Form SB-2

As Filed with the Securities and Exchange Commission on December 13, 2006

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ALLEGRO BIODIESEL CORPORATION

(Name of Small Business Issuer in its Charter)

Delaware

2869

20-5748331

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

6033 West Century Boulevard, Suite 850

Los Angeles, California 90045

(310) 670-2093

(Address and Telephone Number of Principal Executive Offices)

W. Bruce Comer III, Chief Executive Officer

6033 West Century Boulevard, Suite 850

Los Angeles, California 90045

(310) 670-2093

(Name, Address and Telephone Number of Agent for Service)

Copies to

Craig E. Gosselin, Esq.

Zimmermann, Koomer, Connolly & Finkel LLP

1900 Avenue of the Stars, Suite 2375

Los Angeles, California 90067

Telephone (310) 229-1709

Facsimile (310) 277-0035

Approximate Date of Proposed Sale to the Public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

CALCULATION OF REGISTRATION FEE


Title of Each Class of Securities To Be Registered	Amount To Be Registered(1)	Proposed Maximum Offering Price Per Share		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee
Common Stock, $.01 par value(2)	14,288,048	(7	)	(7	)	$	7,644
Common Stock, $.01 par value(3)	2,722,400	(7	)	(7	)	$	1,465
Common Stock, $.01 par value(4)	37,561,583	(7	)	(7	)	$	20,095
Common Stock, $.01 par value(5)	11,642,867	(7	)	(7	)	$	6,229
Common Stock, $.01 par value(6)	3,127,312	(7	)	(7	)	$	1,673
TOTAL REGISTRATION FEE:						$	37,098

(1)	In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

(2)	Represents shares of Common Stock held by certain selling stockholders.

(3)	Represents shares of Common Stock underlying shares of Series B Convertible Preferred Stock held by certain of the selling stockholders.

(4)	Represents shares of Common Stock underlying shares of Series A Convertible Preferred Stock held by certain of the selling stockholders.

(5)	Represents shares of Common Stock underlying options held by certain of the selling stockholders.

(6)	Represents shares of Common Stock underlying warrants held by certain of the selling stockholders.

(7)	Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices reported on the Over-the-Counter Bulletin Board on December 11, 2006.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated December 13, 2006

PROSPECTUS

69,342,210 Shares

ALLEGRO BIODIESEL CORPORATION

COMMON STOCK

This prospectus relates to 69,342,210 shares of common stock of Allegro Biodiesel Corporation that may be resold from time to time to the public by the selling stockholders named in this prospectus, including:

•

up to 14,288,048 shares of common stock held by certain of the selling stockholders;

•

up to 2,722,400 shares of common stock underlying shares of Series B Convertible Preferred Stock held by certain of the selling stockholders;

•

up to 37,561,583 shares of common stock underlying shares of Series A Convertible Preferred Stock held by certain of the selling stockholders;

•

up to 11,642,867 shares of common stock underlying warrants held by certain of the selling stockholders;

•

up to 3,127,312 shares of common stock underlying options held by certain selling stockholders.

We will not receive any proceeds from the sales by the selling stockholders, but we will receive funds from the exercise of warrants held by the selling stockholders, if exercised.

Our common stock is traded on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol “ABDS.” The closing sales price for our common stock on December 11, 2006 was $5.00 per share, as reported on the Over-the-Counter Bulletin Board.

The securities offered by this prospectus involve a high degree of risk. See “ Risk Factors” beginning on page 3.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2006

TABLE OF CONTENTS


Prospectus Summary		1
Risk Factors		3
Risks Related to Our Business		3
Risks Related to the Biodiesel Industry		8
Risks Related to Our Capital Structure		10
Special Note Regarding Forward-looking Statements		13
Use of Proceeds		15
Market for Common Stock and Related Stockholder Matters		16
Dividend Policy		16
Business and Operations		17
Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Management		32
Certain Relationships and Related Transactions		41
Change in Accountants		43
Selling Stockholders		44
Description of Capital Stock		53
Shares Eligible for Future Sale		57
Plan of Distribution		58
Legal Matters		60
Experts		60
Additional Information		60
Index to Financial Statements		F-1

Please read this prospectus carefully. It describes our business, our financial condition and results of operations and various risk factors. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision.

You should solely rely on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of the prospectus, regardless of the time the prospectus is delivered or the common stock is sold.

PROSPECTUS SUMMARY

This summary highlights some information from this prospectus, and it may not contain all of the information that is important to you. You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering, including “Risk Factors” and our consolidated financial statements and related notes, included elsewhere in, or incorporated by reference into, this prospectus.

In this prospectus, the terms “we,” “us,” and “our” refer to Allegro Biodiesel Corporation, a Delaware corporation, and its predecessor, Diametrics Medical, Inc., and its consolidated subsidiaries, as appropriate in the context. Unless the context otherwise requires, “common stock” refers to the common stock, par value $0.01 per share, of Allegro Biodiesel Corporation.

Our Company

General

Description of Business

Our business is the production of biodiesel fuel and the development of biodiesel production facilities in the United States. On September 20, 2006, we acquired Vanguard Synfuels, LLC (“Vanguard,”), a producer of biodiesel fuel that owns and operates a production facility located in Pollock, Louisiana. 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. Prior to January 2005, operating as Diametrics Medical, Inc., we were involved with the development, production and distribution of medical devices since our inception. All such operations were discontinued during 2005.

We own an operating biodiesel fuel production facility located in Pollock, Louisiana (“Pollock Facility”) which uses renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel. This facility is situated on a 320-acre site, with access to transportation infrastructure, including a nearby navigable tributary river to the Mississippi (for barge freight) and major highways and rail service. Construction of the Pollock Facility was completed in early 2006 and is currently estimated to be capable of producing twelve million gallons of biodiesel per year. We began biodiesel production and sales in April 2006, making us the first operational producer of biodiesel in Louisiana.

Our primary source of revenue is the sale of biodiesel fuel, both in blended and unblended forms with petroleum-based diesel fuel. 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 prices of petroleum-based diesel fuel and 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 a premium of approximately $1.00 per gallon over the market price of diesel fuel, and 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 our cost and supply of soybean oil feedstock and other inputs in the commodity markets.

The address of our executive offices is 6033 West Century Boulevard, Suite 850, Los Angeles, California 90045, and our telephone number is (310) 670-2093.

Recent Developments

In connection with the Acquisition, we received $28.5 million in gross proceeds from the issuance of Series J Convertible Preferred Stock. We used $17.7 million of these proceeds and issued shares of our Series K Convertible Preferred Stock to purchase 100% of the equity interests of Vanguard in a transaction intended to qualify as a tax-free exchange.

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 approximately 11.11 million shares of common stock).

On June 15, 2006, the 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.

The Offering


Common stock offered by selling stockholders		69,342,210 shares*

Common stock outstanding		14,619,458 shares

Use of proceeds		We will not receive any proceeds from the sale of the common stock by the selling stockholders

OTC Bulletin Board		ABDS

Represents 14,288,048 shares of common stock issued to certain of the selling stockholders, 2,722,400 shares of common stock underlying shares of Series B Convertible Preferred Stock that were issued to certain of the selling stockholders, 37,561,583 shares of common stock underlying shares of Series A Convertible Preferred Stock that were issued to certain of the selling stockholders, 11,642,867 shares of common stock underlying warrants that were issued to certain of the selling stockholders, and 3,127,312 shares of common stock underlying options that were issued to certain selling stockholders.

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. The trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.

Our actual results may differ materially from those anticipated in these forward-looking statements. We operate in a market environment that is difficult to predict and that involves significant risks and uncertainties, many of which will be beyond our control. Refer also to “Special Note Regarding Forward-Looking Statements.”

RISKS RELATED TO OUR BUSINESS

We have limited operating history, which makes it difficult to evaluate our financial position and our business plan.

We are an early stage company that has conducted limited business operations to date. Accordingly, there is limited operating history by which to evaluate the likelihood of our success or our ability to exist as a going concern. We may not be able to generate sufficient revenues to become profitable. In addition, we may never begin or complete construction of any other biodiesel production facilities and those other facilities may never commence significant operations or, if we do complete the construction of another biodiesel production facility, we may not be able to generate sufficient revenues to become profitable.

Federal tax incentives for biodiesel production may be eliminated in the future, which could hinder our ability to operate at a profit.

The biodiesel industry and our business are assisted by various federal tax incentives, including the excise tax credit included in the EPAct (which expires December 31, 2008). The elimination, expiration or reduction of tax incentives would, based on current market prices, prevent us from being able to sell biodiesel at a price higher than our current cost to produce biodiesel. If the federal tax incentives are eliminated or sharply curtailed, we believe that a decreased demand for biodiesel would result, which could result in the failure of the business.

The biofuels industry in the United States is currently dependent upon tax policies and environmental regulations that favor the use of biofuels in motor fuel blends. A change in these government policies favorable to biodiesel may cause demand for biodiesel to decline.

Growth and demand for biodiesel may be driven primarily by federal and state government policies, such as the federal excise tax credit (which expires December 31, 2008) and the national renewable fuels standard. The continuation of these policies is uncertain, which means that demand for biodiesel may decline if these policies change or are discontinued. In addition, a significant long-term fall in the rate of excise or duties levied on petrodiesel would impact upon the competitiveness and viability of biodiesel.

We may be required to post a surety bond by the Louisiana Department of Revenue. If we are required to post a surety bond, we 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 effect its liquidity.

We are 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, the LDR

notified us that it may be classified as a supplier, but would not require us to post a $2,000,000 bond until January 31, 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 us. However, if we are subsequently required to post a $2,000,000 surety bond, we may be asked by the surety company to establish cash collateral for a substantial portion or all of such amount, which would reduce our immediately-available cash funds and adversely effect our liquidity. There is no guarantee we will be classified as a blender upon further review by the LDR, or that we will obtain an extension beyond January 31, 2007, or that remedial legislative action will be implemented by the State of Louisiana.

We may need to obtain a significant amount of additional debt and/or equity capital to complete the development and completion of the plants described in this report, which we may not be able to obtain on acceptable terms or at all.

We will require additional capital to fund our business and development plan, including the construction of additional biodiesel plants. Based on our internal estimates, we currently estimate that depending on the size and location of a biodiesel plant, the cost to develop and construct each proposed plant would range between $5 and $50 million per plant. In addition, once these plants have been constructed, we will have to fund the start-up operations of these plants until, if ever, the plants generate sufficient cash flow from their operations. We may also encounter unforeseen costs that could also require us to seek additional capital. As a result, the funds raised in the sale of our Series J Convertible Preferred Stock will not be sufficient for us to complete future plants. Accordingly, we expect to seek to raise additional debt and/or equity funding. The full and timely development and implementation of our business plan and growth strategy will require significant additional resources, and we may not be able to obtain the funding necessary to implement our growth strategy on acceptable terms or at all. An inability to obtain such funding would prevent us from constructing any additional biodiesel plants. Furthermore, our construction strategy may not produce material revenues even if successfully funded. We have not yet identified the sources for the additional financing it requires and we do not have commitments from any third parties to provide this financing. We might not succeed, therefore, in raising additional equity capital or in negotiating and obtaining additional and acceptable financing. Our ability to obtain additional capital will also depend on market conditions, national and global economies and other factors beyond our control. We might not be able to obtain required working capital, the need for which is substantial given our business and development plan. The terms of any future debt or equity funding that we may obtain may be unfavorable to us and to our stockholders.

We envision a period of growth that may impose a significant burden on our administrative and operational resources which if not effectively managed could impair our growth.

Our strategy envisions a period of growth that may impose a significant burden on our administrative and operational resources. Our failure to manage our growth effectively could prevent us from achieving our goals. The growth of our business, and in particular, the construction of any additional biodiesel production facilities, will require significant investments of capital and management’s close attention. In addition to the possibility of constructing additional biodiesel production facilities, we may seek to enter into significant marketing agreements, and other similar agreements with companies that currently, or expect to, produce or use biodiesel. Our ability to effectively manage our growth will require us to attract, train, manage and retain qualified management, technicians and other personnel; we may be unable to do so. In addition, our failure to successfully manage our growth could result in our sales not increasing commensurate with our capital investments.

We will be dependent on third parties for expertise in the design and construction of biodiesel plants and any loss or impairment of these relationships could cause delay and added expense. In addition, we currently have no binding definitive construction agreements with such parties and their failure to perform could hinder our ability to operate profitably.

The number of engineering and construction firms in the United States with the necessary expertise to design and build biodiesel plants and their available capacity is limited. We will be dependent on our relationships with third parties for engineering and construction expertise. Any loss of, or damage to, these relationships, particularly during the construction and start-up period for the plant(s), may significantly delay or

even prevent us from commencing operations at additional facilities and result in the failure of our business. The time and expense of locating new consultants and contractors could result in unforeseen expenses and delays. Unforeseen expenses and delays may reduce our ability to generate revenue and profitability and significantly damage our competitive position in the biodiesel industry.

We will be highly dependent upon contractors to design and build any future biodiesel plants, but we have not signed definitive binding construction agreements with any of these companies. We have not yet negotiated or executed definitive design-build agreements with any party and there is no assurance that such agreements will be executed in a timely manner or at all. If we do not execute definitive, binding design-build agreements with third parties, or if any such third party terminates its relationship with us after initiating construction, there is no assurance that we would be able to obtain a replacement general contractor.

If we fail to finalize critical agreements, such as design-build agreements, biodiesel marketing agreements, and utility supply agreements, or the terms of such critical agreements are unfavorable compared to what we currently anticipate, our projects may fail or be harmed in ways that could hinder our ability to operate profitably.

This prospectus makes reference to documents or agreements that are not yet finalized or executed, and plans that have not been implemented. In some instances the negotiations with respect to such documents or agreements have not started or are in the very early stages and the documents themselves are not even in draft form. We may be unable to finalize and enter into these critical agreements or the definitive versions of those agreements, documents, plans or proposals may contain terms or conditions that vary significantly from the terms and conditions currently expected by us. These proposed agreements, documents, plans or proposals may not materialize or, if they do, may not allow us to operate profitably.

We may depend on others for sales of our products, which may place us at a competitive disadvantage and reduce profitability.

We expect to hire third-party marketing firms to market some or all of the biodiesel we plan to produce. As a result, we expect to be dependent on any biodiesel broker that we engage. There is no assurance that we will be able to enter into contracts with any biodiesel broker on terms that are favorable to us. If the biodiesel broker breaches the contract or does not have the ability, for financial or other reasons, to market all of the biodiesel we produce, we may not have any readily available means to sell our products. Our lack of a sales force and reliance on third parties to sell and market our products may place us at a competitive disadvantage. Our failure to sell all of our biodiesel may result in less income from sales, reducing our revenue stream.

Our lack of business diversification could have a negative impact on our financial performance if we do not generate revenue from our primary products or such revenues decrease.

We expect that our business will consist of biodiesel production and sales. We currently have no other lines of business or other sources of revenue. Our lack of business diversification could cause us to be unable to generate revenues by the production and sales of biodiesel since we do not have any other lines of business or alternative revenue sources.

We will be required to hire and retain skilled technical and managerial personnel.

Personnel qualified to operate and manage biodiesel plants are in great demand. Our success depends in large part on our ability to attract, train, motivate and retain qualified management and skilled employees, particularly managerial, technical, sales, and marketing personnel, technicians, and other critical personnel. Any failure to attract and retain the highly-trained managerial and technical personnel may have a negative impact on our operations, which would have a negative impact on revenues. There can be no assurance that we will be able to attract and retain skilled persons and the loss of skilled technical personnel would adversely affect our company.

We are dependent upon our officers for management and direction, and the loss of any of these persons could adversely affect our operations and results.

We are dependent upon our officers for execution of our business plan. The loss of any of our officers could have a material adverse effect upon our results of operations and financial position. We do not maintain “key person” life insurance for any of our officers. The loss of any of our officers could delay or prevent the achievement of our business objectives.

We are spending significant capital on plant improvements designed to reduce productions costs. We can make no assurances that these plant improvements will successfully achieve desired results.

If plant improvements do not achieve desired results, our business and results of operations may be adversely impacted.

A key part of our growth strategy is the acquisition of businesses or assets that relate to the production or distribution of biodiesel, feedstocks or other chemical inputs. We can make no assurances that we will be able to make such acquisitions, or that if we do, they will achieve desired results.

A key component of our growth strategy is the acquisition of businesses or assets that relate to biodiesel production and distribution. We may not be successful in our search for potential acquisitions that are acceptable to our business model, and we may not be successful in our attempts to acquire businesses or assets that we have identified as attractive acquisition targets. Additionally, we cannot guarantee that we will successfully integrate, develop, and operate acquired assets or businesses. If our acquisition efforts do not achieve desired results, we may not meet our projected growth targets and our business and results of operations may be adversely impacted.

Increases in site or plant construction costs may require us to raise additional capital.

We anticipate that third-party contractors will construct any additional plants we elect to pursue for a fixed contract price, based on the plans and specifications in the anticipated design-build agreements. The estimated cost of constructing biodiesel production plants is based on management’s best estimates, and there is no assurance that the final cost of one or more of our plants will not be higher. There is no assurance that there will not be design changes or cost overruns associated with the construction of plants. Shortages of steel, concrete or other building materials or labor could affect the final cost and final completion date of any project. In addition, specific site conditions at any plant site may increase construction costs. Any significant increase in the estimated construction cost of the plant could require us to raise additional capital.

Construction delays or defects could result in delays in increasing our production and sale of biodiesel and negatively affect our operations and financial performance.

Construction projects often involve delays for a number of reasons including delays in obtaining permits, delays due to weather conditions, or other events. Also, any changes in political administrations at the federal, state or local level that result in policy changes towards biodiesel could also cause construction and/or operation delays. If it takes longer to increase the production capacity of the Pollock Facility than anticipated or if it takes us longer to construct any other plant we decide to construct, our ability to generate revenues could be impaired. In addition, there can be no assurance that defects in materials and/or workmanship will not occur. Such defects could delay the commencement of enhanced capacity operations of the plant or cause us to halt or discontinue the plant’s operation or reduce the intended production capacity. Halting or discontinuing plant operations could delay our ability to generate revenues.

Plant sites, including our Pollock Facility, may have unknown environmental problems that could be expensive and time consuming to correct which may delay or halt plant construction and delay our ability to generate revenue.

We may encounter hazardous conditions at or near each of our facility sites, including the Pollock Facility, that may delay or prevent construction or operation of a particular facility. If we encounter a hazardous condition at or near a site, work may be suspended and we may be required to correct the condition prior to continuing construction

or further production. The presence of a hazardous condition would likely delay or prevent construction of a

particular facility and may require significant expenditure of resources to correct the condition. If we encounter any hazardous condition during construction, estimated sales and profitability may be adversely affected.

We currently operate a single facility. Any operational disruption at that facility could result in a reduction of our sales volume, and could cause us to incur substantial losses.

If we are unable to complete the expansion of the Pollock Facility, or if our operations at that facility experience a significant interruption due to a major accident or damage by severe weather or other natural disasters, our ability to generate revenues could be adversely impacted. In addition, our operations may be subject to labor disruptions and unscheduled downtime, or other operational hazards inherent in our industry, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. We have not operated the Pollock Facility at or near capacity for an extended period and cannot be sure that we will be able to do so. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not cover or be adequate to fully cover the potential operational hazards described above.

In addition, the local market in Louisiana for biodiesel is limited. We currently sell our product to users both in Louisiana and outside of the state. Any significant interruption to transportation system upon which we are dependent or any increase in the cost of transporting our biodiesel product could materially affect the profitability of our business.

We may be sued or become a party to litigation, which could require significant management time and attention and result in significant legal expenses and may result in an unfavorable outcome which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may be subject to lawsuits from time to time arising in the ordinary course of our business. We may be forced to incur costs and expenses in connection with defending ourselves with respect to such litigation and the payment of any settlement or judgment in connection therewith if there is an unfavorable outcome. The expense of defending litigation may be significant. The amount of time to resolve lawsuits is unpredictable and defending ourselves may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an unfavorable outcome in any such litigation could have a material adverse effect on our business, results of operations and cash flows.

We may be unable to protect our intellectual property, which could negatively affect our ability to compete.

We rely or may rely on a combination of trademark, tradename, confidentiality agreements, and other contractual restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality agreements with our employees, consultants, and corporate partners, and control access to and distribution of our confidential information. These measures may not preclude the disclosure of our confidential or proprietary information. Despite efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary information. Monitoring unauthorized use of our confidential information is difficult, and we cannot be certain that the steps we take to prevent unauthorized use of our confidential information will be effective.

Changes in environmental regulations or violations of the regulations could be expensive and hinder our ability to operate profitably.

We are and will continue to be subject to extensive air, water and other environmental regulations and will need to maintain a number of environmental permits to construct and operate our plants. If for any reason, any of these permits are not granted, construction costs for the plants may increase, or the plants may not be constructed

at all. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to invest or spend considerable resources in order to comply with future environmental regulations. Violations of these laws and regulations could result in liabilities that affect our financial condition and the expense of compliance alone could be significant enough to reduce profits.

RISKS RELATED TO THE BIODIESEL INDUSTRY

Our financial performance will be dependent on prices for soybean oil, methanol and other chemical inputs which are subject to and determined by market forces outside our control. An increase in the prices for these input commodities will materially affect our ability to operate at a profit.

Our results of operations and financial condition will be significantly affected by the cost and supply of soybean oil and other alternative feedstocks. Soybean oil is our single largest expense. The price of soybean oil or other feedstocks is 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 soybean oil is difficult to predict. Any event that tends to negatively affect the supply of soybean oil, such as adverse weather or crop disease, could increase soybean oil prices and potentially harm our business. In addition, we may also have difficulty, from time to time, in sourcing soybean oil on economical terms due to supply shortages. Such a shortage could require us to suspend operations until soybean oil is available at economical terms, which would have a material adverse effect on our business, results of operations and financial position. The price we pay for soybean oil at a facility could increase if an additional biodiesel production facility is built in the same general vicinity.

The availability and price of soybean oil will significantly influence our financial performance. We may purchase soybean oil in the cash market and hedge soybean oil price risk through futures contracts and options to reduce short-term exposure to price fluctuations. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high soybean oil prices. Hedging activities themselves can result in costs because price movements in soybean oil contracts are highly volatile and are influenced by many factors that are beyond our control.

The market price of refined, bleached and de-gummed (RBD) soybean oil, which is the primary type of feedstock used by the Pollock Facility, has recently increased to approximately $2.35 per gallon—as compared to approximately $1.95 per gallon at the beginning of 2006. This increase in soybean oil prices had a significant, negative effect on our profit margins. In addition, production of biodiesel is dependent upon a number of other inputs, such as sodium methylate and methanol. The market price of methanol has recently increased to approximately $2.00 per gallon, up from a price of about $1.20 per gallon at the beginning of 2006.

Price increases in such inputs or a lack of supply of such inputs could increase production costs, reduce profit margins and negatively affect cash flow. This is especially true if market conditions do not allow us to pass through increased soybean oil costs to our customers. There is no assurance that we will be able to pass through higher soybean oil prices to our customers. If a period of high soybean oil prices or other inputs were to be sustained for some time, such pricing may reduce our ability to operate and generate revenues. In certain instances, we could decide to limit or even cease production of biodiesel for a period of time.

Declines in the prices of biodiesel will have a significant negative impact on our financial performance.

Our revenues will be greatly affected by the price at which we can sell our biodiesel. These prices can be volatile as a result of a number of factors. These factors include the overall supply and demand, the price of diesel fuel, level of government support, and the availability and price of competing products. United States biodiesel prices generally parallel the movement of petroleum oil prices. Oil prices are difficult to forecast because the market reflects the global economy, which is subject to political upheaval, natural disasters, and other myriad factors. Even the slightest rumor of political instability can significantly affect the price of oil.

Further, exchange rates play a key role in domestic oil pricing. Any lowering of diesel prices will likely also lead to lower prices for biodiesel, which may decrease our biodiesel sales and reduce revenues.

The wholesale price of petroleum diesel has recently declined to approximately $1.80 per gallon in the Gulf Coast region of the United States, down from a 52-week high of approximately $2.35 per gallon in August 2006. This led to a similar decline in the price of biodiesel over that period. Nonetheless, the price of biodiesel continues to be much higher than its 10-year average. We do not expect these prices to be sustainable as supply from new and existing biodiesel plants increases to meet increased demand. Increased production of biodiesel may lead to lower spot market prices. The increased production of biodiesel could have other adverse effects. For example, the increased production of biodiesel could result in increased demand and higher prices for soybean oil and other alternative feedstocks. There can be no assurance as to the price of biodiesel in the future. Any downward changes in the price of biodiesel may result in lower revenue which would decrease our income. If the wholesale price per gallon of biodiesel falls below approximately $1.70 per gallon, we will not be able to earn an operating profit under our current cost structure.

The biodiesel production and marketing industry is extremely competitive. Many of our competitors have greater financial and other resources than we do and one or more of these competitors could use their greater resources to gain market share at our expense.

Many of our competitors in the biodiesel production and marketing industry have substantially greater production, financial, research and development, personnel and marketing resources than we do. As a result, our competitors may be able to compete more aggressively than we could and sustain that competition over a longer period of time. Our lack of resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and cause a decline in our market share, sales and profitability.

Competition from the advancement of alternative fuels may lessen the demand for biodiesel and negatively impact our profitability.

Alternative fuels, gasoline oxygenates and biodiesel production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like biodiesel, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for biodiesel, which would negatively impact our profitability.

Changes and advances in biodiesel production technology could require us to incur costs to update our biodiesel plant or could otherwise hinder our ability to compete in the biodiesel industry or operate profitably.

Advances and changes in biodiesel production technology may make the biodiesel production technology installed in our current plant or any of our future plants, if any, less desirable or obsolete. These advances may also allow competitors to produce biodiesel at a lower cost than us. If we are unable to adopt or incorporate technological advances, our biodiesel production methods and processes could be less efficient than our competitors, which could cause us to become uncompetitive or completely obsolete. If competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our biodiesel production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. We cannot guarantee or assure that third-party licenses will be available or, once obtained, will

continue to be available on commercially reasonable terms. These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income.

Changes in specification standards for biodiesel fuel may increase production costs or require additional capital expenditures to upgrade and/or modify our biodiesel facility to meet them. Such upgrades and/or modifications may entail delays in or stoppages of production.

The American Society of Testing and Materials (ASTM) is the recognized standard-setting body for fuels and additives in the United States. ASTM’s specification for pure biodiesel (to be used in blends of up to 20% with diesel fuel), ASTM D 6751, has been adopted by the Environmental Protection Agency, and compliance is required in order for our biodiesel to qualify as a legal motor fuel for sale and distribution. ASTM has modified its D 6751 specification in the past, and is expected to continue to modify the specification in the future as the use of and experience with biodiesel expands. There is no guarantee that our production facility will be able to produce compliant biodiesel fuel in the event of changes to the specification. We may need to invest significant capital resources to upgrade or modify our biodiesel facility, which might cause delays in or stoppages of production and the resultant loss of revenues, or which might not be economically feasible at all. Any modifications to the production facility or to the biodiesel specification may entail increased production costs or reduced production capacity. These consequences could result in a negative impact on our financial performance.

As domestic biodiesel production comes to grow, biodiesel prices may decline which could significantly reduce sales.

The number of biodiesel plants being developed and constructed in the United States is increasing at a rapid pace. The recent passage of the Energy Policy Act of 2005 included a renewable fuels mandate that we expect will further increase the number of domestic biodiesel production facilities. If the demand for biodiesel does not grow at the same pace as increases in supply, we would expect the price for biodiesel to decline. Declining biodiesel prices will result in lower revenues and may reduce or eliminate profits.

Biodiesel imported from other countries may be a less expensive alternative to our biodiesel, which would cause us to lose market share.

Biodiesel imported from other countries may be a less expensive alternative to domestically produced biodiesel if tariffs presently protecting United States biodiesel producers are reduced or eliminated. Competition from biodiesel imported from other countries may affect our ability to sell biodiesel profitably.

RISKS RELATED TO OUR CAPITAL STRUCTURE

Our stock price is volatile and could decline in the future.

The price of our Common Stock may fluctuate in the future. Because we are still an early stage company and our plant is still in the start-up period with a limited operating history, the trading price of the common stock may be below $5.00. If our common stock trades below $5.00 per share, trading in the common stock may be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions) and a two-business day “cooling off period” before broker-dealers can effect transactions in penny stocks. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. These, and the other burdens imposed upon broker-dealers by the penny stock requirements, could discourage broker-dealers from effecting transactions in the common stock which could severely limit the market liquidity of the common stock and the ability of holders of the common stock to sell it.

Market prices for the common stock will be influenced by many factors and will be subject to significant fluctuations in response to variations in our operating results and other factors. Historically, the trading price of our stock has been volatile, and our stock has traded in a range of between $0.80 and $18.00 over the past year. Factors that could affect our future stock price, and create volatility in our stock price, include the price and demand for biodiesel, the price and availability of oil and gasoline, the political situation in the Middle East, United States energy policies, federal and state regulatory changes that affect the price of soy and biodiesel, the existence or discontinuation of legislative incentives for renewable fuels, the trading price of the stock of our competitors, investor perceptions of the Company, interest rates, general economic conditions and those specific to the industry, developments with regard to our operations and activities, our future financial condition, and changes in our management.

The offering may have an adverse impact on the market price of our Common Stock.

This prospectus relates to the resale of up to 69,342,210 shares of our common stock by the selling stockholders. We will not receive any proceeds from such resale and have prepared this prospectus principally in order to meet our contractual obligations to the selling stockholders. Since there is a limited trading market for our common stock, the sale of any large block of this stock, or even the possibility of its sale, may adversely affect the trading market for our common stock and reduce the price available in that market.

There is no assurance of an established public trading market, which would adversely affect the ability of investors in our company to sell their securities in the public markets.

Although our common stock trades on the OTC Bulletin Board, a regular trading market for the securities may not be sustained in the future. The NASD has enacted recent changes that limit quotations on the OTC Bulletin Board to securities of issuers that are current in their reports filed with the SEC. The effect on the OTC Bulletin Board of these rule changes and other proposed changes cannot be determined at this time. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASD’s automated quotation system (the “NASDAQ Stock Market”). Quotes for stocks included on the OTC Bulletin Board are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin Board may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. The market price for our common stock will be influenced by a number of factors, including:

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the issuance of new equity securities in a future offering;

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issued and outstanding shares of our common stock becoming eligible for resale pursuant to contractual registration requirements or pursuant to exemptions from registration becoming available following the passage of time;

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changes in interest rates;

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competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

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variations in quarterly operating results;

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changes in financial estimates by securities analysts;

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the depth and liquidity of the market for our common stock; and

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general economic and other national conditions.

The limited trading market may cause volatility in the market price of our common stock.

Our common stock is currently traded on a limited basis on the OTC Bulletin Board under the symbol “ABDS”. The quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to volatility. In the absence of an active trading market:

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investors may have difficulty buying and selling or obtaining market quotations;

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market visibility for our common stock may be limited; and

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a lack of visibility for our common stock may have a depressive effect on the market for our common stock.

Our common stock is considered a “penny stock” and may be difficult to sell.

Our common stock is considered to be a “penny stock” since it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis. Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of the assessment by our independent registered public accountants. This requirement will first apply to our annual report for fiscal 2007. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of the assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted. We may also incur additional accounting related expenses associated with compliance with Section 404.

We do not foresee paying cash dividends in the foreseeable future.

We have not paid cash dividends on our stock and we do not plan to pay cash dividends on our stock in the foreseeable future.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this prospectus contains statements relating to our future business and/or results, including, without limitation, the statements under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business and Operations.” These statements include certain projections and business trends that are “forward-looking” within the meaning of the United States Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words like “may,” “will,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and variations of these words or comparable words. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. Actual results will differ, and may differ materially, from projected results as a result of certain risks and uncertainties. These risks and uncertainties include, without limitation, those described under “Risk Factors” and those detailed from time to time in our filings with the SEC, and include, among others, the following:

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We have limited operating history, which makes it difficult to evaluate our financial position and our business plan.

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Our financial performance will be dependent on prices for soybean oil, methanol and other commodities which are subject to and determined by market forces outside our control. The prices of soybean oil and other of our production inputs have increased significantly in recent months.

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Declines in the prices of petroleum diesel and biodiesel will have a significant negative impact on our financial performance. The prices for such diesel fuels have declined significantly in recent months.

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We envision a period of growth that may impose a significant burden on our administrative and operational resources which if not effectively managed could impair our growth.

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We may depend on others for sales of our products, which may place us at a competitive disadvantage and reduce profitability.

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Our lack of business diversification could have a negative impact on our financial performance if we do not generate revenue from our primary products or such revenues decrease.

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We will be required to hire and retain skilled technical and managerial personnel.

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We are dependent upon our officers for management and direction, and the loss of any of these persons could adversely affect our operations and results.

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We are spending significant capital on plant improvements designed to reduce productions costs. We can make no assurances that these plant improvements will successfully achieve desired results.

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A key part of our growth strategy is the acquisition of assets relating to the production and distribution of biodiesel, feedstock or other chemical inputs. We can make no assurances that we will be able to make such acquisitions, or that if we do, they will achieve desired results.

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Increases in site or plant construction costs may require us to raise additional capital.

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Construction delays or defects could result in delays in increasing our production and sale of biodiesel and negatively affect our operations and financial performance.

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Plant sites, including the Pollock Facility, may have unknown environmental problems that could be expensive and time consuming to correct which may delay or halt plant construction and delay our ability to generate revenue.

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We currently operate a single facility. Any operational disruption at that facility could result in a reduction of our sales volume, and could cause us to incur substantial losses.

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We may be unable to protect our intellectual property, which could negatively affect our ability to compete.

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Changes in environmental regulations or violations of the regulations could be expensive and hinder our ability to operate profitably.

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Competition from the advancement of alternative fuels may lessen the demand for biodiesel and negatively impact our profitability.

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As domestic biodiesel production comes to grow, biodiesel prices may decline which could significantly reduce sales.

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Biodiesel imported from other countries may be a less expensive alternative to our biodiesel, which would cause us to lose market share.

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Risks relating to low priced stocks.

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Risks relating to the resale by the selling stockholders of equity based securities by us and the limited trading market for our common stock

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There is no assurance of an established public trading market, which would adversely affect the ability of investors in our company to sell their securities in the public markets.

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The limited trading market may cause volatility in the market price of our common stock.

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Our common stock is considered a “penny stock” and may be difficult to sell.

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Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

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We do not foresee paying cash dividends in the foreseeable future.

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The other factors referenced in this prospectus, including, without limitation, under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business and Operations.”

These risks are not exhaustive. Other sections of this prospectus may include additional factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or to the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. These forward-looking statements are made only as of the date of this prospectus. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders, but we will receive funds from the exercise of warrants and options held by the selling stockholders.

MARKET FOR COMMON STOCK 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
2004
First Quarter	$	50.00	$	25.00
Second Quarter		28.00		9.00
Third Quarter		27.00		10.00
Fourth Quarter		16.00		2.20

2005
First Quarter		4.30		3.10
Second Quarter		3.20		1.60
Third Quarter		2.00		0.80
Fourth Quarter		12.00		1.00

2006
First Quarter		18.00		5.00
Second Quarter		14.00		7.00
Third Quarter		6.00		3.00

The closing sales price of our common stock on December 11, 2006 was $5.00, as reported on the Over-the-Counter Bulletin Board. At December 11, 2006, there were approximately 353 holders of record of our common stock.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our Board of Directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the Board of Directors considers appropriate.

BUSINESS AND OPERATIONS

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 & Secretary of the Company, respectively.

On December 6, 2005, we concluded an exchange of certain securities. 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.

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, LLC (“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 of cash in the amount of approximately $17.7 million and the issuance of 4,300 shares of our Series K Convertible Preferred Stock (which was convertible into approximately 11.11 million shares of our common stock). Of the purchase price, $1.77 million and 430 shares of the Series K Convertible Preferred Stock were placed into escrow for our benefit against any breaches of or inaccuracies in the 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 outstanding debt of $3.6 million under Vanguard’s existing credit facility.

In connection with the Acquisition, we received $28.5 million in gross proceeds from the issuance of Series J Convertible Preferred Stock. The Company used $17.7 million of these proceeds and issued shares of its Series K Convertible Preferred Stock to purchase 100% of the equity interests of Vanguard in a transaction intended to qualify as a tax-free exchange. 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. Ocean Park Advisors, LLC, the holder of all of the Company’s Series I Convertible Preferred Stock, converted all of its Series I Convertible Preferred Stock into common stock and waived certain anti-dilution rights, 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, principals and consultants of Ocean Park provide services to us (including the duties of W. Bruce Comer III as Chief Executive Officer and Heng Chuk as Chief Financial Officer). We granted stock options to Ocean Park Advisors for 2,069,109 shares of common stock, which have an exercise price of $0.7587 per share.

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.

Description of Our Business

As a result of the Acquisition our business is now the production of biodiesel fuel and the development of biodiesel production facilities in the United States. We own an operating biodiesel fuel production facility located in Pollock, Louisiana (“Pollock Facility”) which uses renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel. This facility is situated on a 320-acre site with access to transportation infrastructure, including a nearby navigable tributary river to the Mississippi (for barge freight) and major highways and rail service. Construction of the Pollock Facility was completed in early 2006 and is currently estimated to be capable of producing twelve million gallons of biodiesel per year. We began biodiesel production and sales in April 2006, making us the first operational producer of biodiesel in Louisiana.

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 a premium of approximately $1.00 per gallon over the market price of diesel fuel, and 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).

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% reduction in carbon dioxide emissions when 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 $1.80 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 $2.70 per gallon of biodiesel produced. The nationwide average wholesale price of biodiesel is currently approximately $2.80 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 $40,000 per month (or less than $0.5 million on an annualized basis). Our operating expenses have been approximately $200,000 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:

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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.

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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.

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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 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 in the United States. The National Biodiesel Board has estimated that 150 million gallons of biodiesel will be produced in 2006.

This estimate 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.

Plan of Operation

We plan to increase our production and sales of biodiesel to utilize the full capacity of our existing Pollock Facility (currently, maximum capacity is expected to be 12 million gallons per year). This may be achieved through direct sales of B100, blended diesel fuel, or sales via tolling arrangements, each of which may entail different levels of recognized revenue per gallon of biodiesel produced. We may purchase and install additional equipment at the Pollock Facility, which may enable us to use lower-cost feedstock (such as crude soybean oil or animal fats), increase production yields, and lower direct production costs. It is expected that such improvements may require $1-2 million in capital expenditures. Furthermore, we 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, we may seek to acquire additional biodiesel production facilities or transport and distribution sites in the Gulf Coast region, nationwide, or internationally. Furthermore, we may seek to acquire, construct or otherwise participate in other projects relating to the transportation, marketing or distribution of biodiesel. Future expansion and acquisitions may be funded through the issuance of debt or equity securities or a combination thereof.

We believe that 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 and expansion of our Pollock Facility. If additional development or acquisition opportunities arise, we 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 we will be profitable. Actual operating expenses may be higher than expected. In such instances, it is possible that we may need additional working capital in the next 12 months. 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. We 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 our ability to service our debt obligations, and/or cause dilution to existing equity holders.

Description of Property

We own and operate the Pollock Facility located in Pollock, Louisiana that uses renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel fuel. Construction of the Pollock Facility was completed in early 2006, and production and sales of biodiesel began in April of 2006. We estimate that the Pollock Facility is currently capable of producing 12 million gallons of biodiesel per year. We intend to use approximately $3-4 million of the proceeds from the sale of our Series J Convertible Preferred Stock to pursue capital improvements and an expansion of the capacity of the Pollock Facility to 20 million gallons annually.

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 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.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward-Looking Statements

This prospectus contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing else where in this prospectus. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events.

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF CERTAIN FORWARD-LOOKING TERMINOLOGY, SUCH AS “MAY,” “WILL,” “EXPECT,” “ANTICIPATE,” “INTEND,” “ESTIMATE,” “BELIEVE,” OR COMPARABLE TERMINOLOGY THAT INVOLVES RISKS OR UNCERTAINTIES. ACTUAL FUTURE RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM HISTORICAL AND ANTICIPATED RESULTS, WHICH MAY OCCUR AS A RESULT OF A VARIETY OF FACTORS. SUCH RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, FACTORS DISCUSSED IN MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SET FORTH BELOW, AS WELL AS IN “RISK FACTORS” SET FORTH HEREIN. WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. READERS SHOULD CAREFULLY REVIEW THE FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THAT WE FILE FROM TIME-TO-TIME WITH THE SEC.

Overview

Our business is the production of biodiesel fuel and the development of biodiesel facilities in the United States. We own an operating biodiesel facility located in Pollock, Louisiana, that uses renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel. See “Prospectus Summary—Our Company” and “Business and Operations.”

Recent Developments

On September 20, 2006, we acquired Vanguard Synfuels, LLC (“Vanguard”), a producer of biodiesel fuel that owns and operates a production facility located in Pollock, Louisiana (the “Acquisition”). Prior to the Acquisition, we were considered a “shell company” as defined by the SEC and our business activities were primarily focused on raising additional financing and the pursuit of a strategic transaction.

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.

Our New Business

Our business is the production of biodiesel fuel and the development of biodiesel production facilities in the United States. We own an operating biodiesel fuel production facility located in Pollock, Louisiana (“Pollock Facility”) which uses renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel. This facility is situated on a 320-acre site with access to transportation infrastructure, including a nearby navigable tributary river to the Mississippi (for barge freight) and major highways and rail service. Construction of the Pollock Facility was completed in early 2006 and is currently estimated to be capable of producing twelve million gallons of biodiesel per year. We began biodiesel production and sales in April 2006, making us the first operational producer of biodiesel in Louisiana.

Strategy

We plan to increase our production and sales of biodiesel to utilize the full capacity of our existing Pollock Facility. Though the bulk of our sales to-date have been generated from sales to regional wholesale bulk fuel distributors, we may pursue long-term sales or tolling arrangements with wholesale fuel distributors in the future. We may purchase and install additional equipment at the Pollock Facility, which may enable us to use lower-cost feedstock (such as crude soybean oil or animal fats), increase production yields, and lower direct production costs. It is expected that such improvements may require $1-2 million in capital expenditures. Furthermore, we may pursue an increase to our current production capacity of 12 million gallons to 20 million gallons annually. It is expected that such expansion would require approximately $2-3 million in capital expenditures.

In addition to the improvement to and expanding the Pollock Facility’s production capacity, we may seek to acquire additional biodiesel production facilities and transport and distribution sites in the Gulf Coast region, nationwide, or internationally. Furthermore, we may seek to acquire, construct or otherwise participate in other projects relating to the production, transportation, marketing or distribution of biodiesel, feedstock or other chemical inputs to the biodiesel process.

Critical Accounting Policies

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.

Revenue Recognition

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

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persuasive evidence that an arrangement exists;

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the products and services have been delivered;

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

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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.

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.

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.

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 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.

Results of Operations for the Nine Months Ended September 30, 2006 and 2005

As a result of the Acquisition, our new business is the production of biodiesel fuel and the development of biodiesel production facilities in the United States. 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 nine month periods of fiscal 2005, as compared to the nine month periods of fiscal 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 through September 30, 2006, we generated $126,281 in revenue through sales of biodiesel.

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 September 30, 2006 primarily resulted from our sub-scale production level during the period. We were operating at approximately 15% of planned production capacity during this period, resulting in lower efficiencies, high usage and cost of chemical inputs, and high fixed operating costs in relation to our output.

Selling, General and Administrative

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

During the nine months of 2006, we incurred $529,589 of SG&A costs including $57,567 by Vanguard from the date of the Acquisition to September 30, 2006.

Transaction-Related Charges

Transaction related charges consist of nonrecurring expenses incurred in connection with the Acquisition. The charges include the following items:

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$4,792,863, representing the fair value of warrants granted to M.A.G Capital, LLC in connection with the assignment to the Company of certain rights to acquire Vanguard;

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$3,581,764, 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 preferred stock;

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$1,535,042 for the fair value of vested stock options granted to Ocean Park Advisors, LLC in connection with its Services Agreement with us;

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$435,000 for a due diligence fee paid to M.A.G. Capital, LLC;

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$4,129,135 for the excess of the fair value assigned to the Series K preferred stock over the fair value of the membership interest paid to certain executives of Vanguard; and

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$714,976 for transaction bonuses paid to certain officers of Vanguard upon the closing of the Acquisition.

Interest Expense

Subsequent to September 20, 2006, interest expense consists of outstanding principal amounts due 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

outstanding principal balances 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 converted into Series H and I convertible preferred stock on December 6, 2005.

Interest expense for the nine months of 2006 totaled $803,855, 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. We incurred $12,987 of cash-based interest expense attributable to the line of credit and notes payable assumed from Vanguard from the date of the Acquisition to September 30, 2006.

During the nine month periods ended September 30, 2005, we incurred interest expense including accretion of the $$8,832,800 senior secured convertible notes and the $7,300,000 convertible subordinated notes.

Other Income

Other income for the nine months of 2006 totaled $140,100, and consisted of proceeds received from the sale 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. in July 2006.

Change in Fair Value of Derivative Liabilities

The change in the fair value of derivative liabilities for the nine month periods ended September 30, 2006 totaled $0, as compared to a gain of $1,863,427 for the nine months ended September 30, 2005. As part of an exchange offering undertaken by us in December 2005, the underlying securities were exchanged for preferred stock. As such, our liabilities under the convertible instrument were terminated.

Results of Operations for the Years Ended December 31, 2005 and 2004

Revenue and Cost of Revenue

As a result of discontinued operations, we had no revenue or cost of sales related to continuing operations.

Operating Expenses

Total operating expenses for the year ended December 31, 2005 totaled $2,086,469, an increase of $420,675 or 25% as compared to the year ended December 31, 2004. The increase in expense reflects research and development costs, including $333,000 relating to the expensing of assets purchased from the liquidation of our former subsidiary. During the second quarter of 2005, we discontinued all research and development activities.

Interest Expense

Total interest expense for the year ended December 31, 2005 totaled $7,891,364, an increase of $6,275,993 as compared to the year ended December 31, 2004. The changes between periods in interest expense occurred primarily as a result of the accretion of debt resulting from the Company defaulting in 2005. As a result of being in default of our debt obligations, we expensed debt discounts to non-cash interest expense of $7,917,942 for the year ended December 31, 2005.

Loss on Change in Fair Value of Derivative Liabilities

During the year ended December 31, 2005, we recorded an expense of $701,347 for the change in the fair value of derivative liabilities. The change is due to an increase in the market price of our common stock from December 31, 2004 to the date that our derivative liabilities were exchanged for preferred stock pursuant to transactions that took place in December 2005 (the “Exchange Offering”). See “Our History and Recent Developments.”

In connection with the Exchange Offering, the embedded conversion features were exchanged for preferred stock and have been cancelled.

Other Income

Other income for the year ended December 31, 2005 totaled $633,005 as compared to zero for the year ended December 31, 2004. During the fourth quarter of 2005, we entered into settlement agreements with certain vendors for forgiveness of trade accounts payable and accrued expenses.

Discontinued Operations

During 2005, we did not incur expenses for discontinued operations. For the year ended December 31, 2004, we incurred a loss from discontinued operations of $6,007,660 resulting from the cessation of our former subsidiary, DML.

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. The report of our independent registered public accounting firm on the consolidated financial statements for the year ended December 31, 2005 contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern as a result of recurring losses and negative cash flows. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we are unable to continue as a going concern.

Our principal sources of liquidity consist of cash and cash equivalents, cash generated from product sales, the issuance of equity securities and short-term debt 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 soy oil and other inputs necessary for biodiesel production. At September 30, 2006, our cash and cash equivalents totaled $8,505,969 and we had working capital of $3,880,369.

At September 30, 2006, we had $3,167,380 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 1.25%, or 9.5% per annum at September 30, 2006, and is payable monthly with the outstanding principal balance due on July 1, 2007. The amount available under the line of credit is $500,000, with additional advances subject to the discretion of the lender. The line of credit is due upon demand. At September 30, 2006, the amount outstanding under the line of credit was $1,667,380.

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 9.5% per annum as at September 30, 2006 and is payable quarterly. Commencing January 1, 2007, we will be required to make 10 annual principal payments of $150,000 each. At September 30, 2006, the principal amount of $1,500,000 was outstanding under the term loan.

The credit agreement requires 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 is maintaining a cash flow coverage ratio of at least 1.25 to 1.00. As of September 30, 2006, we were not yet required to comply with these covenants.

Pending further review by the Louisiana Department of Revenue and in the absence of remedial legislative action by the State of Louisiana, in February 2007. We may be required to post a $2,000,000 surety bond against its 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 twelve months. We will need to continue a focused program of capital expenditures to meet our production capacity expansion. In order to fund capital expenditures, increase our working capital 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.

Operating Activities

Cash used in operating activities was $1,805,469 for the nine months of fiscal 2006 compared to $1,245,215 for the nine months of fiscal 2005. Operating cash flows for the nine months of 2006 reflect our net loss of $16,398,315 and increased working capital requirements, partially offset by non-cash charges (depreciation, amortization, stock-based compensation, accretion of convertible notes and non-cash transaction related expenses) of $14,276,423.

Operating cash flows for the nine months of fiscal 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 and expenditures to upgrade our biodiesel plant.

Cash used in investing activities of $17,849,401 for the nine months of fiscal 2006 compared to nil for the nine months of fiscal 2005. During the third quarter of fiscal 2006, we paid $17,823,977 in cash to acquire Vanguard and purchased capital expenditures to upgrade our plant.

Financing Activities

Cash provided by financing activities of $27,780,012 for the nine months of fiscal 2006 compared to $150,000 for the nine months of fiscal 2005. During the third quarter of fiscal 2006, we received net proceeds of $28,240,000 from the issuance of $28,500,000 million of Series J preferred stock, partially offset by the repayment of $759,988 of notes payable assumed in connection with the Acquisition. Cash provided by financing activities for the nine months of 2005 consisted of net proceeds from the sale of $150,000 principal amount of senior convertible promissory notes which were extinguished on December 5, 2005.

Income Tax Carryforwards

At September 30, 2006, 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 or when there is a “change in ownership”.

Off Balance Sheet Arrangements

We have no significant known off balance sheet arrangements.

MANAGEMENT

Directors and Executive Officers

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 Director
Darrell Dubroc	45	President & Chief Operating Officer, Class I Director
Tim Collins	41	Executive Vice President of Business Development, Class I Director
Heng Chuk	26	Chief Financial Officer & Secretary, Class II Director
Paul A. Galleberg	46	Class III Director, Compensation Committee Chairman
Jeffrey 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.

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.

W. Bruce Comer III

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 OPA, 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-Indian 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.

Darrell Dubroc

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.

Tim Collins

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.

Heng Chuk

Mr. Chuk has served as the Chief Financial Officer and a director of the Company since December 2005, and is the Vice President 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.

Paul A. Galleberg

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

Jeffrey Lawton

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.

Family Relationships

None.

Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer and principal financial officer. This code of ethics was filed as an exhibit to our annual report on Form 10-K for the fiscal year ended December 31, 2003.

Board Compensation

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. Our two independent 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 expire on March 15, 2007, and were not exercisable until approval by our stockholders. On November 28, 2006, the stockholders approved the stock options at a special meeting of stockholders.

Employment and Management 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 that vest subject to shareholder approval and upon certain stock price targets. See “Certain Relationships and Related Transactions.”

Executive Compensation

The following table provides certain summary information concerning the compensation earned by our Chief Executive Officer and each of our three other most highly compensated executive officers whose salary and bonus for the 2005 fiscal year was in excess of $100,000, for services rendered in all capacities for the fiscal years ended December 31, 2003, 2004 and 2005, respectively. No other executive officers who would have otherwise been includable in such table on the basis of salary and bonus earned for the 2005 fiscal year has been excluded by reason of his or her termination of employment or change in executive status during that year. The listed individuals shall be hereinafter referred to as the “named executive officers.”

SUMMARY COMPENSATION TABLE


						Long-Term Compensation			All Other Compensation ($)
		Annual Compensation				Awards		Payouts
Name and Principal Position	Year	Salary ($)		Bonus ($)	Other Annual Compensation ($)	Restricted Stock Award(s) ($)	Securities Underlying Options (#)	LTIP Payouts ($)
W. Bruce Comer III (1) Chief Executive Officer	2005 2004 2003		— — —	— — —	— — —	— — —	— — —	— — —	— — —

Darrell Dubroc (2) President and Chief Operating Officer	2005 2004 2003		— — —	— — —	— — —	— — —	— — —	— — —	— — —

Tim Collins (3) Executive Vice President of Business Development	2005 2004 2003		— — —	— — —	— — —	— — —	— — —	— — —	— — —

Heng Chuk (4) Chief Financial Officer & Secretary	2005 2004 2003		— — —	— — —	— — —	— — —	— — —	— — —	— — —

David B. Kaysen (5) Chief Executive Officer	2005 2004 2003	$	165,865 385,636 347,091	— — —	— — —	— — 500,000	— — —	— — —	— — —

Steven G. Emery (6) Senior Vice President of Worldwide Marketing and Business Development	2005 2004 2003	$	41,827 187,903 178,197	— — —	— — —	— — —	— — —	— — —	— — —

W. Glen Winchell (7) Senior Vice President & Chief Financial Officer	2005 2004 2003	$	121,154 215,625 80,769	— — —	— — —	— — 200,000	— — —	— — —	39,500 — —	(8)

(1)	Mr. Comer became our Chief Executive Officer in December 2005 and received no compensation from us during fiscal 2005.

(2)	Mr. Dubroc became our President and Chief Operating Officer in September 2006 and received no compensation from us during fiscal 2005.

(3)	Mr. Collins became our Executive Vice President of Business Development in September 2006 and received no compensation from us during fiscal 2005.

(4)	Mr. Chuk became our Chief Financial Officer and Secretary in December 2005 and received no compensation from us during fiscal 2005.

(5)	Mr. Kaysen terminated his employment with us on June 17, 2005.

(6)	Mr. Emery terminated his employment with us on March 31, 2005.

(7)	Mr. Winchell joined as Senior Vice President and Chief Financial Officer effective August 4, 2003 and terminated his employment with us on December 2, 2005.

(8)	Mr. Winchell was paid a settlement of $39,500 in exchange for a release of the Company of any claims, known or unknown, as of November 30, 2005.

OPTIONS/ SAR GRANTS IN LAST FISCAL YEAR

There were no option grants during the year ended December 31, 2005 to the executive officers named in the “Summary Compensation Table” above. The following table summarizes the value of all options held at December 31, 2005 by the executive officers named in the “Summary Compensation Table” above:

Option Grants in Last Fiscal Year


	Individual Grants
Name	Number of Securities Underlying Options Granted(#)	% of Total Options Granted to Employees in Fiscal Year	Exercise or Base Price ($/Sh)	Expiration Date	Grant Date Present Value ($)
W. Bruce Comer III (1)	—	—	—	—	—
Darrell Dubroc (2)	—	—	—	—	—
Tim Collins (3)	—	—	—	—	—
Heng Chuk (4)	—	—	—	—	—
David B. Kaysen (5)	—	—	—	—	—
Steven G. Emery (6)	—	—	—	—	—
W. Glen Winchell (7)	—	—	—	—	—

(1)	Mr. Comer became our Chief Executive Officer in December 2005.

(2)	Mr. Dubroc became our President and Chief Operating Officer in September 2006.

(3)	Mr. Collins became our Executive Vice President of Business Development in September 2006.

(4)	Mr. Chuk became our Chief Financial Officer and Secretary in December 2005.

(5)	Mr. Kaysen terminated his employment with us on June 17, 2005.

(6)	Mr. Emery terminated his employment with us on March 31, 2005.

(7)	Mr. Winchell joined as Senior Vice President and Chief Financial Officer effective August 4, 2003 and terminated his employment with us on December 2, 2005.

AGGREGATED OPTION FISCAL YEAR-END VALUES

The following table sets forth information concerning the aggregate number of options exercised by and year-end option values for each of the executive officers named in the “Summary Compensation Table” above during 2005:

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values


	Shares Acquired On Exercise(#)	Value Realized($)	Number of Securities Underlying Unexercised Options at FY-End(#)	Value of Unexercised In-the-Money Options at FY-End($)
Name	Shares Acquired On Exercise(#)	Value Realized($)	Exercisable/ Unexercisable	Exercisable/ Unexercisable
W. Bruce Comer III (1)	—	—	—	—
Darrell Dubroc (2)	—	—	—	—
Tim Collins (3)	—	—	—	—
Heng Chuk (4)	—	—	—	—
David B. Kaysen (5)	—	—	—	—
Steven G. Emery (6)	—	—	—	—
W. Glen Winchell (7)	—	—	—	—

(1)	Mr. Comer became our Chief Executive Officer in December 2005 and exercised no options during fiscal 2005.

(2)	Mr. Dubroc became our President and Chief Operating Officer in September 2006.

(3)	Mr. Collins became our Executive Vice President of Business Development in September 2006.

(4)	Mr. Chuk became our Chief Financial Officer and Secretary in December 2005 and exercised no options during fiscal 2005.

(5)	Mr. Kaysen terminated his employment with us on June 17, 2005.

(6)	Mr. Emery terminated his employment with us on March 31, 2005.

(7)	Mr. Winchell joined as Senior Vice President and Chief Financial Officer effective August 4, 2003 and terminated his employment with us on December 2, 2005.

Incentive Compensation Plan

On August 11, 2006, our Board of Directors adopted the 2006 Incentive Compensation Plan (the “2006 Plan”). The 2006 Plan, as amended on September 20, 2006, was approved by the stockholders at a special meeting of stockholders held on November 28, 2006. As a result of stockholder approval, the 2006 Plan became effective as of August 11, 2006. The 2006 Plan provides for the grant of equity awards to directors, officers, other employees, consultants, independent contractors and agents of Allegro and its subsidiaries, including stock options to purchase shares of the our common stock, stock appreciation rights (“SARs”), restricted stock, restricted stock units, bonus stock and performance shares. Up to 6,592,755 shares of our 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.

At December 11, 2006, an aggregate of 3,127,312 stock options were issued and outstanding under the 2006 Plan.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 11, 2006 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	3,465,443
Equity compensation plans not approved by security holders	0		N/A	N/A
Total	3,127,312	$	0.7233	3,465,443

Beneficial Ownership

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 14,619,458 shares of our common stock outstanding as of December 11, 2006.


	Name of Beneficial Owner	Number of Shares Beneficially Owned (1)	Percent of Class
(2)	M.A.G. Capital, LLC	23,806,340	63.5	%
(3)	Mercator Momentum Fund	1,817,764	11.1	%
(4)	Mercator Momentum Fund III	3,220,544	18.1	%
(5)	Monarch Pointe Fund Ltd.	10,824,566	44.0	%
(6)	Ocean Park Advisors, LLC	8,276,430	38.5	%
(7)	Asset Managers International Limited	8,723,376	38.7	%
(8)	St. Cloud Capital Partners	3,031,286	17.2	%
(9)	Erasmus Louisiana Growth Fund	2,635,901	15.3	%
(10)	Pentagon Dollar Satellite Fund	2,635,901	15.3	%
(11)	Dave Callaham	2,530,465	14.8	%
(12)	W. Bruce Comer III	8,457,052	39.0	%
(13)	Heng Chuk	8,363,128	38.7	%
(14)	Darrell Dubroc	6,978,630	47.7	%
(15)	Tim Collins	4,131,370	28.3	%
(16)	Paul A. Galleberg	384,604	2.6	%
(17)	Jeffrey Lawton	384,604	2.6	%
(18)	All directors and executive officers as a group	20,422,958	90.6	%

(1)

The percentage calculations are based on 14,619,458 shares of common stock that were outstanding as of December 11, 2006 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 December 11, 2006 (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, 6,500,000 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, 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. 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, 247,800 shares of common stock that may be acquired upon the conversion of outstanding Series B Convertible Preferred Stock and 329,488 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock. 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, 268,600 shares of common stock that may be acquired upon the conversion of outstanding Series B Convertible Preferred Stock and 2,952,209 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock. 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.

(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 and 10,767,654 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock. 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 1,379,400 shares of common stock, warrants to purchase 4,827,921 shares and options to purchase 2,069,109 shares.

(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.

(8)	Consists of 3,301,286 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock.

(9)	Consists of 2,635,901 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock.

(10)	Consists of 2,635,901 shares of common stock that may be acquired upon the conversion of outstanding Series A Convertible Preferred Stock.

(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.

Indemnification of Directors and Executive Officers and Limitation of Liability

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. 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 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.

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.

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 have an expected life of five years.

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 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 have been satisfied and the OPA warrants are fully vested.

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.

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.

CHANGE IN ACCOUNTANTS

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 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.

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 Form 10-Q on December 19, 2005.

SELLING STOCKHOLDERS

This prospectus relates to the resale from time to time of up to a total of 69,342,210 shares of common stock by the selling stockholders, comprising:

•

14,288,048 shares of common stock that were issued to certain of the selling stockholders pursuant to transactions exempt from registration under the Securities Act;

•

2,722,400 shares of common stock underlying shares of Series B Convertible Preferred Stock that were issued to certain of the selling stockholders pursuant to transactions exempt from registration under the Securities Act;

•

37,561,583 shares of common stock underlying shares of Series A Convertible Preferred Stock that were issued to certain of the selling stockholders pursuant to transactions exempt from registration under the Securities Act;

•

11,642,867 shares of common stock underlying warrants that were issued to certain of the selling stockholders pursuant to transactions exempt from registration under the Securities Act;

•

3,127,312 shares of common stock underlying options that were issued to certain of the selling stockholders pursuant to transactions exempt from registration under the Securities Act;

The following table sets forth certain information regarding the selling stockholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a selling stockholder in the second column and the percentage of ownership of that selling stockholder in the third column, shares of common stock underlying shares of convertible preferred stock, options or warrants held by that selling stockholder that are convertible or exercisable, as the case may be, within 60 days of December 11, 2006 are included, in each case without regard to any limitations on conversion or exercise. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. Each selling stockholder’s percentage of ownership in the following table is based upon 14,619,458 shares of common stock outstanding as of December 11, 2006.

Except as described below, none of the selling shareholders within the past three years has held any position or office with us or has had any material relationship with us or any of our predecessors or affiliates:

•

Ocean Park Advisors, LLC has provided consulting and management services to us;

•

W. Bruce Comer III and Heng Chuk, principals of Ocean Park Advisors, have served as our Chief Executive Officer and Chief Financial Officer and Secretary, respectively, since December 2005;

•

Darrell Dubroc and Tim Collins have served as our Chief Operating Officer and Executive Vice President of Business Development, respectively, since September 2006;

•

Paul Galleberg and Jeff Lawton have served as independent, non-executive directors of the Company since March and May 2006, respectively.

For further information regarding the above relationships, see “Certain Relationships and Related Transactions.”

The term “selling stockholders” also includes any transferees, pledges, donees, or other successors in interest to the selling stockholders named in the table below. To our knowledge, subject to applicable community property laws, each individual named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name.


Selling Stockholder	Number of Shares of Common Stock Beneficially Owned Prior to Offering	Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering(1)		Number of Shares of Common Stock Registered for Sale Hereby(2)	Number of Shares of Common Stock Beneficially Owned After Completion of the Offering(3)	Percentage of Shares of Common Stock Beneficially Owned After Completion of the Offering
Ocean Park Advisors, LLC (4) 6033 W. Century Blvd. Suite 850 Los Angeles, CA 90045	8,276,430	38.5	%	8,276,430	0	*

Heng Chuk (5) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	86,698	38.7	%	86,698	0	*

W. Bruce Comer III (6) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	180,622	39.0	%	180,622	0	*

Tim Collins (7) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	4,131,370	28.3	%	4,131,370	0	*

Darrell Dubroc (8) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	6,978,630	47.7	%	6,978,630	0	*

Paul Galleberg (9) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	384,604	2.6	%	384,604	0	*

Jeff Lawton (10) 6033 W. Century Blvd., Suite 850 Los Angeles, CA 90045	384,604	2.6	%	384,604	0	*

Brian Weiss (11) 16 Kamalii Court Newport Beach, CA 92663	61,213	*		61,213	0	*

M.A.G. Capital, LLC (12) 555 South Flower Street Suite 4200 Los Angeles, CA 90071	7,921,784	35.2	%	7,921,784	0	*


Selling Stockholder	Number of Shares of Common Stock Beneficially Owned Prior to Offering	Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering(1)		Number of Shares of Common Stock Registered for Sale Hereby(2)	Number of Shares of Common Stock Beneficially Owned After Completion of the Offering(3)	Percentage of Shares of Common Stock Beneficially Owned After Completion of the Offering
Monarch Pointe Fund, Ltd. (13) c/o Wsmiths Finance Limited Nemars Chambers P.O. Box 3170 Road Town, Tortola British Virgin Islands	10,824,566	44.0	%	10,824,566	0	*

Mercator Momentum Fund III, LP (14) 555 South Flower Street Suite 4200 Los Angeles, CA 90071	3,220,544	18.1	%	3,220,544	0	*

Mercator Momentum Fund, LP (15) 555 South Flower Street Suite 4200 Los Angeles, CA 90071	1,817,764	11.1	%	1,817,764	0	*

Mercator Focus Fund, LP (16) 555 South Flower Street Suite 4200 Los Angeles, CA 90071	21,682	*		21,682	0	*

Pentagon Dollar Satellite Fund, Ltd. (17) Craigmuir Chambers Road Town, Tortola British Virgin Islands	2,635,901	15.3	%	2,635,901	0	*

Asset Managers International Limited (18) Craigmuir Chambers Road Town, Tortola British Virgin Islands	8,723,376	38.7	%	8,723,376	0	*

Erasmus Louisiana Growth Fund, L.P. (19) 2651 North Harwood Suite 210 Dallas, TX 75201	2,635,901	15.3	%	2,635,901	0	*

St. Cloud Capital Partners, LP (20) 10866 Wilshire Blvd. #1450 Los Angeles, CA 90024	3,031,286	17.2	%	3,031,286	0	*


Selling Stockholder	Number of Shares of Common Stock Beneficially Owned Prior to Offering	Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering(1)		Number of Shares of Common Stock Registered for Sale Hereby(2)	Number of Shares of Common Stock Beneficially Owned After Completion of the Offering(3)	Percentage of Shares of Common Stock Beneficially Owned After Completion of the Offering
Longview Fund (21) c/o Viking Asset Management, LLC 600 Montgomery St. 44th Floor Transamerica Pyramid San Francisco, CA 94111	293,945	2.0	%	293,945	0	*

Longview Equity Fund (22) c/o Viking Asset Management, LLC 600 Montgomery St. 44th Floor Transamerica Pyramid San Francisco, CA 94111	167,776	1.1	%	167,776	0	*

Longview International Equity Fund (23) c/o Viking Asset Management, LLC 600 Montgomery St. 44th Floor Transamerica Pyramid San Francisco, CA 94111	83,888	*		83,888	0	*

Camden International (24) Charlotte House Charlotte Street P.O. Box N 9204, Nassau Bahamas	209,724	1.4	%	209,724	0	*

Medical Innovation Fund (25) Opus Center, 9900 Bren Road E, Suite 421 Minnetonka, MN	4,593	*		4,593	0	*

Medical Innovation Fund II (26) Opus Center, 9900 Bren Road E, Suite 421 Minnetonka, MN	1,563	*		1,563	0	*

Banca della Svizzera Italiana (27) via Peri, 23 6900 Lugano Switzerland	920	*		920	0	*


Selling Stockholder	Number of Shares of Common Stock Beneficially Owned Prior to Offering	Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering(1)		Number of Shares of Common Stock Registered for Sale Hereby(2)	Number of Shares of Common Stock Beneficially Owned After Completion of the Offering(3)	Percentage of Shares of Common Stock Beneficially Owned After Completion of the Offering
Banca del Gottardo (28) via Simen, 14 6901 Lugano Switzerland	920	*		920	0	*

C. David Callaham (29) 1084 N.E. Hwy 99 Vancouver, WA 98686	2,530,465	14.8	%	2,530,465	0	*

Portland Fixture Limited Partnership (30) 16390 SW Langer Drive Sherwood, OR 97140	658,975	4.3	%	658,975	0	*

The Richard Aronow Trust (31) 7224 Eads Ave. La Jolla, CA 92037	658,975	4.3	%	658,975	0	*

Nautilus Trust (32) 100 N. Crescent Dr. #300 Beverly Hills, CA 90210	448,103	3.0	%	448,103	0	*

Alegre Trust (33) c/o Clarity Partners 100 N. Crescent Dr. #300 Beverly Hills, CA 90210	434,924	2.9	%	434,924	0	*

Rader Living Trust (34) c/o Clarity Partners 100 N. Crescent Dr. #300 Beverly Hills, CA 90210	434,924	2.9	%	434,924	0	*

Gregory W. Econn Trust (35) 113 Fremont Place Los Angeles, CA 90005	329,488	2.2	%	329,488	0	*

Geller Living Trust (36) 310 St. Cloud Rd. Bel-Air, CA 90077	263,590	1.8	%	263,590	0	*

James A. Sears (37) 30 Foxes Dale London, United Kingdom	263,590	1.8	%	263,590	0	*

Armando Engenheiro (38) 782 Manning Ave. Toronto, Ontario M6G 2W6, Canada	197,693	1.3	%	197,693	0	*

Belinda Fung Pui Kit (39) Flat 28B The Harborview 11 Magazine Gap Road Hong Kong	131,795	*		131,795	0	*


Selling Stockholder	Number of Shares of Common Stock Beneficially Owned Prior to Offering	Percentage of Shares of Common Stock Beneficially Owned Prior to the Offering(1)	Number of Shares of Common Stock Registered for Sale Hereby(2)	Number of Shares of Common Stock Beneficially Owned After Completion of the Offering(3)	Percentage of Shares of Common Stock Beneficially Owned After Completion of the Offering
James W. Econn Family Trust (40) 2347 Century Hill Los Angeles, CA 90067	131,795	*	131,795	0	*

Ravi Bhaskaran (41) 499 Marina Blvd #303 San Francisco, CA 94123	131,795	*	131,795	0	*

Donald A. Buss (42) 440 NW Hilltop Rd. Portland, OR 97210	105,436	*	105,436	0	*

Curtis Palmer (43) 1302 Devlin Dr. Los Angeles, CA 90069	65,898	*	65,898	0	*

FOB I (44) 1955 Raymond Drive, Suite 111, Northbrook, Il 60062	65,898	*	65,898	0	*

JKCM and M, LLC (45) 22 Mikro Lane Laguna Niguel, CA 92677	65,898	*	65,898	0	*

Kent Liu (46) 954 14th St #5 Santa Monica, CA 90403	65,898	*	65,898	0	*

Matador Microcap LP (47) 103 Faulk Road #202 Wilmington DE 19803	65,898	*	65,898	0	*

Michael Marchetti (48) 416 Highland Ave. Manhattan Beach, CA 90266	65,898	*	65,898	0	*

Shahriar Alikhani (49) 22 Mikro Lane Laguna Niguel, CA 92677	65,898	*	65,898	0	*

Benjamin Hom (50) 1914 Corinth Ave #202 Los Angeles, CA 90025	39,539	*	39,539	0	*

John E. Anderson III (51) 285 Homewood Rd. Los Angeles, CA 90049	39,539	*	39,539	0	*

*	Indicates less than 1.0%.

(1)	Percentages are based on 14,619,458 shares of our common stock outstanding and takes into account only that portion of the selling stockholder’s holdings that are convertible and/or exercisable within 60 days of December 11, 2006.

(2)

Pursuant to registration rights agreements with certain of the selling stockholders, we are required to register and to include in this prospectus 69,342,210 shares of common stock into which the Series A and B Convertible Preferred Stock, warrants, and certain options held by these selling stockholders may be converted or exercised.

(3)

Represents the amount of shares that will be held by the selling stockholders after completion of this offering based on the assumption that all the shares of common stock registered for sale hereby will be sold. However, the selling stockholders may offer all, some or none of the shares of common stock pursuant to this prospectus, and to our knowledge there are currently no agreements, arrangements, or understanding with respect to the sale of any of the shares that may be held by the selling stockholders after completion of this offering.

(4)	Includes 1,379,400 shares of outstanding common stock, 4,827,921 shares of common stock underlying warrants, and 2,069,109 shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(5)	Represents shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(6)	Represents shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(7)	Consists of 4,131,370 shares of common stock. This selling stockholder is not a broker-dealer or affiliate of a broker dealer.

(8)	Consists of 6,978,630 shares of common stock. This selling stockholder is not a broker-dealer or affiliate of a broker dealer.

(9)	Represents shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer.

(10)	Represents shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer.

(11)	Includes 39,539 shares of common stock underlying Series A Convertible Preferred Stock (including interest shares) and 21,675 shares of common stock underlying options. This selling stockholder is not a broker-dealer or affiliate of a broker dealer.

(12)

Includes 7,884 shares of outstanding common stock, 1,413,900 shares of common stock underlying Series B Convertible Preferred Stock (including interest shares), and 6,500,000 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(13)

Includes 847,647 shares of outstanding common stock, 9,568,319 shares of common stock underlying Series A Convertible Preferred Stock (including interest shares), and 408,600 shares of common stock underlying series B Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(14)

Includes 20,535 shares of outstanding common stock, 2,952,209 shares of common stock underlying Series A Convertible Preferred Stock (including interest shares), and. 247,800 shares of common stock underlying series B Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(15)

Includes 20,342 shares of outstanding common stock, 1,528,822 shares of common stock underlying Series A Convertible Preferred Stock (including interest shares), and 268,600 shares of common stock underlying series B Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(16)	Includes 13,576 shares of outstanding common stock and 8,106 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(17)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(18)	Includes 815,675 shares of outstanding common stock and 7,907,702 shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(19)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(20)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(21)

Includes 33,333 shares of outstanding common stock, 142,000 shares of common stock underlying Series B Convertible Preferred Stock (including interest shares), and 118,612 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(22)

Includes 13,200 shares of outstanding common stock, 86,800 shares of common stock underlying Series B Convertible Preferred Stock (including interest shares), and 67,776 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(23)

Includes 6,800 shares of outstanding common stock, 43,200 shares of common stock underlying Series B Convertible Preferred Stock (including interest shares), and 33,888 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(24)

Includes 13,500 shares of outstanding common stock, 111,500 shares of common stock underlying Series B Convertible Preferred Stock (including interest shares), and 84,724 shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(25)	Represents shares of outstanding common stock. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(26)	Represents shares of outstanding common stock. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(27)	Represents shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(28)	Represents shares of common stock underlying warrants. This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(29)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(30)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(31)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(32)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(33)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(34)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(35)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(36)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(37)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(38)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(39)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(40)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(41)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(42)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(43)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(44)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(45)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(46)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(47)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(48)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(49)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(50)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

(51)	Represents shares of common stock underlying Series A Convertible Preferred Stock (including interest shares). This selling stockholder is not a broker-dealer or affiliate of a broker dealer. See also footnote (2).

We will not receive any of the proceeds from the sale of the shares by the selling stockholders, but we will receive funds from the exercise of warrants and options held by the selling stockholders, if exercised. We have agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders, including the SEC registration fee and legal, accounting, printing and other expenses of this offering.

DESCRIPTION OF CAPITAL STOCK

Common Stock

We are currently authorized to issue up to 150,000,000 shares of common stock, par value $0.01 per share, of which 14,619,458 are currently outstanding. Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the stockholders. Holders of our common stock (i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution upon liquidation, dissolution or winding up; and (iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions. All issued shares of our common stock are fully paid for and non-assessable.

Preferred Stock

Our Certificate of Incorporation authorizes the Board of Directors to issue preferred stock in one or more series and our Board, without further approval from our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock.

We are currently authorized to issue up to 50,000,000 shares of undesignated preferred stock, par value $0.01 per share, of which 28,527,224 shares are currently outstanding. Our issued and outstanding preferred stock consists of 28,500,000 shares of Series A Convertible Preferred Stock and 27,224 shares of Series B Convertible Preferred Stock.

Prior to the effectiveness of the Reincorporation on November 28, 2006, our issued and outstanding preferred stock consisted of 27,224 shares of Series H Convertible Preferred Stock, 28,500 shares of Series J Convertible Preferred Stock, and 4,300 shares of Series K Convertible Preferred Stock. Upon the effectiveness of the Reincorporation, (i) each outstanding share of the Series H Convertible Preferred Stock of the Company was automatically converted into shares of Series B Convertible Preferred Stock, on a one-for-one basis; (ii) each outstanding share of the 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 of the 4,300 outstanding shares of our Series K Convertible Preferred Stock was automatically converted into 2,583.7209 shares of common stock (for an aggregate of approximately 11.11 million shares of common stock).

The Series A and Series B Convertible Preferred Stock have the following characteristics:

Dividends

The holders of Series A and Series B convertible preferred stock are entitled to receive dividends when, and if declared by our Board of Directors.

The holders of Series A convertible preferred stock are entitled to receive dividends at a rate of 8% per annum in cash or additional shares of Series A preferred stock, at our option. The dividends accrue whether or not the Board of Directors declares a dividend. If we elect to pay the dividend in additional shares of Series A convertible preferred stock, 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).

Conversion

Each share of Series B convertible preferred stock 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 convertible preferred stock is convertible into common stock at the option of the holder. Each share is convertible by dividing the Series J convertible preferred stock purchase price per share ($1.00) by the then existing conversion price, currently $0.76 per share. Each holder may convert their shares into common stock, provided we have the requisite number of authorized shares of common stock available. Additionally, 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 convertible preferred stock, 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 we may, at our option, require any holder of Series A convertible preferred stock to convert all, or a portion, of the then outstanding Series A convertible preferred stock into common stock.

In the event we issue additional shares of common stock or common stock equivalents at a price per share lower than the Series A conversion price, the Series A convertible preferred stock 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 convertible preferred stock is non-voting.

The holders of shares of Series A convertible preferred stock 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.

Board of Directors

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

Liquidation Preference

Each holder of the Series B and Series A convertible preferred stock 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 convertible preferred stock, we are required 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 convertible preferred stock under the Securities Act. In the event that we fail 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 fail to maintain the effectiveness of the registration statement thereafter, then we must pay the holders of the Series A convertible preferred stock an amount equal to $6,250 for each day the registration statement is not effective; provided, however, that our obligation to pay such amount shall cease on September 20, 2008.

Redemption

The Series A and Series B convertible preferred stock are non-redeemable.

Stock Options

As of December 11, 2006, there were outstanding stock options to purchase 3,127,312 shares of our common stock pursuant to the 2006 Incentive Compensation Plan at a weighted average exercise price of $0.72 per share and an additional 3,465,443 shares reserved for future grant under this stock option plan.

Warrants

As of December 11, 2006, there were outstanding warrants to purchase 11,642,866 shares of our common stock with exercise prices ranging from $0.76 – $2.50 per share.

Delaware Anti-Takeover Law and Charter and Bylaw Provisions

Certain provisions of Delaware law and our Certificate of Incorporation and Bylaws could make more difficult the acquisition of us by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and director. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us.

Our Certificate of Incorporation and Bylaws include provisions that:

•

allow the Board of Directors to issue, without further action by the stockholders, up to 50,000,000 shares of undesignated preferred stock;

•

require that special meetings of our stockholders be called only by the Board of Directors, the Chairman of the Board, or a Committee authorized to call such meetings;

•

establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders;

•

establish a classified Board of Directors; and

•

provide that the Bylaws and certain provisions in the Certificate of Incorporation may only be amended by an affirmative vote of at least 66²/3% of the voting power of the outstanding capital stock;

We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder, unless:

•

prior to such date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan win be tendered in a tender or exchange offer; or

•

on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines a business combination to include:

•

any merger or consolidation involving the corporation and the interested stockholder;

•

any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

•

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

•

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

•

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by such entity or person.

Transfer Agent and Registrar

The transfer agent for our common stock is American Stock Transfer and Trust Company, located at 59 Maiden Lane, New York, New York 10038.

SHARES ELIGIBLE FOR FUTURE SALE

As of December 11, 2006, we had outstanding 14,619,458 shares of common stock.

Rule 144

Except for shares held by any of our affiliates, all of the shares registered in this offering will be freely tradable without restriction or further registration under the Securities Act. If shares were purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act, their sales of shares would be governed by the limitations and restrictions that are described below.

In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares of our common stock for at least one year, including any person who may be deemed to be an affiliate (as the term affiliate is defined under the Securities Act), would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of

•

1% of the number of shares of common stock then outstanding, which as of December 11, 2006 would equal approximately 146,619; or

•

the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are also governed by other requirements regarding the manner of sale, notice filing and the availability of current public information about us. Under Rule 144, however, a person who is not, and for the three months prior to the sale of such shares has not been, an affiliate of the issuer is free to sell shares that are “restricted securities” which have been held for at least two years without regard to the limitations contained in Rule 144. Selling stockholders who are not affiliates will not be governed by the foregoing restrictions when selling their shares pursuant to this prospectus.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, notice filing, volume limitation or notice provisions of Rule 144.

Resale of Shares Underlying Stock Options

The 2006 Incentive Compensation Plan provides for the grant of stock options for 6,592,755 shares of common stock, of which as of December 11, 2006, options to purchase 3,127,312 shares were outstanding and options to purchase 3,465,443 shares remained available for grant.

PLAN OF DISTRIBUTION

We are registering certain shares of outstanding common stock, shares of common stock issuable upon conversion of the Series A and Series B Convertible Preferred Stock, shares of common stock issuable upon the exercise of outstanding stock options and warrants to purchase common stock (together, the “Registered Securities”), and to permit the resale of these shares of common stock by the holders of the Registered Securities from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock, but we will receive funds from the exercise of warrants and options held by the selling stockholders. We will bear all fees and expenses incident to our obligation to register the shares of common stock as described in the registration rights agreements we have entered into with the selling stockholders.

The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions:

•

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

•

in the over-the-counter market;

•

in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

•

through the writing of options, whether such options are listed on an options exchange or otherwise;

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•

an exchange distribution in accordance with the rules of the applicable exchange;

•

privately negotiated transactions;

•

short sales;

•

sales pursuant to Rule 144;

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

•

a combination of any such methods of sale; and

•

any other method permitted pursuant to applicable law.

If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common

stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers who in turn may sell such shares.

The selling stockholders may pledge or grant a security interest in some or all of the Registered Securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

The selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement of which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreements, estimated to be $69,922 in total, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements, or we may be entitled to contribution.

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our “affiliates,” as that term is defined in the Securities Act.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for us by Zimmermann, Koomer, Connolly & Finkel, LLP, Los Angeles, California.

EXPERTS

The consolidated financial statements of Allegro Biodiesel Corporation at December 31, 2005 and 2004 and for each of the years then ended appearing in this prospectus and registration statement have been audited by McKennon Wilson Morgan, LLP and Virchow, Krause & Company, LLP, respectively, independent registered public accounting firms, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Additionally, the financial statements of Vanguard Synfuels, LLC at December 31, 2005 and 2004 and for each of the years than ended appearing this prospectus and registration statement have been audited by McKennon Wilson Morgan, LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as an expert in accounting and auditing.

ADDITIONAL INFORMATION

We filed with the SEC a registration statement on Form SB-2 under the Securities Act for the shares of common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement.

Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the SEC at Room 1580, 100 F Street, NE, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

We are subject to the information and periodic reporting requirements of the Exchange Act, and in accordance with the Exchange Act, we file annual, quarterly and special reports, and other information with the SEC. These periodic reports, and other information are available for inspection and copying at the regional offices, public reference facilities and website of the SEC referred to above.

INDEX TO ALLEGRO BIODIESEL CORPORATION (formerly Diametrics Medical, Inc.)

FINANCIAL STATEMENTS


Interim Financial Statements for the Nine Months Ended September 30, 2006

Condensed Consolidated Balance Sheet as of September 30, 2006		F-2

Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2006 and 2005		F-3

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005		F-4

Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2006		F-5

Notes to Condensed Consolidated Financial Statements		F-6

Audited Financial Statements for the Years Ended December 31, 2005 and 2004

Report of Independent Registered Public Accounting Firm		F-22

Consolidated Balance Sheet as December 31, 2005		F-23

Consolidated Statements of Operations for the Years Ended December 31, 2005 and 2004		F-24

Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss for the Years Ended December 31, 2005 and 2004		F-25

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005 and 2004		F-26

Notes to Consolidated Financial Statements		F-27

Financial Statements of Vanguard Synfuels, LLC (a Development-Stage Company)

Report of Independent Registered Public Accounting Firm		F-44

Consolidated Balance Sheets as June 30, 2006 (unaudited) and December 31, 2005		F-45

Consolidated Statements of Operations for the six months ended June 30, 2006 and 2005 (unaudited), the period from inception (April 28, 2003) through December 31, 2005, and the years ended December 31, 2005 and 2004		F-46

Statements of Members’ Equity (Deficit) period from inception (April 28, 2003) through December 31, 2003, the years ended December 31, 2004 and 2005, and the six months ended June 30, 2006 (unaudited)		F-47

Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited), the period from inception (April 28, 2003) through December 31, 2005, and the years ended December 31, 2005 and 2004		F-48

Notes to Consolidated Financial Statements		F-49

F-1

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Balance Sheet

(Unaudited)


	September 30, 2006
Assets
Current assets:
Cash and cash equivalents	$	8,505,969
Accounts receivable, no allowance provided		176,029
Inventories, net		437,302
Other current assets		33,030

Total current assets		9,152,330

Property and equipment, net		4,314,865
Intangible assets, net		4,527,000
Goodwill		20,044,763
Other assets, net		30,809

Total assets	$	38,069,767

Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit	$	1,667,380
Notes payable		1,500,000
Accounts payable		1,166,799
Accrued expenses		486,168
Deferred income taxes		451,614

Total current liabilities		5,271,961

Deferred income taxes		1,806,456

Total liabilities		7,078,417

Commitments and contingencies		—

Shareholders’ equity:
Preferred stock, $1.00 par value; 50,000 shares authorized:
Issued and outstanding shares—34,374		34,374
Common stock, $1.00 par value: 10,000,000 shares authorized, Issued and outstanding shares—3,509,458		3,509,458
Additional paid-in capital		220,945,227
Accumulated deficit		(193,497,709	)

Total shareholders’ equity		30,991,350

Total liabilities and shareholders’ equity	$	38,069,767

See accompanying Notes to Consolidated Financial Statements.

F-2

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statements of Operations

(Unaudited)


	Nine Months Ended September 30,
	2006			2005
Sales, including excise tax credits	$	126,281		$	—
Cost of sales, including excise tax credits		150,222			—

Gross profit (loss)		(23,941	)		—

Operating expenses:
Research and development		—			477,432
Selling, general and administrative		529,589			983,297

Total operating expenses		529,589			1,460,729

Operating loss		(553,530	)		(1,460,729	)

Interest income		7,316			—
Interest expense		(803,855	)		(8,832,800	)
Gain on change in fair value of warrant liability		—			1,863,429
Transaction-related charges		(15,188,346	)		—
Other income		140,100			15,008

Loss before income taxes		(16,398,315	)		(8,415,092	)
Provision for income taxes		—			—

Net loss		(16,398,315	)		(8,415,092	)
Preferred stock dividends		—			—

Net loss attributable to common stockholders	$	(16,398,315	)	$	(8,415,092	)

Net loss per share, basic and diluted	$	(32.23	)	$	(23.96	)

Weighted-average number of shares used in per share calculations		508,877			351,217

See accompanying Notes to Consolidated Financial Statements.

F-3

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2006			2005
Cash flows from operating activities:
Net loss	$	(16,398,315	)	$	(8,415,092	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		8,959			—
Stock-based compensation		45,006			89,801
Accretion of convertible notes and amortization of debt issue costs		737,443			8,218,612
Non-cash transaction related expenses		14,038,804			—
Gain on change in warrant and derivative liabilities		—			(1,862,800	)
Gain on liquidation of discontinued operations		—			(14,500	)
Changes in operating assets and liabilities, net of operating assets acquired and liabilities assumed:
Accounts receivable		(30,571	)		—
Inventories		(194,074	)		—
Prepaid expenses and other assets		56,590			32,386
Accounts payable		(156,577	)		(72,482	)
Accrued interest		—			1,160,458
Other accrued expenses		87,266			(381,598	)

Net cash used in continuing operating activities		(1,805,469	)		(1,245,215	)

Cash flows from investing activities
Capital expenditures		(25,424	)		—
Acquisition of Vanguard Synfuels LLC, net of cash acquired		(17,823,977	)		—

Net cash used in investing activities		(17,849,401	)		—

Cash flows from financing activities
Proceeds from the issuance of convertible promissory notes		300,000			150,000
Repayment of notes payable		(759,988	)		—
Net proceeds from the issuance of preferred stock		28,240,000			—

Net cash provided by financing activities		27,780,012			150,000

Net increase (decrease) in cash and cash equivalents		8,125,142			(1,095,215	)
Cash and cash equivalents at beginning of period		380,827			1,095,800

Cash and cash equivalents at end of period	$	8,505,969		$	585

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	—		$	—
Cash paid during the period for interest	$	—		$	—

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	$	8,429,757		$	—
Conversion of convertible debt into common stock	$	750,000		$	—

See accompanying Notes to Consolidated Financial Statements.

F-4

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statement of Shareholders’ Equity (Deficit)

(Unaudited)


	Preferred Shares		Preferred Stock			Common Shares	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Total Shareholders’ Equity (Deficit)
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			—			300,000
Conversion of Series H preferred stock into common stock	(13	)		(1	)	2,959		350		(37	)					312

Net loss	—			—		—		—		—			(110,907	)		(110,907	)

Balance, March 31, 2006	41,671			416		354,177		351,568		176,631,293			(177,135,459	)		(152,182	)

Stock split	—			41,255		—		—		(106,751	)		—			(65,496	)

Conversion of Series H preferred stock into common stock	(653	)		(653	)	63,540		66,149		—			—			65,496

Stock compensation expense	—			—		—		—		10,558			—			10,558
Net loss	—			—		—		—		—			(235,169	)		(235,169	)

Balance, June 30, 2006	41,018			41,018		417,717		417,717	$	176,535,100			(177,370,628	)		(376,793	)

Stock split	—			—		—		258		(258	)		—			—

Stock compensation expense	—			—		—		—		34,448			—			34,448

Sale of Series J preferred stock, net of offering costs of $260,000	2,850			2,850		—		—		28,237,150			—			28,240,000
Value assigned to the issuance of stock options to Ocean Park Advisors LLC	—			—		—		—		1,535,042			—			1,535,042
Value assigned to the issuance of common stock warrants to Ocean Park Advisors LLC	—			—		—		—		3,581,764			—			3,581,764
Value assigned to the Issuance of common stock warrants to MAG Capital LLC	—			—		—		—		4,792,863			—			4,792,863
Conversion of Series I preferred stock into common stock	(13,794	)		(13,794	)	1,379,400		1,379,400		(1,365,606	)		—			—
Conversion of convertible debt into common stock	—			—		1,631,350		1,631,350		(750,000	)		(74,842	)		806,508
Issuance of common stock through exercise of warrants	—			—		80,733		80,733		(80,733	)		—			—
Issuance of Series K preferred stock in connection with the acquisition of Vanguard	4,300			4,300		—		—		8,425,457			—			8,429,757

Net loss	—			—		—		—		—			(16,052,239	)		(16,052,239	)

Balance, September 30, 2006	34,374		$	34,374		3,509,458	$	3,509,458	$	220,945,227		$	(193,497,709	)	$	30,991,350

See accompanying Notes to Consolidated Financial Statements.

F-5

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements

September 30, 2006

(Unaudited)

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”). The Acquisition is more fully described in the Form 8-K we filed with the SEC on September 26, 2006. From January 2005 to September 19, 2006, the Company 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.

In connection with the Acquisition, the Company received $28.5 million in gross proceeds from the issuance of Series J Convertible Preferred Stock. The Company used $17.7 million of these proceeds and issued shares of its Series K Convertible Preferred Stock to purchase 100% of the equity interests of Vanguard in a transaction intended to qualify as a tax-free exchange.

The Company intends to reincorporate in the State of Delaware (the “Reincorporation”) and, in connection with the Reincorporation, change its corporate name to Allegro Biodiesel Corporation. The Reincorporation will also result in an increase in the number of our authorized shares of common stock to 150,000,000 shares and the authorized shares of preferred stock to 50,000,000 shares. Such actions are subject to the approval of our shareholders at a Special Meeting of Shareholders to be held on November 28, 2006. Pursuant to voting agreements entered into in connection with the Acquisition, the holders of the Company’s securities representing approximately 99% of the voting power of the capital stock have each agreed to vote their shares for the Reincorporation and related measures to be presented at the Special Meeting. Accordingly, the Company expects the Reincorporation, the name change and related measures will be approved.

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.

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 $22,249,971, including the issuance of 4,300 shares of Series K Convertible Preferred Stock. The acquisition has been accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), whereby the estimated purchase price has been allocated to tangible and intangible net assets acquired based upon fair values at the date of acquisition.

F-6

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

The components of the aggregate purchase price are as follows:


Consideration paid:
Net cash paid to selling shareholders	$	17,699,378
Issuance of Series K convertible preferred stock		4,300,622
Direct acquisition costs		249,721

Total	$	22,249,971

The purchase price of Vanguard has been allocated to assets acquired and liabilities assumed based on their estimated fair values determined by management with the assistance of an independent, third-party appraiser as follows:


Cash	$	125,373
Accounts receivable, net		145,458
Inventory		243,228
Plant and equipment		3,589,000

Land		709,400
Other assets		28,200
Customer relationships		4,527,000
Goodwill		20,044,764
Accounts payable		(677,531	)
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	)

	$	22,249,971

The fixed assets are being depreciated from the date of acquisition with estimated useful lives ranging from three to twenty years. The customer relationship is considered an intangible asset and is being amortized over its estimated useful live of five years. 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 that 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 given that the Company was previously defined as a “shell company” and Vanguard recently exited the development stage.

3. Basis of Presentation and Significant Accounting Policies

The report of the Company’s independent registered public accounting firm on the consolidated financial statements for the year ended December 31, 2005 contained an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern, as a result of recurring losses, negative cash flows and being in the development stage.

F-7

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

Basis of Presentation

The consolidated financial statements of the Company are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2005 as reported in the Form 10-KSB, have been omitted. The results of operations for the nine month periods ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year. All accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for these interim periods are not necessarily indicative of results to be expected for the full year. These statements should be read in conjunction with the financial statements and related notes which are part of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005 and Form 8-K filed on September 26, 2006.

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 has 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.

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 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.

F-8

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

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

Statement of Financial Accounting Standards (“SFAS”) 141, “Business Combinations”, 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, “Goodwill and Other Intangible Assets”, 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

The Company uses the liability method of accounting for income taxes, under which deferred taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

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

F-9

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

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.

The following is a summary of securities outstanding as of September 30, 2006 and September 30, 2005 which have been excluded from the calculation of diluted net loss per share because the effect would have been antidilutive:


	September 30, 2006	September 30, 2005
Common stock options	3,127,312	4,066
Common stock warrants	11,642,866	705,614
Convertible subordinated debt	—	3,650,000
Convertible senior notes	—	975,000
Convertible preferred stock—Series F	—	66,667
Convertible preferred stock—Series G	—	500,000
Convertible preferred stock—Series H	2,722,400	—
Convertible preferred stock—Series J	37,561,583	—
Convertible preferred stock—Series K	11,110,000	—
Restricted stock	—	643

Total	66,164,161	5,901,990

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 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.

F-10

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

The fair value of stock options awarded during the nine months ended September 30, 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:


	Nine months ended September 30, 2006
Weighted-average fair value of options granted	$	0.65

Weighted-average assumptions:
Expected option term (in years)		3.4
Risk-free interest rate		4.8	%
Expected volatility		204.5	%
Dividend yield		0	%

The expected option term was estimated based upon the vesting period of the options and management’s expectation of exercise behavior. 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.

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 periods prior to the adoption of SFAS 123R:


	Nine Months September 30, 2005 (As Restated)
Loss available to common shareholders, as reported and as restated in 2005	$	(8,415,092	)
Stock-based employee compensation expense included in net loss available to common shareholders		—
Stock-based employee compensation expense determined under fair value method		(143,518	)

Pro forma net loss available to common shareholders	$	(8,588,610	)

Loss per share available to common shareholders:
Basic and diluted, as reported for 2005 and as restated in 2006	$	(23.96	)
Basic and diluted, pro forma	$	(23.96	)

Valuation of Certain Securities

For the purposes of accounting for the issuance of convertible securities in connection with the Acquisition (including the Series J preferred stock, the Series K preferred stock, and certain stock options and warrants), the Company determined the fair value per share of common stock was equal to $0.76 per share immediately preceding the acquisition, rather than the quoted closing price of $3.10 per share on the OTC Bulletin Board on such date. Given that the trading volume and liquidity of the common stock on the OTC Bulletin Board was extremely limited preceding the Acquisition, the Company considered the price paid by third-party investors in

F-11

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

the $28.5 million of Series J preferred stock transaction. The Company determined that the price per equivalent common share (i.e., the conversion price of the preferred stock) of approximately $0.76 paid by the Series J preferred stock investors, without discount thereto, provided a more reasonable indication of the fair value per share of the common stock at that point in time.

There can be no assurance that the Securities and Exchange Commission will agree with the Company’s determination. If the Commission does not agree, the Company may be required to restate its financial statements for the nine months ended September 30, 2006 to reflect non-cash adjustments relating to the issuance of common stock options, common stock warrants, Series J preferred stock (and any related beneficial conversion features) and Series K preferred stock in connection with the Acquisition.

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 to other fuel blenders (as registered with the IRS) who may then collect the tax credit. 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, 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 January 31, 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 effect its liquidity. There is no guarantee

F-12

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

the Company will be classified as a blender upon further review by the LDR, or that it will obtain an extension beyond January 31, 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.

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

Inventories consist of the following:


	September 30, 2006
Raw materials	$	371,136
Finished goods		66,166

	$	437,302

5. 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, that 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 1.25%, or 9.5% per annum at September 30, 2006, and is payable monthly with the outstanding

F-13

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

principal balance due on July 1, 2007. The line of credit is due upon demand. 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. At September 30, 2006, the amount available under the line of credit was $500,000, with additional advances subject to the discretion of the lender. Pursuant to the lender’s agreement to make such additional advances, the amount outstanding under the line of credit at September 30, 2006 was $1,667,380.

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 9.5% per annum at September 30, 2006 and is payable quarterly. Commencing January 1, 2007, the Company is required to make 10 annual principal payments of $150,000 each.

The credit agreement 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, the most restrictive of which is maintaining a cash flow coverage ratio of at least 1.25 to 1.00. As of September 30, 2006, the Company was not yet required to comply with these covenants.

6. 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 and EITF 00-27 since the embedded conversion feature 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 $450,000 for the December 6, 2005 advance and $300,000 for the January 18, 2006 advance, which have been treated as a discount 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.

7. Income Taxes

At September 30, 2006, the Company had available no significant U.S. tax net operating loss carry forwards, 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. The Company’s net operating loses will be subject to limitations due to a change in ownership that occurred in December 2005. The Company provided for a valuation allowance of 100% of the net deferred tax assets.

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-14

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

8. Preferred Stock

The Company’s issued and outstanding preferred stock as of September 30, 2006 consists of Series H, Series J and Series K convertible preferred stock (herein referred to as “Series H Preferred”, “Series J Preferred” and “Series K Preferred”, respectively or collectively the “Preferred”). The Company has authorized 50,000 shares of preferred stock, $1.00 par value per share, of which 28,222, 2,850 and 4,300 shares are designated as Series H, Series J and Series K preferred stock, respectively.

On December 6, 2005, the Company issued 27,889 and 13,794 shares of Series H and Series I Preferred in exchange for the cancellation of 10,000 and 15,000 shares of Series F and Series G convertible preferred stock. In connection with the Acquisition, the holders of the Series I preferred stock converted their shares into 1,379,400 shares of common stock.

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.

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 $8,429,757, of which $4,300,622 was allocated to the Acquisition purchase price based on the purchase price of the ownership interests acquired from the other members of Vanguard for cash. The remaining amount of $4,129,135 was deemed to be compensation, and was charged to the statement of operations on the date of the Acquisition.

The preferred stock outstanding as of September 30, 2006 has the following characteristics:

Dividends

The holders of Series H and Series K Preferred are entitled to receive dividends when and as if declared by the Board of Directors of the Company.

The holders of Series J Preferred are entitled to receive dividends at a rate of 8% per annum in cash or additional shares of Series J 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 J 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).

Conversion

Each share of Series H 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 J Preferred is convertible into common stock at the option of the holder. Each share is convertible by dividing the Series J 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

F-15

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

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 J 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 J 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 J conversion price, the Series J Preferred is entitled to a weighted-average anti-dilution adjustment its conversion price. The Series J conversion price is also subject to proportional adjustment in the event of stock splits, combinations and other recapitalizations or reorganizations.

Each share of Series K Preferred is convertible into 2,584 shares of common stock, subject to adjustment for dividends. All Series K Preferred will automatically convert into fully-paid and non-assessable shares of Common Stock at the conversion rate in effect at the time of conversion, determined as the first to occur of either (i) an amendment to the Company’s Amended and Restated Articles of Incorporation, or (ii) the merger of the Company into a Delaware corporation, in either case resulting in a sufficient number of authorized shares of Common Stock to issue the number of shares of Common Stock that are issuable upon conversion of all outstanding shares of Series K Preferred.

Voting

The Series H Preferred is non-voting.

The holders of shares of Series J and Series K 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 (assuming, for such purposes, the effectiveness of the Reincorporation and the related increase in the authorized capital stock of the Company).

Liquidation Preference

Each holder of the Series H and Series J 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.

The holders of Series K Preferred do not have liquidation rights other than those afforded to common stockholders.

Registration Rights

In connection with the issuance of the Series J Preferred, the Company is required 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 J Preferred

F-16

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

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.

Redemption

The Series H, Series J and Series K Preferred are non-redeemable.

9. 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 a strike 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	$	0.76
Expected life (in years)		5.0
Risk-free interest rate		4.68	%
Expected volatility		204.5	%
Dividend yield		0	%

The value ascribed to the MAG warrants was $4,792,863. As MAG was a holder of more than 10% of the Company’s outstanding common stock at the time of the transaction, the transaction was deemed to be related-party in nature, and the Company charged the value ascribed to the warrants to statement of operations on the date of the Acquisition.

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 are exercisable upon

F-17

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

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	$	0.76
Expected life (in years)		5.0
Risk-free interest rate		4.68	%
Expected volatility		204.5	%
Dividend yield		0	%

The value ascribed to the OPA warrants was $3,581,764. As the principals of OPA are officers and directors of the Company and OPA held more than 10% of the Company’s outstanding common stock at the time of the transaction, the transaction was deemed to be related-party in nature, and the Company charged the value ascribed to the warrants to operations on the date of the Acquisition.

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, shall be submitted to the stockholders of the Company at a meeting of stockholders and, if approved by a majority of the voting power thereof, the 2006 Plan shall become effective as of August 11, 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.

The 2006 Plan has been submitted to the stockholders of the Company for approval. Pursuant to voting agreements dated September 20, 2006 (the “Voting Agreements”), the holders of our securities representing approximately 99% of the voting power of our capital stock have each agreed to vote their shares for the approval of the 2006 Plan. Accordingly, the Company expects the 2006 Plan will be approved. In the event that Plan is not approved on or before May 31, 2007, it and any awards granted under it shall be null and void.

On August 11, 2006, the Company granted 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, and are not exercisable until approval by the stockholders of the Company.

F-18

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

The Company estimated with the assistance of an independent third-party valuation firm the fair value of the Company’s common equity on a fully-diluted basis as of August 2, 2006 which was the basis for the exercise prices per share for the option awards described in the paragraphs above. This estimate of the value of the Company’s total equity, divided by the number of common shares on a fully-converted basis (equivalent to approximately 6.9 million shares), was calculated by the Company to imply a fair market value per share of approximately $0.42 at that time. The Company has recorded stock-based compensation for the above issuances and will continue to record compensation costs over the remaining requisite service periods of approximately $31,000.

On September 20, 2006, in connection with the Acquisition, the Company granted options to purchase an aggregate of 0.5% of the fully-diluted common stock (equal to 348,480 common shares as of September 20, 2006), to each of two non-executive members of the Company’s Board of Directors. The stock options have an exercise price of $0.76 per share, vest quarterly through September 20, 2007 and have an expected life of five years.

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 $0.76 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 values of the September 20, 2006 stock options were determined using the Black-Scholes model with the following assumptions:


Estimated fair value of underlying common stock	$	0.76
Expected life (in years)		5.0
Risk-free interest rate		4.70	%
Expected volatility		204.5	%
Dividend yield		0	%

The value ascribed to the two non-executive Directors’ options was $517,028. The Company has recorded stock-based compensation for the issuances to the two non-executive Directors and will continue to record compensation costs over the remaining requisite service periods of approximately $503,000.

The value ascribed to the OPA stock options was $1,535,042. Since the quoted closing price of the Company’s common stock on the date of grant was above $1.33 and shareholder approval of the Plan and related measures was considered perfunctory due to the obligations of the parties under the Voting Agreements, the options were considered fully vested and the Company charged the value ascribed to the statement of operations on the date of acquisition.

10. Subsequent Events (unaudited)

On November 28, 2006, the stockholders of the Company approved and ratified the following transactions at a special meeting of shareholders. These transactions included:

•

The reincorporation of the Company in the State of Delaware (“Reincorporation”);

•

The approval of the Company’s 2006 Incentive Compensation Plan, as amended; and

F-19

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

September 30, 2006

(Unaudited)

As part of the Reincorporation, the Company also increased the number of authorized shares of common stock to 150,000,000 shares and authorized shares of preferred stock to 50,000,000 shares. The Company converted all of the shares of the Series H Convertible Preferred Stock issued and outstanding into shares of Series B Convertible Preferred Stock of Delaware Company, on a one-for-one basis, and also converted its issued and outstanding shares of Series J Convertible Preferred Stock into shares of Series A Convertible Preferred Stock on a one-for-ten thousand basis. The Company also converted 4,300 outstanding shares of its Series K Convertible Preferred Stock into 11.1 million shares of common stock.

Immediately following the approval of the reincorporation in the State of Delaware, the Company changed its corporate name to “Allegro Biodiesel Corporation” and its new trading symbol became ABDS and is traded on the Over-The-Counter Bulletin Board.

F-20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors

Allegro Biodiesel Corporation (formerly Diametrics Medical, Inc.)

Los Angeles, California

We have audited the accompanying consolidated balance sheet of Allegro Biodiesel Corporation (formerly Diametrics Medical, Inc.) as of December 31, 2004, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss and cash flows for the year then ended. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides 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 as of December 31, 2004 and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated balance sheet as of December 31, 2004 and the consolidated statement of shareholders’ deficit for the year ended December 31, 2004 to account for certain freestanding and embedded derivative contracts as liabilities.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring operating losses, negative cash flows from operations, a working capital deficit, and a shareholders’ deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ VIRCHOW, KRAUSE & COMPANY, LLP

Minneapolis, Minnesota

April 28, 2005 (except for Note 2, for which the date is April 5, 2006)

F-21

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Allegro Biodiesel Corporation (formerly Diametrics Medical, Inc.)

We have audited the accompanying consolidated balance sheet of Allegro Biodiesel Corporation (formerly Diametrics Medical, Inc.) and subsidiary, a development-stage company (collectively “Allegro”) as of December 31, 2005, and the related statements of operations, shareholders’ deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of Diametric’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides 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 (formerly Diametrics Medical, Inc.) and subsidiary as of December 31, 2005, and the results of their operations and their cash flows for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 of the consolidated financial statements, the Company is in the development stage, has incurred losses from operations, and has an accumulated deficit and limited working capital at December 31, 2005. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Note 1 of the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MCKENNON WILSON & MORGAN LLP

Irvine, California

April 6, 2006

F-22

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Balance Sheets

(A Development-Stage Company)


	December 31, 2005			December 31, 2004 (As restated)
ASSETS (Note 5)
Current assets:
Cash and cash equivalents	$	380,827		$	1,095,800
Prepaid expenses and other current assets		73,333			24,815
Assets of discontinued operations (Note 4)		—			25,017

Total current assets		454,160			1,145,632
Property and equipment, net		—			3,171
Other assets, net		18,896			107,226

Total assets	$	473,056		$	1,256,029

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	459,526		$	636,055
Accrued interest		3,082			—
Other accrued expenses		339,478			718,784
Convertible senior notes (Note 5)		—			1,152,000
Liabilities of discontinued operations (Note 4)		—			93,677

Total current liabilities		802,086			2,600,516
Long-term liabilities:
Convertible debts, net of unamortized discount of $437,443 and $6,311,894 (Note 5)		12,557			988,106
Derivative liabilities (Note 5)		—			752,695

Total liabilities		814,643			4,341,317
Commitments (Note 10)
Shareholders’ deficit (Notes 5 and 6):
Preferred stock, $0.01 par value; 5,000,000 shares authorized:
Series F Convertible, 10,000 shares issued and outstanding at December 31, 2004 and Series G Convertible, 15,000 shares issued and outstanding at December 31, 2004		—			250
Series H Convertible, 27,889 shares of issued and outstanding at December 31, 2005 and Series I Convertible, 13,794 shares issued and outstanding at December 31, 2005		417			—
Common stock, $0.01 par value; 1,000,000,000 shares authorized, 35,121,835 shares issued and outstanding		351,218			351,218
Additional paid-in capital		176,331,330			163,556,121
Accumulated deficit		(177,024,552	)		(166,992,877	)

Total shareholders’ deficit		(341,587	)		(3,085,288	)

Total liabilities and shareholders’ deficit	$	473,056		$	1,256,029

See accompanying Notes to Consolidated Financial Statements.

F-23

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statements of Operations

(A Development-Stage Company)


	Year Ended December 31,
	2005			2004
Net revenue	$	—		$	—

Operating expenses:
Research and development		477,432			—
Selling, general and administrative		1,515,723			1,665,794
Restructuring and other nonrecurring charges		93,314			—

Total operating expenses		2,086,469			1,665,794

Operating loss		(2,086,469	)		(1,665,794	)
Interest income		—			8,170
Interest expense		(7,891,364	)		(1,615,371	)
Loss on modification of convertible notes		—			(1,670,683	)
Loss on change in fair value of derivatives		(701,347	)		—
Other income (expense), net		633,005			(27,490	)

Loss before discontinued operations		(10,046,175	)		(4,971,168	)

Discontinued operations (Note 4):
Income (loss) from discontinued operations		14,500			(4,127,982	)
Loss on liquidation of discontinued operations		—			(2,436,730	)
Gain on sale of discontinued operations		—			557,052

Net loss from discontinued operations		14,500			(6,007,660	)

Net loss		(10,031,675	)		(10,978,828	)
Beneficial conversion feature—preferred stock dividend		—			(1,946,210	)
Deemed dividend on preferred stock		—			(1,211,247	)

Loss available to common shareholders	$	(10,031,675	)	$	(14,136,285	)

Basic and diluted net loss per common share:
Loss before discontinued operations	$	(0.29	)	$	(0.26	)

Discontinued operations:
Income (loss) from discontinued operations		—			(0.13	)
Loss on liquidation of discounted operations		—			(0.08	)
Gain on sale of discontinued operations		—			0.02

Net loss from discontinued operations		—			(0.19	)

Loss available to common shareholders	$	(0.29	)	$	(0.45	)

Weighted average number of common shares outstanding		35,121,835			31,396,653

See accompanying Notes to Consolidated Financial Statements.

F-24

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statements of Shareholders’

Deficit and Comprehensive Loss

(A Development-Stage Company)


	Preferred Shares		Common Shares	Preferred Stock			Common Stock		Additional Paid-in Capital			Accumulated Deficit			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity (Deficit)			Total Comprehensive loss
Balance, December 31, 2003	7,500		27,456,209	$	75		$	274,562	$	150,612,474		$	(152,856,593	)	$	(93,699	)	$	(3,807,395	)	$	(5,870,576	)

Net loss	—		—		—			—		—			(10,978,828	)		—			—			(10,978,828	)	$	(10,978,828	)
Foreign currency translation adjustment	—		—		—			—		—			—			—			904,015			904,015			904,015
Minimum pension liability	—		—		—			—		—			—			—			2,903,380			2,903,380			2,903,380

Comprehensive loss for the year ended December 31, 2004	—		—		—			—		—			(10,978,828	)		—			3,807,395			(7,171,433	)	$	(7,171,433	)
Amortization of deferred compensation under restricted stock plan	—		—		—			—		—			—			93,699			—			93,699
Conversion of preferred stock	(12,500	)	5,983,509		(125	)		59,835		(59,710	)		—			—			—			—
Issuance of preferred stock	30,000		—		300			—		2,610,813			—			—			—			2,611,113
Beneficial conversion value of preferred stock	—		—		—			—		1,946,210			(1,946,210	)		—			—			—
Valuation of warrants issued in connection with extension of convertible subordinated debt	—		—		—			—		193,322			—			—			—			193,322
Valuation of warrants issued in connection with issuance of convertible senior secured notes, as restated	—		—		—			—		496,325			—			—			—			496,325
Beneficial conversion value related to convertible subordinated debt, as restated	—		—		—			—		6,547,261			—			—			—			6,547,261
Deemed dividend related to the valuation of change in warrant exercise price and issuance of additional to preferred stockholders	—		—		—			—		1,211,247			(1,211,247	)		—			—			—
Exercise of warrants to common stock	—		1,682,117		—			16,821		(1,821	)		—			—			—			15,000

Balance, December 31, 2004, as restated	25,000		35,121,835		250			351,218		163,556,121			(166,992,877	)	$	—		$	—			(3,085,288	)
Exchange of convertible notes and Series F & G preferred stock for Series H & Series I preferred stock	16,683				167					12,325,209												12,325,376
Beneficial conversion value related to convertible senior notes										450,000												450,000
Net loss													(10,031,675	)								(10,031,675	)

Balance, December 31, 2005	41,683		35,121,835		417		$	351,218	$	176,331,330		$	(177,024,552	)	$	—		$	—		$	(341,587	)

See accompanying Notes to Consolidated Financial Statements.

F-25

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Consolidated Statements of Cash Flows

(A Development-Stage Company)


	Year Ended December 31,
	2005			2004
Cash flows from operating activities:
Net loss	$	(10,031,675	)	$	(10,978,828	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Loss from discontinued operations		—			4,127,982
Gain on sale of discontinued operations		—			(557,052	)
Gain on settlement of creditor obligations		(633,004	)
Income on liquidation of discontinued operations		—			2,436,730
Depreciation and amortization		3,171			45,386
Accretion of convertible notes and amortization of debt issue costs		7,917,942			1,206,884
Loss on modification of debt		—			1,670,683
Stock-based compensation		—			93,699
Loss on disposal of property and equipment		—			46,532
Unrealized gain on change in derivative liabilities		701,347			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		64,829			156,301
Accounts payable		362,798			171,034
Accrued interest		3,082			—
Other accrued expenses		296,537			235,692
Deferred credits and revenue		—			(6,190	)

Net cash used in continuing operating activities		(1,314,973	)		(1,351,147	)
Cash flows from investing activities:
Purchase of property and equipment		—			(1,337	)
Other		—			(21,992	)

Net cash used in investing activities		—			(23,329	)
Cash flows from financing activities:
Proceeds from borrowings		600,000			1,620,000
Net proceeds from the issuance of preferred stock and common stock warrants		—			2,626,113

Net cash provided by financing activities		600,000			4,246,113
Net cash used in discontinued operations		—			(1,946,529	)

Net increase (decrease) in cash and cash equivalents		(714,973	)		925,108
Cash and cash equivalents at beginning of year		1,095,800			170,692

Cash and cash equivalents at end of year	$	380,827		$	1,095,800

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	—		$	—

Also see Note 12.

See accompanying Notes to Consolidated Financial Statements.

F-26

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements

Note 1—Organization

Organization and Management’s Plans

Diametrics was involved with the development, production and distribution of medical devices since its inception. Significant changes occurred in the Company’s business during the years ended December 31, 2003 and 2004. On September 29, 2003, the Company sold its intermittent blood testing business to International Technidyne Corporation (“ITC”).

In October 2004, the Company discontinued its only line of business, the manufacture and distribution of continuous blood and tissue monitoring products. At that time, the Company had three officers and the only activities related to the planned start-up of a new research project focused on the development of products aimed at continuous glucose monitoring and control in critically ill patients, based in part on information obtained during previous business activities.

In January 2005, the Company announced that its wholly-owned subsidiary, TGC, had acquired certain assets out of liquidation from the liquidator of DML. DML was formerly a wholly-owned subsidiary of the Company that was placed into liquidation in November 2004. The purchased assets were used to start a new product research and development program (see research and development in Note 3). The costs of purchasing the assets was approximately $333,000. The Company was effectively in the development stage throughout 2005.

On December 6, 2005, we concluded the exchange of certain securities. MAG, its affiliated funds, and other investors who held our 2005 Subordinated Convertible Notes, the 2007 Senior Secured Convertible Notes, the Senior Secured Convertible Notes issued May 2, 2005, and the 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.

F-27

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Summarized in the table below is the outstanding principal balance of the debt and accrued interest and the face value of the Series F and Series G Convertible Preferred Stock outstanding immediately preceding the Exchange Offering:


	Principal		Accrued Interest
$7.3M Convertible Subordinated Notes	$	7,300,000	$	1,175,050
$1.8M Convertible Senior Secured Notes		1,800,000		183,106
$150K Senior Secured Notes		150,000		11,047
Series F Convertible preferred stock		1,000,000		—
Series G Convertible preferred stock		1,500,000		—

Management’s Plans

Diametrics’ management is attempting to seek strategic alternatives, including the pursuit of additional financing for strategic acquisitions or a merger with another business. The Company has incurred significant losses from operations and as of December 31, 2005, it has limited financial resources. These factors raise substantial doubt about our ability to continue as a going concern. Management intends to issue additional equity or debt securities. If additional funds are raised through the issuance of equity or equity-related securities, current shareholders may experience significant dilution of their ownership interests and the newly issued securities may have rights superior to those of common stock. If additional funds are raised by issuing debt, we may be subject to restrictive covenants that could limit our operating flexibility. There can be no assurance that adequate funds will be available when needed and on acceptable terms, or that a strategic alternative can be arranged. The accompanying financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

Note 2—Restatement

The Company restated its previously issued financial statements to correctly account for certain freestanding and embedded derivative contracts as liabilities at fair value under Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities.” These Embedded Conversion Features (“ECF”) include the conversion feature related to the $1,800,000 Convertible Senior Secured Notes and all warrants. As of the date of the agreements on December 9, 2004, the Convertible Senior Secured Notes were not 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 as a result, needed to be accounted for as a liability in accordance with SFAS No. 133. In addition, the freestanding warrants outstanding were determined to be derivative instruments because these were considered liabilities based on paragraphs 12-33 of EITF 00-19. The effects are as follows:


	Derivative Liabilities		Convertible Senior Secured Notes		Additional Paid-in Capital
As reported, December 31, 2004	$	—	$	28,281	$	165,432,535
Adjustment		752,695		1,123,719		(1,876,414	)

As restated, December 31, 2004	$	752,695	$	1,152,000	$	163,556,121

F-28

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)


	Valuation of warrants issued in connection with issuance of convertible senior secured notes			Beneficial conversion value related to convertible subordinated debt
As reported, December 31, 2004	$	601,020		$	8,318,980
Adjustment		(104,695	)		(1,771,719	)

As restated, December 31, 2004	$	496,325		$	6,547,261

Note 3—Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Allegro Biodiesel Corporation and the wholly owned subsidiaries TGC Research Medical Limited and Diametrics Medical Limited. All material inter-company accounts and transactions have been eliminated.

Foreign Currency Translation/Transactions

The financial statements of our foreign subsidiary were translated into U.S. dollars for consolidation in 2004. The statement of operations for 2004 was translated using average exchange rates for the period. Also recorded as translation adjustments in shareholders’ deficit are transaction gains and losses on inter-company balances for which settlement is not planned or anticipated in the foreseeable future. Other foreign currency transaction gains and losses are included in determining net loss but have not been material in any of the years presented.

Cash

We consider 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.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over estimated useful lives of 2 to 10 years for equipment and furniture and the term of the underlying lease for leasehold improvements. Maintenance and repairs are expensed as incurred. Depreciation expense was $3,171 and $45,386 for the years ended December 31, 2005 and 2004, respectively.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) management reviews long-lived asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to future net cash flows expected to be generated by the asset group. 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 group exceeds the fair value of the assets in the group. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

F-29

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Accounting for Conversion Features and Warrants Issued with Convertible Debt and Preferred Stock

The Company issued $1.8 million of Convertible Senior Secured Notes, which contained an ECF and warrants to purchase common stock. In accordance with the guidance in paragraph 12 of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, it was necessary to evaluate separation of the conversion option from the debt host and account for it separately as a derivative if the conversion option met certain criteria. The Conversion option met all three criteria of paragraph 12: (1) the conversion feature is not clearly and closely related to the debt host component, (2) the convertible debt instrument is not accounted for at fair value, and (3) the embedded conversion option meets the definition of a derivative in paragraph 6 of SFAS No. 133.

To assess whether or not the conversion option would be classified as stockholders’ equity if it were freestanding, management considered the guidance in EITF 00-19. In assessing whether or not the conversion option would be classified as equity or a liability if it were freestanding, management determined whether or not the convertible debt is considered “conventional.” EITF 00-19 and EITF 05-2, “The Meaning of Conventional Convertible Debt Instruments in issue No. 00-19”, defines conventional convertible debt as debt whereby the holder will, at the issuer’s option, receive a fixed amount of shares or the equivalent amount of cash as proceeds when he exercises the conversion option. Management determined that convertible debt was not “conventional,” and the Company considered all aspects of EITF 00-19, paragraphs 12-33.

This caused the ECF of this debt to be classified as a derivative financial instrument under SFAS No. 133. In addition, all warrants to purchase common stock were then deemed to be classified as derivative instruments under SFAS No. 133. The accounting treatment of derivative financial instruments requires that the Company record the ECF and warrants at their fair values as of 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 sheet as long-term liabilities at December 31, 2004, because the notes were exchanged for equity after that date.

EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue 98-5 to Certain Convertible Instruments,” governs the calculation of an embedded beneficial conversion, which is treated as an additional discount to the instruments where derivative accounting (explained above) does not apply. These pronouncements do apply to the Company’s previously issued $7.3 million of convertible notes (deemed conventional convertible debt) and the Company’s recent transactions involving $750,000 of convertible debt, because both meet the definition of conventional convertible debt in accordance with EITF 00-19, paragraph 4. The amount of the fair value of warrants and the intrinsic value beneficial conversion feature must reduce the carrying value of the instrument, but not below the face value of the notes or zero. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted using the effective interest method over the term of the debt.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” established standards for how an issuer of equity (including the equity shares of any entity whose financial statements are included in the consolidated financial statements) classifies and measures on its balance sheet certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 did not cause the Company’s Series H and Series I convertible preferred stock to be recorded as liabilities since the shares do not have mandatory redemption features.

Research and Development

Research and development costs are related to a new product research project focused on the development of products aimed at continuous glucose monitoring and control in critically ill patients, based in part on information obtained during its previous business activities. All such costs were expensed as incurred.

F-30

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Net Loss per Common Share

Basic loss per share (“EPS”) is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted EPS 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 anti-dilutive.

The following is a summary of outstanding securities which have been excluded from the calculation of diluted EPS because the effect on net loss per common share would have been anti-dilutive:


	December 31,
	2005	2004
Common stock options	—	1,422,600
Common stock warrants	—	66,811,426
Convertible debt	96,804,000	2,013,430
Convertible preferred stock—Series E	—	—
Convertible preferred stock—Series F	—	6,666,667
Convertible preferred stock—Series G	—	25,000,000
Restricted stock	—	64,251
Convertible preferred stock—Series H	278,890,000	—
Convertible preferred stock—Series I	137,940,000	—

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 asset.

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 primarily relate to the assessment of the fair value derivative instruments and warrants and debt and equity transactions. Actual results could differ from those estimates.

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 and 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.

F-31

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Stock Based Compensation

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” we apply the intrinsic-value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for the issuance of stock incentives to employees and directors. As a result, no compensation expense related to employees’ and directors’ stock incentives has been recognized in the financial statements as all options granted under stock incentive plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation costs for our stock incentive plans been determined based on the fair value of the awards on the date of grant, consistent with the provisions of SFAS No. 123, our net loss per share would have increased to the pro forma amounts indicated below:


	2005			2004
Net loss available to common stock shareholders, as reported	$	(10,031,675	)	$	(14,136,285	)
Stock-based employee compensation expense included in reported net loss available to common stock shareholders		—			93,699
Total stock-based employee compensation expense determined under fair value-based method for all awards		(143,518	)		(618,523	)

Pro forma net loss available to common stock shareholders	$	(10,175,193	)	$	(14,661,109	)

Net loss available to common shareholders:
Basic and diluted, as reported	$	(0.29	)	$	(0.45	)

Basic and diluted, pro forma	$	(0.29	)	$	(0.47	)

For each period presented, basic and diluted loss per share amounts are identical as the effect of potential common shares is antidilutive.

The following assumptions were used in valuing our stock option grants:


	Year Ended December 31,
	2005	2004
Risk free rate	—	3.50	%
Dividend yield	—	0	%
Volatility	—	116	%

The per share weighted-average fair value of options granted under our stock option plans was $0.14 for the year ended December 31, 2004.

F-32

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Comprehensive Loss

Comprehensive loss is presented as a component of shareholders’ deficit and consists of net loss, foreign currency translation adjustments and changes in minimum pension liability. The accumulated balances for each component of accumulated other comprehensive loss are as follows:


	Foreign Currency Translation Adjustment			Minimum Pension Liability			Total Accumulated Other Comprehensive Loss
Balances at December 31, 2003	$	(904,015	)	$	(2,903,380	)	$	(3,807,395	)
Change in minimum pension liability		—			2,903,380			2,903,380
Foreign currency rate changes		904,015			—			904,015

Balances at December 31, 2004		—			—			—

Balances at December 31, 2005	$	—		$	—		$	—

The foreign currency translation adjustment and minimum pension liability were related to the discontinued operations of DML. These amounts were realized in the statement of operations as part of the loss on liquidation of DML.

Defined Benefit Retirement Plan Funding

The Company had sponsored a 401(k) savings plan (“401(k) Plan”) for its US employees. Our US employees who met certain age and service requirements could contribute up to 20 percent of their salaries to the plan on a pre-tax basis. The Company had the discretion to match employee contributions $0.50 for each $1.00 contributed by an employee up to a maximum company contribution of $1,000 per year. As of December 2005, we had no employees who were participants in the 401(k) Plan.

The former U.K. subsidiary sponsored a contributory defined benefit retirement plan (“Retirement Plan”) covering all eligible employees. Our funding policy was to contribute into a trust fund at an annual rate that was intended to remain at a level percentage of total eligible payroll. Annual contribution amounts were determined by a qualified actuary and were intended to adequately fund our projected pension liability payable upon employees’ retirement, given actuarial assumed rates of average market and trust fund investment performance. The Retirement Plan was terminated during 2004.

Recent Accounting Standards

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Under SFAS 123R, the Company will no longer be able to account for share-based compensation transactions using the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees.” Instead, we will be required to account for such transactions using a fair-value method and to recognize the fair value of each award over the service period. Securities and Exchange Commission (“SEC”) Release No. 33-8568 makes SFAS 123R effective for fiscal years beginning after June 15, 2005, and SFAS 123R allows for several alternative transition methods. We expect to adopt SFAS 123R as of the beginning of the fiscal 2006 first quarter using “modified prospective application,” which will require that we recognize compensation expense for new awards, modified awards and for any awards outstanding at the effective date but vesting after such date. The actual amounts of stock compensation expense we will recognize in periods following the adoption of SFAS 123R will depend on a number of factors, including the types of awards made, the specific terms of awards, changes in the market price of our common stock and other factors. The Company has no stock options outstanding.

F-33

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

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 impractical 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 will adopt SFAS No. 154 as of the beginning of fiscal 2007 and does not expect that the adoption of SFAS 154 will have a material impact on its financial condition or results of operations.

In February 2006, the FASB issued No. 155 “Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140”, which permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, among other items not presently impacting the Company. Management does not believe the provisions of SFAS No. 155 currently apply.

Note 4—Discontinued Operations

On October 4, 2004, the Company determined that it would longer fund the operations of DML. On that same day, DML’s board of directors decided to cease DML’s operations. On November 1, 2004, the Company terminated all employees in the United Kingdom and all but three employees in the United States. On November 22, 2004, a Meeting of Creditors was held in London, England for the purposes of liquidating the assets of DML. Based upon a review of SFAS No. 144, the Company assessed the measurement date for the sale transaction as the date of board of director approval, which occurred on October 4, 2004. As prescribed by SFAS No. 144, we began reporting the results of operations of DML as discontinued operations effective as of the year ended December 31, 2004 and for all periods presented. Upon DML entering liquidation in November 2004, the Company recorded a loss of $2.4 million.

Following is a summary of operating results of the continuous monitoring business, included in discontinued operations in the Consolidated Statements of Operations for the year ended December 31, 2004:


Revenue	$	2,412,071
Gross profit		(551,944	)
Net loss	$	(4,127,982	)

On September 29, 2003, the Company completed the sale of substantially all of the assets used in its intermittent testing business to ITC for approximately $5.2 million in cash and the assumption of certain liabilities, including trade payables of approximately $583,000, certain capital lease obligations of $56,000 and product warranty obligations estimated at $30,000. Of the cash payment, $758,000 was placed in escrow by ITC and was restricted from the Company’s use for 180 days to cover any shortfall in collected receivables or any indemnification claims. Amounts remaining in escrow at December 31, 2003, after deducting escrow account fees and $33,000 in trade payables assumed by ITC in excess of an established $550,000 ceiling, approximated $720,000 and were recorded as restricted cash and a deferred credit in current liabilities. In late March 2004, sale proceeds remaining in escrow and deferred for recognition were released to the Company and amounted to approximately $713,000. After deducting transaction costs of $156,000, an additional gain on the sale of discontinued operations was recognized in the first quarter 2004 of approximately $557,000.

F-34

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Note 5—Borrowings

Convertible Promissory Notes

On December 6, 2005, we entered into Convertible Promissory Notes to provide up to $750,000 in gross proceeds, of which $450,000 was advanced as of December 31, 2005. In January 2006, we received the balance of $300,000. These notes are due November 30, 2008 and have a stated interest rate of 10% per annum, with interest payments due quarterly. We may, at our option, pay the interest (only) in cash or in shares of our common stock at a conversion price equal to the higher of (1) $.01 per share or (2) the average share price recorded at the close of 10 trading days prior to the date of conversion. Each dollar of outstanding principal may be converted at any time into common stock at conversion price of $0.0046 per share or 215.12 shares per dollar outstanding.

We 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 $450,000, which is required to be treated as a discount to the underlying notes. The discount is being amortized into interest expense using the effective interest method over the term 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. In connection with the Exchange Offering on December 6, 2005, these notes and the related accrued interest were exchanged for Series H convertible preferred stock.

The notes were due 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. These notes, while outstanding, were convertible into 7,500,000 shares of common stock.

The holders of these notes also received warrants expiring on May 2, 2010 to purchase up to 3,750,000 shares of our common stock at an exercise price of $0.025 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. We 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, we 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, we 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 $0.02 per share, subject to adjustment depending upon the market price of our common stock. These notes, while outstanding, were convertible into 90,000,000 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.

F-35

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

The holders also received warrants to purchase up to 45,000,000 shares of common stock at an exercise price of $0.025 per share with an original expiration date of December 15, 2009. In connection with our Exchange Offering on December 6, 2005, these notes and the related accrued interest were cancelled in exchange for Series H 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, we 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.

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 $0.02 per share and amended the exercise price of their outstanding warrants to purchase up to 4,255,837 shares of our common stock at $0.025 per share (see below for the recording of the amendment to the $7,300,000 convertible subordinated notes). The Company also reduced the exercise price of 17,555,589 and 12,000,000 warrants issued to holders of our preferred stock to $0.025 and $0.01 per share, respectively (See Note 7 for discussion related to the accounting for the modification of these warrants).

In accordance with SFAS No. 133, 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. We amortized the discount to interest expense for the years ended December 31, 2005 and 2004 in the amounts of $1,152,000 and zero, respectively.

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.

Convertible Subordinated Notes

On August 4, 1998, we 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. 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.” As such, the modified notes were recorded at their fair value of $988,106. The excess of $1,670,683 of aggregate liabilities in excess of their carrying amounts were recorded as a charge to other income (expense).

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. 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

F-36

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

in June 2005, at which time the remaining unamortized discount was charged to expense. The discount amortized to interest expense for the years ended December 31, 2005 and 2004, were $6,311,894 and zero, respectively.

In connection with the Exchange Offering on December 6, 2005, these notes and the related accrued interest were cancelled in exchange for Series H and Series I convertible preferred stock (see Note 6).

Note 6—Shareholders’ Deficit

As of December 31, 2005, we have authorized 1,005,000,000 shares of stock of which 1,000,000,000 shares are designated for Common Stock, $0.01 par value per share and 5,000,000 shares are Preferred Stock, $0.01 par value per share, of which 28,222 shares are designated as Series H Preferred Stock (“Series H”), and 13,794 shares are designated as Series I (“Series I”) Preferred Stock.

Preferred Stock

In connection with the Exchange Offering, all outstanding shares of Series F and Series G convertible preferred stock were retired and exchanged for Series H and Series I convertible preferred stock.

The following is a summary of preferred stock as of December 31, 2005 and 2004:


	Series E		Series F		Series G		Series H	Series I
Balance at December 31, 2003	7,500		—		—		—	—
Conversion of Series E	(7,500	)	—		—		—	—
Issuance of Series F	—		15,000		—		—	—
Conversion of Series F	—		(5,000	)	—		—	—
Issuance of Series G	—		—		15,000		—	—

Balance at December 31, 2004	—		10,000		15,000		—	—
Exchange of Series F & Series G into Series H & I	—		(10,000	)	(15,000	)	27,889	13,794

Balance at December 31, 2005	—		—		—		27,889	13,794

Except as otherwise disclosed below, the rights, privileges and obligations of Series H and Series I are identical in all material respects.

Dividends

Dividends on the Preferred Stock are payable if and when declared by the Board of Directors. In the event the Board of Directors declare a dividend for the holders of common stock, the conversion price of the Preferred Stock shall be decreased by multiplying the conversion price then in effect by a fraction of (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. In the event the record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed, therefore, the conversion price for the Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter, the conversion price for the Preferred Stock shall be adjusted as of the time of actual payment of such dividends or distributions.

F-37

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Conversion

Each share of Preferred Stock is convertible at the option of the holder at any time into 10,000 shares of Common Stock, subject to adjustment for dividends.

Voting

The Series H Preferred Stock is non-voting. Each holder of Series I Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which the holders’ shares of Preferred Stock are convertible.

Liquidation

The holders of each share of Preferred Stock shall be entitled to the a liquidation preference equal to the assets available for distribution to shareholders at an amount equal to the greater of (1) an amount equal to $100 per share and any declared but unpaid dividends on each share, and (2) the pro rata amount the holders would be entitled to receive had such holders converted such shares of Series H Preferred Stock or Series I Preferred Stock into shares of Common Stock.

Antidilution

In the event we issue any additional shares of common stock or common stock equivalents, the holders of Series I preferred stock are to receive a decrease in their conversion price equal to multiplying the conversion price then in effect by a fraction (1) the numerator of which shall be the total number of shares of common stock issued and outstanding immediately prior to the time of such issuance, and (2) the denominator of which shall be the total number of shares of outstanding common stock plus the number of outstanding common stock equivalents.

No adjustment to the conversion price for holders of Series I preferred stock shall be made on a date on which our equity market capitalization exceeds $15,000,000 as of the close of trading on each of the ten (10) consecutive trading days prior to the issuance of additional common stock or common stock equivalents.

Series G Convertible Preferred Stock

On May 28, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series G convertible preferred stock at $100 per share. The financing was completed in a private placement with the Mercator Advisory Group and its related funds and BCC Acquisition II, LLC. The Mercator Advisory Group and its related funds were also the investors in Series E and Series F convertible preferred stock issued in May 2003 and January 2004, respectively.

As part of this financing, we issued three-year warrants (“Series G warrants”) to the purchasers of the Series G preferred stock. Those warrants entitle the holders to purchase an aggregate of 1,250,000 shares of the Company’s common stock at the lower of $.11 per share or the average of the lowest ten inter-day closing prices of common stock during the ten trading days preceding the exercise date. We also issued three-year warrants to the Mercator Advisory Group and its related funds that invested in Series E and Series F preferred stock to purchase an aggregate of 12,241,608 shares of common stock at $.05 per share.

In connection with the Series G financing described above, the holders of Convertible Subordinated Notes agreed to defer until December 31, 2004 our obligation to make interest payments previously due on June 30, 2004

F-38

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

(including interest payments originally due on December 31, 2003 and March 31, 2004, payment of which was deferred until June 30, 2004) and September 30, 2004. In exchange for the deferral of interest payments, the exercise price on the note holders’ common stock warrants was reduced from $.34 per share to $.09 per share. Additionally, in connection with the Series G financing, the exercise price of the outstanding common stock warrants issued as part of the Series E preferred stock financing was reduced from $.35 per share to $.11 per share, and the ceiling price for the exercise of the common stock warrants issued as part of the Series F preferred stock financing was reduced from $.35 per share to $.11 per share (see below for additional discussion).

Accounting for these transactions required a review of several criteria, including assessment of the treatment of the beneficial conversion feature associated with the Series G preferred stock, an assessment of the classification as debt or equity of the warrants issued in connection with the Series G preferred stock financing, an assessment of the impact of the changes in the exercise and ceiling exercise prices, as applicable, of the common stock warrants previously issued to the note holders and the Series E and Series F preferred stock investors and an assessment of the treatment of the fair value associated with the new warrants issued to the Series E and Series F preferred stock investors.

The Company accounted for the above transactions in accordance with EITF 98-5 and EITF 00-27 which resulted in the calculation of an ECF in the Series G preferred stock, which is required to be treated as an increase in the net loss available to common shareholders. We allocated the net investor proceeds of $1,445,000 from the issuance of the Series G convertible preferred stock to the preferred stock and Series G warrants based upon their relative fair values. The fair value allocated to the Series G warrants of $68,205 was recorded as equity. The fair value allocated to the preferred stock of $1,376,795 and the original conversion terms were used to calculate the value of the beneficial conversion feature of $1,067,650 at the date of issuance of the Series G preferred stock. The $1,067,650 was charged to retained earnings with the offsetting credit to additional paid-in-capital. We treated the beneficial conversion feature of $1,067,650 as a reconciling item on the statement of operations to adjust its reported net loss to “net loss available to common shareholders”. As a result of the decrease in the conversions rate to $.03 per share, management increased the value of beneficial conversion feature to $1,280,216 which was limited to the amount of proceeds allocated to the Series G preferred stock. Additionally, we treated the beneficial conversion feature of $1,280,216 as a reconciling item on the statement of operations to adjust its reported net loss to “net loss available to common shareholders,” which is used in the numerator in the loss per share calculation for the year ended December 31, 2004.

In connection with the Exchange Offering, all issued and outstanding Series G convertible preferred stock were cancelled in December 2005.

Series F Convertible Preferred Stock

The Company accounted for this transaction in accordance with EITF 98-5 and EITF 00-27. The Company allocated the net investor proceeds of $1,350,000 from the issuance of the Series F convertible preferred stock to the preferred stock and associated warrants based upon their estimated relative fair values. The resulting fair value allocations of $665,994 and $684,006 for the preferred stock and warrants, respectively, were recorded as equity in the first quarter 2004. The beneficial conversion feature embedded in the preferred stock was calculated at $665,994 and was limited to the fair value allocated to the preferred stock. The beneficial conversion feature of $665,994 was treated as a deemed dividend to preferred shareholders, and was charged to retained earnings, with the offsetting credit to additional paid-in-capital. Additionally, we treated the beneficial conversion feature of

F-39

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

$665,994 as a reconciling item on the statement of operations to adjust its reported net loss to “net loss available to common shareholders,” which is used in the numerator in the loss per share calculation for the year ended December 31, 2004.

In connection with the Exchange Offering, all issued and outstanding Series F convertible preferred stock were cancelled in December 2005.

Series E Convertible Preferred Stock

On May 12, 2003, we completed a $1.5 million financing through the sale of 15,000 shares of Series E convertible preferred stock at a price of $100 per share. Effective upon the sale of our intermittent testing business, the holders of the Series E preferred stock elected to exercise their option to put back to us 50% of their original $1.5 million investment.

We also issued five-year warrants to purchase 735,000 shares of our common stock at $0.35 per share. The warrants were exercisable after the conversion of the underlying preferred stock. We accounted for this transaction 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 98-5 to Certain Convertible Instruments.” We allocated the net investor proceeds of $1,350,000 from the issuance of the Series E convertible preferred stock to the preferred stock and associated warrants based upon their estimated relative fair values. The resulting fair value allocations of $958,962 and $391,038 were made for the preferred stock and warrants, respectively.

The beneficial conversion feature embedded in the preferred stock was calculated at $958,962 and was limited to the fair value allocated to the preferred stock. The beneficial conversion feature of $958,962 was treated as a deemed dividend to preferred shareholders, and was charged to retained earnings, with the offsetting credit to additional paid-in-capital. Additionally, we treated the beneficial conversion feature of $958,962 as a reconciling item on the statement of operations to adjust its reported net loss to “net loss available to common shareholders,” which is used in the numerator in the loss per share calculation for the year ended December 31, 2003.

Preferred Stock Warrants

Subsequent to the preferred stock financings described above, the exercise price of the warrants to purchase common stock issued with the preferred stock were adjusted downward during 2004 as a result of the issuance of the Series G financing and the new Convertible Senior Notes. In addition, new warrants to purchase 12,241,608 shares of common stock were issued to the Series E and Series F investors as a result of the Series G financing. The new financing reduced the exercise price of warrants to purchase 5,555,589 shares of common stock to $.025 per share and warrants to purchase 12,000,000 shares of common stock to $.01 per share The reductions in the exercise price or ceiling exercise price, as applicable, of the warrants previously issued to these investors and the issuance of new warrants to purchase additional shares of common stock resulted in a deemed dividend on the Series E, F and G preferred stock, requiring a charge to retained earnings and an offsetting credit to additional paid-in capital aggregating $1,211,247. Similar to the beneficial conversion features discussed above, this amount was charged to retained earnings, with an offsetting credit to additional paid-in-capital, and was treated as a reconciling item on the statement of operations to adjust the reported net loss to “net loss available to common shareholders,” which is used in the numerator in the loss per share calculation for the year ended December 31, 2004.

F-40

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Management classified the warrants issued in connection with the Series E, F and G preferred stock financing as equity rather than debt based upon an assessment of our contractual obligations for registration of the related common shares issuable upon exercise of the warrants as provided under EITF 00-19. However, in December 2004, the Company was required to value warrants at fair value and record as a liability due to the issuance of $1,800,000 in non-conventional convertible notes.

Note 7—Stock Options and Warrants

Stock Options

As of December 31, 2005, we did not have any outstanding stock options to employees or consultants.

Warrants

In connection with certain financing arrangements entered into since inception, we have granted stock purchase warrants for the purchase of common stock, preferred stock and issuance of debt. The stock purchase warrants were exercisable over varying periods and expired up to ten years from the date of grant. Stock warrants outstanding as of December 31, 2005 and 2004 under these arrangements are summarized as follows:


	2005				2004
	Shares		Weighted average exercise price		Shares		Weighted average exercise price
Outstanding at beginning of year	66,811,426		$	0.02	4,668,996		$	0.34 – 6.00
Granted	3,750,000		$	0.02	68,747,445			0.025 – 0.35
Exercised	—			—	(2,340,268	)		0.025 – 0.11
Cancelled or Expired	(70,561,426	)	$	0.02	(4,264,747	)		0.34 – 6.00

Outstanding at end of year	—			—	66,811,426			0.02

Options exercisable at year-end	—		$	—	66,811,426		$	0.02

Note 8—Income Taxes

At December 31, 2005, we had available no U.S. tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization a company’s net operating loss carry forwards resulting from retaining continuity of its business operations and changes within its ownership structure.

During the year ended December 31, 2005, we adjusted our deferred tax assets to zero, and the related valuation allowance of $9,115,000. During the year ended December 31, 2004, we decreased the valuation allowance by $17,369,000 primarily due to the loss of foreign net operating losses.

The provision for income taxes from continuing operations differs from the expected tax benefit, computed by applying the federal corporate rate of 34% to the losses before income taxes, because of the 100% valuation allowance for the increase in the deferred tax assets.

Note 9—Related Party Transactions

On November 21, 2005, BCCAII and certain of the holders of our convertible debt and Series F and Series G preferred stock, who collectively beneficially owned securities representing approximately 64% of our

F-41

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

fully diluted common stock, entered into an agreement to sell their securities to OPA and MAG, a current shareholder of the Company, for a nominal amount of cash. BCCAII also agreed to provide us with $148,929 for expenses. We recorded the receipt of the cash provided by BCCAII as an offset to the expense incurred in the statement of operations.

At the close of the transaction, a fee of $75,000 was paid to OPA as compensation for its services in structuring the transaction; we expensed this fee as incurred, as the recipients were affiliates of the Company at the time of the transaction. In connection with the transaction, the Board of Directors and Chief Financial Officer at that time resigned and W. Bruce Comer III and Heng Chuk, principals of OPA, became the sole members of the Board. Additionally, Messrs. Comer and Chuk became the Chief Executive Officer and the Chief Financial Officer / Secretary of the Company, respectively.

Note 10—Commitments

Leases

The Company leased its facilities under non-cancelable operating lease arrangements. On March 24, 2005, a default judgment for the amount of $136,945, relating to our 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, we 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, we were evicted from our former offices at 3050 Centre Pointe Drive, Roseville, Minnesota, as a result of our 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 fair value of the remaining minimum lease payments and its estimated pro rata share of operating expenses.

Note 11—Fourth Quarter Adjustments and Quarterly Restatements (unaudited)

As discussed in Note 2, we restated previously issued financial statements to correctly account for certain freestanding and embedded derivative contracts as liabilities at fair value under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. The quarterly effects are as follows:


	First Quarter			Second Quarter			Third Quarter
2005
Net loss, as reported	$	(8,346,923	)	$	(5,556,476	)	$	(366,581	)
Adjustments:
Amortization of discount on convertible notes		6,757,689			(538,461	)		(113,990	)
Change in fair value of derivative liabilities		97,656			(590,796	)		—

Net loss, as restated	$	(1,491,578	)	$	(6,685,733	)	$	(480,571	)

Net loss per share, as restated	$	(0.04	)	$	(0.19	)	$	(0.01	)

F-42

ALLEGRO BIODIESEL CORPORATION

(formerly Diametrics Medical, Inc.)

Notes to Consolidated Financial Statements—(Continued)

Note 12—Supplemental Disclosure of Non-cash Investing and Financing Activities

2005

We completed a $450,000 financing through the sale of Convertible Promissory Notes. A beneficial conversion feature of $450,000 was recorded as a reduction to the notes and an increase to additional paid in capital.

In connection with the Exchange Offering, we retired $9,250,000 of debt obligations together with accrued interest of $1,369,203, 1,000,000 shares of Series F preferred stock and 1,500,000 shares of Series G preferred stock in exchange for Series H and Series I preferred stock. The transaction was recorded as a net increase to additional paid in capital of $12,325,209 and as a reduction in the respective preferred stock, convertible debt, accrued interest, warrants and embedded features accounts.

We completed a $150,000 financing through the sale of Convertible Senior Notes on December 15, 2004. A beneficial conversion feature of $135,000 was recorded as a reduction to the notes and an increase to additional paid in capital.

2004

During 2004, we completed the renegotiation of the terms of our $7.3 million Convertible Subordinated Notes. The modified debt and associated warrants to purchase 4.3 million shares of common stock were recorded in the fourth quarter 2004 at their respective fair values of $988,106 and $20,428.

Effective January 16, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series F convertible preferred stock. A beneficial conversion feature embedded in the preferred stock was calculated at $665,994 and was recorded as a non-cash charge to retained earnings and treated as a reconciling item on the statements of operations to adjust the reported net loss to “net loss available to common shareholders.”

Effective May 28, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series G convertible preferred stock. A beneficial conversion feature embedded in the preferred stock was calculated at $1,280,216 and was recorded as a non-cash charge to retained earnings and treated as a reconciling item on the statements of operations to adjust the reported net loss to “net loss available to common shareholders.”

As part of the Series G convertible preferred stock financing and the Convertible Subordinated Notes financing, the exercise price of warrants issued to preferred stock holders were modified and additional warrants were issued to the preferred shareholders. A deemed dividend was calculated at $1,211,247 and was recorded as a non-cash charge to retained earnings and treated as a reconciling item on the statements of operations to adjust the reported net loss to “net loss available to common shareholders.”

During 2004, holders of warrants exercised their cashless exercise right and were issued 73,656 shares of common stock. During 2004, the restricted cash of $720,169 was released from escrow and was also treated as a reduction of deferred credits and revenue.

Note 13—Subsequent Events

In January 2006, we received the remaining commitment on the convertible promissory notes in the amount of $300,000 (Note 5).

F-43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Allegro Biodiesel Corporation (formerly Diametrics Medical, Inc.)

We have audited the accompanying balance sheet of Vanguard Synfuels, LLC. (“Vanguard”), a development-stage company (Note 2), as of December 31, 2005, and the related statements of operations, members’ deficit, and cash flows for the period from inception (April 28, 2003) through December 31, 2005, and for each of the two years in the period ended December 31, 2005. These financial statements are the responsibility of Vanguard’s management. Our responsibility is to express an opinion on these 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Vanguard Synfuels, LLC. as of December 31, 2005, and the results of its operations and its cash flows the period from inception (April 28, 2003) through December 31, 2005, and for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States.

/s/ MCKENNON WILSON & MORGAN LLP

Irvine, California

September 26, 2006

F-44

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Balance Sheets


	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS (NOTE 5)
Current assets:
Cash and cash equivalents	$	49,516		$	405,450
Restricted short-term investments (Notes 3 and 5)		1,006,833			643,622
Accounts receivable, no allowance for uncollectible accounts		143,194			2,050
Inventory		391,239			—

Total current assets		1,590,782			1,051,122
Property plant and equipment, net of accumulated deprecation of $142,872 and $52,647, respectively (Note 4)		3,036,551			1,340,255
Other		43,486			43,486

Total assets	$	4,670,819		$	2,434,863

LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	445,000		$	145,122
Accrued liabilities		212,426			161,849
Line of credit (Note 5)		1,254,083			—
Notes payable to banks (Note 5)		2,417,891			1,148,249

Total current liabilities		4,329,400			1,455,220
Notes payable to related parties (Note 8)		759,990			509,990

Total liabilities		5,089,390			1,965,210

Commitment and contingencies (Note 6)		—			—
Members’ equity (deficit) (Note 7):
Members’ capital		1,963,242			1,963,242
Deficit accumulated during the development stage		(2,381,813	)		(1,493,589	)

Total members’ equity (deficit)		(418,571	)		469,653

Total liabilities and members’ equity (deficit)	$	4,670,819		$	2,434,863

See accompanying Notes to Financial Statements.

F-45

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Statements of Operations


	Six months ended June 30,						Inception through December 31, 2005			Years ended December 31,
	2006			2005			Inception through December 31, 2005			2005			2004
	(Unaudited)			(Unaudited)
Sales, including excise taxes of $84,534	$	377,395		$	—		$	—		$	—		$	—
Cost of sales, including excise taxes of $64,084		633,543			—			—			—			—

Gross profit (loss)		(256,148	)		—			—			—			—

Operating expenses:
General and administrative		662,453			1,390,402			2,990,555			1,747,120			716,239
Research and development		—			231,859			936,003			571,608			216,437

Total operating expenses		662,453			1,622,261			3,926,558			2,318,728			932,676

Operating loss		(918,601	)		(1,622,261	)		(3,926,558	)		(2,318,728	)		(932,676	)
Interest expense		(78,193	)		(76,574	)		(277,247	)		(86,057	)		(127,760	)
Gain on sale of property, plant and equipment		—			2,545,241			2,668,946			2,545,241			123,705
Other income		108,570			19,688			41,270			36,956			2,395

Income (loss) before provision for income taxes		(888,224	)		866,094			(1,493,589	)		177,412			(934,336	)
Provision for income taxes (Note 2)		—			—			—			—			—

Net income (loss)	$	(888,224	)	$	866,094		$	(1,493,589	)	$	177,412		$	(934,336	)

See accompanying Notes to Financial Statements.

F-46

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Statement of Members’ Equity (Deficit)

Inception (April 28, 2003) through June 30, 2006


	Members’ Capital		Accumulated Deficit			Total
Balances at April 28, 2003	$	1,500,407	$	—		$	1,500,407
Interests issued for services rendered		109,172		—			109,172
Net loss		—		(736,665	)		(736,665	)

Balances at December 31, 2003		1,609,579		(736,665	)		872,914
Net loss		—		(934,336	)		(934,336	)

Balances at December 31, 2004		1,609,579		(1,671,001	)		(61,422	)
Compensation forgiven by management		196,163		—			196,163
Interests issued for services		157,500		—			157,500
Net income		—		177,412			177,412

Balances at December 31, 2005		1,963,242		(1,493,589	)		469,653
Net loss (unaudited)		—		(888,224	)		(888,224	)

Balances at June 30, 2006 (unaudited)	$	1,963,242	$	(2,381,813	)	$	(418,571	)

See accompanying Notes to Financial Statements.

F-47

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Statements of Cash Flows


	Six months ended June 30,						Inception through December 31, 2005			Years ended December 31,
	2006			2005			Inception through December 31, 2005			2005			2004
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(888,224	)	$	866,094		$	(1,493,589	)	$	177,412		$	(934,336	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense		90,225			12,000			78,375			24,076			46,807
Member interests issued for services rendered		—			157,500			266,672			157,500			—
Compensation forgiven		—			46,898			196,163			196,163			—
Gain on sale of property, plant and equipment held for sale		—			(2,545,241	)		(2,668,946	)		(2,545,241	)		(123,705	)
Changes in operating assets and liabilities:
Accounts receivable		(141,144	)		—			(2,050	)		(2,050	)		—
Inventory		(391,239	)		—			—			—			—
Prepaids and other		—			(1,817	)		—			1,817			13,508
Accounts payable		299,878			(76,257	)		145,122			102,264			16,258
Accrued liabilities		50,578			425,951			161,849			68,390			(64,368	)

Net cash used in operating activities		(979,926	)		(1,114,872	)		(3,316,404	)		(1,819,669	)		(1,045,836	)
Cash flows from investing activities:
Purchases of property, plant and equipment (Notes 1 and 4)		(1,786,522	)		(5,250	)		(2,382,913	)		(511,692	)		(36,876	)
Proceeds from sales of property, plant and equipment (Note 4)		—			2,238,001			3,623,972			3,411,452			212,520
Purchases of investments (Note 3)		(1,319,190	)		—			(1,336,685	)		(1,336,685	)		—
Proceeds from sales of investments		955,979			—			693,063			693,063			—
Other		—			(3,282	)		(8,500	)		6,224			(6,224	)

Net cash provided by (used in) investing activities		(2,149,733	)		2,229,469			588,937			2,262,362			169,420
Cash flows from financing activities:
Proceeds from sale of membership interests		—			—			1,500,407			—			—
Borrowings from issuance of notes payable to banks		3,171,974			648,249			2,505,243			1,148,249			144,994
Repayments on notes payable to banks		(648,249	)		(1,325,010	)		(1,382,723	)		(1,325,010	)		(31,984	)
Borrowings from issuance of notes payable to related parties		250,000			—			1,112,012			260,000			143,000
Repayments on notes payable to related parties		—			(143,000	)		(602,022	)		(143,000	)		(459,022	)

Net cash provided by (used in) financing activities		2,773,725			(819,761	)		3,132,917			(59,761	)		(203,012	)
Net change in cash		(355,934	)		294,836			405,450			382,932			(1,079,428	)
Cash, beginning of period		405,450			22,518			—			22,518			1,101,946

Cash, end of period	$	49,516		$	317,354		$	405,450		$	405,450		$	22,518

Supplemental disclosures for cash flow information:
Cash paid during the periods for:
Income taxes	$	—		$	—		$	—		$	—		$	—
Interest	$	49,941		$	104,460		$	292,035		$	139,531		$	152,490

See accompanying Notes to Financial Statements.

F-48

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements

NOTE 1—ORGANIZATION AND BUSINESS

Vanguard Synfuels, LLC (“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 the purchase of 320 acres of land, an ammonia plant which was shuttered in 2001, and existing plant infrastructure with water influent/effluent pipeline connected to Little River northeast of Pollock, Louisiana. Vanguard converted the existing facility (the “Pollock Facility”) into a biorefinery that utilizes available biomass resources which has the capacity to produce an estimated 12 million gallons of biodiesel, annually, from vegetable oils, animal fats and used cooking oils. Vanguard’s biodiesel facility utilizes proven trans-esterification processes currently employed at approximately 30 existing U.S. production facilities. Vanguard began testing of its facility in early 2006, and commenced production and sales in April 2006.

On September 20, 2006, Vanguard was acquired by Diametrics Medical, Inc. (“DMED”). See Note 9 for discussion of the terms of this acquisition.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development-Stage Company

Vanguard was considered a development-stage company in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting by Development Stage Enterprises”. Vanguard has financed its activities through asset sales and debt financing while in the developmental stage. In April 2006, Vanguard exited the development stage as the planned principal operations commenced. Management has reported cumulative results of operations and cash flows from Inception through December 31, 2005, the last reported date in which Vanguard was in the development stage.

Going Concern Considerations

The accompanying financial statements have been prepared on the basis of Vanguard continuing as a going concern. Vanguard has recently commenced operations, has incurred losses from operations, and has used cash flows from operating activities. On June 30, 2006 (unaudited), Vanguard had a working capital deficit of $2,738,618, largely because its bank obligations were reflected as current liabilities. However, on September 20, 2006, Vanguard raised significant cash (Note 9) for working capital and plant expansion. In addition, DMED provided guarantees to the bank and other creditors. Management must enable Vanguard to generate sufficient revenues to meet its anticipated cost structure as a public company. Management believes that is has sufficient cash to operate 12 months from the most recently reported balance sheet date.

Interim Financial Statements

The interim financial statements are unaudited. In the opinion of management, all adjustments have been made, consisting of normal recurring items, that are necessary to present fairly Vanguard’s financial position as of June 30, 2006 as well as the results of operations for the six months ended June 30, 2006 and 2005 in accordance with accounting principles generally accepted in the United States of America. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

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

F-49

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

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 reported periods. Actual results could materially differ from those estimates. Significant estimates made by management include, but are not limited to collectibility of accounts receivable allowances, inventory allowances, the estimates of future cash flows to recovers long lived assets, as well as depreciable lives of its assets. In the future, Vanguard management will need to review for impairment of intangible assets and goodwill, as a result being acquired by DMED.

Cash and Cash Equivalents

Vanguard considers highly liquid investments with an original maturity of 90 days or less from the purchase date to be cash equivalents.

Short-Term Investments

Vanguard considers all highly liquid investments with a maturity date of one year or less at the balance sheet date to be short-term investments. Short-term investments consist of United States Treasury Bills, for which the carrying amount approximates fair value as of December 31, 2005 and June 30, 2006 (unaudited); see Note 3.

Inventories

Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”) or market. Vanguard’s inventories consist of various raw materials used to produce the finished good of biodiesel fuel. At June 30, 2006 (unaudited), Vanguard had finished goods of $244,969 and raw materials of $146,270, a total of $391,239.

Management has considered the impact of Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” on its inventories at June 30, 2006 (unaudited). 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, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally ranging from three to twenty years. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Deductions are made for retirements resulting from renewals or betterments.

Vanguard capitalized the interest costs during the construction period of the new biodiesel facility under SFAS No. 34 “Capitalization of Interest Cost”. Capitalized interest for the six months ended June 30, 2006 (unaudited) was $41,788. No amounts were capitalized prior to this December 31, 2005, as significant construction activities had not commenced and the amount would be minimal.

Impairment of Long-Lived Assets

Vanguard adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” SFAS 144 requires that if

F-50

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

events or changes in circumstances indicate that the cost of long-lived assets or asset groups may be impaired, an evaluation of recoverability would be performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying value to determine if a write-down to market value would be required. Long-lived assets or asset groups that meet the criteria in SFAS 144 as being held for disposal by sale are reflected at the lower of their carrying amount or fair market value, less costs to sell. Intangible assets that resulted from the acquisition by DMED, that have definite lives, are required to be evaluated under SFAS 144. During the periods presented, no impairments of long-lived assets were recognized.

Revenue Recognition

Vanguard recognizes sales of biodiesel fuel when (1) persuasive evidence that an agreement exists; (2) the products have been delivered; (3) the prices are fixed and determinable and not subject to refund or adjustment; and (4) collection of the amounts due is reasonably assured. Generally, Vanguard’s deliveries of biodiesel fuel are FOB shipping point, the point in time when the risk of loss transfers to the customer.

Vanguard sells biodiesel fuel (B100) to certified blenders and receives $1.00 above the wholesale price directly from the customer, which is considered part of the sales price, as the blenders currently receive a tax credit from the Internal Revenue Service for a like amount.

Vanguard also sells blended biodiesel fuel (B99) to non-certified blenders at wholesale prices. Vanguard then files a claim for the $1.00 biodiesel excise tax credit on the blended fuel sold. The credit is accounted for as a reduction to cost of sales. As of June 30, 2006 (unaudited), the tax credit is included in accounts receivable.

Income Taxes

Vanguard, as a Limited Liability Corporation (“LLC”), elected to be taxed as a partnership by the Internal Revenue Service. Accordingly, profits and losses are reflected in the individual income tax returns of the members. Income taxes are not material to the financial statements. Subsequent to the acquisition of Vanguard by DMED (refer to Note 9), the entity will be subject to corporate federal and state income taxes.

Research and Development Costs

Research and development costs are expensed as incurred. The costs of materials and equipment that will be acquired or constructed for research and development activities, and have uses for future operations, both in research and development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date research and development costs include costs necessary to determine the viability of biodiesel production.

Fair Value of Financial Instruments

The fair value of financial instruments approximated their carrying values at June 30, 2006 (unaudited) and December 31, 2005. The financial instruments consist of cash and cash equivalents, accounts receivable, certain current liabilities and notes payable to banks. Notes payable to related parties are not subject to estimation of fair value due to the nature of their relationship with Vanguard.

Risks and Uncertainties

Vanguard’s operations are subject to new innovations in process design and function. Significant technical changes can have an adverse effect on product lives. Design and development of new processes are important elements to achieve and maintain profitability in the industry segment.

F-51

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

Vanguard receives an alcohol and biodiesel excise tax credit of $1.00 per gallon sold for blended biodiesel fuel. The tax credit is scheduled to expire December 31, 2008. There are no assurances the tax credit will be extended beyond December 31, 2008. The loss of the tax credit will have a significant impact of Vanguard’s operations.

Vanguard’s results of operations will be significantly affected by the cost and supply of soybean oil and other alternative feedstocks used in the production of biodiesel fuel. The price of soy oil or other feedstocks is 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 Vanguard’s business. In addition, Vanguard may also have difficulty, from time to time, in physically sourcing soy oil on economical terms due to supply shortages. Such a shortage could require Vanguard to suspend operations until soy oil is available at economical terms, which would have a material adverse effect on the results of operations and financial position.

Vanguard is 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.

Concentrations of Credit Risk

Vanguard, at times, maintains cash balances at certain financial institutions in excess of amounts insured by Federal agencies.

Vanguard performs periodic credit evaluations of its customers and does not require collateral. Vanguard maintains reserves for potential credit losses based on the specific identification of accounts necessitating a reserve.

Significant Customer Concentration

During the six months ended June 30, 2006 (unaudited), four customers accounted for 11.0%, 11.1%, 11.7% and 51.2%, a total of 85.0%, of sales derived from primary operations, including excise tax credits. Management believes that the loss of one or more of the customers would have a material impact on Vanguard’s financial position, results of operations and cash flow.

As of June 30, 2006 (unaudited), four customers comprised 94.4% of total accounts receivable.

NOTE 3—RESTRICTED SHORT-TERM INVESTMENTS

At June 30, 2006 (unaudited) and December 31, 2005, Vanguard’s investments consisted of short-term zero coupon United States treasury bills. In accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”, Vanguard carries its investments at amortized cost. The maturity period of Vanguard’s investments generally range from just over three (3) to six (6) months. At June 30, 2006 (unaudited), the investments mature at dates ranging from August 2006 to October 2006. At December 31, 2005, investments matured at dates ranging from January to May 2006. In addition, the investments at June 30, 2006 (unaudited) and December 31, 2005, have an average effective interest rate of 4.35% and 3.74%, respectively.

F-52

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

Vanguard can borrow up to 92% of the investments, which are used as collateral for the promissory note payable outstanding as of June 30, 2006 (unaudited) and December 31, 2005. Borrowings against this collateral are $917,891 and $500,000 as of June 30, 2006 (unaudited) and December 31, 2005, respectively, see Note 5. Subsequent to June 30, 2006, Vanguard used its restricted short term investments as repayment on its promissory note to this financial institution totaling $930,898.

NOTE 4—PROPERTY, PLANT AND EQUIPMENT

Vanguard acquired idle property, plant and equipment from an unrelated entity through the trustee of the U.S. Bankruptcy Court (see Note 1) on July 31, 2003 for $1,810,000, plus costs of $18,367. Immediately after the date of the acquisition, Vanguard obtained appraisals of the value of the assets acquired which amounted to $5,154,000. Since management believes that the assets were purchased at a significant discount, they used the relative fair-value method to allocate the purchase price to assets acquired.

The purchase price of the assets acquired on July 31, 2003, was allocated to property groups as follows:


Land	$	146,318
Timber		123,801
Buildings		312,144
Machinery and equipment		1,246,104

	$	1,828,367

In April 2004, Vanguard sold timber rights for gross proceeds of $212,520 resulting in a gain on sale of assets of $123,705. Included in the costs were fees paid for the timber rights and appraisal costs.

On February 21, 2005, Vanguard sold a significant portion of the ammonia equipment, which could not be converted into the biodiesel facility, for $4,000,000. The sales price was paid to Vanguard as follows: $1,500,000 in cash at the date of sale, $750,000 on May 19 and July 27, 2005, and $1,000,000 on September 9, 2005. Vanguard recorded a total gain of $2,545,241 in connection with the sale during the year ended December 31, 2005. Pursuant to the terms of the agreement, the equipment was to be dismantled and removed by the buyer, at buyer’s cost, no later than September 22, 2006. In April 2006, Vanguard approved an extension for removal of the equipment until March 22, 2007 for $100,000 in compensation.

Property, plant and equipment consist of the following:


	June 30, 2006			December 31, 2005
	(unaudited)
Land	$	146,318		$	146,318
Buildings		312,144			312,144
Machinery and equipment		2,720,961			853,405
Construction in progress		—			81,035
Less—accumulated depreciation		(142,872	)		(52,647	)

	$	3,036,551		$	1,340,255

F-53

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

Property, plant and equipment are depreciated over their estimated useful lives using the straight-line method as follows:


Buildings		20 years
Machinery and equipment		3 to 15 years

In December 2005, Vanguard commenced construction on the machinery and equipment related to primary biodiesel plant. The construction was funded with the $2.0 million line of credit and $1.5 million term loan, see Note 5. In May 2006, Vanguard completed the construction and placed the machinery and equipment into production. Total amounts capitalized related to the construction of the machinery and equipment were approximately $1,900,000, including capitalized interest of $41,788.

During the period from inception through December 31, 2005 and the years ended December 31, 2005 and 2004, depreciation expense totaled $52,647, $24,076 and $23,215, respectively. For the six months ended June 30, 2006 and 2005 (unaudited), depreciation expense totaled $90,225 and $12,000, respectively.

NOTE 5—LINE OF CREDIT AND NOTES PAYABLE TO BANKS

Long-term debt consists of the following at June 30, 2006 (unaudited) and December 31, 2005:


	June 30, 2006			December 31, 2005
	(unaudited)
Revolving line of credit with a bank for a borrowings of up to $2.0 million, interest payable monthly at the lender’s referenced prime rate plus 1.25% (9.50% at June 30, 2006); principal due on demand. (See below for further discussion)	$	1,254,083		$	—

Term loan payable for $1.5 million with a bank, interest payable quarterly at the lender’s reference prime rate plus 1.25% (9.50% per annum at June 30, 2006); principal payable in ten annual installments of $150,000 beginning January 1, 2007. (See below for further discussion)		1,500,000			—
Promissory note payable to a former bank, dated May 24, 2005, interest due monthly at 6.5% per annum, matured January 12, 2006		—			648,249
Promissory note payable to a financial institution; interest due monthly at a referenced rate (9.08% at June 30, 2006 and 8.11% at December 31, 2005), collateralized with cash and investments of $1,016,445 and $1,008,178, respectively, held by the bank, repaid in July 2006		917,891			500,000

		2,417,891			1,148,249
Less current portion		(2,417,891	)		(1,148,249	)

Long-term portion	$	—		$	—

In January 2006, Vanguard entered into a revolving line of credit agreement with a bank to provide for borrowings of up to $2,000,000. Vanguard can borrow up to 75% of receivables which decreases for time period invoices are outstanding and 70% to 80% of the cost of inventory based on the type, less any amounts outstanding for payables, overdrafts and demand notes/deposits. The line of credit is secured by the underlying assets. In addition, Vanguard can issue letters of credit against the line of credit. These letters of credit reduce the amount available under the agreement. At June 30, 2006, Vanguard has six letters of credit outstanding), totaling $919,500 which are secured by the line of credit. The letters of credit are issued to various vendors to secure the purchase of raw materials.

F-54

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

In January 2006, Vanguard entered into a $1.5 million term loan agreement with a bank. The term loan requires interest only payments from April 1, 2006 to January 1, 2007 at which time the loan is payable in ten (10) annual principal payments of $150,000 maturing on December 1, 2015, assuming the credit facility is extended beyond the expiration date of July 1, 2007. The term loan is secured by substantially all of Vanguard’s assets. As of June 30, 2006 (unaudited), the term loan is classified as a current liability due to a borrowing base default as described in the next paragraph.

At June 30, 2006 (unaudited), the balance on the line of credit, including outstanding letters of credit, was in excess of borrowing base. Thus, the line of credit was in technical default. On August 21, 2006, Vanguard received a waiver of this provision until September 30, 2006. Since the borrowing base requirements were expressly waived by the bank only through September 30, 2006, and a contemplated amendment to the loan agreement amending such borrowing base requirements has not yet been fully-executed, the credit facility is classified as a current liability in the accompanying balance sheet.

NOTE 6—COMMITMENTS AND CONTINGENCIES

Litigation

In October 2005, Vanguard settled a lawsuit with a consulting company (the “Consultant”). The Consultant claimed Vanguard owed certain fees to the Consultant for the license of technology related to the sale of ammonia plant in February 2005. In connection with the settlement, Vanguard paid the former consultant $60,000. The payment was recorded as a reduction to the gain on the sale of the ammonia equipment during the year ended December 31, 2005.

Employment Contracts

Vanguard has employment contracts with five key employees expiring through November 2007. These contracts provide for annual compensation and bonuses, as defined. The employment contracts include standard severance packages in the event of termination. In 2003, two of these employment contracts required the issuance of member interest which was valued at $101,858. The member interests were valued based on a percentage stake in Vanguard as outline by the individual contracts. The value of the interests is included in general and administrative expenses in the accompanying statement of operations with the corresponding credit to members’ equity during the year ended December 31, 2003. Upon closing of the transaction discussed in Note 9, two of these employees entered into new employment contracts.

Minimum future liabilities in connection with contracts of key employees are as follows:


For the years ending December 31,
2006	$	597,280
2007		365,021

Total	$	962,301

NOTE 7—MEMBERS’ EQUITY (DEFICIT)

Member Interests Issued for Cash

For the period from Inception through December 31, 2003, Vanguard sold member interests for cash proceeds of $1,500,407. No significant direct costs were incurred in connection with the sale of these interests.

F-55

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

Member Interests Issued for Services

In 2003, Vanguard issued membership interests in exchange for legal services valued at $7,314 using the same ratio paid by original investors.

For discussion of additional interest issued in connection with employment contracts and to related parties, see Notes 6 and 8.

NOTE 8—RELATED PARTY TRANSACTIONS

Sale of Ammonia Equipment Bonuses

In connection the sale of the ammonia equipment, certain officers were paid bonuses aggregating $957,984 which were included in general and administrative expenses during the year ended December 31, 2005. In addition, Vanguard issued interests to officers as part of the sale of the ammonia equipment valued at $157,500.

Forgiveness of Employment Wages

After member interests were issued and bonuses were paid to certain officers in 2005 as a result of the sale of the ammonia equipment, the officers agreed to forgive six (6) months of compensation. During the year ended December 31, 2005, amounts forgiven totaled $196,163, which was recorded as compensation expense with a corresponding offset to members’ capital, since services were performed.

Notes Payable to Related Parties

Since inception, Vanguard has borrowed monies from certain members totaling $759,990 and $509,990 as of June 30, 2006 (unaudited) and December 31, 2005, respectively. The members’ loans were unsecured and were due on demand, and bear interest between 4% and 12% per annum. These amount were repaid on September 20, 2006 upon the close of the acquisition with proceeds received from DMED from its capital raise. Accordingly, these amounts have been classified as noncurrent liabilities in the accompanying balance sheet. Total amounts paid for interest for the period from inception through December 31, 2005, for the years ended December 31, 2005 and 2004, and for the six months ended June 30, 2006 and 2005 (unaudited) were $80,860, $46,232, $34,628, $29,999 and $46,232, respectively. As of June 30, 2006 (unaudited) and December 31, 2005, amounts accrued interest related to these loans was $17,018 and $29,999, respectively.

Sales to Related Parties

During the six months ended June 30, 2006 (unaudited), Vanguard sold biodiesel fuel to entities owned by three members totaling $21,744. The amount is shown in sales on the accompanying statement of operations. Amounts included in accounts receivable, due from one related entity at June 30, 2006 (unaudited) was $2,934.

Acquisition Bonuses

Bonuses to certain officers were paid as a result of the Vanguard acquisition (Note 9) in the amount of $714,976.

NOTE 9—SUBSEQUENT EVENTS

Diametrics Medical, Inc. (OTC: DMMC.OB), a publicly-listed company trading on the OTC Bulletin Board (“DMED”), raised $28.5 million in preferred equity financing (the “Financing”) for the purpose of acquiring

F-56

VANGUARD SYNFUELS, LLC.

(A Development-Stage Company—Note 2)

Notes to Financial Statements—(Continued)

Vanguard on September 20, 2006, and for working capital and growth capital purposes. DMED previously had no operations and had limited assets, and was treated as a “shell company” by the Securities and Exchange Commission (as defined in regulations issued under the Securities and Exchange Act of 1934, as amended). DMED’s acquisition of Vanguard was funded from the proceeds of the issuance of $28.5 million of DMED’s Series J Convertible Preferred Stock (the “Series J Preferred Stock”). Of these proceeds, $17.7 million was used to purchase 80% of Vanguard’s equity interests, and $760,000 was used to repay outstanding loans Vanguard owed to certain of its members. The remaining funds are expected to be used as follows: $2.1 million for incentive compensation for Vanguard’s management ($1.4 million of which is subject to certain performance milestones), $4.0 million for working capital and general corporate purposes, $3.0 million for capacity expansion of Vanguard’s production facility in Pollock, Louisiana (the “Pollock Facility”) from 12 million gallons to 20 million gallons annually, and $0.9 million for transaction expenses related to the sale of the Series J Convertible Preferred Stock and the acquisition. DMED also provided a guaranty for $3.5 million of Vanguard’s debt outstanding. The remaining 20% of the existing Vanguard equity held by its two executives was exchanged for 15.9% of DMED’s fully-diluted equity.

The purchase price of Vanguard amounted to approximately $23.2 million. 10% of the purchase consideration due to the Vanguard members for their equity interests (comprising $1.77 million in cash and 10% of the preferred stock issued by DMED in exchange for the two executives’ equity) was placed into escrow for the benefit of DMED against any breaches of or inaccuracies in the members’ representations and warranties, to be released 18 months from the close of the acquisition. After the close of the acquisition on September 20, 2006, the holders of DMED equity ownership immediately prior to the close of the acquisition, own approximately 62% of the equity of DMED (excluding stock options and warrants). DMED’s pre-acquisition directors will continue to control the DMED board after the acquisition on September 20, 2006. The acquisition will be accounted for under SFAS 141 as a purchase. The assets and liabilities of Vanguard will be reported at fair value from the date of acquisition, with excess of the purchase price over the net assets allocated to goodwill. DMED will include the results of operations and cash flows of Vanguard from the date of acquisition.

DMED will be re-named and the combined company will continue to develop the existing biodiesel facility and potentially other facilities in locations throughout the United States or internationally. DMED may also pursue projects, investments, mergers, or acquisitions in the biodiesel industry. In the course of these activities, DMED may seek to raise additional debt or equity capital.

F-57

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors And Officers

Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our Certificate of Incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders, This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law, The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our Bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law. Our Bylaws further provide that our Board of Directors has sole discretion to indemnify our officers and other employees. We may limit the extent of such indemnification by individual contracts with our directors and executive officers, but have not done so. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under our Bylaws or otherwise. We are not, however, required to advance any expenses in connection with any proceeding if a determination is reasonably and promptly made by our Board of Directors by a majority vote of a quorum of disinterested Board members that (a) the party seeking an advance acted in bad faith or deliberately breached his or her duty to us or our stockholders and (b) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the applicable sections of our Bylaws.

On August 4, 2006, we entered into indemnification agreements with 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. 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 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.

We also have directors’ and officers’ liability insurance.

II-1

Item 25. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, if any, payable by us relating to the sale of common stock being registered. All amounts are estimates except the SEC registration fee.


SEC registration fee	$	37,098
Printing and engraving expenses	$	25,000
Legal fees and expenses	$	25,000
Accounting fees and expenses	$	10,000
Transfer agent and registrar’s fees and expenses	$	0
Miscellaneous expenses	$	2,500

Total	$	99,598

Item 26. Recent Sales of Unregistered Securities

During the last three years, we have issued unregistered securities to the persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act. All recipients had adequate access, through their relationships with us, to information about us.

On January 16, 2004, we completed the sale in a private placement of 15,000 shares of Series F convertible preferred stock at a price of $100 per share, resulting in aggregate gross proceeds to us of $1.5 million. The preferred stock was issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On May 28, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series G convertible preferred stock at $100 per share. The financing was completed in a private placement with M.A.G. Capital, LLC and its related funds and BCC Acquisition II, LLC. The preferred stock was issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

As part of the foregoing financing, on May 28, 2004, we issued three-year warrants (“Series G warrants”) to the purchasers of the Series G preferred stock. Those warrants entitled the holders to purchase an aggregate of 1,250,000 shares of the Company’s common stock. We also issued three-year warrants to the Mercator Advisory Group and its related funds that invested in Series E and Series F preferred stock to purchase an aggregate of 12,241,608 shares of common stock at $0.05 per share. All of the above warrants were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On December 15, 2004, we issued convertible senior secured notes, resulting in the receipt of $1,800,000 in gross proceeds to us. The notes were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder. The holders of the notes also received warrants to purchase up to 45,000,000 shares of common stock at an exercise price of $0.025 per share with an original expiration date of December 15, 2009. The warrants were also issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On May 2, 2005, we issued convertible senior notes resulting in the receipt of $150,000 of gross proceeds. The notes were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder. The holders of these notes also received warrants expiring on May 2, 2010 to purchase up to 3,750,000 shares of our common stock at an exercise price of $0.025 per share. The warrants were also issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

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On December 6, 2005, all outstanding principal and accrued interest under our $150,000 Convertible Senior Notes, our $1,800,000 Convertible Senior Secured Notes, our $7,300,000 Convertible Subordinated Notes, and all outstanding shares of Series F and Series G convertible preferred stock were retired and exchanged in consideration of the issuance to holders of such securities of 27,889 and 13,794 shares of Series H and Series I convertible preferred stock, respectively. The Series H and Series I convertible preferred stock were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On December 6, 2005, we entered into Convertible Promissory Notes to provide up to $750,000 in gross proceeds, of which $450,000 was advanced as of December 31, 2005. In January 2006, we received the balance of $300,000. The notes were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On August 11, 2006, we granted options to purchase 180,622 and 86,698 shares of common stock to W. Bruce Comer III, our Chief Executive Officer, and Heng Chuk, our Chief Financial Officer, respectively, under the 2006 Incentive Compensation Plan. These stock options have an exercise price of $0.46 per share. On this date we also issued under the 2006 Plan options to purchase 36,124 shares of common stock to each of the two independent, non-executive members of our Board of Directors at an exercise price of $0.42 per share, and an option to purchase 21,675 shares of common stock to an advisor, at an exercise price of $0.42 per share. All options issued on this date expire on March 15, 2007, and were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, we issued an aggregate of (i) 2,850 shares of our Series J Convertible Preferred Stock to certain purchasers thereof and (ii) 4,300 shares of our Series K Convertible Preferred Stock to Darrell Dubroc and Tim Collins, who were executives as well as members of Vanguard Synfuels, LLC, a company we were acquiring (“Vanguard”). The Series J and Series K convertible preferred stock were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, in consideration for the assignment of certain rights to acquire Vanguard, we issued to M.A.G. Capital, LLC warrants (the “M.A.G. Warrants”) to purchase 6,500,000 shares of common stock. The M.A.G. Warrants were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, we issued five-year warrants to Ocean Park Advisors, LLC to purchase approximately 4.8 million shares of common stock at $0.76 per share, in consideration for OPA’s agreement to convert its Series I Convertible Preferred Stock into common stock and to waive the anti-dilution rights associated such preferred stock. The warrants were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, we issued 815,675 shares of common stock to each of Asset Managers International Limited and Monarch Pointe Fund, Ltd. in consideration of the conversion of their Convertible Secured Promissory Notes dated December 6, 2005 in accordance with the terms of such promissory notes. The shares of common stock were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, we issued 80,733 shares of common stock to certain funds managed by M.A.G. Capital, LLC upon the cashless exercise of warrants to purchase 417,119 of our common shares held by such funds, based on the closing price of our common stock on September 19, 2006. The shares of common stock were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

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On September 20, 2006, in connection with a management services agreement, we granted five-year options to Ocean Park Advisors, LLC to purchase 2,069,109 shares of common stock at an exercise price of $0.76 per share. The stock options were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

On September 20, 2006, we granted five-year options to purchase 348,480 shares of common stock to each of two non-executive members of our Board of Directors, pursuant to our 2006 Incentive Compensation Plan. The stock options have an exercise price of $0.76 per share. The stock options were issued in reliance on exemptions from registration, pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder.

Item 27. Exhibits and Financial Statement Schedules

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)

5.1		Opinion of Zimmermann, Koomer, Connolly & Finkel, LLP ¨

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)

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Exhibit Number		Description
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) *

10.12		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)

21.1		List of our subsidiaries ü

23.1		Consent of Virchow, Krause & Company, LLP ü

23.2		Consent of McKennon, Wilson & Morgan LLP for Allegro Biodiesel Corporation ü

23.3		Consent of McKennon, Wilson & Morgan LLP for Vanguard Synfuels, LLC ü

24.1		Power of Attorney (set forth on the signature page)

ü	Filed herewith.

*	Management contract or executive compensation plan or arrangement.

¨	To be filed by amendment.

(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.

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Financial Statement Schedules

All such schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 28. Undertakings

(a) The undersigned small business issuer hereby undertakes with respect to the securities being offered and sold in this offering:

(1) To file, during any period in which it offers or sells securities, a post- effective amendment to this Registration Statement to:

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if. in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) Include any additional or changed material information on the plan of distribution.

(2) For determining liability under the Securities Act, treat each post- effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bonafide offering.

(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

(4) For determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned small business issuer undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned small business issuer relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by on or behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and

(iv) Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser.

(e) Insofar as indemnification by the undersigned small business issuer for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such

II-6

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 its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(f) That, for purposes of determining liability under the Securities Act to any purchaser:

(1) If the small business issuer is relying on Rule 430B:

(i) Each prospectus filed by the undersigned small business issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement;

(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 4I5(a)(l)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bonafide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(2) If the small business issuer is subject to Rule 430C, include the following:

Each prospectus filed pursuant to Rule 424(b)as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectus filed in reliance on Rule 430, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that is has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Los Angeles, State of California, on the 12^th day of December, 2006.


ALLEGRO BIODIESEL CORPORATION.

By:		/s/ W. BRUCE COMER III
		W. Bruce Comer III Chief Executive Officer (Principal Executive Officer)

By:		/s/ HENG CHUK
		Heng Chuk Chief Financial Officer (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints W. Bruce Comer III and Heng Chuk as his true and lawful attorneys-in-fact and agents, with full power of substitution for him in any and all capacities, to sign (1) any and all amendments (including post-effective amendments) to this Registration Statement, and (2) any registration statement or post-effective amendment thereto to be filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, and all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons 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)	December 12, 2006

/S/ HENG CHUK Heng Chuk	Chief Financial Officer and Director (Principal Financing and Accounting Officer)	December 12, 2006

/S/ DARRELL DUBROC Darrell Dubroc	Director	December 12, 2006

/S/ TIM COLLINS Tim Collins	Director	December 12, 2006

/S/ PAUL A. GALLEBERG Paul A. Galleberg	Director	December 12, 2006

/S/ JEFFREY LAWTON Jeffrey Lawton	Director	December 12, 2006

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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)

5.1		Opinion of Zimmermann, Koomer, Connolly & Finkel, LLP ¨

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) *

10.12		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)

II-9


Exhibit Number		Description
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)

21.1		List of our subsidiaries ü

23.1		Consent of Virchow, Krause & Company, LLP ü

23.2		Consent of McKennon, Wilson & Morgan LLP for Allegro Biodiesel Corporation ü

23.3		Consent of McKennon, Wilson & Morgan LLP for Vanguard Synfuels, LLC ü

24.1		Power of Attorney (set forth on the signature page)

ü	Filed herewith.

*	Management contract or executive compensation plan or arrangement.

¨	To be filed by amendment.

(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.

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