Page Number
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009		2
		Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2010 and 2009 (unaudited)		3
		Consolidated Statement of Stockholders' Equity (Deficit) for the period ended March 31, 2010 (unaudited)		4
		Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)		5
		Notes to Consolidated Financial Statements (unaudited)		6
Item 2.		Management’s Discussion and Analysis or Plan of Operations		24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.		Controls and Procedures		31
PART II.		OTHER INFORMATION		32
Item 1.		Legal Proceedings		32
Item 1A.		Risk Factors		32
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3.		Defaults Upon Senior Securities		32
Item 4.		(Removed and Reserved)		32
Item 5.		Other Information		32
Item 6.		Exhibits		33
SIGNATURES				34

 

 

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PURE BIOFUELS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2010				December 31, 2009
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,208,822			$	735,352
Use restricted cash			1,477,995				6,830,717
Accounts receivable			-				155,093
Inventories			4,443,764				355,531
VAT credits			1,851,203				1,051,185
Deposits and other assets			316,133				1,088,251
TOTAL CURRENT ASSETS			9,297,917				10,216,129
PROPERTY, PLANT AND EQUIPMENT, net			40,691,624				40,179,286
DEBT ISSUANCE COSTS, net			3,106,957				3,332,390
GOODWILL			7,849,922				7,716,956
DEPOSIT GUARANTEE			15,000,000				15,000,000
DEFERRED TAX ASSETS			528,051				531,625
OTHER ASSETS			3,238,693				4,256,644
TOTAL ASSETS		$	79,713,164			$	81,233,030
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	2,069,620			$	956,647
Accrued expenses			2,643,475				3,815,939
Due to related parties			208,635				438,026
Notes payable - current			43,000,000				43,000,000
TOTAL CURRENT LIABILITIES			47,921,730				48,210,612
CONVERTIBLE NOTES, net of debt discount of $10,022,443 and $10,392,971 as of March 31, 2010 and December 31, 2009, respectively			52,717,601				48,795,662
ACCRUED DERIVATIVE LIABILITIES			18,577,240				21,556,300
TOTAL  LIABILITIES			119,216,571				118,562,574
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock; $0.001 par value; 1,000,000 shares authorized, no shares issued			-				-
Common stock; $0.001 par value; 750,000,000 shares authorized; 236,387,893 shares issued and outstanding as of March 31, 2010 and December 31, 2009			236,388				236,388
Additional paid-in capital			61,537,366				60,958,526
Accumulated other comprehensive loss			1,739,335				1,157,588
Accumulated deficit			(103,016,496	)			(99,682,046	)
TOTAL STOCKHOLDERS' DEFICIT			(39,503,407	)			(37,329,544	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	79,713,164			$	81,233,030

 

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

 

2

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PURE BIOFUELS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

 

		Three Months Ended
		March 31, 2010				March 31, 2009
		(unaudited)				(unaudited)
REVENUE		$	2,373			$	413,348
COST OF REVENUE			11,839				757,050
GROSS MARGIN			(9,466	)			(343,702	)
SELLING, GENERAL AND ADMINISTRATIVE  EXPENSES			2,002,614				2,036,072
LOSS FROM OPERATIONS			(2,012,080	)			(2,379,774	)
OTHER INCOME (EXPENSES):
Interest and financing costs			(5,366,895	)			(6,084,539	)
Other, net			59,318				(62,091	)
Gain (loss) on change in fair value of accrued derivative liabilities			3,567,506				(682,192	)
Foreign currency transaction gain (loss)			417,701				(258,497	)
TOTAL OTHER EXPENSE, net			(1,322,370	)			(7,087,319	)
LOSS BEFORE PROVISION FOR INCOME TAXES			(3,334,450	)			(9,467,093	)
PROVISION FOR INCOME TAXES			-				-
NET LOSS		$	(3,334,450	)		$	(9,467,093	)
OTHER COMPREHENSIVE GAIN (LOSS):
Foreign currency translation adjustment			581,747				463,776
COMPREHENSIVE LOSS		$	(2,752,703	)		$	(9,003,317	)
NET LOSS PER SHARE - BASIC AND DILUTED		$	(0.01	)		$	(0.05	)
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND DILUTED			236,387,893				172,374,699
The accompanying notes are an integral part of these consolidated financial statements.

 

 

3

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PURE BIOFUELS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

														Accumulated								Total
										Additional				Other								Stockholders'
		Common Stock								Paid-in				Comprehensive				Accumulated				Equity
		Shares				Amount				Capital				Loss				Deficit				(Deficit)
Balance, December 31, 2009			236,387,893			$	236,388			$	60,958,526			$	1,157,588			$	(99,682,046	)		$	(37,329,544	)
Stock compensation expense for options issued to employees			-				-				578,840				-				-				578,840
Foreign currency translation adjustment			-				-				-				581,747				-				581,747
Net loss			-				-				-				-				(3,334,450	)			(3,334,450	)
Balance, March 31, 2010 (unaudited)			236,387,893			$	236,388			$	61,537,366			$	1,739,335			$	(103,016,496	)		$	(39,503,407	)

 

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

 

 

4

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PURE BIOFUELS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Three Months				Three Months
		Ended				Ended
		March 31, 2010				March 31, 2009
		(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,334,450	)		$	(9,467,093	)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation			197,939				165,970
Stock compensation expense for options issued to employees			578,840				577,510
Fair value of warrants and conversion options issued for financing costs							2,879,447
Amortization of debt discounts, debt issuance costs and financing costs			2,160,816				1,575,471
(Gain) loss on change in fair value of accrued derivative liabilities			(3,567,506	)			682,192
Non-cash foreign currency transaction (gain) loss			(326,168	)			729,068
Changes in operating assets and liabilities:
Accounts receivable			157,380				88,865
Inventories			(4,072,130	)			117,017
VAT credits			(779,995	)			(9,212	)
Deposits and other assets			(189,024	)			(917,999	)
Accounts payable			1,093,810				335,823
Accrued expenses			2,366,330				1,775,422
Due to related parties			(236,360	)			81,892
Net cash used in operating activities			(5,950,518	)			(1,385,627	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment			(18,410	)			-
Net cash used in investing activities			(18,410	)			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes			-				2,200,000
Funds withdrawn on deposit			1,036,015				-
Decrease (increase) in restricted cash			5,393,502				(1,022	)
Net cash provided by financing activities			6,429,517				2,198,978
Effect of exchange rate changes on cash and cash equivalents			12,881				(48,870	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			473,470				764,481
CASH AND CASH EQUIVALENTS, Beginning of period			735,352				579,241
CASH AND CASH EQUIVALENTS, End of period		$	1,208,822			$	1,343,722
The accompanying notes are an integral part of these consolidated financial statements.

 

 

5

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 –  Organization and Basis of Presentation

The unaudited consolidated financial statements have been prepared by Pure Biofuels Corp. (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K. The results for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

Organization and Line of Business

 

Pure Biofuels Corp., through its directly owned subsidiaries Pure Biofuels del Peru S.A.C. and Palma Industrial S.A.C., processes, produces and distributes biodiesel as an alternative fuel for freight and transportation fleets, marines, farming, rail and aviation industries, and other industrial uses.  The Company’s products are sold in Peru.

Development Stage Company

The Company was in the development stage through July 31, 2009.  During the period that the Company was considered a development stage company, the Company incurred accumulated losses of approximately $105,000,000, of which, approximately $75,000,000 were non-cash expenses associated with debt and equity financings and stock compensation expense for options issued to employees.

Going-Concern

The Company has continued to incur losses since exiting from the development stage and has only recently begun principal operations. For the three months ended March 31, 2010, the Company incurred a net loss of $3,334,450 and has an accumulated deficit of $103,016,496. In addition, the Company is in technical non-compliance with certain covenants under the Interbank Loan Agreement which requires the $43,000,000 to be classified on the consolidated financial statements as a current liability.  Due to the current liability classification, the Company has a negative working capital balance of $38,623,813 at March 31, 2010.  These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has begun generating revenues from the sale of by-products of products for the period after the Company ceased to be a development stage company.  During July 2009, the Company obtained $43,000,000 in additional financing which will provide the Company with the available cash flow during the coming year.  The Company expects to negotiate a waiver of its technical non-compliance and an overall modification of the loan covenants.  With the additional financing from Interbank, the Company is able to fund working capital and expects to begin generating significant revenues during the second quarter of 2010.

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

These consolidated financial statements have been prepared on a going-concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business.  The Company is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going-concern is dependent upon its ability to generate sustainable revenue and negotiate the technical non-compliance with the Interbank loan. These consolidated financial statements do not include any adjustments to the recoverability and classification of the recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going-concern.

Basis of Presentation

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

Subsidiary		Place Incorporated		% Owned			Parent
Pure Biofuels Del Peru S.A.C.		Peru			99.9		Pure Biofuels Corp.
Palm Industrial S.A.C.		Peru			99.9		Pure Biofuels Corp.
Pure Biocarburantes S.A. *		Argentina			99.4		Pure Biofuels Del Peru S.A.C.

 

*	Pure Biocarburantes S. A. was disposed of during 2009.  The operations were insignificant to the operations of Pure Biofuels Del Peru.

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

Note 2 – Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the Company’s consolidated financial statements relate to the determination of depreciation rates for equipment, reserves for slow moving and obsolete inventory, future tax rates used to determine future income taxes, and the carrying values of goodwill and accrued derivative liabilities.  The Company’s actual results could differ materially from these estimates upon which the carrying values were based.

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Cash and Cash Equivalents

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

Use Restricted Cash

Restricted cash consists of monies under a standby letter of credit as required by a vendor and a deposit in guarantee.  As of March 31, 2010 and December 31, 2009, total restricted cash related to the standby letter of credit amounted to $0 and $141,852, respectively. As of March 31, 2010 and December 31, 2009, total restricted cash related to restricted working capital amounted to $1,477,995 and $6,688,865, respectively. As of March 31, 2010 and December 31, 2009, total non-current restricted cash related to the deposit in guarantee under the Interbank Financing amounted to $15,000,000.  See Note 9 for details on deposit in guarantee and restricted working capital.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of the reserve.  As of March 31, 2010 and December 31, 2009, the Company determined that no reserves for accounts receivable were necessary.

Inventories

Inventories are stated at the lower of cost or market. Cost has been determined by using the first-in, first-out method. The Company periodically reviews its reserves for slow moving and obsolete inventories. As of March 31, 2010 and December 31, 2009, the Company believes that no reserve was necessary.

Property, Plant and Equipment

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

The estimated useful lives are as follows:

Building improvements	10 years
Facilities and equipment	10 years
Computer equipments and licenses	4 years
Other fixed assets	5-10 years

 

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Goodwill and Impairment

The Company applies Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other Intangible Assets,” to record goodwill and intangible assets.  In accordance with ASC 350, certain intangible assets are to be assessed periodically for impairment using fair value measurement techniques. Goodwill is tested for impairment on an annual basis as of the end of the Company's fiscal year, or more frequently when impairment indicators arise. The Company evaluates the recoverability of intangible assets periodically and takes into account events and circumstances which indicate that impairment exists. The Company believes that as of March 31, 2010 and December 31, 2009, there was no impairment of its goodwill.

Impairment or Disposal of Long-Lived Assets

The Company applies the provisions of ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company evaluates the recoverability of its long-lived assets if circumstances indicate impairment may have occurred.  This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of March 31, 2010 and December 31, 2009, there was no impairment of its long-lived assets.

Accrued Derivative Liabilities

The Company applies ASC Topic 815, “Derivatives and Hedging,” which provides a two-step model to determine whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception in ASC 815-10-15-74. This standard triggers liability accounting on all instruments and embedded features exercisable at strike prices denominated in any currency other than the functional currency of the operating entity in Peru.  Using the criteria in ASC 815, the Company determines which instruments or embedded features that require liability accounting and records the fair values as an accrued derivative liability. The changes in the values of the accrued derivative liabilities are shown in the accompanying consolidated statements of operations as “gain (loss) on change in fair value of accrued derivative liabilities.”

Fair Value Measurements

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

 

9

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables, certain other current assets and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

·

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

·

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

·

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

  

The Company’s warrant liability is carried at fair value totaling $9,773,153 and $11,169,503, as of March 31, 2010 and December 31, 2009, respectively.  The Company’s conversion option liability is carried at fair value totaling $8,804,087 and $10,386,797 as of March 31, 2010 and December 31, 2009, respectively.  The Company used Level 2 inputs for its valuation methodology for the warrant liability and conversion option liability as their fair values were determined by using the Black-Scholes option pricing model using the following assumptions:

		March 31, 2010				December 31, 2009
Annual dividend yield			-				-
Expected life (years)			2.05-6.34				2.3-6.6
Risk-free interest rate			1.02%-3.28	%			1.14%-3.39	%
Expected volatility			140	%			140	%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the term of the warrants and conversion options. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants and conversion options. We have no reason to believe future volatility over the expected remaining life of these warrants are likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants and conversion options. The risk-free interest rate is based on U.S. Treasury securities with maturity terms similar to the expected remaining term of the warrants and conversion options.

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

		Fair Value As of March 31, 2010			Fair Value Measurements at March 31, 2010 Using Fair Value Hierarchy
Liabilities					Level 1		Level 2			Level 3
Warrant liability		$	9,773,153				$	9,773,153
Conversion option liability			8,804,087					8,804,087
Total accrued derivative liabilities		$	18,577,240				$	18,577,240

 

The Company recognized a gain of $3,567,506 for the three months ended March 31, 2010 and a loss of $682,192 for the three months ended March 31, 2009.

The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the consolidated balance sheets at fair value in accordance with ASC 825.

Concentration of Credit Risk

Cash includes cash on hand and demand deposits in accounts maintained within Peru and the United States. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the Unites States. Balances at financial institutions within Peru are not covered by insurance. As of March 31, 2010 and December 2009, the Company had deposits in excess of federally-insured limits of approximately $17,278,316 and $22,551,847, respectively. The Company has not experienced any losses in such accounts.

The Company’s operations are carried out in Peru. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the country, and by the general state of the country’s economy. The Company's operations in Peru are subject to specific considerations and significant risks not typically associated with companies in North America. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Foreign Currency Translations and Comprehensive Income

 

The reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries use their local currencies, the PEN as their functional currencies for the three months ended March 31, 2010 and the PEN and ARS as their functional currencies for the three months ended March 31, 2009. Assets and liabilities are translated using the exchange rates prevailing at the balance sheet dates. Translation adjustments resulting from this process are included in accumulated other comprehensive loss in the consolidated statements of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Asset and liability amounts at March 31, 2010 and December 31, 2009 were translated at 2.842 PEN to $1.00 USD and 2.890 PEN to $1.00 USD, respectively, for the Company’s Peruvian subsidiaries. Equity accounts were stated at their historical rates. The average translation rates applied to statement of operations accounts for the three months ended March 31, 2010 and 2009 were 2.849 PEN and 3.195 PEN to $1.00 USD, respectively; and for the three months March 31, 2009 was 3.582 ARS to $1.00 USD.  Cash flows are also translated at average translation rates for the period. Therefore, amounts reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Foreign Currency Transaction Gains and Losses

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.  Historically, the Company has not entered into any currency trading or hedging transactions, although there is no assurance that the Company will not enter into such transactions in the future.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred.  No significant penalties or interest relating to income taxes have been incurred during the three months ended March 31, 2010 and 2009.  GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

 

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Revenue Recognition

In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 13, “Revenue Recognition,” the Company recognizes revenue when it is realized or realizable and earned. The Company must meet all of the following four criteria under SAB 104 to recognize revenue:

·

Persuasive evidence of an arrangement exists

·

Delivery has occurred

·

The sales price is fixed or determinable

·

Collection is reasonably assured

Basic and Diluted Losses Per Share

Earnings per share is calculated in accordance with the ASC Topic 260, “Earnings Per Share.”  Basic earnings per share is calculated dividing income available to common stockholders by the weighted average number of common shares outstanding.  Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. All warrants, options and convertible notes were excluded from the diluted loss per share calculation due to the anti-dilutive effect.  As of March 31, 2010 and December 31, 2009, the following potential dilutive shares were excluded from the diluted loss per share for all periods presented due to their anti-dilutive effect.

		March 31, 2010				March 31, 2009
Options			15,217,500				15,186,250
Warrants			135,980,665				74,305,666
Convertible notes			209,133,479				127,955,458
Total			360,331,644				217,447,374

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation.”  ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The Company uses the Black-Scholes option-pricing model which was developed for use in estimating the fair value of options. Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

13

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

On April 27, 2007, the Company’s board of directors amended and restated the Company’s stock option plan to increase the number of available options from a total of 18,000,000 to 21,000,000 options that enables it to grant options to employees, including its officers and directors, and its subsidiaries and other persons who contribute efforts to the Company.  The board of directors administers the stock option plan. The stockholders approved the stock option plan on November 19, 2007.

Statement of Cash Flows

In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Reclassification

Certain reclassifications have been made to the 2009 consolidated financial statements to conform to the 2010 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

Recent Pronouncements

In October 2009, the FASB issued Accounting Standards Update 2009-15 ("ASU 2009-15") regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing.  This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation.  This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

 

On December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”.  This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting.  The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

14

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

In December 2009, FASB issued ASU No. 2009-17 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this Accounting Standards Update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. This ASU is effective for fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

    

In March 2010, FASB issued ASU No. 2010-10 Amendments for Certain Investment Funds. This update defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 to a reporting entity’s interest in certain types of entities. The deferral will mainly impact the evaluation of reporting enterprises’ interests in mutual funds, private equity funds, hedge funds, real estate investment entities that measure their investment at fair value, real estate investment trusts, and venture capital funds. The ASU also clarifies guidance in Statement 167 that addresses whether fee arrangements represent a variable interest for all service providers and decision makers. The ASU is effective for interim and annual reporting periods in fiscal year beginning after November 15, 2009. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

On February 25, 2010, the FASB issued ASU 2010-09 Subsequent Events Topic 855 “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives — Recognition. All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU is effective for the Company on July 1, 2010. Early adoption is permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

 

15

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 3 – Inventories

Inventories consist of the following:

Description		March 31, 2010				December 31, 2009
Raw Material		$	2,768,182			$	147,635
Work-in-Process			105,679				97,272
Finished Goods			1,569,903				110,624
Inventories, net		$	4,443,764			$	355,531

 

Note 4 – VAT Credits

At March 31, 2010 and December 31, 2009, the Company has value added tax (“VAT”) credit of $1,851,203 and $1,051,185, respectively, in Peru. VAT is charged at a standard rate of 19% of the purchases made by the Company and the Company obtains VAT tax credits for VAT paid in connection with the purchase of capital equipment and other goods and services employed in its operations. The Company is entitled to use the VAT tax credits against its Peruvian VAT tax liability generated from sales or service revenue or to receive a cash refund from the Peruvian government after necessary approvals are obtained from the Peruvian government. No significant penalties or interest relating to VAT taxes have been incurred during the three months ended March 31, 2010 and 2009.

Note 5 – Property, Plant and Equipment

Property, plant and equipment consist of the following:

		March 31, 2010				December 31, 2009
Land		$	3,559,882			$	3,499,583
Plant under construction			818,194				4,873,475
Building improvements			873,355				858,397
Facilities and equipment			36,752,471				32,144,859
Computer equipment and licenses			266,264				261,618
Other fixed assets			203,318				97,969
			42,473,484				41,735,901
Accumulated depreciation			(1,781,860	)			(1,556,615	)
Property, Plant and Equipment, net		$	40,691,624			$	40,179,286

 

Plant under construction represents labor costs, material, capitalized interest incurred in connection with the construction of plant improvements at the Chorillo facilities.   The Company estimates plant improvements to be fully completed by the 2nd quarter of 2010.  The Company is waiting for the proper certifications for completion of the project at which time the improvements under construction will be reclassified to facilities and equipment.

 

 

16

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Depreciation expense amounted to $197,939 and $165,970, for the three months ended March 31, 2010 and 2009, respectively.

Note 6 – Goodwill

Goodwill represents the excess of the purchase price of businesses over the fair value of the identifiable net assets acquired in accordance with ASC Topic 805, “Business Combination.” Goodwill and other indefinite life intangible assets are no longer amortized, but instead tested for impairment on an annual basis or more frequently when impairment indicators arise.

The carrying value of goodwill is $7,849,922 and $7,716,956 at March 31, 2010 and December 31, respectively. No impairment was noted on the goodwill at March 31, 2010 and December 31, 2009.

		Balance at December 31, 2009				Change in Value				Balance at March 31, 2010
Interpacific Oil S.A.C			7,716,956				132,966				7,849,922

 

In the table above, the change in value of goodwill is related to the change in the foreign exchange rates used to translate the balance sheet.

Note 7 – Performance Bond

On March 27, 2009, the Company entered into a performance bond agreement (the “Bond Agreement”), with FDS Corporation (“FDS”).  Under the Bond Agreement, FDS agreed to open a financial bond (the “FDS Bond”) in the amount of up to $2,500,000 required by the Peruvian Authorities to provide the regulatory and other permits necessary to commercialize the Callao Facility as a terminal and bonded warehouse under the laws of Peru for a term of up to twelve months, subject to the Company’s option to extend the term for up to two additional twelve month periods.  The Company paid a fee of $30,000 to extend the agreement to January 31, 2011.  The Bond Agreement accrues interest on a monthly basis in the amount of $31,250. As additional consideration for the placement of the Bond Agreement, the Company issued to FDS seven year cashless warrants (the “FDS Bond Warrants”) to purchase 62,500,000 shares of common stock by which FDS will have the right to purchase one share of common stock at an exercise price of $0.05 per share for every warrant issued. FDS has the right to exchange all or any FDS Bond Warrants at any time after the Effective Date (March 31, 2016), for a number of shares of common stock equal to the number of shares that would have been issued upon the exercise of the FDS Bond Warrants pursuant to Section 4 of the Bond Agreement divided by 1.2.  FDS may withdraw the FDS Bond at any time and terminate this Agreement if there is an event of default and Plainfield accelerates the obligations in connection with such event of default under the Loan Agreement dated as of September 12, 2007.

 

17

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In accordance with ASC 815, the Company determined that the FDS Bond Warrants should be classified as a liability at fair value on the date the FDS Bond Warrants were issued.  On the date of issuance, the Company determined the fair value of the FDS Bond Warrants to be $4,085,589 using the Black-Scholes option pricing model with the following assumptions:

·

Expected life of 7 years

·

Volatility of 130%;

·

Dividend yield of 0%;

·

Risk free interest rate of 2.28%

The fair value of $4,085,589 was recorded as a prepaid asset and warrant liability in the consolidated balance sheets.  The Company will amortize the $4,085,589 over one year.  The amortization expense for the three months ended March 31, 2010 and 2009, was $962,632 and $44,774, respectively, and is included in “interest and financing costs” in the accompanying consolidated statements of operations

Note 8 – Convertible Debt

In March 2010, the Company converted accrued interest from PIK Notes from September 15, 2009 through March 15, 2010 in the amount of $3,551,411 into PIK convertible notes with an exercise price of $0.30 per share.

The Company determined that the convertible notes contained an embedded conversion feature as of the date of issuance.  The Company recorded the fair value of $588,446 as a debt discount to be amortized over the life of the notes and as an accrued derivative liability.  The fair value was determined using the Black-Scholes option pricing model under the following assumptions: 

·

Expected life of 2.5 years

·

Volatility of 140%;

·

Dividend yield of 0%;

·

Risk free interest rate of 0.96%

The following table summarizes the convertible notes:

Balance, December 31, 2009		$	48,795,662
Conversion of interest to principal			3,551,411
Discount related to additional principal			(588,446	)
Amortization of note discount			958,974
Balance, March 31, 2010 (unaudited)		$	52,717,601

 

The $52,717,601 is net of debt discounts of $10,022,443.  The total principal amount of $62,740,044 is due on September 12, 2012, has an interest rate of 10% if paid in cash and 12% if paid in stock, and is convertible into shared of common stock at $0.30 per share.

Total interest related to the convertible notes amounted to $1,794,600 and $624,803 for the three months ended March 31, 2010 and 2009, respectively.  For the three months ended March 31, 2010 and 2009, the Company amortized debt discounts in the amount $958,974 and $906,791, respectively, which are recorded in the accompanying consolidated statements of operations as interest and financing costs.  The accrued interest payable related to the convertible notes at March 31, 2010 and December 31, 2009 amounted to $335,080 and $2,091,332, respectively, which is recorded in accrued expenses on the accompanying consolidated balance sheets.

 

18

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 9 – Interbank Peru Financing

On July 16, 2009, the Company entered into a sale/leaseback transaction with Interbank Peru (the “Financing”). Under the Financing, Interbank Peru acquired all the assets that comprise the Company’s Supply Plant, and in turn leased the Supply Plant back to the Company.  However, the assets remain on the Company’s books as still owned by the Company in accordance with accounting standard ASC 840-40. Further, the Financing agreement allows a Purchase Option, as defined, by the Company at the end of the six-year term of the agreement.  In addition, the Company pledged its land, with a carrying value of $3,499,583, as collateral pursuant to the Interbank Peru Financing agreement.

Also, a Trust Management was established for the following Company assets: (i) the right for collections, (ii) cash flows, (iii) a capital contribution (U.S. $15 million), (iv) a deposit in guarantees (U.S. $15 million), and (v) the cash flows that the Company credited in a reserve account. The Company recorded the capital contribution as “restricted cash” and the deposit in guarantees as “deposit guarantee.” Restricted cash is released from restriction only to pay working capital costs. The deposit guarantee will always hold 35% of the principal outstanding and will be released on an annual basis as the principal gets amortized over the term of the agreement. As of March 31, 2010 and December 31, 2009 the balance in restricted cash related to the capital contribution amounted to $1,477,995 and $6,688,865.  As of March 31, 2010 and December 31, 2009 the deposit guarantee amounted to $15,000,000.

The Company received proceeds of $51,170,000 in cash pursuant to the Interbank Peru Financing.  The Company recorded a note payable of $43,000,000 and reduced VAT credits by $8,170,000 as part of the sale of VAT credits to Interbank.  The principal balance of the amount due to Interbank Peru is $43,000,000 with an effective interest rate of 10.6% per annum.  The Company will make interest only payments for the first year and then for years two through six, the Company will make both principal and interest payments such that the loan is completely repaid at the end of year six.

Pursuant to the Interbank Peru Financing agreement, the Company is required to maintain certain financial and nonfinancial covenants during the term of the Financing agreement, including submission of financial statements to Interbank within certain number of days after the close of periods, maintaining funds equivalent to at least 35% of the note payable amount in a Trust Management Account, as defined, and maintaining minimum Debt Service Coverage Rate, as defined, among others.  As of March 31, 2010, the Company was not in compliance with certain financial covenants which triggered an event of default under the terms of the agreement.  Due to the non compliance, Interbank, at its option, may assess a 2% penalty of the unpaid principal balance of the loan for the time period that the bank deems the Company to be in default until the waiver is granted.  The Company has not received a waiver or forbearance at the time the financial statements were issued, so the Company recorded the $43,000,000 payable as a current liability.  The Company is currently negotiating a waiver of its technical non-compliance with certain of its covenants under the Interbank Loan Agreement as of March 31, 2010 and overall modification of the Interbank Loan Agreement and has not received a notice of default from Interbank.

 

 

19

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

The Company recorded interest expense of $1,010,241 for the three months ended March 31, 2010 related to the Interbank Peru Financing.  The following table shows the principal payments for the note payable per the contractual agreement:

		Principal
Fiscal Year		Amount
2010		$	750,000
2011			4,150,000
2012			8,000,000
2013			10,900,000
2014			12,800,000
Thereafter			6,400,000
		$	43,000,000

Note 10 – Stockholders’ Equity

Common Stock

Effective August 7, 2006, the Company effected a one and one-quarter (1.25) for one (1) forward stock split of the authorized, issued and outstanding common stock, without a change to the par value. As a result, the authorized share capital increased from 75,000,000 shares of common stock with a par value of $0.001 to 93,750,000 shares of common stock with a par value of $0.001. On November 19, 2007, the stockholders approved an amendment to its articles of incorporation to increase the number of authorized common shares to 250,000,000 and to authorize 1,000,000 shares of preferred stock, par value $0.001.  On October 28, 2008, the stockholders’ approved an amendment to its articles of incorporation to increase the number of authorized common shares to 325,000,000.  On May 22, 2009, the stockholders’ approved an amendment to its articles of incorporation to increase the number of authorized common shares to 750,000,000.

 

20

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Stock Options

The following is a summary of the option activity:

 

		Number of Options				Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding, December 31, 2008			15,186,250			$	0.60
Granted			250,000				0.60
Exercised			-				-
Forfeited			(175,000	)			0.60
Outstanding, December 31, 2009			15,261,250			$	0.60
Granted			-
Exercised			-
Forfeited			(43,750	)
Outstanding, March 31, 2010 (unaudited)			15,217,500			$	0.60		7.35		-
Exercisable, March 31, 2010 (unaudited)			12,868,750			$	0.60		7.31		-

Warrants

The following summarizes the stock purchase warrant activity:

		Number of Warrants				Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in years)
Outstanding, December 31, 2008			11,805,666			$	0.39
Granted			124,174,999				0.26
Exercised			-
Forfeited			-
Forfeited			-
Outstanding, December 31, 2009			135,980,665			$	0.27
Granted			-
Exercised			-
Forfeited			-
Outstanding, March 31, 2010 (unaudited)			135,980,665			$	0.27		5.97
Exercisable, March 31, 2010 (unaudited)			135,980,665			$	0.27		5.97

 

Note 11 – Related Party Transactions

The Company entered into the following transactions with related parties:

a)

On August 1, 2009, the Company entered into a service agreement with Challenge Capital Corporation, (“Challenge Capital”), a company controlled by certain officers of the Company, to provide services related to the handling of biofuels to the Company until August 1, 2010.  This agreement provides a monthly fee of $25,699.  The Company expensed $77,097 for the three months ended March 31, 2010 and there is no outstanding balance at March 31, 2010.

 

21

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

b)

Plainfield is a related party as it is a major stockholder of the Company. See transactions with Plainfield in note 8.

c)

As of March 31, 2010 and December 31 2009, the Company has loans due to shareholders in the amount of $208,635.

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

Note 12 – Commitments and Contingencies

Under the Purchase Agreement, the Company has the right to order and subsequently purchase, and Trimarine is offering to supply and sell certain products to be used in the manufacturing process of biodiesel fuel.  The Purchase Agreement states that the maximum unpaid purchase price cannot exceed $40,000,000.  The Company and Trimarine agreed that the consideration for the supply of the product would be the greater of (i) 15.0% per annum or 1.250% per month of the total financial value of the product or (ii) 4.0% per annum, or 0.333% per month of the total facility amount payable on a monthly basis which is equivalent to $133,333 per month.  Pursuant to the Purchase Agreement, the Company made a cash deposit to Trimarine of 10% of the $40,000,000.  The deposit is recorded as “deposits and other assets” in the accompanying consolidated balance sheet as of March 31, 2010.

During the three months ended March 31, 2010, the Company received proceeds of $1,036,015 from Trimarine, which reduced the Company’s deposit of $4,000,000 at December 31, 2009 to $2,963,985 at March 31, 2010. The Company was allowed to make this draw on the deposit by Trimarine since the credit line of $40,000,000 was not drawn upon as of March 31, 2010.

For the three months period ended March 31, 2010, the Company incurred fees related to this facility with Trimarine amounting to $400,000.  As of March 31, 2010 and December 31, 2009, the Company had an outstanding payable owed to Trimarine in the amounts of $1,200,000 and $818,000, respectively.

 

22

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Pure Biofuels Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 13 – Supplemental Cash Flow Information

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

 

		For the Three Months Ended March 31, 2010				For the Three Months Ended March 31, 2009
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid		$	1,035,384			$	-
Income taxes paid		$	-			$	-

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

 

		For the Three Months Ended March 31, 2010				For the Three Months Ended March 31, 2009
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
Issuance of convertible promissory note for interest payable		$	3,551,411			$	2,178,647
Issuance of warrants as part of financing agreement		$	-			$	2,365,145
Beneficial conversion feature on issuance of convertible debt		$	-			$	2,925,520
Debt discounts from issuance of convertible debt		$	588,446			$	2,411,218

 

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