates a production facility located in Pollock,
        Louisiana (the “Acquisition”). From January 2005 to September 19, 2006,
        Diametrics was considered a “shell company” as defined by the Securities and
        Exchange Commission, wherein its business activities were primarily focused
        on
        raising additional financing and the pursuit of a strategic transaction.
        Prior
        to January 2005, the Company was involved with the development, production
        and
        distribution of medical devices since its inception. All such operations
        were
        discontinued during 2005.
 
 *Business*
  Through
        the acquisition of Vanguard, the Company owns an operating biodiesel production
        facility that uses renewable agricultural-based feedstock (primarily soybean
        oil) to produce biodiesel fuel, which is sold in both blended and unblended
        form
        with petroleum diesel. The product is sold primarily to regional wholesale
        bulk
        fuel distributors.
 
 Vanguard
        was formed on April 28, 2003 (“Inception”) as a limited liability company.
        Vanguard purchased assets from Farmland Industries’ bankruptcy trustee on
        July 31, 2003. These assets included 320 acres of land, an ammonia
        plant which was shuttered in 2001, and existing plant
        infrastructure. Vanguard converted the existing facility (the “Pollock
        Facility”) into a biodiesel production facility. Vanguard began testing of
        its facility in early 2006, and commenced production and sales of biodiesel
        in
        April 2006. Vanguard was a development-stage company prior to April
        2006.
 
 *Reincorporation*
  On
        November 28, 2006, the Company reincorporated in the State of Delaware (the
        “Reincorporation”) and, in connection with the Reincorporation, changed its
        corporate name from Diametrics Medical, Inc. to Allegro Biodiesel Corporation.
        The Reincorporation also resulted in an increase in the number of the Company’s
        authorized shares of common stock to 150,000,000 shares and the authorized
        shares of preferred stock to 50,000,000 shares. Each outstanding share of
        common
        stock of the Company was automatically converted into shares of the common
        stock
        of the Delaware company, on a one-for-one-basis. Each outstanding share of
        Series H and Series J convertible preferred stock was automatically converted
        into shares of Series B and Series A Convertible Preferred Stock of the Delaware
        Company, on a one-for-one and one-for ten thousand basis, respectively.
        Outstanding options and warrants to purchase the Company’s common stock were
        converted into options and warrants to purchase the same number of shares
        of the
        Delaware Company’s common stock.
 
 *Plan
        of Operation*
  The
        Company plans to increase its sales of biodiesel to utilize the full production
        capacity of its Pollock Facility (currently, maximum production capacity
        is
        expected to be 12 million gallons per year). This may be achieved through
        direct sales of pure biodiesel fuel (“B100”), blended biodiesel fuel, or through
        sales via tolling arrangements, each of which may entail different levels
        of
        recognized revenue per gallon of biodiesel produced. The Company may purchase
        and install additional equipment at the Pollock Facility, which may permit
        the
        use of lower cost feedstock (such as crude soybean oil), increase production
        yields, and lower direct production costs. It is expected that such improvements
        may require $1-2 million in capital expenditures. Furthermore, the Company
        may pursue an expansion of the facility to increase its production capacity
        to
        20 million gallons annually. It is expected that such expansion would
        require approximately $2-3 million in capital expenditures.
 
 In
        addition to the improvements to and expansion of the Pollock Facility, the
        Company may seek to acquire additional biodiesel production facilities in
        the
        Gulf Coast region, nationwide, or internationally. Furthermore, the Company
        may
        seek to acquire, construct or otherwise participate in other projects relating
        to the transportation, marketing or distribution of biodiesel and liquid
        fuels.
        Future expansion and acquisitions may be funded through the issuance of debt
        or
        equity securities or a combination thereof.
  F-6
 
 The
        Company believes the funds raised in the sale of our Series J convertible
        preferred stock together with cash from operations will be sufficient to
        satisfy
        our cash flow needs to fund existing operations for the next 12 months and
        for
        the improvements to our Pollock Facility. If additional development or
        acquisition opportunities arise, the Company may need to raise additional
        capital through additional borrowings or equity or debt financings.
 
 There
        can
        be no assurance that we will be able to achieve sales growth in the next
        12
        months, or that the Company will be profitable. Actual operating expenses
        may be
        higher than expected. In such instances, it is possible that additional working
        capital in the next 12 months may be required. Furthermore, there can be
        no
        assurance that the Pollock Facility expansion, capital improvements to reduce
        production costs, or any other biodiesel-related projects
        will be possible at market rates and terms, or at all. The Company will likely
        need to raise additional debt and/or equity capital in order to finance
        additional biodiesel-related projects and their operations. Such financing(s)
        may increase the risk of the Company not being able to service its debt
        obligations, and/or cause dilution to existing equity holders.
 
 **2.** **Acquisition
        of Vanguard Synfuels, LLC**
 
 On
        September 20, 2006, the Company acquired 100% of the membership interests
        of Vanguard for an aggregate purchase price of $73,412,250. The acquisition
        has
        been accounted for using the purchase method of accounting in accordance
        with
        Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business
        Combinations” (“SFAS 141”), whereby the estimated purchase price has been
        allocated to tangible and intangible net assets acquired based upon their
        fair
        values at the date of acquisition.
 
 The
        purchase price consisted of cash paid to selling shareholders for their 80%
        membership interest in Vanguard totaling $17,699,378. Additionally, the Company
        issued 4,300 shares of Series K convertible preferred stock for the remaining
        20% membership interests with a deemed fair value of $34,441,000 for financial
        reporting purposes based on the quoted market price of $3.10 per share on
        the
        date of Acquisition. The Series K convertible preferred stock was convertible
        into 11,110,000 shares of common stock.
 
 The
        Company also incurred direct acquisition costs totaling $21,271,872. Included
        in
        the direct acquisition costs are the fair value of
        warrants to purchase up to 6,500,000 shares of common stock granted to M.A.G.
        Capital, LLC (“MAG”), the largest single beneficial owner of the Company’s
        equity securities. These warrants were granted in exchange for MAG’s assignment
        of the rights they held to acquire Vanguard. The Company also paid MAG a
        cash
        due-diligence fee of $435,000, incurred legal and other direct costs of $249,721
        and paid $714,976 in transaction bonuses to certain officers of Vanguard.
        Management applied the guidance set forth under SFAS 141, paragraph 24 to
        determine its accounting for direct acquisition costs. The Company accounted
        for
        the issuance of the warrants in accordance with SFAS No. 123R “Share-Based
        Payment” and utilized the quoted market price of $3.10 per share as of September
        20, 2006 to value the securities which resulted in a fair value of
        $19,872,178.
 
 The
        components of the aggregate purchase price are as follows:
 Consideration
                  paid:Net
                  cash paid to selling shareholders
              
              $
              17,699,378Value
                  assigned to the of Series K convertible preferred stock
              
              
              34,441,000Direct
                  acquisition costs
              
              
              21,271,872Total
              
              $
              73,412,250
  F-7
  The
        purchase price of Vanguard has been allocated to assets acquired and liabilities
        assumed based on their estimated fair values determined by management as
        follows:
 Cash
              
              $
              125,373Accounts
                  receivable, net
              
              
              145,458Inventory
              
              
              243,228Plant
                  and equipment
              
              
              3,589,000Land
              
              
              709,400Other
                  assets
              
              
              28,200Customer
                  relationships
              
              
              4,527,000Goodwill
              
              
              71,207,293Accounts
                  payable
              
              
              (677,782
              )Accrued
                  liabilities
              
              
              (299,481
              )Line
                  of credit
              
              
              (1,667,379
              )Notes
                  payable to bank
              
              
              (1,500,000
              )Notes
                  payable to related parties
              
              
              (759,990
              )Deferred
                  income tax liabilities
              
              
              (2,258,070
              )Total
              
              $
              73,412,250
 The
        purchase price represented a premium over Vanguard’s appraised assets, resulting
        in the recognition of $71,207,293 of goodwill.  Management determined that
        the cash purchase price of $17,699,378, excluding direct acquisition costs,
        implied the fair value of Vanguard’s business was approximately $22,400,000;
        however, the purchase price was increased through the issuance of Series
        K
        Convertible preferred stock in the amount of $34,441,000. Management believed
        this additional consideration was appropriate to retain key management of
        Vanguard. The implied cash purchase price was determined on the projected
        future
        cash flows of the business, based on the favorable market conditions at the
        time
        (primarily high oil prices and lower soybean prices) and extant government
        support for the industry in the form of a $1.00 per gallon of biodiesel tax
        credit.  Management also assessed comparable publicly-traded companies in
        biodiesel and other alternative energy sectors which commanded significant
        valuation premiums in the capital markets.  Additionally, management found
        there were few established biodiesel assets in the United States and
        construction times for new production facilities are typically in excess
        of one
        year.  Management believed Vanguard’s established operations and
        early-mover advantage merited the cash purchase consideration paid in the
        transaction.
 
 The
        Company immediately evaluated the carrying amount of goodwill for impairment
        by
        comparing the fair value of Vanguard of $22,400,000 (using the discounted
        cash
        flow method) to the carrying amount of goodwill. Secondly, in accordance
        with
        SFAS No. 142 “Goodwill and Other Intangible Assets”, management determined the
        fair value of Vanguard’s net assets to be $22,400,000 and allocated such fair
        value of the net assets of Vanguard resulting in an implied goodwill of
        $20,195,043.  Accordingly, management immediately recorded an impairment of
        goodwill in the amount of $51,012,250.
 
 The
        fixed
        assets are being depreciated from the date of acquisition with estimated
        useful
        lives ranging from three to twenty years. The customer relationships are
        considered an intangible asset and are being amortized over the estimated
        useful
        live of five years from the date of the Acquisition. The goodwill is not
        subject
        to amortization and the amount assigned to goodwill is not deductible for
        tax
        purposes.
 
 In
        accordance with SFAS 141, the operating results of Vanguard have been included
        in the Company's consolidated operating results since the acquisition date,
        September 20, 2006. The
        pro
        forma results of operations data which assumes that the acquisition of Vanguard
        had occurred at the beginning of the respective reporting periods are not
        being
        presented herein, as such results would not be meaningful: in the reporting
        periods prior to September 20, 2006, the Company was defined as a “shell
        company” with no operations and limited assets, and Vanguard was still a
        development-stage company with limited operations (as biodiesel production
        and
        sale began in April 2006). The Company’s pro forma results for prior periods are
        therefore not comparable to the results for the period ending December 31,
        2006.
        The presentation of such results would not provide any additional meaningful
        financial information beyond what is provided herein and in the Company’s Form
        8-K previously filed on September 26, 2006.
 
 **3.** **Basis
        of Presentation and Significant Accounting Policies**
 
 *Basis
        of Presentation*
  The
        accompanying consolidated financial statements include the accounts of Allegro
        Biodiesel Corporation and its the wholly owned subsidiaries. All material
        inter-company accounts and transactions have been eliminated.
  F-8
 
 The
        Company has identified certain significant accounting policies that it considers
        particularly important to the portrayal of the Company’s results of operations
        and financial position which may require the application of a higher level
        of
        judgment by the Company’s management and, as a result, are subject to an
        inherent level of uncertainty.
 
 *Stock
        Split and Amendment to Shares Authorized*
  On
        June
        15, 2006, the Board of Directors of the Company approved a one (1) for one
        hundred (100) reverse stock split of the Company’s common stock. The record date
        of the stock split was June 30, 2006. All share and per share information
        have
        been adjusted to give effect to the stock split for all periods presented,
        including all references throughout the financial statements and accompanying
        notes. In connection with this stock split, the Board of Directors approved
        an
        amendment to the Company’s Articles of Incorporation to reduce the number of
        authorized shares of common stock to 10,000,000, and the number of authorized
        shares of preferred stock to 50,000. The Board also approved amendments to
        the
        Certificates of Designations for the Company’s Series H and Series I Convertible
        Preferred Stock to adjust the conversion price of each such series of preferred
        stock to reflect the stock split.
 
 *Revenue
        Recognition*
  The
        Company generates its revenues from the sale of biodiesel fuel and recognizes revenue
        when the following fundamental criteria are met:
 ·
              persuasive
                  evidence that an arrangement exists; ·
              the
                  products and services have been
                  delivered; ·
              selling
                  prices are fixed and determinable and not subject to refund or
                  adjustment;
                  and ·
              collection
                  of amounts due is reasonably
                  assured.
 
 Delivery
        occurs when goods are shipped and title and risk of loss transfer to the
        customer, in accordance with the terms specified in the arrangement with
        the
        customer. Revenue recognition is deferred in all instances where the earnings
        process is incomplete. Management provides for sales returns and allowances
        in
        the same period as the related revenues are recognized. Management bases
        their
        estimates on historical experience or the specific identification of an event
        necessitating a reserve.
 
 The
        Company records revenues from federal incentive programs related to the
        production of biodiesel when certain blends of biodiesel fuel are sold to
        certified blenders. The Company bears the credit risk of collecting payment
        to
        each of the federal government and the customer. The Company accounts for
        these
        tax credits in accordance with EITF 99-19, “Reporting Revenue Gross as a
        Principal versus Net as an Agent”. When the Company bills the customer and
        includes the tax credit revenues are recognized for the cost of the fuel
        and the
        tax credit as the Company is considered a principal. In instances the Company
        does not bill the customer for the tax credit, rather applies for such credits
        with the federal government, such amounts are recorded as a reduction to
        cost of
        sales.
 
 The
        tax
        credits included in accounts receivable as of December 31, 2006 were
        $43,288.
 
 *Cash
        and Cash Equivalents*
  The
        Company considers all highly liquid investments with insignificant interest
        rate
        risk and original maturities of three months or less from the date of purchase
        to be cash equivalents. The carrying amounts of cash and cash equivalents
        approximate their fair values. We maintain cash and cash equivalents balances
        at
        certain financial institutions in excess of amounts insured by federal agencies.
        We do not believe that as a result of this concentration, it is subject to
        any
        unusual financial risk beyond the normal risk associated with commercial
        banking
        relationships.
 
 *Concentrations*
  Financial
        instruments that potentially subject the Company to concentration of credit
        risk
        consist principally of cash and cash equivalents and trade accounts receivable.
        The Company invests its cash balances through high-credit quality financial
        institutions. The Company performs ongoing credit evaluations of its customers
        and adjusts credit limits based upon payment history, age of the balance
        and the
        customer's current credit worthiness, as determined by a review of the
        customer's current credit information. The Company continuously monitors
        collections and payments from its customers and maintains an allowance for
        doubtful accounts based upon historical experience and any specific customer
        collection issues that have been identified.
  F-9
 
 Accounts
        receivable and revenues from one customer represented 88% and 75% of total
        accounts receivables and revenues as of December 31, 2006, respectively.
        The
        Company did not experience concentrations of accounts receivables or revenues
        in
        2005.
  *Inventories*
  Inventories
        are stated at the lower of cost, determined on a first in, first out (“FIFO”)
        basis average cost basis, or market. The Company adopted SFAS No. 151,
“Inventory Costs, an amendment of Accounting Research Bulletin No. 43,
        Chapter 4” beginning January 1, 2006, with no material effect on its
        financial condition or results of operations. Abnormal amounts of idle facility
        expense, freight, handling costs, and wasted materials (spoilage) are recognized
        as current-period charges. Fixed production overhead is allocated to the
        costs of conversion into inventories based on the normal capacity of the
        production facilities.
 
 *Property,
        Plant and Equipment*
  Property
        and equipment are stated at cost, less accumulated depreciation. Depreciation
        is
        computed using the straight-line method over the estimated useful lives of
        the
        related assets ranging from three to twenty years. Significant renewals and
        betterments are capitalized while maintenance and repairs are charged to
        expense
        as incurred. Leasehold improvements are amortized on the straight-line basis
        over the lesser of their estimated useful lives or the term of the related
        lease.
 
 *Long-Lived
        Assets*
  The
        Company reviews its fixed assets and certain identifiable intangibles for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount of an asset may not be recoverable. Recoverability of assets
        to
        be held and used is measured by a comparison of the carrying amount of an
        asset
        to the future undiscounted operating cash flow expected to be generated by
        the
        asset. If such assets are considered to be impaired, the impairment to be
        recognized is measured by the amount by which the carrying amount of the
        asset
        exceeds the fair value of the asset. Long-lived assets to be disposed of
        are
        reported at the lower of carrying amount or fair value less costs to
        sell.
 
 *Goodwill
        and Other Intangible Assets*
  SFAS
        No.
        141 requires that all business combinations be accounted for under the purchase
        method. The statement further requires separate recognition of intangible
        assets
        that meet certain criteria. SFAS No. 142, requires that an acquired
        intangible asset meeting certain criteria shall be initially recognized,
        and
        measured based on its fair value. The statement also provides that goodwill
        and
        other indefinite-lived assets should not be amortized, but shall be tested
        for
        impairment annually or more frequently, if circumstances indicate potential
        impairment, through a comparison of fair value to their carrying amount.
 
 In
        accordance with SFAS No. 142, the goodwill impairment test has two steps.
        The
        first step of the impairment test identifies potential impairment by comparing
        the fair value with the carrying amount of the reporting unit, including
        goodwill. If the carrying amount of the reporting unit exceeds its fair value,
        the second step of the impairment test shall be performed to measure the
        amount
        of the impairment loss, if any. Intangibles with indefinite useful lives
        are
        measured for impairment by the amount that the carrying value exceeds the
        estimated fair value of the intangible. The fair value is calculated using
        the
        income approach. Intangible assets with definite useful lives will continue
        to
        be amortized over their estimated useful lives. Any impairment is recorded
        at
        the date of determination.
 
 *Income
        Taxes*
  Deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets and liabilities are measured using enacted tax rates expected to apply
        to
        taxable income in the years in which those temporary differences are expected
        to
        be recovered or settled. The effect on deferred tax assets and liabilities
        of a
        change in tax rates is recognized in income in the period that includes the
        enactment date. Due to historical net losses, a valuation allowance has been
        established to offset the deferred tax assets.
 
 *Net
        Loss per Share*
  Basic
        loss per share is calculated by dividing net loss by the weighted average
        common
        shares outstanding during the period. Diluted net loss per share reflects
        the
        potential dilution to basic EPS that could occur upon conversion or exercise
        of
        securities, options or other such items to common shares using the treasury
        stock method, based upon the weighted average fair value of our common shares
        during the period. For each period presented, basic and diluted loss per
        share
        amounts are identical as the effect of potential common shares is
        antidilutive.
  F-10
 
 The
        following is a summary of outstanding securities which have been excluded
        from
        the calculation of diluted net loss per share because the effect would have
        been
        antidilutive for the years ended December 31, 2006 and 2005:
 
 **2006**
              
              **2005**Common
                  stock options
              
              
              3,127,312
              
              
              —Common
                  stock warrants
              
              
              11,642,867
              
              
              —Convertible
                  preferred stock - Series B
              
              
              2,722,400
              
              
              2,788,900Convertible
                  preferred stock - Series A
              
              
              37,561,583
              
              
              —Convertible
                  subordinated debt
              
              
              —
              
              
              968,040Convertible
                  preferred stock - Series I
              
              
              —
              
              
              1,379,400Total
              
              
              55,054,162
              
              
              5,136,340
 
 *Stock-Based
        Compensation*
  Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”). SFAS 123R requires that the Company account
        for all stock-based compensation using a fair-value method and recognize
        the
        fair value of each award as an expense over the service period. For the year
        ended December 31, 2005 and earlier years, the Company accounted for stock-based
        compensation using the intrinsic value method of APB Opinion No. 25 “Accounting
        for Stock Issued to Employees” and related interpretations and followed the
        disclosure requirements of SFAS No. 123, “Accounting for Stock-Based
        Compensation,” as amended by SFAS No. 148 “Accounting for Stock-Based
        Compensation—Transition and Disclosure.”
 
 The
        Company elected to adopt SFAS 123R using the “modified prospective application.”
Under that method, compensation expense includes the fair value of new awards,
        modified awards and any unvested awards outstanding at January 1, 2006. However,
        the consolidated financial statements for periods prior to the adoption of
        SFAS
        123R have not been restated to reflect the fair value method of accounting
        for
        stock-based compensation. Stock-based compensation expense for 2005 and earlier
        years represents the cost of stock options and restricted stock awards
        determined in accordance with APB 25.
 
 The
        following table illustrates the effect on net loss and net loss per share
        as if
        compensation expense for all awards of stock-based employee compensation
        had
        been determined under the fair value-based method prescribed by SFAS 123
        for the
        year ended December 31, 2005, prior to the adoption of SFAS
        123R:
 Loss
                  available to common shareholders, as reported
              
              $
              (10,031,675
              )Stock-based
                  employee compensation expense included in net loss available to
                  common
                  shareholders
              
              
              -Stock-based
                  employee compensation expense determined under fair value
              
              
              (143,518
              )Pro
                  forma net loss available to common shareholders
              
              $
              (10,175,193
              )Loss
                  per share available to common shareholders:Basic
                  and diluted, as reported
              
              $
              (28.56
              )Basic
                  and diluted, pro forma
              
              $
              (28.97
              )
 
 *Use
        of Estimates*
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities and the reported amounts
        of
        revenues and expenses during the reporting period. Our significant estimates
        relate to the assessment of impairment of goodwill, and long-lived assets
        other
        than goodwill, as well as the fair value options and warrants to purchase
        common
        stock.
  F-11
 
 *Fair
        Value of Financial Instruments*
  Financial
        instruments are recorded on the consolidated balance sheets. The carrying
        amount
        for cash and cash equivalents, accounts receivable, accounts payable, accrued
        expenses approximates fair value due to the immediate or short-term maturity
        of
        these financial instruments. The fair value of long-term debt approximates
        the
        carrying amounts based upon our expected borrowing rate for debt with similar
        remaining maturities and comparable risk.
 
 *Equity
        Instruments Issued with Registration Rights Agreement*
  The
        Company accounts for registration rights agreement penalties as contingent
        liabilities, applying the accounting guidance of Financial Accounting Standard
        No. 5, “Accounting for Contingencies” (“SFAS 5”). This accounting is consistent
        with views established by the Emerging Issues Task Force in its consensus
        set
        forth in EITF 05-04 “The Effect of a Liquidated Damages Clause on a Freestanding
        Financial Instrument Subject to Issue
        No.
        00-19 ”
(view
        C) and FASB Staff Positions FSP EITF 00-19-2 “Accounting for Registration
        Payment Arrangements”, which was issued December 21, 2006. Accordingly, the
        Company recognizes the damages when it becomes probable that they will be
        incurred and amounts are reasonably estimable.
 
 *Risks
        and Uncertainties*
  The
        Company receives a federal excise tax credit of $1.00 per gallon of biodiesel
        sold in blended form (with petroleum diesel), and can sell biodiesel in
        unblended form (“B100”) at a premium over petroleum diesel of approximately
        $1.00 per gallon. The federal excise tax credit is scheduled to expire on
        December 31, 2008. There are no assurances the tax credit will be extended
        beyond December 31, 2008. The loss of the tax credit would have a
        significant, material adverse effect on the Company’s operations.
  The
        Company’s results of operations will be significantly affected by the cost and
        supply of soybean oil, other alternative feedstocks, and chemical inputs
        used in
        the production of biodiesel fuel. The price of soybean oil or other inputs
        are influenced by weather conditions and other factors affecting crop yields,
        farmer planting decisions, the output and proximity of soybean crush facilities,
        and general economic, market and regulatory factors. These factors include
        government policies and subsidies with respect to agriculture and international
        trade, and global and local demand and supply. The significance and
        relative effect of these factors on the price of soy oil is difficult to
        predict. Any event that tends to negatively affect the supply of soy oil,
        such as adverse weather or crop disease, could increase soy oil prices and
        potentially harm our business.  In addition, Vanguard may also have
        difficulty, from time to time, in physically sourcing soy oil or other inputs
        on
        economical terms due to supply shortages.  Such a shortage could require
        Vanguard to suspend operations until soy oil or other inputs are available
        at
        economical terms, which would have a material adverse effect on the results
        of
        operations and financial position.
  The
        Company is subject to the laws of the State of Louisiana. Louisiana state
        law
        requires that a “distributor” or “blender” of motor fuels post a bond in the
        amount of $20,000 in favor of the state Secretary as surety against its
        collection of motor fuels sales taxes, while “suppliers” or fuel terminal
        operators are to post a $2,000,000 bond. Historically, Vanguard was classified
        as a “blender” by the Louisiana Department of Revenue (“LDR”), and is a
        registered “blender” with the Internal Revenue Service (“IRS”). In August 2006,
        Vanguard was informed by the LDR that its classification as a blender (and
        not a
        supplier), was subject to review. In October 2006 and January 2007, the LDR
        notified the Company that it may be classified as a supplier, but would not
        require the Company to post a $2,000,000 bond until June 30, 2007, pending
        further review of the state statutes and possible legislative action. As
        of the
        date of this report, no further action is presently required of the Company.
        However, if the Company is subsequently required to post a $2,000,000 surety
        bond, the Company may be asked by the surety company to establish cash
        collateral for a substantial portion or all of such amount, which would reduce
        the Company’s immediately-available cash funds and adversely affect its
        liquidity. There is no guarantee the Company will be classified as a blender
        upon further review by the LDR, or that it will obtain an extension beyond
        June
        30, 2007, or that remedial legislative action will be implemented by the
        State
        of Louisiana.
  The
        Company is also subject to federal, state and local environmental laws and
        regulations. Vanguard does not anticipate expenditures to comply with such
        laws
        and regulations would have a material impact on Vanguard’s financial position,
        results of operations, or liquidity. Vanguard believes that its operations
        comply, in all material respects, with applicable federal, state, and local
        environmental laws and regulations.
  F-12
  *Recent
        Accounting Pronouncements*
  In
        July
        2006, the Financial Accounting Standard Board (“FASB”) issued FASB
        Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)
        which clarifies the accounting for uncertainty in income taxes recognized
        in the
        financial statements in accordance with FASB Statement No. 109, “Accounting
        for Income Taxes”. This pronouncement recommends a recognition threshold and
        measurement process for recording in the financial statements uncertain tax
        positions taken or expected to be taken in the Company’s tax return. FIN 48 also
        provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods and disclosure requirements for uncertain tax
        positions. The accounting provisions of FIN 48 will be effective for the
        Company
        beginning January 1, 2007. The Company is in the process of evaluating the
        effect, if any, the adoption of FIN 48 will have on its financial statements.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157 (SFAS No. 157), *Fair
        Value Measurements* .
        SFAS
        157 defines fair value, establishes a framework for measuring fair value,
        and
        expands disclosures about fair value measurements. This statement clarifies
        fair
        value as permitted under other accounting pronouncements but does not require
        any new fair value measurements. However, for some entities, the application
        of
        this statement will change current practice. The Company will be required
        to
        adopt SFAS No. 157 as of January 1, 2008 and is evaluating the impact and
        has
        not yet determined the effect on its earnings or financial
        position.
 
 **4.** **Inventories,
        net**
 
 Inventories,
        net consist of the following at December 31, 2006:
 Raw
                    materials
                
                $
                452,381Finished
                    goods
                
                
                204,864$
                657,245
  Amounts
        of labor and overhead included in finished goods are not significant because
        the
        Company’s selling price was not sufficient to recover such costs.
 
 **5.** **Property,
        Plant & Equipment**
 
 Property,
        plant and equipment consist of the following at December 31, 2006:
 Range
                    of Estimated Useful LifeLand
                
                
                -
                
                $
                1,054,400Buildings
                
                
                20
                
                
                380,000Machinery
                    and equipment
                
                
                3
                    to 15
                
                
                3,142,681Construction
                    in progress
                
                
                -
                
                
                245,5254,822,606Less
                    - accumulated depreciation
                
                
                
                
                
                (85,573
                )$
                4,737,033
  The
        Company is currently incurring construction expenditures to expand and improve
        its economic efficiencies in the production of biodiesel fuel.
 
 Depreciation
        expense was $85,573 and $0 for the years ended December 31, 2006 and 2005,
        respectively.
 
 F-13
  **6.** **Intangible
        Assets, net**
 
 Intangible
        assets subject to amortization include customer relationships incurred in
        connection with the acquisition of Vanguard. Amortization expense was $226,350
        and $0 for the years ended December 31, 2006 and 2005,
        respectively.
 
 Estimated
        intangible asset amortization expense for the remaining carrying amount of intangible assets for the years ending
        December 31, 2006 is as follows:
 2007
                
                $
                905,4002008
                
                
                905,4002009
                
                
                905,4002010
                
                
                905,4002011
                
                
                679,050$
                4,300,650
  **7.** **Accrued
        Liabilities**
 
 Accrued
        liabilities consist of the following as of December 31, 2006:
 Dividends
                
                $
                633,333Professional
                    fees
                
                
                235,295Compensation
                    and related benefits
                
                
                129,372Interest
                
                
                74,793Lease
                    termination costs
                
                
                97,382Other
                
                
                77,878$
                1,248,053
  **8.** **Line
        of Credit and Notes Payable**
 
 In
        connection with the Acquisition, the Company assumed and is party to a credit
        agreement with First South Farm Credit, ACA (“First South”) that provides for
        borrowings of up to $3,500,000 which includes a line of credit and a term
        loan.  As of December 31, 2006, we failed to comply with certain covenants
        under the First South credit agreement, relating to a minimum cash flow coverage
        ratio and working capital balance. On February 20, 2007, the Company received
        a
        waiver of its non-compliance with these covenants from First South through
        July
        1, 2007 and an acknowledgement that the Company was no longer in default
        of the
        credit agreement as of such date. On April 2, 2007, the Company received
        a
        notice from First South of approval by its loan committee of certain amendments
        to the credit agreement. The amendments include a 2 year renewal of the line
        of
        credit so that the outstanding principal balance is now due on July 1, 2009
        and
        requires the Company to achieve by December 31, 2006 and maintain thereafter
        certain financial and non-financial covenants based on Vanguard’s working
        capital and net assets position including achieving a minimum working capital
        of
        $500,000, maintenance of an excess of total assets over total liabilities
        of not
        less than $1,500,000 and the maintenance of a cash flow coverage ratio of
        at
        least 1.25 to 1.00 by December 31, 2008.
 
 The
        line
        of credit provides for borrowings of up to $2,000,000, bearing interest at
        the
        lender’s referenced prime rate plus 1.0%, or 9.25% per annum at December 31,
        2006, and is payable monthly. The agreement also permits the Company to issue
        letters of credit which are secured by the line and reduces the amount of
        borrowings available under the agreement. The due date of the outstanding
        principal balance is amended to July 1, 2009. The amount outstanding under
        the
        line of credit at December 31, 2006 was $1,667,378 and has been classified
        as
        long-term debt in the accompanying consolidated financial statements. As
        of
        December 31, 2006, the amount available was $332,622.
 
 The
        term
        loan provides for borrowings of up to $1,500,000 which is secured by
        substantially all of the assets of the Company. The loan bears interest at
        the
        lender’s referenced prime rate plus 1.25%, or 9.50% per annum at December 31,
        2006 and is payable quarterly. Commencing January 1, 2007, the Company is
        required to make 10 annual principal payments of $150,000 each. The amount
        outstanding under the term loan at December 31, 2006 was
        $1,500,000.
 
 F-14
 
 **9.**  **Convertible
        Promissory Notes**
 
 *Convertible
        Promissory Notes*
  On
        December 6, 2005, the Company entered into an agreement to issue up to
        $750,000 principal amount of convertible promissory notes. The Company received
        $450,000 in proceeds on December 6, 2005 and $300,000 on January 18, 2006.
        The
        Company accounted for the embedded conversion feature in accordance with
        EITF
        98-5 “Accounting for Convertible Securities with Beneficial Conversion Features
        or Contingently Adjustable Conversion Ratios” and EITF 00-27 “Application of
        Issue No. 98-5 to  Certain
        Convertible Instruments” since the embedded conversion feature was considered
        conventional as defined in EITF 00-19 “Accounting for Derivative Financial
        Instruments Indexed to, and Potentially Settled in, a Company's Own Stock” and
        EITF 05-02 “The Meaning of "Conventional Convertible Debt Instrument”. This
        resulted in the calculation of the intrinsic value of the embedded beneficial
        conversion feature in the amount of $450,000 for the December 6, 2005 advance
        and $300,000 for the January 18, 2006 advance, which have been treated as
        discounts to the underlying debt and were amortized into interest expense
        over
        the term of the notes.
 
 These
        notes together with accrued interest were originally due on November 30,
        2008.
        On September 20, 2006, the notes and accrued interest were cancelled and
        converted into 1,631,350 shares of common stock. The Company recorded a charge
        to the statement of operations for the difference between the face value
        and the
        carrying value of the notes.
  *Convertible
        Senior Notes*
  On
        May 2,
        2005, the Company issued convertible senior notes resulting in the receipt
        of
        $150,000 of gross proceeds. On December 6, 2005, these notes and the related
        accrued interest were exchanged for Series B convertible preferred stock.
        The
        notes were due originally due on May 2, 2008, with principal and interest
        payable in arrears in cash or registered shares on a monthly basis beginning
        August 1, 2005. These notes had a stated interest rate of prime plus 4.0%
        with a floor of 8.0%, plus an additional 2% interest per month if the notes
        went
        in default.
  The
        holders of these notes also received warrants expiring on May 2, 2010 to
        purchase up to 37,500 shares of the Company’s common stock at an exercise price
        of $2.50 per share. The fair value of the warrants issued was determined
        using
        the Black-Scholes option pricing model based on the following assumptions:
        volatility of 176%, expected life of 5 years, risk free interest rate of
        4.38%
        and no dividends. The Company recorded the fair value of the warrants and
        the
        beneficial conversion feature as a debt discount.
  In
        August
        2005, the Company was unable to make the required interest payments and was
        in
        default of the terms of the agreement. This resulted in the acceleration
        of the
        outstanding principal and interest payments, wherein the repayment of principal
        and interest was immediately due. Accordingly, the Company recorded $135,000
        of
        non-cash interest expense for the unamortized beneficial conversion feature
        and
        debt discount for the year ended December 31, 2005.
 
 *Convertible
        Senior Secured Notes*
  On
        December 15, 2004, the Company issued convertible senior secured notes,
        resulting in the receipt of $1,800,000 in gross proceeds. The holders of
        these
        notes also received a due diligence fee of $180,000. The notes had a stated
        interest rate of prime plus 4% with a floor of 8%. The conversion price of
        the
        notes was fixed at $2.00 per share, subject to adjustment depending upon
        the
        market price of our common stock. These notes, while outstanding, were
        convertible into 900,000 shares of common stock, however, the ultimate number
        of
        shares that potentially was to be issued to settle the note in common stock
        is
        unknown.
  The
        holders also received warrants to purchase up to 450,000 shares of common
        stock
        at an exercise price of $2.50 per share with an original expiration date
        of
        December 15, 2009. On December 6, 2005, these notes and the related
        accrued interest were cancelled in exchange for Series B convertible preferred
        stock.
  The
        notes
        were originally due on December 15, 2007, with principal and interest
        payable in cash or registered shares over a 32-month period beginning in
        March
        2005. The Company was unable to make such payment, and as a result was in
        default under the terms of the agreement and the repayment of principal and
        interest was immediately due. Accordingly, the Company recorded $648,000
        of
        non-cash interest expense for the unamortized beneficial conversion feature
        and
        debt discount into interest expense for the year ended December 31, 2005.
  F-15
  The
        holder of the notes received a first lien on all of our assets. The holders
        of
        our previously issued convertible senior secured fixed rate notes, discussed
        below, totaling $7,300,000 due August 4, 2005, consented to the new
        financing and the subordination of their secured position to a second lien
        on
        all of the Company’s assets. In consideration for granting this amendment,
        management reduced the conversion price of the notes to $2.00 per share and
        amended the exercise price of their outstanding warrants to purchase up to
        42,558 shares of our common stock at $2.50 per share. The Company also reduced
        the exercise price of 175,555 and 120,000 warrants issued to holders of our
        preferred stock to $2.50 and $1.00 per share, respectively.
  In
        accordance with SFAS No. 133 “Accounting for Derivative Instruments and
        Hedging Activities”, management was required to record the fair value of the ECF
        and warrants as a liability. The estimated fair value of the ECF and warrants
        were $432,000 and $216,000, respectively, which reduced the carrying value
        of
        the notes by such amounts. The fair value of the ECF and warrants were
        determined using the Black-Scholes option-pricing model based on the following
        assumptions: volatility ranging from 184% to 244%, expected life ranging
        from 4
        to 5 years, risk free interest rate of 4.38% and no dividends.
  The
        Company amortized the discount to interest expense in the amount $1,152,000
        during the year ended December 31, 2005.
 
 *Convertible
        Subordinated Notes*
  On
        August 4, 1998, the Company issued convertible subordinated notes resulting
        in the receipt of $7,300,000 in gross proceeds. Subsequent to the original
        date
        of issuance, the terms of these notes were renegotiated. As discussed above,
        the
        Company negotiated significant modifications to the $7,300,000 notes on
        December 15, 2004, the embedded conversion feature and the warrants, as
        well as a deferral of all principal and interest payments until after the
        convertible senior notes were repaid. During 2004, the Company accounted
        for the
        amendments of these terms in accordance with EITF 96-19, “Debtors Accounting for
        a Modification or Exchange of Debt Instruments.”
  The
        Company accounted for the conversion feature in accordance with EITF 98-5
        and
        EITF 00-27 since the ECF was considered conventional as defined in EITF 00-19
        and EITF 05-02. This resulted in the calculation of the intrinsic value of
        the
        embedded beneficial conversion feature in the amount of $6,311,894, which
        was
        required to be treated as a discount to the underlying notes in 2004. The
        discount was being amortized into interest expense using the effective interest
        method over the term of the notes, until the Company defaulted on the notes
        in
        June 2005, at which time the remaining unamortized discount was charged to
        expense. The Company amortized the discount to interest expense in the amount
        of
        $6,311,894 during the ended December31, 2005.
  On
        December 6, 2005, these notes and the related accrued interest were cancelled
        in
        exchange for Series B and Series I convertible preferred stock.
 
 **10.** **Income
        Taxes**
 
 The
        Acquisition was structured as a tax-free acquisition. Accordingly, the
        difference between the recognized fair values of the acquired net assets
        and
        their historical tax base are not deductible for tax purposes. As a result,
        a
        deferred tax liability of $2,258,070 was been established for financial
        reporting purposes for an amount equal to the Company's statutory tax rate
        multiplied by the difference between the allocated book value of acquired
        non-goodwill assets and the tax bases of those assets.
  F-16
 
 Reconciliations
        of the U.S. federal statutory rate to the actual tax rate follows for the
        years
        ended December 31, 2006 and 2005 are as follows:
 Year
                    Ended December 31,2006
                
                2005U.S.
                    federal statutory income tax rate
                
                
                34.0
                %
                
                34.0
                %State
                    tax - net of federal benefit
                
                
                5.8
                %
                
                5.8
                %39.8
                %
                
                39.8
                %Permanent
                    differences - goodwill
                
                
                -25.8
                %
                
                0.0
                %Increase
                    in valuation allowance
                
                
                -11.0
                %
                
                -39.8
                %Effective
                    tax rate
                
                
                3.0
                %
                
                0.0
                %
  The
        major
        components of the deferred taxes are as follows at December 31, 2006 is as
        follows:
 Asset
                    (Liability)Noncurrent:Stock
                    options
                
                $
                10,046,798Net
                    operating losses
                
                
                463,31110,510,109Valuation
                    allowance
                
                
                (8,299,007
                )Net
                    deferred tax asset
                
                $
                2,211,102Current:Intangible
                    asset
                
                $
                (362,160
                )Noncurrent:Acquisition
                    of Vanguard Synfuels LLC
                
                $
                (2,258,070
                )2006
                    Intangible asset amort
                
                
                96,9682007
                    Intangible asset amort
                
                
                362,160Other
                
                
                (50,000
                )$
                (1,848,942
                )
  At
        December 31, 2005, the Company had available no U.S. tax net operating loss
        carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the
        utilization of a Company’s net operating loss carry forwards resulting from
        retaining continuity of its business operations and changes within its ownership
        structure. Net operating loss carryforwards which expire in 20 years for
        federal
        income tax reporting purposes.
 
 During
        the year ended December 31, 2005, the Company adjusted its deferred tax assets
        to zero, and the related valuation allowance of $9,115,000.
 
 **11.** **Commitments
        and Contingencies**
  The
        Company leased certain of its facilities under non-cancelable operating lease
        arrangements. On March 24, 2005, a default judgment for the amount of
        $136,945, relating to the Company’s default under the terms of a commercial
        lease agreement for office space at 293 Great Valley Parkway, Malvern,
        Pennsylvania, was entered in the Court of Common Pleas, Chester County,
        Pennsylvania, against the Company in favor of the landlord. In November 2005,
        the Company entered into an agreement with the landlord to settle all
        outstanding claims under the lease for $35,000, which was paid on
        December 14, 2005. The judgment was subsequently vacated.
  On
        November 21, 2005, the Company was evicted from its former offices at 3050
        Centre Pointe Drive, Roseville, Minnesota, as a result of a default under
        the
        terms of the commercial lease agreement. The outstanding contingent liability
        for past due rent and remaining rent under the lease agreement, net of the
        security deposit held by the landlord, was approximately $160,000. In 2005,
        management established a reserve in connection with this idle facility equal
        to
        the present value of the remaining minimum lease payments and its estimated
        pro
        rata share of operating expenses for approximately $93,314.
  F-17
 
 The
        Company leases its office space and certain office equipment under
        non-cancelable operating leases. Total rent expense under these operating
        leases
        was $46,603 and $189,634, respectively, for the years ended December 31,
        2006 and 2005, respectively.
 
 Future
        minimum lease payments under non-cancelable operating leases at
        December 31, 2006 are as follows:
 2007
                
                $
                68,3122008
                
                
                51,883$
                120,195
 
 **12.** **Preferred
        Stock**
  The
        following is a summary of preferred stock as of December 31, 2006 and 2005:
 Series
                    A
                
                Series
                    B
                
                Series
                    F
                
                Series
                    G
                
                Series
                    H
                
                Series
                    I
                
                Series
                    J
                
                Series
                    K**Balance
                    at December 31, 2004**
                
                
                **-**
                
                
                **-**
                
                
                **10,000**
                
                
                **15,000**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**Exchange
                    of Series F and Series G into Series B and Series I
                
                
                -
                
                
                -
                
                
                (10,000
                )
                
                (15,000
                )
                
                27,889
                
                
                13,794
                
                
                -
                
                
                -**Balance
                    at December 31, 2005**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **27,889**
                
                
                **13,794**
                
                
                **-**
                
                
                **-**Issuance
                    of Series J
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,850Issuance
                    of Series K
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                4,300Exchange
                    of Series J into Series A
                
                
                28,500,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,850
                )
                
                -Exchange
                    of Series H into Series B
                
                
                -
                
                
                27,889
                
                
                -
                
                
                -
                
                
                (27,889
                )
                
                -
                
                
                -
                
                
                -Conversion
                    of Series B into common stock
                
                
                -
                
                
                (665
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Conversion
                    of Series I into common stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (13,794
                )
                
                -
                
                
                -Conversion
                    of Series K into common stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (4,300
                )**Balance
                    at December 31, 2006**
                
                
                **28,500,000**
                
                
                **27,224**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
  The
        Company’s issued and outstanding preferred stock consist of Series A (formerly
        Series J) and Series B (formerly Series H) convertible preferred stock (herein
        referred to as “Series A Preferred” and “Series B Preferred”, respectively or
        collectively the “Preferred”). The
        Company has authorized 50,000,000 shares of preferred stock, $0.01 par value
        per
        share, of which 28,500,000 and 2,850 shares are designated as Series A and
        Series B preferred stock, respectively.
 
 In
        connection with the Acquisition, the Company issued 2,850 shares of Series
        J
        Preferred at $10,000 per share, for total cash proceeds of $28,500,000. Each
        share was convertible at any time into 10,000 shares of common stock. On
        an as
        converted basis, the preferred stock was issued at $0.7587 per share of common
        stock. The quoted closing market price of the Company’s common stock on the date
        of issuance of the Series J Preferred was $3.10. In accordance with EITF
        00-27,
        this created a beneficial conversion to the holders of the preferred stock
        and a
        deemed dividend, which was limited to the proceeds received of $28.5 million.
        In
        the third quarter of 2006, the Company recognized a non-cash charge of $28.5
        million relating to a deemed dividend upon the issuance of the Series J
        preferred stock. The full intrinsic value of the beneficial conversion feature
        was recognized on the date of issuance since the underlying security was
        immediately convertible to common stock.
 
 Also
        in
        connection with the Acquisition, the Company issued 4,300 shares of Series
        K
        Preferred to two officers of Vanguard in exchange for their 20% ownership
        interest in Vanguard. The Company assigned a value to these shares of
        $34,441,000 which was allocated to the Acquisition purchase price based on
        the
        quoted market price of the common stock on September 20, 2006. The Series
        K
        Preferred is convertible on an as-converted basis into 11,110,000 shares
        of
        common stock. On
        November 28, 2006, the holders of 4,300 shares of Series K convertible preferred
        stock converted such shares into 11,110,000 shares of common stock.
  F-18
 
 The
        outstanding preferred stock has the following characteristics:
 
 *Dividends*
  The
        holders of Series B Preferred are entitled to receive dividends when and
        as if
        declared by the Board of Directors of the Company and are noncumulative.
 
 The
        holders of Series A Preferred are entitled to receive dividends at a rate
        of 8%
        per annum in cash or additional shares of Series A Preferred, at the option
        of
        the Company. The dividends accrue whether or not the Board of Directors declares
        a dividend. If the Company elects to pay the dividend in additional shares
        of
        Series A Preferred, the value of each such share paid as a dividend shall
        be
        deemed to be equal to the product of a) the number of common shares into
        which
        the preferred share is convertible into, and b) the conversion price then
        in
        effect (currently $0.76 per common share). Dividends are payable quarterly
        in
        arrears on the last day of each quarter to the holders of record as of the
        first
        (1 st )
        day of
        such quarter based upon the number of days during such quarter that the Series
        J
        Preferred Stock remained outstanding.
 
 *Conversion*
  Each
        share of Series B Preferred is convertible at the option of the holders at
        any
        time into 10,000 shares of common stock, subject to adjustment for
        dividends.
 
 The
        Series A Preferred is convertible into common stock at the option of the
        holder.
        Each share is convertible by dividing the Series A Preferred purchase price
        per
        share ($10,000) by the then existing conversion price, currently $0.76 per
        share. Each holder may convert their shares into common stock, provided the
        Company has the requisite number of authorized shares of common stock available.
        Provided that (i) there is an effective Registration Statement on file with
        the
        Securities and Exchange Commission registering the maximum number of shares
        of
        Common Stock to be issued upon conversion of the Series A Preferred, and
        (ii)
        the closing price of the common stock for the twenty (20) preceding trading
        days
        is equal to or greater than two times the conversion price, then the Company,
        at
        its option, may require any holder of Series A Preferred to convert all,
        or a
        portion, of the then outstanding Series J Preferred into common
        stock.
 
 In
        the
        event the Company issues additional shares of common stock or common stock
        equivalents at a price per share lower than the Series A conversion price,
        the
        Series A Preferred is entitled to a weighted-average anti-dilution adjustment
        its conversion price. The Series A conversion price is also subject to
        proportional adjustment in the event of stock splits, combinations and other
        recapitalizations or reorganizations.
 
 *Voting*
  The
        Series B Preferred is non-voting.
 
 The
        holders of shares of Series A Preferred are entitled
        to the number of votes equal to the number of shares of common stock into
        which
        each preferred share is convertible at the time of such vote.
 
 *Liquidation
        Preference*
  Each
        holder of the Series A and Series B Preferred is entitled to receive a
        liquidation preference equal to an amount equal to the assets available for
        distribution to shareholders at an amount equal to the greater of (i) the
        respective purchase price per share and any declared but unpaid dividends
        on
        such share, or (ii) the
        amount such holders would be entitled to receive had such holders converted
        their shares into shares of common stock.
 
 *Registration
        Rights*
  In
        connection with the issuance of the Series A Preferred, the Company is require
        to file a registration statement on Form SB-2 or Form S-3 with the Securities
        and Exchange Commission no later than the later of (x) the date that is ninety
        days from September 20, 2006 or the date that is five business days following
        the receipt of shareholder approval of the Reincorporation in order to register
        the resale of the Series A Preferred under the Securities Act. In the event
        that
        the Company fails to have the registration statement declared effective by
        the
        SEC by the date that is 60 days after the filing of the registration statement,
        in the event the SEC has no comments, or by the date that is 120 days after
        the
        date of filing, in the event the SEC has comments on the registration statement,
        or fails to maintain on the registration statement the effectiveness of the
        registration statement thereafter, then the Company must pay the Holders
        an
        amount equal to $6,250 for each day the registration statement remains uncured;
        provided, however, that the obligation of the Company to pay such amount
        shall
        cease on September 20, 2008.
  F-19
 
 The
        Company filed the required SB-2 on December 13, 2006. The SB-2 must be declared
        effective by April 12, 2007 in order to avoid penalty describe above. As
        of
        December 31, 2006, the Company concluded the registration rights did not
        represent a liability.
 
 *Redemption*
  The
        Series A and Series B Preferred are non-redeemable.
 
 **13.** **Common
        Stock and Common Stock Warrants**
 
 *Common
        Stock*
  Each
        share of common stock is entitled to one vote. The holders of common stock
        are
        also entitled to receive non-cumulative dividends whenever funds are legally
        available and when and as declared by the Board of Directors, subject to
        the
        prior rights of holders of all classes of stock outstanding.
 
 *Common
        Stock Warrants*
  On
        September 20, 2006, in connection with the Acquisition, the Company issued
        warrants to M.A.G. Capital, LLC (“MAG”), to purchase up to 6,500,000 shares of
        common stock as consideration for the assignment by MAG to the Company of
        certain rights to acquire Vanguard. One-half of the warrants have an exercise
        price of $1.14 per share, and the other half have an exercise price of $1.33
        per
        share. The warrants are exercisable upon the effectiveness of the
        Reincorporation and the related increase in the authorized common stock of
        the
        Company. The value of the warrants was determined using the Black-Scholes
        model
        with the following assumptions:
 
 Estimated
                  fair value of underlying common stock
              
              $
              3.10Expected
                  life (in years)
              
              
              5.0Risk-free
                  interest rate
              
              
              4.68
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %
 
 The
        value
        ascribed to the MAG warrants was $19,872,178. The fair value of the warrants
        were deemed to be a direct acquisition cost in connection with the Acquisition
        and included as part of the purchase price.
 
 On
        September 20, 2006, in connection with the Acquisition, the Company issued
        warrants to Ocean Park Advisors, LLC (“OPA”), a firm controlled by W.
        Bruce
        Comer III and Heng Chuk (the Company’s Chief Executive Officer and Chief
        Financial Officer, respectively), to
        purchase up to 4,827,921 shares of common stock as consideration for OPA’s
        waiver of certain anti-dilution provisions of its Series I convertible preferred
        stock, and OPA’s subsequent conversion of 13,794 shares of Series I convertible
        preferred stock into 1,379,400 shares of common stock. The OPA warrants have
        an
        exercise price of $0.76 per share and became exercisable upon the effectiveness
        of the Reincorporation and the related increase in the authorized common
        stock
        of the Company. The value of the warrants was determined using the Black-Scholes
        model with the following assumptions:
 
 Estimated
                  fair value of underlying common stock
              
              $
              3.10Expected
                  life (in years)
              
              
              5.0Risk-free
                  interest rate
              
              
              4.77
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %
 
 The
        value
        ascribed to the OPA warrants was $14,807,934 and has been recorded in “Selling,
        General and Administrative” in the accompanying consolidated statement of
        operations. On January 25, 2007, OPA elected to exercise the warrants based
        on
        the “cashless” exercise provision pursuant to the agreement, in exchange for the
        issuance of an aggregate of 3,765,097 shares of the Company’s common
        stock.
 
 *Stock
        Option Plan*
  On
        August
        11, 2006, the Company’s board of directors adopted the 2006 Incentive
        Compensation Plan (the “2006 Plan”). The 2006 Plan, as amended on September 20,
        2006 and December 26, 2006, was approved by the stockholders of the Company
        at a
        meeting of stockholders on November 28, 2006. The 2006 Plan provides for
        the
        grant of equity awards to directors, officers, other employees, consultants,
        independent contractors and agents of the Company and its subsidiaries,
        including stock options to purchase shares of the Company’s common stock, stock
        appreciation rights (“SARs”), restricted stock, restricted stock units, bonus
        stock and performance shares. Up to 6,592,755 shares of the Company’s common
        stock, subject to adjustment in the event of stock splits and other similar
        events, may be issued pursuant to awards granted under the 2006 Plan. The
        2006
        Plan shall be administered by the Compensation Committee of the Board of
        Directors, and shall expire 10 years after adoption, unless terminated earlier
        by the Board.
  F-20
 
 On
        August 11, 2006, the Company granted stock options to W. Bruce Comer III,
        its Chief Executive Officer, and Heng Chuk, its Chief Financial Officer options
        to purchase 180,622 and 86,698 shares of common stock, respectively, with
        an
        exercise price of $0.46 per share, or 110% of the fair value of the common
        stock
        on the date of grant, and vesting fully on December 1, 2006. Two members of
        the Company’s board of directors were each awarded an option to purchase 36,124
        shares of common stock, at an exercise price of $0.42 per share and vesting
        fully on September 13, 2006 and November 4, 2006, respectively (being
        six months after the appointment of each director) as discussed above. The
        Company also issued an option to purchase 21,675 shares of common stock to
        an
        advisor, at an exercise price of $0.42 per share and vesting fully on
        December 1, 2006. All stock options issued to the above individuals expire
        on March 15, 2007. The Company has fully expensed the stock-based
        compensation for the above issuances during 2006. On March 14, 2007, the
        Company
        amended the expiration date of these options to December 31, 2007. The impact
        of
        the amendment to the financial statements is expected to be
        insignificant.
 
 On
        September 20, 2006, in connection with the Acquisition, the Board of
        Directors granted OPA options to purchase 2,069,109 shares of common stock
        in
        connection with a Management Services Agreement dated September 20, 2006.
        The options have an exercise price of $0.7587 per share and vest fully at
        the
        later of 1) the date the quoted closing price for the Company’s common stock
        reaches $1.33 per share or higher, and 2) the date the Plan and the requisite
        increase in the Company’s authorized capital stock are approved by shareholders.
        The OPA options have an expected life of five years.
 
 The
        value
        ascribed to the OPA stock options was $6,044,040. The options were considered
        fully vested and the Company charged the value ascribed to the statement
        of
        operations on the date of acquisition.
 
 The
        value
        of the stock was determined using the Black-Scholes model with the following
        assumptions:
 Estimated
                  fair value of underlying common stock
              
              $
              6.00Expected
                  life (in years)
              
              
              0.1
                  to 0.25Risk-free
                  interest rate
              
              
              5.02
              %Expected
                  volatility
              
              
              204.5
              %Dividend
                  yield
              
              
              0
              %
 
 The
        following table summarizes stock option activity under the 2006
        Plan:
 
 **Shares
                  Available**
                **for
                  Grant**
              
              **Outstanding
                  Shares**
              
              **Weighted
                  Average Exercise Price**Balance,
                  beginning of year
              
              
              **-**
              
              
              **-**
              
              
              **-**Shares
                  reserved upon plan adoption
              
              
              6,592,755
              
              
              **-**
              
              
              -Granted
              
              
              (3,127,312
              )
              
              3,127,312
              
              $
              0.72Exercised
              
              
              -
              
              
              -
              
              
              -Cancelled
              
              
              -
              
              
              -
              
              
              -Balance
                  at December 31, 2006
              
              
              3,465,443
              
              
              3,127,312
              
              $
              0.72
  F-21
  **Options
                  Outstanding**
              
              **Exercisable****Range
                  of Exercise Prices**
              
              **Number
                  Outstanding**
              
              **Average
                  remaining life (years)**
              
              **Weighted
                  average exercise price**
              
              **Number**
                **of
                  shares**
              
              **Weighted
                  average exercise price**$0.42
                  - $0.46
              
              
              361,243
              
              
              0.25
              
              $
              0.45
              
              
              361,243
              
              $
              0.45$0.76
              
              
              2,766,069
              
              
              1.98
              
              $
              0.76
              
              
              691,517
              
              $
              0.763,127,312
              
              
              
              
              
              
              
              
              1,052,760
 
 The
        fair
        value of stock options awarded during the year ended December 31, 2006 was
        estimated at the date of grant using the Black-Scholes option-pricing model.
        The
        following table summarizes the weighted-average assumptions used and the
        resulting fair value of options granted:
  **Year
                  Ended**
                **December
                  31,****2006**Weighted-average
                  fair value of options granted
              
              $
              3.25Weighted-average
                  assumptions:Expected
                  option term (in years)
              
              
              2.0Risk-free
                  interest rate
              
              
              4.79
              %Expected
                  volatility
              
              
              203.3
              %Dividend
                  yield
              
              
              0
              %
 
 The
        expected option term was estimated based upon the contractual term of the
        underlying stock option. The expected volatility of the Company’s stock price is
        based upon the historical daily changes in the price of the Company’s common
        stock. The risk-free interest rate is based upon the current yield on U.S.
        Treasury securities having a term similar to the expected option term. Dividend
        yield is estimated at zero because the Company does not anticipate paying
        dividends in the foreseeable future.
 
 On
        December 26, 2006, the Company modified the term of certain options granted
        to
        members of the board of directors and executive officers from five to 2.25
        years. The modification resulted in a decrease in the fair value of the
        underlying options. No compensation expense as of the date of modification
        was
        recorded.
 
 As
        of
        December 31, 2006 there was unrecognized compensation expense of $1,410,749
        related to unvested stock compensation expense, which the Company expects
        to
        recognize through September 2007.
 
 **14.** **Segment
        Information**
  SFAS
        No. 131, “ *Disclosures
        About Segments of an Enterprise and Related Information”* ,
        requires the determination of reportable business segments (i.e., the management
        approach). This approach requires that business segment information used
        by the
        chief operating decision maker to assess performance and manage company
        resources be the source for segment information disclosure. The Company operates
        in one business segment: the production of biodiesel fuel.
  Revenues
        are derived from customers located within the United States.
  Long-lived
        assets consist of property, plant and equipment and intangible assets located
        within the United States.
  F-22




**Item 8.
      Changes In and Disagreements with Accountants on Accounting and Financial
      Disclosure**





On
      August 16, 2004, the Audit Committee of the Board of Directors selected and
      engaged Virchow, Krause & Company, LLP (“Virchow Krause”) as its
      independent public accountant for the fiscal year ended December 31, 2004.
      During the audit of the consolidated financial statements of the Registrant
      for
      the fiscal year ended December 31, 2004, and through December 9, 2005,
      there were no disagreements with Virchow Krause, on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedures, which disagreements if not resolved to their satisfaction would
      have
      caused them to make reference in connection with their opinion to the subject
      matter of the disagreement.





On
      December 8, 2005, Virchow Krause provided written notice to us that they
      had resigned as our auditors and principal accountants, effective as of that
      date. Furthermore, we were also informed by Virchow Krause that it had not
      performed a review of our consolidated financial statements as of and for the
      three and six month periods ended June 30, 2005, which were included in our
      Form 10-Q for the period ended June 30, 2005 (the “Q2 2005 Form 10-Q”), as
      required by Regulation S-X under the Securities Exchange Act of 1934. No
      disclosure was made by us that Virchow Krause had not performed a review of
      our
      consolidated financial statements as of and for the periods ended June 30,
      2005.





The
      audit
      report of Virchow Krause on the consolidated financial statements of Diametrics
      Medical, Inc. for the fiscal year ended December 31, 2004 contained a
      separate paragraph stating:





“The
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 2 to the consolidated
      financial statements, the Company has recurring losses and negative cash flows
      that raise substantial doubt about its ability to continue as a going concern.
      Management’s plans in regard to these matters are also described in Note 2. The
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.” Other than such qualification as
      to uncertainty as a going concern, the aforementioned audit report of Virchow
      Krause did not contain any adverse opinion or disclaimer of opinion, nor were
      they qualified or modified as to audit scope or accounting
      principles.




14





On
      December 9, 2005, our Board of Directors selected and engaged McKennon,
      Wilson & Morgan LLP (“MWM”) as its independent public accountants for
      the fiscal year ending December 31, 2005, and to perform reviews of our
      consolidated financial statements as of and for the three and six month periods
      ended June 30, 2005, and as of and for the three and nine month periods
      ended September 30, 2005.





On
      December 9, 2005, MWM advised us of its acceptance of the engagement.
      During the two most recent fiscal years and through December 9, 2005, we
      had not consulted with MWM regarding either (i) the application of
      accounting principles to a specified transaction, either completed or proposed;
      or the type of audit opinion that might be rendered in our financial statements,
      and neither a written report was provided to us nor oral advice was provided
      by
      MWM that was an important factor considered by us in reaching a decision as
      to
      any accounting, auditing or financial reporting issue; or (ii) any matter
      that was the subject of a disagreement, as that term is defined in Item 304
      (a) (1) (iv) of Regulation S-K and the related instructions to
      Item 304 of Regulation S-K, or a reportable event, as that term is defined
      in Item 304 (a) (1) (v) of Regulation S-K.





MWM
      completed its review of our consolidated financial statements for the three
      and
      six month periods ended June 30, 2005, and we filed an amended Q2 2005 Form
      10-Q on December 19, 2005.





**Item 8A.
      Controls and Procedures**





(a)
      Disclosure controls and procedures.





As
      of
      December 31, 2006, we carried out an evaluation, under the supervision and
      with the participation of management, including our Chief Executive Officer
      and
      Chief Financial Officer, of the effectiveness of the design and operation of
      its
      disclosure controls and procedures (as defined in Rule 13a-15(e) under the
      Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective as of
      December 31, 2005 to ensure that information required to be disclosed by us
      in the reports that we file or submits under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms.





(b)
      Internal controls over financial reporting.





There
      were no changes in our internal controls over financial reporting in the fourth
      quarter of fiscal 2006 that materially affected or are reasonably likely to
      materially affect our internal control over financial reporting.





**Item 8B** . **Other Information**





None.





**Part
      III.**





**Item
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with
      Section 16(a) of the Exchange Act**





The
      following sets forth the name and position of each of our current executive
      officers and directors.





**Name**
            
            **Age**
            
            **Position**W. Bruce Comer III
            
            41
            
            Chief
                Executive Officer, Class II DirectorDarrell
                Dubroc
            
            45
            
            President
                & Chief Operating Officer, Class I DirectorTim
                Collins
            
            41
            
            Executive
                Vice President of Business Development, Class I
                DirectorHeng
                Chuk
            
            27
            
            Chief
                Financial Officer & Secretary, Class II DirectorPaul A. Galleberg
            
            46
            
            Class
                III Director, Compensation Committee ChairmanJeffrey Lawton
            
            31
            
            Class
                III Director, Audit Committee
                Chairman





We
      have a
      classified Board of Directors with three classes, Class I, Class II, and Class
      III. Each class of directors is elected for three year terms. The Class I
      Directors, who are Darrell Dubroc and Tim Collins, have terms that expire in
      2007. The Class II Directors, who are W. Bruce Comer III and Heng Chuk, have
      terms that expire in 2008. The Class III Directors, who are Paul Galleberg
      and
      Jeff Lawton, have terms that will expire in 2009.




15





The
      holders of our Series A convertible preferred stock collectively have the right
      to elect one director to the Board, until such time the holders hold less than
      15% of our fully-diluted common stock.





Our
      executive officers are elected by, and serve at the discretion of, our Board
      of
      Directors. Set forth below is a brief description of the business experience
      of
      all directors and executive officers.





Mr.
      Comer
      has served as the Chief Executive Officer and a director of the Company since
      December 2005, and is the founder and Managing Director of Ocean Park Advisors,
      LLC, a private equity firm founded in 2004 that invests in middle-market
      companies and provides advisory services to select investors and corporate
      clients. He has over 15 years experience in business development, finance and
      operations both in the United States and throughout Asia. Prior to founding
      Ocean Park Advisors, he was a Principal at Platinum Equity. From 2000 through
      2002, Mr. Comer was the Chief Financial Officer of Pacific Crossing, a
      subsea cable venture that owned and operated a trans-Pacific fiber optic cable
      system linking Japan and the United States, and was Vice President of Corporate
      Finance at Asia Global Crossing. The Pacific Crossing venture consisted of
      the
      following entities: PC Landing Corp., a Delaware corporation, Pacific Crossing,
      Ltd., a Bermuda company, Pacific Crossing UK, Ltd., a United Kingdom company,
      PCL Japan, Ltd., a Japan company, and SCS Bermuda, Ltd., a Bermuda company.
      In
      July 2002, these entities filed a voluntary petition for relief under Chapter
      11
      of the Bankruptcy Code. Mr. Comer is a director of Casestack, Inc., an
      outsourced logistics company, and serves on the Board of Trustees of
      Princeton-in-Asia. He is also a member of the Pacific Council on International
      Policy and served on its task force on United States-India Relations.
      Mr. Comer received a Bachelor’s degree *cum
      laude* from
      Princeton University; a Master’s degree with Distinction in International
      Relations from Johns Hopkins University, and an MBA from the Wharton
      School.





Mr.
      Dubroc has served as the President, Chief Operating Officer and a director
      of
      the Company since September 2006, and has served as the President and Chief
      Executive Officer of Vanguard since its inception in 2003. Prior to 2003,
      Mr. Dubroc had an 18 year tenure at Cleco Corporation, a publicly-listed
      electric utility company (NYSE: CNL) based in the Gulf Coast region, where
      he
      most recently served as an officer and as a Senior Vice President.
      Mr. Dubroc is a member of the Louisiana Association of Business and
      Industry, the Louisiana Engineering Society, the Central Louisiana Chamber
      of
      Commerce, and is a voting Board Member of the National Biodiesel Board.
      Mr. Dubroc is a graduate of the Advanced Business Management program at
      Harvard Business School, and received an advanced degree in Engineering
      Management from Louisiana State University. He graduated with a B.S. in
      Mechanical Engineering from the University of Louisiana in
      Lafayette.





Mr.
      Collins has served as the Executive Vice President of Business Development
      and a
      director of the Company since September 2006, and has served as the Chief
      Financial Officer, Secretary and Treasurer of Vanguard since its inception
      in
      2003. He has over 15 years experience in finance, strategic planning, and
      business development. Prior to 2003, Mr. Collins had a 5 year tenure at
      Cleco Corporation, where he served as Director of Finance and Strategic
      Planning. Prior to Cleco, Mr. Collins was involved in a number of
      investment and consulting projects where he advised on operations, finance,
      accounting, and fundraising. Mr. Collins is a graduate of Louisiana Tech
      University, where he received a B.S. in Accounting.





Mr.
      Chuk
      has served as the Chief Financial Officer and a director of the Company since
      December 2005, and is a Principal and co-founder of Ocean Park Advisors, LLC,
      a
      private equity firm founded in 2004 that invests in middle-market companies
      and
      provides advisory services to select investors and corporate clients. In 2003,
      he was an Associate at Platinum Equity, a private equity firm in Los Angeles.
      From 2001 to 2003, Mr. Chuk worked in the Corporate Finance group at Asia
      Global Crossing. Mr. Chuk graduated cum laude from the University of
      Pennsylvania’s Management & Technology joint-degree program, with a
      B.S. in Finance from the Wharton School and a B.S. in Electrical Engineering,
      and received an M.S. in Electrical Engineering from Stanford
      University.





Mr.
      Galleberg has served as a director of the Company since March 2006. He has
      over
      20 years experience in business development, law, corporate finance and general
      management. Since June 2006, Mr. Galleberg has been President of PV Asset
      Management LLC, a private investment and advisory company. From 2000 to June
      2006, Mr. Galleberg had been Senior Vice President, General Counsel and
      Secretary of Infonet Services Corporation, one of the world’s largest managed
      data network services providers, which was purchased by BT Group plc in February
      2005. Prior to joining Infonet, Mr. Galleberg was a corporate partner with
      Latham & Watkins, an international law firm, having been associated
      with the firm since 1986. Mr. Galleberg received a J.D., *cum
      laude* , from
      Harvard Law School and an A.B., with highest distinction, from the University
      of
      Michigan





Mr.
      Lawton has served as a director of the Company since May 2006. He has over
      10
      years experience in corporate restructurings, corporate development, mergers
      and
      acquisitions, business development and investment banking. From 2003 to 2006,
      Mr. Lawton was Vice President of Restructuring and Investor Relations for
      Adelphia Communications Corporation. From 2000 to 2003, Mr. Lawton served
      as Director, Corporate Development/Finance at 360 networks, a telecommunications
      infrastructure and services provider in the United States and Canada. From
      1999
      to 2000, Mr. Lawton worked in corporate development at XO Communications, a
      competitive local telecom provider, and prior to XO Communications,
      Mr. Lawton was an investment banker in the telecommunications and media
      group at Merrill Lynch & Co. in New York. Mr. Lawton received an
      A.B. in economics, *cum
      laude* , from
      Princeton University.




16





**Family
      Relationships**





None.





**Committees
      of the Board of Directors**





The
      Board
      of Directors has a Compensation Committee whose members are Mr. Galleberg,
      who
      is the Chairman, and Mr. Lawton. The Compensation Committee makes
      recommendations concerning executive salaries and incentive compensation for
      employees of the Company, subject to ratification by the full Board, and
      administers the Company’s 2006 Incentive Compensation Plan (the “Plan”). The
      Compensation Committee took one action by written consent and did not formally
      meet in fiscal 2006. Compensation matters in fiscal 2006 were otherwise
      addressed by the full Board.





The
      Board
      of Directors re-established its Audit Committee on November 20, 2006 and
      appointed Mr. Galleberg and Mr. Lawton as members of the Audit Committee
      (previously, the full Board acted in lieu of a separate Audit Committee). The
      chairman of the Audit Committee is Jeffrey Lawton. The Audit Committee reviews
      the results and scope of the audit and other services provided by the Company’s
      independent certified public accountants, as well as the Company’s accounting
      principles and its system of internal controls, reports the results of their
      review to the full Board and to management and recommends to the full Board
      that
      the Company’s audited consolidated financial statements be included in the
      Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange
      Commission. The Audit Committee undertakes these specific duties and other
      responsibilities listed in the Audit Committee’s charter, and such other duties
      as the Board may prescribe from time to time. The Audit Committee did not meet
      during fiscal 2006 after its re-establishment. We have determined that Jeffrey
      Lawton is a “financial expert” as such term is defined under the rules of the
      Securities and Exchange Commission.




The
      Board
      of Directors established a Nominating Committee on November 20, 2006 and
      appointed Mr. Comer, Mr. Dubroc and Mr. Galleberg as members of the Nominating
      Committee. The Nominating Committee did not meet during fiscal 2006 after its
      establishment.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities and Exchange Act of 1934, as amended, requires our
      directors and executive officers, and persons who own more than ten percent
      of a
      registered class of our equity securities, to file with the Securities and
      Exchange Commission initial reports of ownership and reports of changes in
      ownership of common stock and other equity securities of Diametrics. Officers,
      directors and greater-than ten percent shareholders are also required by SEC
      regulation to furnish the Company with copies of all Section 16(a) forms they
      file.





To
      our
      knowledge, based solely on review of the copies of such reports furnished to
      us
      during the fiscal year ended December 31, 2006, all Section 16(a) filing
      requirements applicable to its officers, directors and greater than ten-percent
      beneficial owners were complied with, except that the Form 3 Initial Statement
      of Beneficial Ownership of Securities Statements of Jeffrey Lawton and Paul
      Galleberg, two of our directors, were filed late.





**Code
      of Ethics**





The
      Company has adopted a code of ethics that applies to the Company’s principal
      executive officer and principal financial officer. This code of ethics has
      been
      filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2003.





17





**Item
      10. Executive Compensation**





**Compensation
      of Executive Officers**





The
      following table sets forth the cash and non-cash compensation for each of the
      last three fiscal years awarded to or earned by our Chief Executive Officer
      and
      our other most highly compensated executive officers whose salary and bonus
      earned in the last fiscal year ended December 31, 2006 exceeded $100,000 for
      services rendered:




**SUMMARY
      COMPENSATION TABLE**




**Name and Principal**
                **Position**
              
              **Year**
              
              **Salary ($)**
              
              **Bonus ($)**
              
              **Stock**
                **Awards ($)**
              
              **Option**
                **Awards ($)**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation ($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings ($)**
              
              **All Other**
                **Compensation ($)**
              
              **Total ($)**W.
                  Bruce Comer III,
              
              
              2006
              
              $
              18,333
              (1)
              
              —
              
              
              —
              
              $
              1,001,119
              (3)
              
              —
              
              
              —
              
              
              —
              
              $
              1,019,452Chief
                  Executive Officer
              
              
              2005
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —Heng
                  Chuk,
              
              
              2006
              
              $
              18,334
              (2)
              $
              6,000
              
              
              —
              
              $
              480,534
              (4)
              
              —
              
              
              —
              
              
              —
              
              
              498,876Chief
                  Financial Officer
              
              
              2005
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              $
              —Darrell
                  Dubroc,
              
              
              2006
              
              $
              75,452
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              540,598
              (6)
              $
              616,050President
                  and Chief Operating Officer
              
              
              2005
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Tim
                  Collins,
              
              
              2006
              
              $
              51,769
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              174,378
              (7)
              $
              226,147Executive
                  Vice President of Business Development
              
              
              2005
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —


(1)
            Does
                not include payments made to Ocean Park Advisors, LLC (“OPA”) of which W.
                Bruce Comer III is a principal. Pursuant to a management services
                agreement that we entered into with OPA on September 20, 2006, we pay
                OPA $75,000 per month and OPA professionals and advisors perform
                general
                and administrative services for us. Mr. Comer serves as our Chief
                Executive Officer pursuant to that agreement. He receives no separate
                compensation for his services. See “Employment and Management Agreements”
                and “Certain Relationships and Related Transactions.”(2)
            Does
                not include payments made to OPA pursuant to the agreement described
                in
                Note 1 above. Heng Chuk is a principal of OPA, serves as our Chief
                Financial Officer pursuant to that agreement, and receives no separate
                compensation for his services. See “Employment and Management Agreements”
                and “Certain Relationships and Related Transactions.”(3)
            Represents
                the dollar amount recognized for financial reporting purposes of
                all stock
                options awarded to Mr. Comer in fiscal 2006. , computed in accordance
                with
                Financial Accounting Standards 123R. See Note 13 to the Financial
                Statements for a discussion of the assumptions we used in making
                such
                calculation. Does not include a stock option to purchase 2,069,109
                shares
                of common stock granted to OPA on September, 20, 2006. Mr. Comer is a
                principal of OPA and disclaims beneficial ownership of the shares
                underlying such option except to the extent of his pecuniary interest
                therein.(4)
            Represents
                the dollar amount recognized for financial reporting purposes of
                all stock
                options awarded to Mr. Chuk in fiscal 2006. , computed in accordance
                with
                Financial Accounting Standards 123R. See Note 13 to the Financial
                Statements for a discussion of the assumptions we used in making
                such
                calculation. Does not include the stock option granted to OPA on
                September, 20, 2006 and described in Note 3 above. Mr. Chuk is a
                principal of OPA and disclaims beneficial ownership of the shares
                underlying such option except to the extent of his pecuniary interest
                therein.(6)
            Represents
                a bonus of $540,598 paid to Mr. Dubroc upon the completion of the
                Vanguard
                Acquisition.(7)
            Represents
                a bonus of $174,378 paid to Mr. Collins upon the completion of the
                Vanguard Acquisition.




**Employment
      and Change of Control Agreements**




On
      September 20, 2006, we entered into an employment agreement with
      Mr. Dubroc as our President and Chief Operating Officer. The employment
      agreement provides for an initial term of three years, which is automatically
      renewed for successive one-year terms thereafter on the same terms and
      conditions unless either party provides the other party with notice that it
      has
      elected not to renew the employment agreement. Mr. Dubroc is entitled to
      receive an annual salary of $250,000, a bonus of $540,598 that was paid upon
      the
      closing of the Acquisition, future incentive compensation of up to $1,081,196
      based on our achieving certain milestones, and an annual performance bonus
      to be
      determined by our Board of Directors.




On
      September 20, 2006, we entered into an employment agreement with
      Mr. Collins as our Executive Vice President of Business Development. The
      employment agreement provides for an initial term of three years, which is
      automatically renewed for successive one-year terms thereafter on the same
      terms
      and conditions unless either party provides the other party with notice that
      it
      has elected not to renew the employment agreement. Mr. Collins is entitled
      to receive an annual salary of $175,000, a bonus of $174,378 that was paid
      upon
      the closing of the Acquisition, future incentive compensation of up to $348,756
      based on our achieving certain milestones, and an annual performance bonus
      to be
      determined by our Board of Directors.




On
      September 20, 2006, we entered into a management services agreement with
      Ocean Park Advisors, LLC, pursuant to which certain of OPA’s professionals
      (including but not limited to Messrs. Comer and Chuk) and consultants will
      provide general and administrative services to us. Such professionals will
      be
      involved in our strategic planning, management of operations, finance and
      accounting functions, as well as business development. We and OPA have agreed
      that Mr. Comer and Mr. Chuk shall continue to serve as our Chief
      Executive Officer and Chief Financial Officer, respectively, and that Ocean
      Park
      Advisors shall have the right to appoint two directors to our Board. The
      management services agreement provides for an initial term of one year. Ocean
      Park Advisors will be entitled to receive a fee of $75,000 per month, a bonus
      of
      $400,000 contingent upon the performance of certain milestones, as well as
      an
      issuance of stocks options. See Item 12 “Certain Relationships and Related
      Transactions, and Director Independence.”




**Equity
      Awards**




The
      following table provides certain information concerning equity awards held
      by
      the named executive officers as of December 31, 2006.




**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR END**


**Option
                  Awards**
              
              **Stock
                  Awards****Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options
                  (#)**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options
                  (#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options
                  (#)**
              
              **Option**
                **Exercise**
                **Price ($)**
              
              **Option**
                **Expiration**
                **Date**
              
              **Number**
                **of
                  Shares**
                **or
                  Units**
                **of
                  Stock**
                **That**
                **Have
                  Not**
                **Vested (#)**
              
              **Market**
                **Value
                  of**
                **Shares
                  or**
                **Units
                  of**
                **Stock That**
                **Have
                  Not**
                **Vested ($)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Number of**
                **Unearned**
                **Shares,
                  Units**
                **or
                  Other**
                **Rights
                  That**
                **Have
                  Not**
                **Vested (#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Market
                  or**
                **Payout
                  Value**
                **of
                  Unearned**
                **Shares,
                  Units**
                **or
                  Other**
                **Rights
                  That**
                **Have
                  Not**
                **Vested ($)****Name**
              
              **Exercisable**
              
              **Unexercisable**W.
                  Bruce Comer III
              
              
              180,662
              
              
              —
              (1)
              
              —
              
              $
              0.463
              
              
              3/15/2007
              
              
              —
              
              
              —
              
              
              —
              
              
              —Heng
                  Chuk
              
              
              86,698
              
              
              —
              (2)
              
              —
              
              $
              0.463
              
              
              3/15/2007
              
              
              —
              
              
              —
              
              
              —
              
              
              —Darrell
                  Dubroc
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Tim
                  Collins
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —





(1)
            Does
                not include a stock option to purchase 2,069,109 shares of common
                stock
                granted to OPA on September 20, 2006. Mr. Comer is a principal
                of OPA and disclaims beneficial ownership of the shares underlying
                such
                option except to the extent of his pecuniary interest therein. Such
                option
                has an exercise price of $0.7587 per share and expires on
                December 31, 2008. Such option is fully vested but is not exercisable
                until January 1, 2008.


(2)
              Does
                  not include the stock option granted to OPA on September 20, 2006 and
                  described in Note 1 above. Mr. Chuk is a principal of OPA and
                  disclaims beneficial ownership of the shares underlying such option
                  except
                  to the extent of his pecuniary interest
                  therein.


18




**Director
      Compensation**





The
      following table provides certain summary information concerning the compensation
      paid to our non-executive directors. All compensation paid to our directors
      who
      are also executive officers is set forth in the table under “Executive
      Compensation.”




**DIRECTOR
      COMPENSATION**





**Name**
            
            **Fees**
              **Earned
                or**
              **Paid**
              **in Cash ($)**
            
            **Stock**
              **Awards ($)**
            
            **Option**
              **Awards ($)**
            
            **Non-Equity**
              **Incentive
                Plan**
            
            **Nonqualified**
              **Deferred**
            
            **All
                Other**
              **Compensation ($)**
            
            **Total ($)**Paul
                A. Galleberg
            
            $
            6,944
            (1)
            
            —
            
            $
            473,619
            (2)
            
            —
            
            
            —
            
            
            —
            
            
            480,563Jeffrey
                Lawton
            
            $
            6,944
            (3)
            
            —
            
            $
            473,619
            (4)
            
            —
            
            
            —
            
            
            —
            
            
            480,563





(1)
            Represents
                (i) fees of $2,500 paid for Board services for the period January
                1, 2006
                to September 20, 2006, and (ii) fees of $4,000 paid for Board services
                for
                the period September 21, 2006 to December 31, 2006.(2)
            Represents
                the dollar amount recognized for financial reporting purposes of
                all stock
                options awarded to Mr. Galleberg in fiscal 2006, as calculated pursuant
                to
                Financial Accounting Standards 123R. See Note 13 to the Financial
                Statements for a discussion of the assumptions we used in making
                such
                calculation. As of December 31, 2006, Mr. Galleberg owns stock options
                to
                purchase an aggregate of 384,604 shares of common
                stock.(3)
            Represents
                (i) fees of $2,500 paid for Board services for the period January
                1, 2006
                to September 20, 2006, and (ii) fees of $4,000 paid for Board services
                for
                the period September 21, 2006 to December 31, 2006.(4)
            Represents
                the dollar amount recognized for financial reporting purposes of
                all stock
                options awarded to Mr. Lawton in fiscal 2006, as calculated pursuant
                to
                Financial Accounting Standards 123R. See Note 13 to the Financial
                Statements for a discussion of the assumptions we used in making
                such
                calculation. As of December 31, 2006, Mr. Lawton owns stock options
                to
                purchase an aggregate of 384,604 shares of common
                stock




We
      recently adopted a plan pursuant to which each of our independent directors
      is
      entitled to receive compensation of $16,000 per year and a one-time grant of
      options to purchase an aggregate of 0.5% of the fully- diluted common stock
      (equal to 348,480 common shares as of the date of the closing of the
      Acquisition), in consideration for their services as directors, which will
      have
      an exercise price equal to the fair market value per share and vest quarterly
      over the period of one year. Two of our directors, Paul Galleberg and Jeffrey
      Lawton, received such compensation and were issued such options with an exercise
      price of $0.7587. During 2005, no director received any compensation for serving
      on our Board.




On
      August 11, 2006, we granted W. Bruce Comer III, our Chief Executive
      Officer, and Heng Chuk, our Chief Financial Officer and Secretary options to
      purchase 180,622 and 86,698 shares of common stock, respectively, with an
      exercise price of $0.46 per share, or 110% of the fair value of the common
      stock
      on the date of grant, and vesting fully on December 1, 2006. Our two
      independent directors, Paul Galleberg and Jeffrey Lawton, were each awarded
      an
      option to purchase 36,124 shares of common stock, at an exercise price of $0.42
      per share and vesting fully on September 13, 2006 and November 4,
      2006, respectively (being six months after the appointment of each director).
      All stock options issued to the above individuals were originally set to expire
      on March 15, 2007; on March 14, 2007, we extended the expiration terms to
      December 31, 2007. The options were not exercisable until approval by our
      stockholders. On November 28, 2006, the stockholders approved the stock
      options at a special meeting of stockholders.




19





On
      March
      14, 2007, we entered into a services agreement with PV Asset Management, LLC,
      a
      company controlled by Paul Galleberg, one of our directors. Pursuant to the
      terms of that agreement, which was effective as of February 5, 2007, Mr.
      Galleberg performs management and consulting services for us. The term of the
      agreement extends through August 3, 2007. Under the agreement, Mr. Galleberg’s
      company receives a base fee of $10,000 per month and may receive a bonus up
      to
      $75,000 upon the achievement of specified goals. Mr. Galleberg will also receive
      option grants under the terms of the agreement. See Item 12 “Certain
      Relationships and Related Transactions, and Director Independence”.





**Limitation
      of Liability and Indemnification of Executive Officers**





As
      permitted by the Delaware General Corporation Law, our Certificate of
      Incorporation and Bylaws limit or eliminate the personal liability of our
      directors for a breach of their fiduciary duty of care as a director. The duty
      of care generally requires that, when acting on behalf of the corporation,
      directors exercise an informed business judgment based on all material
      information reasonably available to them. Consequently, a director will not
      be
      personally liable to us or our stockholders for monetary damages or breach
      of
      fiduciary duty as a director, except for liability for:


·
              any
                  breach of the director’s duty of loyalty to us or our
                  stockholders;
 
 ·
              acts
                  or omissions not in good faith or that involve intentional misconduct
                  or a
                  knowing violation of law;
 
 ·
              unlawful
                  payments of dividends or unlawful stock repurchases, redemptions
                  or other
                  distributions; or
 
 ·
              any
                  transaction from which the director derived an improper personal
                  benefit.
 
 The
      limitations of liability do not affect the availability of equitable remedies
      such as injunctive relief or rescission. If Delaware law is amended to authorize
      the further elimination or limiting of the liability of a director, then the
      liability of our directors will be eliminated or limited to the furthest extent
      permitted by Delaware law as so amended.





Our
      Certificate of Incorporation allows us to indemnify our officers, directors
      and
      other agents to the full extent permitted by Delaware law. Additionally, we
      purchase insurance on behalf of our executive officers and directors to cover
      any liabilities arising out of his or her actions in such capacity, regardless
      of whether Delaware law would permit indemnification, and to provide
      indemnification in circumstances in which indemnification is otherwise
      discretionary under Delaware law.





Our
      Bylaws specify circumstances in which indemnification for our directors and
      executive officers is mandatory and when we may be required to advance expenses
      before final disposition of any litigation. At present, there is no pending
      litigation.





On
      August 4, 2006, we entered into indemnification agreements with Heng Chuk,
      Bruce Comer, Paul Galleberg and Jeff Lawton, who were our directors as of such
      date (each an “Indemnitee”). These indemnification agreements were ratified by our stockholders at a special
      meeting of shareholders on November 28, 2006. On March 20, 2007, we entered
      into indemnification agreements with Maili Bergman and Jason Huang, who are
      our
      employees as of such date. The indemnification agreements generally require
      us
      to indemnify and hold an Indemnitee harmless to the greatest extent permitted
      by
      law for liabilities arising out of the Indemnitee’s service to us as an
      employee, officer or director, except to the extent that such liabilities are
      attributable to dishonest or fraudulent conduct, to personal gains to which
      Indemnitee is not entitled, or for which payments by us are not permissible
      under applicable law. The indemnification agreements also provide for the
      advancement of defense expenses by us. The foregoing summary is qualified by
      reference to the terms and provisions of the indemnification
      agreements.





Insofar
      as indemnification by us for liabilities arising under the Securities Act,
      may
      be permitted to our directors, officers and controlling persons pursuant to
      the
      foregoing provisions, or otherwise, we have been advised that in the opinion
      of
      the SEC such indemnification is against public policy as expressed in the
      Securities Act, and is, therefore, unenforceable. In the event that a claim
      for
      indemnification against such liabilities, other than the payment by us of
      expenses incurred or paid by a director, officer or controlling person in the
      successful defense of any action, suit or proceeding, is asserted by such
      director, officer or controlling person in connection with the securities being
      registered, we will, unless in the opinion of our counsel the matter has been
      settled by controlling precedent, submit to a court of appropriate jurisdiction
      the question whether indemnification by us is against public policy as expressed
      in the Securities Act and will be governed by the final adjudication of such
      issue.




20





**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      following table sets forth certain information regarding beneficial ownership
      of
      our Common Stock, as of by: (i) each person who is known by us to
      beneficially own more than 5% of the Common Stock, (ii) each of our
      directors, (iii) each of the our executive officers and (iv) all of
      our directors and executive officers as a group:





The
      following table sets forth information with respect to the following:
      (i) each person who beneficially owns more than five percent of our voting
      securities, (ii) each of our executive officers and directors and
      (iii) all of our executive officers and directors as a group. Percentages
      are based on 18,384,555 shares of our common stock outstanding as of April
      6,
      2007.




**Name
                of Beneficial Owner**
            
            **Number of Shares**
              **Beneficially Owned (1)**
            
            **Percent**
              **of Class**(2)
            
            M.A.G.
                Capital, LLC
            
            23,784,658
            
            57.6
            %(3)
            
            Mercator
                Momentum Fund
            
            2,525,082
            
            12.1
            %(4)
            
            Mercator
                Momentum Fund III
            
            4,586,398
            
            20.0
            %(5)
            
            Monarch
                Pointe Fund Ltd.
            
            15,251,394
            
            46.5
            %(6)
            
            Ocean
                Park Advisors, LLC
            
            7,213,606
            
            35.3
            %(7)
            
            Asset
                Managers International Limited
            
            8,723,376
            
            33.2
            %(8)
            
            St.
                Cloud Capital Partners
            
            3,031,286
            
            14.2
            %(9)
            
            Erasmus
                Louisiana Growth Fund
            
            2,635,901
            
            12.5
            %(10)
            
            Pentagon
                Dollar Satellite Fund
            
            2,635,901
            
            12.5
            %(11)
            
            Dave
                Callaham
            
            2,530,465
            
            12.1
            %(12)
            
            W.
                Bruce Comer III
            
            7,394,228
            
            35.8
            %(13)
            
            Heng
                Chuk
            
            7,300,304
            
            35.5
            %(14)
            
            Darrell
                Dubroc
            
            6,978,630
            
            38.0
            %(15)
            
            Tim
                Collins
            
            4,131,370
            
            22.5
            %(16)
            
            Paul
                A. Galleberg
            
            384,604
            
            2.0
            %(17)
            
            Jeffrey
                Lawton
            
            384,604
            
            2.0
            %(18)
            
            All
                directors and executive officers as a group
            
            19,360,134
            
            90.1
            %




(1)
            The
                percentage calculations are based on 18,384,555 shares of common
                stock
                that were outstanding as of April 6, 2007 plus the respective beneficial
                shares owned by each stockholder. Beneficial ownership is determined
                in
                accordance with rules of the Securities and Exchange Commission and
                includes voting power and/or investment power with respect to securities.
                Shares of common stock subject to options or warrants currently
                exercisable or exercisable within 60 days of April 6, 2007 (including
                shares issuable upon the conversion of our Series A and B Convertible
                Preferred Stock) are deemed outstanding for computing the number
                and the
                percentage of outstanding shares beneficially owned by the person
                holding
                such options but are not deemed outstanding for computing the percentage
                beneficially owned by any other person.(2)
            Consists
                of 7,884 shares of common stock, 1,413,900 shares of common stock
                that may
                be acquired upon the conversion of outstanding Series B Convertible
                Preferred Stock, as well as the securities held by Mercator Momentum
                Fund,
                LP, Mercator Momentum Fund III, LP, Monarch Pointe Fund, Ltd., or
                Mercator
                Focus Fund, LP. David Firestone, as managing member of M.A.G. Capital,
                LLC, has voting and investment control over the shares owned by M.A.G.
                Capital, LLC and the foregoing Funds described in this table. See
                Notes 3,
                4, and 5. The documentation governing the terms of the Series B
                Convertible Preferred Stock contains provisions prohibiting any conversion
                of the Series B Convertible Preferred Stock that would result in
                M.A.G.
                Capital, LLC; Mercator Momentum Fund, LP; Mercator Momentum Fund
                III or
                Monarch Pointe Fund, Ltd. collectively owning beneficially more than
                9.99%
                of the outstanding shares of our common stock as determined under
                Section 13(d) of the Securities Exchange Act of
                1934.(3)
            Consists
                of 20,342 shares of common stock, 268,600 shares of common stock
                that may
                be acquired upon the conversion of outstanding Series B Convertible
                Preferred Stock, 1,528,822 shares of common stock that may be acquired
                upon the conversion of outstanding Series A Convertible Preferred
                Stock
                and 707,318 shares of common stock that may be acquired upon the
                exercise
                of warrants with an exercise price of $1.14 and $1.33 per share.
                The
                documentation governing the terms of the Series B Convertible Preferred
                Stock contains provisions prohibiting any conversion of the Series
                B
                Convertible Preferred Stock that would result in M.A.G. Capital,
                LLC;
                Mercator Momentum Fund, LP; Mercator Momentum Fund III or Monarch
                Pointe
                Fund, Ltd. collectively owning beneficially more than 9.99% of the
                outstanding shares of our common stock as determined under
                Section 13(d) of the Securities Exchange Act of
                1934.




(4)
            Consists
                of 20,535 shares of common stock, 247,800 shares of common stock
                that may
                be acquired upon the conversion of outstanding Series B Convertible
                Preferred Stock, 2,952,209 shares of common stock that may be acquired
                upon the conversion of outstanding Series A Convertible Preferred
                Stock
                and 1,365,854 shares of common stock that may be acquired upon the
                exercise of warrants with an exercise price of $1.14 and $1.33 per
                share.
                The documentation governing the terms of the Series B Convertible
                Preferred Stock contains provisions prohibiting any conversion of
                the
                Series B Convertible Preferred Stock that would result in M.A.G.
                Capital,
                LLC; Mercator Momentum Fund, LP; Mercator Momentum Fund III or Monarch
                Pointe Fund, Ltd. collectively owning beneficially more than 9.99%
                of the
                outstanding shares of our common stock as determined under
                Section 13(d) of the Securities Exchange Act of
                1934.




21




(5)
            Consists
                of 847,647 shares of common stock, 408,600 shares of common stock
                that may
                be acquired upon the conversion of outstanding Series B Convertible
                Preferred Stock, 9,568,319 shares of common stock that may be acquired
                upon the conversion of outstanding Series A Convertible Preferred
                Stock
                and 4,426,829 shares of common stock that may be acquired upon the
                exercise of warrants with an exercise price of $1.14 and $1.33 per
                share.
                The documentation governing the terms of the Series B Convertible
                Preferred Stock contains provisions prohibiting any conversion of
                the
                Series B Convertible Preferred Stock that would result in M.A.G.
                Capital,
                LLC; Mercator Momentum Fund, LP; Mercator Momentum Fund III or Monarch
                Pointe Fund, Ltd. collectively owning beneficially more than 9.99%
                of the
                outstanding shares of our common stock as determined under
                Section 13(d) of the Securities Exchange Act of
                1934.(6)
            Consists
                of 5,144,497 shares of common stock and options to purchase 2,069,109
                shares. W. Bruce Comer III, as managing partner of Ocean Park Advisors
                LLC, has voting and investment control over the shares owned by
                it.(7)
            Consists
                of 815,675 shares of common stock and 7,907,702 shares of common
                stock
                that may be acquired upon the conversion of outstanding Series A
                Convertible Preferred Stock. Lewis Chester, as managing member of
                Asset
                Managers International Limited, has voting and investment control
                over the
                shares owned by it.(8)
            Consists
                of 3,301,286 shares of common stock that may be acquired upon the
                conversion of outstanding Series A Convertible Preferred Stock. Marshall
                Geller, as managing partner of St. Cloud Capital Partners, has voting
                and
                investment control over the shares owned by it.(9)
            Consists
                of 2,635,901 shares of common stock that may be acquired upon the
                conversion of outstanding Series A Convertible Preferred Stock. Matthew
                O’Reilly, the managing partner of Erasmus Louisiana Growth Fund L.P.,
                has
                voting and investment control over the shares owned by
                it.(10)
            Consists
                of 2,635,901 shares of common stock that may be acquired upon the
                conversion of outstanding Series A Convertible Preferred Stock. Lewis
                Chester, as managing member of Pentagon Dollar Satellite Fund, Ltd.,
                has
                voting and investment control over the shares owned by
                it.(11)
            Consists
                of 2,530,465 shares of common stock that may be acquired upon the
                conversion of outstanding Series A Convertible Preferred
                Stock.(12)
            Includes
                shares underlying options to purchase 180,622 shares. Additionally,
                Mr. Comer is a principal of Ocean Park Advisors, LLC, and as such,
                may be deemed the beneficial owner of the securities held by Ocean
                Park
                Advisors, LLC. He disclaims beneficial ownership of such securities
                except
                to the extent of his pecuniary interest therein.(13)
            Includes
                shares underlying options to purchase 86,698 shares. Additionally,
                Mr. Chuk is a principal of Ocean Park Advisors, LLC, and as such, may
                be deemed the beneficial owner of the securities held by Ocean Park
                Advisors, LLC. He disclaims beneficial ownership of such securities
                except
                to the extent of his pecuniary interest therein.(14)
            Consists
                of 6,978,630 shares of common stock.(15)
            Consists
                of 4,131,370 shares of common stock.(16)
            Consists
                of options to purchase 384,604 common shares.(17)
            Consists
                of options to purchase 384,604 common shares.(18)
            Includes
                shares beneficially owned by Darrell Dubroc, Tim Collins, Bruce Comer,
                Heng Chuk, Paul Galleberg and Jeff Lawton, and including with respect
                to
                Messrs. Comer and Chuk, shares beneficially owned by Ocean Park Advisors.
                Messrs. Comer and Chuk disclaim beneficial ownership of the shares
                beneficially owned by Ocean Park Advisors except to the extent of
                their
                respective pecuniary interests
                therein.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table provides information as of April 6, 2007 regarding compensation
      plans (including individual compensation arrangements) under which equity
      securities of our company are authorized for issuance.




**(a)**
            
            **(b)**
            
            **(c)****Plan
                Category**
            
            **Number of Securities to**
              **be
                issued upon exercise**
              **of
                outstanding options,**
              **warrants
                and rights**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding options,**
              **warrants
                and rights**
            
            **Number of securities remaining**
              **available
                for future issuance**
              **under
                equity compensation**
              **plans
                (excluding securities**
              **reflected
                in column (a)**Equity
                compensation plans approved by security holders
            
            
            3,127,312
            
            $
            0.7233
            
            
            3,465,443Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            N/A
            
            
            N/ATotal
            
            
            3,127,312
            
            $
            0.7233
            
            
            3,465,443




**Item 12.
      Certain Relationships and Related Transactions, and Director
      Independence**





*Certain
      Relationships and Related Transactions*





On
      November 21, 2005, BCC Acquisition II, LLC (“BCCAII”) and certain of the
      holders of our subordinated convertible debt, who collectively beneficially
      owned securities representing approximately 64% of our fully diluted common
      stock, entered into an agreement to sell their securities to Ocean Park
      Advisors, LLC (“OPA”) and M.A.G. Capital, LLC (“MAG”), a current shareholder of
      our predecessor, for a nominal amount of cash. In connection with the closing
      of
      this transaction, our Board of Directors and Chief Financial Officer at that
      time resigned and W. Bruce Comer III and Heng Chuk, principals of OPA, became
      members of the Board. Additionally, Messrs. Comer and Chuk became our Chief
      Executive Officer and the Chief Financial Officer and Secretary,
      respectively.




22





On
      December 6, 2005, we concluded the exchange of certain securities (the
“Exchange Offering”). MAG, its affiliated funds, and other investors who held
      our 2005 Subordinated Convertible Notes, our 2007 Senior Secured Convertible
      Notes, our Senior Secured Convertible Notes issued May 2, 2005, and our
      Series F and G Convertible Preferred Stock, exchanged their securities for
      shares of newly created Series H Convertible Preferred Stock (the “Series H”),
      and OPA exchanged its securities for shares of newly created Series I
      Convertible Preferred Stock (the “Series I”). Pursuant to this transaction,
      10,000 and 15,000 shares of the Series F and Series G Convertible Preferred
      Stock, respectively, were cancelled and 27,889 and 13,794 shares of the Series
      H
      and Series I, respectively, were issued. W. Bruce Comer and Heng Chuk, two
      of
      our executive officers and principals of OPA, may have been deemed to have
      beneficially owned such Series I preferred stock, although they each disclaimed
      any such beneficial ownership except to the extent of their pecuniary interest
      therein. Additionally, OPA received a fee of $75,000 as compensation for its
      services in structuring the transactions related to the Exchange
      Offering.





On
      December 6, 2005, Monarch Pointe Fund, Ltd., a fund affiliated with MAG,
      and Asset Managers International Limited, each entered into an agreement to
      loan
      us up to $375,000 (for an aggregate of up to $750,000), in the form of
      Convertible Secured Promissory Notes, to use for (i) the payment of certain
      expenses, including the payment of $75,000 to OPA as compensation for its
      services in structuring the transactions mentioned above, (ii) to settle
      with certain creditors, and (iii) to develop and pursue strategic
      alternatives. On the same date, we made an initial draw of $450,000 under the
      Convertible Secured Promissory Notes. The remaining $300,000 was drawn upon
      in
      January 2006.





On
      September 20, 2006, we entered into a management services agreement with
      OPA. The management services agreement provides for an initial term of one
      year,
      after which time it may be terminated by either party upon thirty days’ notice.
      Pursuant to the terms of the services agreement, the Company and OPA have agreed
      that Mr. Comer and Mr. Chuk shall continue to serve as our Chief
      Executive Officer and Chief Financial Officer, respectively, and that OPA shall
      have the right to appoint two directors to our Board. Other of OPA’s
      professionals and consultants may also perform general and administrative
      functions for the Company. See “Employment and Management Agreements”. In
      consideration of the services provided by OPA to the Company, we will pay OPA
      a
      monthly fee of $75,000 and a bonus of $400,000 contingent upon the performance
      of certain milestones. In addition, we granted stock options to Ocean Park
      Advisors, LLC to purchase 2,069,109 shares of common stock (approximately 3%
      of
      the common shares outstanding on a fully-diluted basis), at an exercise price
      of
      $0.76 per share. The stock options vest fully at the later of 1) the date the
      quoted closing price for the Company’s common stock reaches $1.33 per share or
      higher, and 2) the date the 2006 Incentive Compensation Plan and the requisite
      increase in the Company’s authorized capital stock are approved by shareholders.
      On November 28, 2006, the stockholders at a special meeting of shareholders
      approved our 2006 Plan and the Reincorporation resulting in the requisite
      increase in authorized capital stock, and the OPA options became fully-vested
      on
      such date. The OPA options were originally granted with an expected life of
      five
      years; on December 26, 2006, they were amended and restated to provide that
      they
      will only be exercisable after January 1, 2008 and on or before December 31,
      2008 (an expected life of 2.3 years from the date of grant), with provisions
      for
      acceleration in the event of a change in control of the Company.




On
      September 20, 2006, we entered into an agreement with OPA, pursuant to
      which OPA agreed to convert its Series I Convertible Preferred Stock into common
      stock and to waive the anti-dilution rights associated with the Series I
      Convertible Preferred Stock. In consideration of converting such Series I
      Convertible Preferred Stock and waiving such anti-dilution rights, we issued
      warrants to OPA to purchase approximately 4.8 million shares of common
      stock at $0.76 per share. The OPA warrants would vest upon the later of
      (i) the date the Reincorporation becomes effective, or (ii) the date
      that the price of the Company’s stock closes at higher than $0.76 per share for
      50% of such warrants, and higher than $1.14 per share for the other 50% of
      such
      warrants. The two vesting conditions were satisfied and the OPA warrants were
      fully vested. On January 25, 2007, OPA elected to cashless exercise the warrants
      in full pursuant to the terms therein, in exchange for the issuance of an
      aggregate of 3,765,097 shares of our common stock.





On
      September 20, 2006, Asset Managers International Limited and Monarch Pointe
      Fund, Ltd. each received 815,675 shares of common stock upon the conversion
      of
      their Convertible Secured Promissory Notes dated December 6, 2005 in
      accordance with the terms of such promissory notes. In connection with the
      Acquisition, we issued to certain funds managed by M.A.G. Capital, LLC (“MAG”)
      80,733 shares of common stock upon the cashless exercise of warrants to acquire
      417,119 of our common shares held by such funds, based on the closing price
      of
      our common stock on September 19, 2006.




23





On
      September 20, 2006, in consideration for the assignment to the Company of
      certain rights to acquire Vanguard, we issued to MAG warrants (the “MAG
      Warrants”) to purchase 6,500,000 shares of common stock (approximately 10% of
      the common shares on a fully-diluted basis) upon closing of the Acquisition.
      Half of the MAG Warrants have an exercise price of $1.1381 per share, and the
      other half have an exercise price of $1.3278 per share. MAG also received a
      cash
      fee of $435,000 to cover certain due diligence and legal expenses it incurred
      in
      connection with the Acquisition.





We
      and
      certain of our stockholders entered into voting agreements, each dated as of
      September 20, 2006. The stockholders who entered into the voting agreements
      collectively beneficially owned securities with the voting power equivalent
      to
      that of 52 million common shares (or approximately 99% of the voting power
      of our capital stock) at that time, and agreed to vote their shares in favor
      of
      approving the Reincorporation and approving our 2006 Incentive Compensation
      Plan
      and the Amendment to the Company’s 2006 Incentive Compensation Plan at our
      special meeting of shareholders held on November 28, 2006. Such proposals
      were approved by stockholders at the special meeting of shareholders on that
      date.





In
      connection with the sale of our Series J Convertible Preferred Stock, we entered
      into a Registration Rights Agreement, dated as of September 20, 2006, with
      certain related parties (including Monarch Pointe Fund, Ltd., Mercator Momentum
      Fund, L.P., Mercator Momentum Fund III, L.P., M.A.G. Capital, LLC and Ocean
      Park
      Advisors, LLC). In addition, we previously granted registration rights to the
      holders of our Series H and Series I Convertible Preferred Stock.





On
      March
      14, 2007, we entered into a services agreement with PV Asset Management LLC
      (“PVAM”), a company controlled by Paul Galleberg, one of our directors. Pursuant
      to the agreement, which was effective as of February 5, 2007, PVAM will cause
      Mr. Galleberg to perform management and consulting services as are reasonably
      requested by our CEO. The term of the agreement will extend through August
      3,
      2007, and may be extended an additional 60 days by us. We will pay PVAM a
      monthly base fee of $10,000 (which will be increased to $16,700 in the event
      the
      term of the agreement is extended), and PVAM may earn a bonus of up to $75,000
      upon the achievement of certain goals specified in the agreement. Mr. Galleberg
      will also be entitled to stock option grants on each of April 5, 2007, June
      5,
      2007, and August 5, 2007, for 91,666 shares of common stock, provided that
      no
      such options will be granted until the eleventh day after the effectiveness
      of a
      registration statement filed by us under the Securities Act of 1933 after
      February 5, 2007. The options will be fully vested on the date of grant, will
      have a term of five years, and will have an exercise price equal to the fair
      market value of our common stock on the grant date.





*Director
      Independence*





As
      of the
      date of this report, the only member of our Board and our Board Committees
      who
      is “independent” is Jeffrey Lawton. In making that determination, we used the
      definitions of independence of Nasdaq, even though such definitions do not
      currently apply to us because we are not listed on Nasdaq.





Paul
      Galleberg, who is a member of our Board and our Audit, Compensation and
      Nominating Committees is not independent under relevant Nasdaq definitions.





**Item
      13. Exhibits**


**Exhibit**
                **Number**
              
              **Description**2.1
              
              Contribution
                  Agreement among Diametrics Medical, Inc. and the members of Vanguard
                  Synfuels, L.L.C. (1)3.1
              
              Certificate
                  of Incorporation of the Company (2)3.2
              
              Bylaws
                  of the Company (2)4.1
              
              Certificate
                  of Designations of Series A Convertible Preferred Stock of the
                  Company,
                  dated, 2006 (2)4.2
              
              Certificate
                  of Designations of Series B Convertible Preferred Stock of the
                  Company,
                  dated, 2006 (2)4.3
              
              Registration
                  Rights Agreement for the Series J Convertible Preferred Stock,
                  dated
                  September 20, 2006, among Diametrics Medical, Inc. and M.A.G. Capital,
                  LLC, Monarch Pointe Fund, Ltd., Mercator Momentum Fund, L.P., Mercator
                  Momentum Fund III, L.P., Ocean Park Advisors, LLC and certain Accredited
                  Investors (1)4.4
              
              Voting
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and certain of its stockholders (1)10.1
              
              Employment
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Darrell Dubroc (1) *10.2
              
              Confidential
                  Information and Invention Assignment Agreement, dated September
                  20, 2006,
                  by and between Diametrics Medical, Inc. and Darrell Dubroc
                  (1)10.3
              
              Employment
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Tim Collins (1) *10.4
              
              Confidential
                  Information and Invention Assignment Agreement, dated September 20,
                  2006, by and between Diametrics Medical, Inc. and Tim Collins
                  (1)10.5
              
              Member
                  Cross Receipt and Release, dated September 20, 2006, by and between
                  Diametrics Medical, Inc. and the members of Vanguard Synfuels,
                  L.L.C.
                  (1)10.6
              
              Services
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Ocean Park Advisors, LLC (1)
                  *
  24
  10.7
              
              Series
                  J Convertible Preferred Stock Subscription Agreement, dated September
                  20,
                  2006, among Diametrics Medical, Inc. and M.A.G. Capital, LLC, Monarch
                  Pointe Fund, Ltd., Mercator Momentum Fund, L.P., Mercator Momentum
                  Fund
                  III, L.P. and certain Accredited Investors (1)10.8
              
              Form
                  of Indemnification Agreement (3)10.9
              
              Diametrics
                  Medical, Inc. 2006 Incentive Compensation Plan (3) *10.10
              
              First
                  Amendment to the Diametrics Medical, Inc. 2006 Incentive Compensation
                  Plan
                  (1) *10.11
              
              Form
                  of Stock Option Agreement under 2006 Incentive Compensation Plan
                  (3)
                  *10.11.1
              
              Form
                  of Amendment to Stock Option Agreement under 2006 Incentive Compensation
                  Plan (5) *10.12
              
              Escrow
                  Agreement, dated September 20, 2006, by and among Diametrics Medical,
                  Inc., the members of Vanguard Synfuels, L.L.C. and JPMorgan Chase
                  Bank,
                  N.A. (1)10.13
              
              Closing
                  Statement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and the members of Vanguard Synfuels, L.L.C. (1)10.14
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and Asset Managers International Limited (1)10.15
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and Ocean Park Advisors (1)10.16
              
              Warrant
                  1 to Ocean Park Advisors, LLC to Purchase Common Stock, issued
                  September
                  20, 2006 (1)10.17
              
              Warrant
                  2 to Ocean Park Advisors, LLC to Purchase Common Stock, issued
                  September
                  20, 2006 (1)10.18
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Ocean Park Advisors, LLC (1) *10.19
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Paul Galleberg (1) *10.20
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Jeff Lawton (1) *10.21
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and M.A.G. Funds (1)10.22
              
              Subscription
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and M.A.G. Capital, LLC, regarding warrants to purchase Series
                  J
                  Preferred Stock (1)10.23
              
              Warrant
                  1 to M.A.G. Capital, LLC to Purchase Common Stock, issued September
                  20,
                  2006 (1)10.24
              
              Warrant
                  2 to M.A.G. Capital, LLC to Purchase Common Stock, issued September
                  20,
                  2006 (1)10.25
              
              Letter
                  Agreement, dated September 19, 2006, by and among Diametrics Medical,
                  Inc., Vanguard Synfuels, L.L.C. and First South Farm Credit, ACA
                  (1)10.26
              
              Agreement
                  and Plan of Merger between Diametrics Medical, Inc. and Biodiesel
                  Development Corporation (4)10.27
              
              Loan
                  Agreement with First South Farm Credit ACAü10.27.1
              
              First
                  Amendment to Loan Agreement with First South Farm Credit ACAü10.27.1
              
              Waiver
                  of Non Compliance with Covenantsü10.27.2
              
              Letter
                  Agreement between First South Farm Credit ACA and Vanguard SynFuels,
                  LLC
                  and Allegro Biodiesel Corporation dated April 2, 2007 ü10.28
              
              Services
                  Agreement and dated as of February 5, 2007, between Allegro Biodiesel
                  Corporation and PV Asset Management LLC (5)10.28.1
              
              Letter
                  Agreement with Paul Galleberg dated March 14, 2007 (5)14.
              
              Code
                  of Business Conduct and Ethics for Directors, Officers and Employees
                  (6)21.1
              
              List
                  of our subsidiaries (7)31.1
              
              Certification
                  of the Chief Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002ü31.2
              
              Certification
                  of the Chief Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002ü32.1
              
              Certification
                  of the Chief Executive Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002ü32.2
              
              Certification
                  of the Chief Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002ü




ü
            Filed
                herewith.*
            Management
                contract or executive compensation plan or arrangement.(1)
            Incorporated
                by reference to the Company’s Form 8-K dated September 26,
                2006.(2)
            Incorporated
                by reference to the Company’s Form 8-K dated November 28,
                2006.(3)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-QSB dated
                August 14, 2006.(4)
            Incorporated
                by reference to the Company’s Form 8-K dated October 18,
                2006.(5)
            Incorporated
                by reference to the Company’s Form 8-K dated March 14,
                2007(6)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the year
                ended December 31, 2003(7)
            Incorporated
                by reference to the Company’s Form S-B2 Registration Statement filed with
                the SEC on December 13, 2006.


25


**Item
      14. Principal Accounting Fees and Services**





The
      Board
      of Directors appointed McKennon, Wilson & Morgan, LLP as independent
      registered public accountants for the Company for the fiscal year ending
      December 31, 2006. McKennon, Wilson & Morgan, LLP has served as our
      independent registered public accountants since December, 2005 and has no
      relationship with us other than that arising from its engagement as independent
      registered public accountants.





**Independent
      Registered Public Accountants’ Fees**





The
      following table summarizes the aggregate fees for services performed by the
      independent registered public accountants engaged by the
      Company.


**Fee
                Category**
            
            **2006 Fees**
            
            **2005
                Fees**Audit
                Fees (a)
            
            $
            94,000
            
            $
            77,000Audit-Related
                Fees (b)
            
            
            80,000
            
            
            38,400Tax
                Compliance Fees(c)
            
            
            7,000
            
            
            9,600All
                Other Fees
            
            
            0
            
            
            0Total
            
            $
            181,000
            
            $
            125,000





(a)
            Includes
                audit fees of $15,000 billed or to be billed to us by McKennon,
                Wilson & Morgan LLP for review and audit of the Company’s
                consolidated financial statements for the fiscal year ended
                December 31, 2005.




(b)
            Includes
                audit and related fees incurred in connection with the audits of
                the
                financial statements of Vanguard Synfuels LLC for the years ended
                December
                31, 2005 and 2004 and the reviews of the six months ended June 30,
                2006
                and 2005.


(c)
            Fees
                for all tax-related services rendered to the
                Company.





**Audit
      Committee Pre-Approval Policy**





There
      are
      currently two members of the Audit Committee. The Committee adopted a Charter
      with the following policies and procedures for the approval of the engagement
      of
      an independent auditor for audit, review or attest services and for pre-approval
      of certain permissible non-audit services, all to ensure auditor
      independence.





The
      Company’s independent auditor will provide audit, review and attest services
      only at the direction of, and pursuant to engagement fees and terms approved
      by,
      the Audit Committee. Such engagement will be pursuant to a written proposal,
      submitted to the Audit Committee for review and discussion. If acceptable,
      the
      Audit Committee will engage the independent auditor pursuant to a written
      retention agreement, duly approved by the Audit Committee.





As
      proscribed by Section 10A(g) of the Securities Exchange Act of 1934,
      certain non-audit services may not be provided by the Company’s auditor,
      including:




·
              bookkeeping
                  or other services related to the accounting records or financial
                  statements of the Company,
 
 ·
              financial
                  information systems design and
                  implementation,
 
 ·
              appraisal
                  or valuation services, fairness opinions, or contribution-in-kind
                  reports,
 
 ·
              actuarial
                  services,
 
 ·
              internal
                  audit outsourcing services,
 
 ·
              management
                  functions or human resource
                  functions,
 
 ·
                broker
                    or dealer, investment adviser, or investment banking
                    services,
 
 ·
              Legal
                  services and expert services unrelated to the audit;
                  and
 
 ·
              any
                  other service that the Public Company Accounting Oversight Board
                  determines, by regulation, is
                  impermissible.
  With
        respect to permissible non-audit services, including tax services, the Company’s
        Chief Financial Officer or Principal Accounting Officer will submit a request
        to
        the Audit Committee to retain the Company’s auditor when the management of the
        Company believes it is in the best interest of the Company to do so. The
        requesting Company officer will submit specific reasons supporting this
        determination. In such event, the requesting officer of the Company shall
        submit
        a written proposal from the audit firm for the non-audit services, which
        shall
        be specific as to the scope of the services to be provided, and the compensation
        structure. The Audit Committee will review the proposed retention for compliance
        with three basic principles, violations of which would impair the auditor’s
        independence: (1) an auditor cannot function in the role of management,
        (2) an auditor cannot audit his or her own work, and (3) an auditor
        cannot serve in an advocacy role for the Company. If the Audit Committee
        determines that the proposed retention does not and will not violate these
        principles, it may authorize, in writing, the retention of the auditor for
        the
        agreed scope of non-audit services and compensation
        structure.





From
      and
      after the effective date of the Securities and Exchange Commission Rule
      requiring pre-approval of all audit and permissible non-audit services provided
      by independent registered public accountants, the Audit Committee has
      pre-approved all audit and permissible non-audit services by McKennon,
      Wilson & Morgan LLP.





The
      consolidated financial statements as of December 31, 2004 and for the one
      year then ended were examined by Virchow Krause & Company. They
      declined to stand for reappointment and resigned as auditors and principal
      accountants for the year ended December 31, 2005. Their resignation was
      concluded after they completed their review of the consolidated financial
      statements as of and for the three month period ended March 31,
      2005.




26




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the registrant has duly caused this Report to be signed on its behalf by the
      undersigned, thereunto duly authorized.


ALLEGRO
                BIODIESEL CORPORATION.By:
            /s/ W.
                BRUCE COMER III**W.
                Bruce Comer III**
              **Chief
                Executive Officer**
              **(Principal
                Executive Officer)****Date:
                April 6, 2007**




By:
              /s/ HENG
                    CHUK**Heng
                    Chuk**
                  **Chief
                    Financial Officer**
                  **(Principal
                    Financial and Accounting Officer)****Date:
                April 6, 2007**





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





**Signature**
            
            **Title**
            
            **Date**/S/    W.
                BRUCE COMER III
                 **W.
                Bruce Comer III**
            
            Chief
                Executive Officer and Director (Principal Executive
                Officer)
            
            April
                6, 2007/S/    HENG
                CHUK
              
              **Heng
                Chuk**
            
            Chief
                Financial Officer and Director (Principal Financing and Accounting
                Officer)
            
            April
                6, 2007/S/    DARRELL
                DUBROC
              
              **Darrell
                Dubroc**
            
            Director
            
            April
                6, 2007/S/    TIM
                COLLINS
              
              **Tim
                Collins**
            
            Director
            
            April
                6, 2007/S/    PAUL
                A. GALLEBERG
              
              **Paul
                A. Galleberg**
            
            Director
            
            April
                6, 2007/S/    JEFFREY
                LAWTON
              
              **Jeffrey
                Lawton**
            
            Director
            
            April
                6, 2007




27


**EXHIBIT
      INDEX**


**Exhibit**
                **Number**
              
              **Description**2.1
              
              Contribution
                  Agreement among Diametrics Medical, Inc. and the members of Vanguard
                  Synfuels, L.L.C. (1)3.1
              
              Certificate
                  of Incorporation of the Company (2)3.2
              
              Bylaws
                  of the Company (2)4.1
              
              Certificate
                  of Designations of Series A Convertible Preferred Stock of the
                  Company,
                  dated, 2006 (2)4.2
              
              Certificate
                  of Designations of Series B Convertible Preferred Stock of the
                  Company,
                  dated, 2006 (2)4.3
              
              Registration
                  Rights Agreement for the Series J Convertible Preferred Stock,
                  dated
                  September 20, 2006, among Diametrics Medical, Inc. and M.A.G. Capital,
                  LLC, Monarch Pointe Fund, Ltd., Mercator Momentum Fund, L.P., Mercator
                  Momentum Fund III, L.P., Ocean Park Advisors, LLC and certain Accredited
                  Investors (1)4.4
              
              Voting
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and certain of its stockholders (1)10.1
              
              Employment
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Darrell Dubroc (1) *10.2
              
              Confidential
                  Information and Invention Assignment Agreement, dated September
                  20, 2006,
                  by and between Diametrics Medical, Inc. and Darrell Dubroc
                  (1)10.3
              
              Employment
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Tim Collins (1) *10.4
              
              Confidential
                  Information and Invention Assignment Agreement, dated September
                  20, 2006,
                  by and between Diametrics Medical, Inc. and Tim Collins
                  (1)10.5
              
              Member
                  Cross Receipt and Release, dated September 20, 2006, by and between
                  Diametrics Medical, Inc. and the members of Vanguard Synfuels,
                  L.L.C.
                  (1)10.6
              
              Services
                  Agreement, effective September 20, 2006, by and between Diametrics
                  Medical, Inc. and Ocean Park Advisors, LLC (1) *10.7
              
              Series
                  J Convertible Preferred Stock Subscription Agreement, dated September
                  20,
                  2006, among Diametrics Medical, Inc. and M.A.G. Capital, LLC, Monarch
                  Pointe Fund, Ltd., Mercator Momentum Fund, L.P., Mercator Momentum
                  Fund
                  III, L.P. and certain Accredited Investors (1)10.8
              
              Form
                  of Indemnification Agreement (3)10.9
              
              Diametrics
                  Medical, Inc. 2006 Incentive Compensation Plan (3) *10.10
              
              First
                  Amendment to the Diametrics Medical, Inc. 2006 Incentive Compensation
                  Plan
                  (1) *10.11
              
              Form
                  of Stock Option Agreement under 2006 Incentive Compensation Plan
                  (3)
                  *10.11.1
              
              Form
                  of Amendment to Stock Option Agreement under 2006 Incentive Compensation
                  Plan (5) *10.12
              
              Escrow
                  Agreement, dated September 20, 2006, by and among Diametrics Medical,
                  Inc., the members of Vanguard Synfuels, L.L.C. and JPMorgan Chase
                  Bank,
                  N.A. (1)10.13
              
              Closing
                  Statement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and the members of Vanguard Synfuels, L.L.C. (1)10.14
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and Asset Managers International Limited (1)10.15
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and Ocean Park Advisors (1)10.16
              
              Warrant
                  1 to Ocean Park Advisors, LLC to Purchase Common Stock, issued
                  September
                  20, 2006 (1)10.17
              
              Warrant
                  2 to Ocean Park Advisors, LLC to Purchase Common Stock, issued
                  September
                  20, 2006 (1)10.18
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Ocean Park Advisors, LLC (1) *10.19
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Paul Galleberg (1) *10.20
              
              Stock
                  Option Agreement, dated September 20, 2006, by and between Diametrics
                  Medical, Inc. and Jeff Lawton (1) *10.21
              
              Exercise
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and M.A.G. Funds (1)10.22
              
              Subscription
                  Agreement, dated September 20, 2006, by and between Diametrics
                  Medical,
                  Inc. and M.A.G. Capital, LLC, regarding warrants to purchase Series
                  J
                  Preferred Stock (1)10.23
              
              Warrant
                  1 to M.A.G. Capital, LLC to Purchase Common Stock, issued September
                  20,
                  2006 (1)10.24
              
              Warrant
                  2 to M.A.G. Capital, LLC to Purchase Common Stock, issued September
                  20,
                  2006 (1)10.25
              
              Letter
                  Agreement, dated September 19, 2006, by and among Diametrics Medical,
                  Inc., Vanguard Synfuels, L.L.C. and First South Farm Credit, ACA
                  (1)10.26
              
              Agreement
                  and Plan of Merger between Diametrics Medical, Inc. and Biodiesel
                  Development Corporation (4)10.27
              
              Loan
                  Agreement with First South Farm Credit ACAü10.27.1
              
              First
                  Amendment to Loan Agreement with First South Farm Credit ACAü10.27.1
              
              Waiver
                  of Non Compliance with Covenantsü10.27.2
              
              Letter
                  Agreement between First South Farm Credit ACA and Vanguard SynFuels,
                  LLC
                  and Allegro Biodiesel Corporation dated April 2, 2007 ü10.28
              
              Services
                  Agreement and dated as of February 5, 2007, between Allegro-Biodiesel
                  Corporation and PV Asset Management LLC (5)10.28.1
              
              Letter
                  Agreement with Paul Galleberg dated March 14, 2007 (5)14.
              
              Code
                  of Business Conduct and Ethics for Directors, Officers and Employees
                  (6)21.1
              
              List
                  of our subsidiaries (7)31.1
              
              Certification
                  of the Chief Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002ü31.2
              
              Certification
                  of the Chief Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002ü32.1
              
              Certification
                  of the Chief Executive Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002ü32.2
              
              Certification
                  of the Chief Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002ü


ü
            Filed
                herewith.*
            Management
                contract or executive compensation plan or arrangement.(1)
            Incorporated
                by reference to the Company’s Form 8-K dated September 26,
                2006.


28




(2)
            Incorporated
                by reference to the Company’s Form 8-K dated November 28,
                2006.(3)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-QSB dated
                August 14, 2006.(4)
            Incorporated
                by reference to the Company’s Form 8-K dated October 18,
                2006.(5)
            Incorporated
                by reference to the Company’s Form 8-K dated March 14,
                2007(6)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the year
                ended December 31, 2003(7)
            Incorporated
                by reference to the Company’s Form S-B2 Registration Statement filed with
                the SEC on December 13, 2006.




29