Biodiesel is a clean-burning alternative to traditional, hydrocarbon-based diesel. Biodiesel is manufactured from renewable feedstocks such as soybean, canola, palm and sunflower oil, as well as from animal fats, fish oils and recycled cooking oils. Biodiesel is produced by reacting feedstocks with methanol in the presence of a catalyst, which yields biodiesel and glycerin as a co-product. Unlike ethanol, which is not generally used as a direct substitute for gasoline, biodiesel is a direct replacement of diesel and can be blended between 1% and 99% with diesel.

In 2006, according to the Energy Information Administration, or EIA, the U.S. consumed approximately 64 billion gallons of diesel, and Europe consumed approximately 95 billion gallons of diesel. The U.S. government, and many state and local governments, have enacted renewable fuel standards that require the use of alternative fuels, including biodiesel. For example, some states, including Washington and Minnesota, currently mandate 2% biodiesel blends.

Additionally, Europe imported approximately 14.8 billion gallons of diesel in 2006. Europe is a net importer of diesel and, according to the European Biodiesel Board, this growing diesel deficit has been fueled by an increase in new diesel car purchases.

The U.S. has also been a net importer of petroleum products. In 2006, the U.S. West Coast imported approximately 483.9 million gallons of diesel, and the U.S. East Coast imported approximately 4.6 billion gallons of diesel. In addition, U.S. petroleum refining capacity has been operating at more than 90% capacity for more than a decade.

Construction of the Company’s Grays Harbor production facility is scheduled to be completed in July 2007 and capable of operating at full production capacity by the first quarter of 2008. The production facility is located in Grays Harbor, Washington on a 12-acre site. The site has deep water port access and is strategically located to receive multiple feedstocks from less expensive international suppliers, and to supply biodiesel to current and future U.S. West Coast customers faster and at lower cost by using barge transportation.

The Company has signed a letter of intent to enter into a 35-year lease on an 11-acre site on the island of Oahu, Hawaii. The Company is in the process of securing all required permits for the leased site and is continuing its investigation of the site in escrow. Assuming successful permitting and investigation, the Company intends to begin construction of a 100 MGY nameplate capacity biodiesel production facility at the leased site by the third quarter of 2007.

The Company has entered into a letter of intent to purchase approximately 25 acres of land adjacent to a major soybean crushing facility in Ramallo, Argentina. The Company intends to begin construction of a 100 MGY nameplate capacity facility at the site in the second half of 2007.

The Company is negotiating and expects to enter a lease for an 8.5-acre site in Philadelphia, Pennsylvania in May 2007. The Company intends to begin construction of a 100 MGY nameplate capacity facility at the site by the first half of 2008. The Company expects to complete construction of this production facility in the fourth quarter of 2008.

Gross loss increased $315,000, or 171%, to $499,000 in the first quarter of 2007 from $184,000 in the first quarter of 2006.

Research and development expenses increased $106,000, to $108,000 in the first quarter of 2007 from $2,000 in the first quarter of 2006.

Selling, general and administrative expenses increased $2.3 million, or 442%, to $2.8 million in the first quarter of 2007 from $516,000 in the first quarter of 2006.