Namliong SkyCosmos, Inc. - Quarter Report: 2008 June (Form 10-Q)

FORM 10-Q QUARTERLY REPORT

QUARTERLY PERIOD ENDED JUNE 30, 2008

TABLE OF CONTENTS

Item		Page
PART I
1. Condensed Consolidated Financial Statements			5
2. Management’s Discussion and Analysis or Plan of Operation			15
3. Quantitative and Qualitative Disclosures About Market Risk			21
4. Controls and Procedures			21
PART II
1. Legal Proceedings			21
1A. Risk Factors			21
2. Unregistered Sales of Equity Securities and Use of Proceeds			22
3. Defaults Upon Senior Securities			22
4. Submission of Matters to a Vote of Security Holders			22
5. Other Information			22
6. Exhibits			22
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Recent Developments

Suspension of operations and adoption of a limited action plan.

On June 20, 2008, Kreido Biofuels, Inc. (“we”, “us” or the “Company”) announced that due to the weakening of the economy, the continued financial market turmoil and the inability to raise needed capital to finance site construction and plant start-up costs, we were suspending work regarding our flagship biodiesel production plant at the Port of Wilmington, North Carolina, and would be exploring other alternatives to secure the value of Company assets and the STT^® technology. Since that date, we have wound down our plant development activities and begun monetizing and physically consolidating selected assets. We have focused our attention on identifying, and engaging in discussions with, other companies that have the capacity to acquire some or all of our assets and continue our business while also addressing supplier-creditor matters. We have reduced our operating costs by curtailing our manufacturing operations, site development and other operating activities as well as by reducing our staff from 19 to 7 executive and key technical and accounting personnel who we believe are instrumental in pursuing the Company’s limited action plan and marketing its technology. The Company has incurred, and will continue to incur, costs associated with carrying out its limited action plan. The amount of these costs, which are being expensed as incurred, are expected to have a significant adverse affect on the results of operations and on the Company’s cash position. Additionally, there can be no assurances that any of the interested parties will ultimately purchase any or all of the assets or intellectual property of the Company or that all supplier-creditor matters will be addressed and settled.

The goal of this limited action plan is to effect an orderly disposition of our tangible and intangible assets, satisfy our liabilities, and ultimately share the remaining assets, if any, among our shareholders. Our ability to successfully carry out the limited action plan and accomplish this goal will be affected by the business conditions in the alternative fuels industry, general economic conditions, and other matters, many of which are beyond our control. Taking into account these factors and various disposition assumptions, some of which may not materialize, we have made impairment adjustments of approximately $13.4 million to the value of the Company’s assets at June 30, 2008. As a result, our ability to effectively complete our limited action plan is inherently uncertain. In addition, unanticipated and uncertain events and circumstances occurring subsequent to the date of this Quarterly Report may affect the actual value of our assets, cause further related impairment adjustments and the results of our plan both favorably or unfavorably.

Uncertainties relating to realizing value of business and assets.

The Company has reduced the size of its organizational infrastructure. The success of our limited action plan to realize the value of our assets and business is dependent on numerous factors, including the timing and amount of cash received from the monetization of some or all of our assets, the resolution of liabilities, and our ability to effectively carry out the limited action plan with our available cash resources and our limited personnel.

We may be unable to retain key personnel.

Our ability to carry out our limited action plan and to realize and monetize many of our assets may require us to retain qualified individuals. It may become necessary to make arrangements and commitments to retain key executives and employees. If we are unable to retain key executives and qualified technical personnel, it could adversely affect our ability to realize the value of our assets and business.

Realizing the value of the Company’s business and assets may be subject to certain conditions of completion that could result in delays or termination of transactions.

Consummation of any agreements entered into as part of our limited action plan may be subject to a number of customary conditions that would need to be satisfied including stockholder approvals of certain transactions. The failure to satisfy any of the conditions in any of these agreements could cause the subject transactions to be delayed or terminated. As a result, we cannot assure you that we will be able to complete our limited action plan in a timely matter or at values initially agreed into, if at all.

We have limited available cash and have incurred, and will continue to incur, significant transaction costs in connection with carrying out our limited action plan, most of which may be required to be paid even if the plan is not completed.

We have incurred, and will continue to incur, significant transaction costs in connection with pursuing and consummating our limited action plan to realize the value of our assets and business. These costs are primarily associated with the fees of accountants, attorneys and advisors. The payment of these costs without the completion of any transaction is likely to have a material and adverse effect on our operating results and financial condition. Our current cash resources will enable us to continue to pursue our limited action plan through the end of November, assuming that no assets are monetized and we defer paying a majority of our vendors, advisors, accountants and attorneys. If a transaction is delayed beyond November and we are not able to sell some of our assets to raise cash then we may not be able to retain our employees, advisors, accountants, and attorneys through the completion of our limited action plan or engaged transactions.

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Kreido Biofuels, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets

		June 30,				December 31,
		2008				2007
		(unaudited)				(audited)
ASSETS
Current assets
Cash and cash equivalents		$	1,409,000			$	6,470,000
Other current assets			53,000				56,000
Total current assets			1,462,000				6,526,000
Property and equipment — net			3,828,000				14,148,000
Patents, less accumulated amortization of $231,000 and $201,000 at June 30, 2008 and December 31, 2007, respectively, and a valuation reserve of $639,000 and $223,000 at June 30, 2008 and December 31, 2007, respectively			43,000				421,000
Other assets			38,000				437,000
Total assets		$	5,371,000			$	21,532,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of capital leases		$	59,000			$	57,000
Accounts payable			2,654,000				1,538,000
Accrued expenses			293,000				250,000
Total current liabilities			3,006,000				1,845,000
Capital leases, less current portion			65,000				86,000
Total liabilities			3,071,000				1,931,000
Stockholders’ equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding were zero shares			—				—
Common stock, $0.001 par value. Authorized 300,000,000 shares; issued and outstanding were 52,545,992			52,000				52,000
Restricted common stock, $0.001 par value; issued and outstanding were 175,000 and 100,000 as of June 30, 2008 and December 31, 2007, respectively			—				—
Additional paid-in capital			47,757,000				47,253,000
Deferred compensation			(28,000	)			(31,000	)
Deficit accumulated during the development stage			(45,481,000	)			(27,673,000	)
Net stockholders’ equity			2,300,000				19,601,000
Total liabilities and stockholders’ equity		$	5,371,000			$	21,532,000

See notes to unaudited condensed consolidated financial statements

Kreido Biofuels, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)

																		Period from
		Three Months				Three Months				Six Months				Six Months				January 13, 1995
		Ended June 30,				Ended June 30,				Ended June 30,				Ended June 30,				(Inception)
		2008				2007				2008				2007				to June 30, 2008
Operating expenses
Research and development		$	582,000			$	278,000			$	809,000			$	298,000			$	17,727,000
General and administrative			2,118,000				1,184,000				3,714,000				1,888,000				12,719,000
Loss on impairment of property and equipment			12,648,000				—				13,364,000				—				13,364,000
(Gain)/Loss on sale of property and equipment			(33,000	)			—				(33,000	)			—				56,000
Loss from retirement of assets			—				—				5,000				—				326,000
Loss from operations			(15,315,000	)			(1,462,000	)			(17,859,000	)			(2,186,000	)			(44,192,000	)
Other income (expense)
Interest expense			—				—				—				—				(3,082,000	)
Interest income			11,000				229,000				52,000				421,000				805,000
Other income			1,000				—				1,000				—				1,155,000
Other expenses			—				—				—				—				(154,000	)
Total other income (expense)			12,000				229,000				53,000				421,000				(1,276,000	)
Loss before income taxes			(15,303,000	)			(1,233,000	)			(17,806,000	)			(1,765,000	)			(45,468,000	)
Income tax expenses			—				—				2,000				1,000				13,000
Net loss		$	(15,303,000	)		$	(1,233,000	)		$	(17,808,000	)		$	(1,766,000	)		$	(45,481,000	)
Net loss per share — basic and diluted		$	(0.29	)		$	(0.02	)		$	(0.34	)		$	(0.03	)		$	(0.86	)
Shares used in computing net loss per share			52,696,267				52,532,202				52,671,268				52,532,202				52,671,268

See notes to unaudited condensed consolidated financial statements

Kreido Biofuels, Inc.
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)

																										Deficit
																										Accumulated
										Restricted Common								Additional								During the
		Common Stock								Stock								Paid-In				Deferred				Development				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Compensation				Stage				Equity
Balance, January 1, 2008			52,545,992			$	52,000				100,000			$	—			$	47,253,000			$	(31,000	)		$	(27,673,000	)		$	19,601,000
Compensation expense			—				—				75,000				—				504,000				3,000				—				507,000
Net loss			—				—				—				—				—				—				(17,808,000	)			(17,808,000	)
Balance, June 30, 2008			52,545,992			$	52,000				175,000			$	—			$	47,757,000			$	(28,000	)		$	(45,481,000	)		$	2,300,000

See notes to unaudited condensed consolidated financial statements

Kreido Biofuels, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)

										Period from
		Six Months				Six Months				January 13, 1995
		Ended June 30,				Ended June 30,				(Inception)
		2008				2007				to June 30, 2008
Cash flows from operating activities
Net Loss		$	(17,808,000	)		$	(1,766,000	)		$	(45,481,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			156,000				107,000				1,779,000
Loss on impairment of property and equipment			13,364,000				—				13,364,000
Loss on abandonment of plant development			891,000				—				891,000
(Gain)/Loss on sale of assets			(33,000	)			—				56,000
Patent write-down and reserve			416,000				—				886,000
Loss on retirement of assets			5,000				—				326,000
Noncash stock compensation			507,000				413,000				2,116,000
Amortization of convertible debt discount			—				—				1,236,000
Inducement to convert debt discount			—				—				152,000
Inducement to convert debt			—				—				58,000
Changes in operating assets and liabilities:
Prepaid and other assets			402,000				(113,000	)			(142,000	)
Accounts payable and accrued expenses			1,159,000				2,039,000				3,701,000
Accrued interest on notes			—				—				669,000
Net cash provided by (used in) operating activities			(941,000	)			680,000				(20,389,000	)
Cash flows from investing activities
Purchase and construction of property and equipment			(4,086,000	)			(6,024,000	)			(18,712,000	)
Proceeds from sale of assets			53,000				—				148,000
Investments in patent application			(68,000	)			(70,000	)			(1,582,000	)
Net cash used in investing activities			(4,101,000	)			(6,094,000	)			(20,146,000	)
Cash flows from financing activities
Proceeds from the issuance of Series A convertible preferred stock			—				—				938,000
Proceeds from the issuance of Series B convertible preferred stock			—				—				1,500,000
Proceeds from the issuance of Series C convertible preferred stock			—				—				2,424,000
Proceeds from the issuance of Series B1 preferred stock			—				—				720,000
Proceeds from the issuance of common stock warrants			—				—				217,000
Proceeds from the issuance of common stock			—				22,843,000				22,849,000
Proceeds from issuance of long-term debt			—				—				14,381,000
Principal repayment of long-term debt and capital leases			(19,000	)			(151,000	)			(1,085,000	)
Net cash provided by (used in) financing activities			(19,000	)			22,692,000				41,944,000
Net increase (decrease) in cash and cash equivalents			(5,061,000	)			17,278,000				1,409,000
Cash and cash equivalents at beginning of period			6,470,000				59,000				—
Cash and cash equivalents at end of period		$	1,409,000			$	17,337,000			$	1,409,000
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest		$	—			$	13,000			$	354,000
Income taxes			2,000				1,000				13,000

See notes to unaudited condensed consolidated financial statements.

Kreido Biofuels, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)

										Period from
		Six Months				Six Months				January 13, 1995
		Ended June 30,				Ended June 30,				(Inception)
		2008				2007				to June 30, 2008
Supplemental disclosure of noncash investing and financing activities
Acquisition of property and equipment through capital leases		$	—			$	98,000			$	867,000
Additions to property and equipment through settlement of capital lease			—				—				61,000
Additions to property and equipment through issuance of common stock			—				—				100,000
Conversion of notes payable into Series A preferred stock			—				—				1,180,000
Conversion of notes payable into Series C preferred stock			—				—				5,530,000
Conversion of accounts payable into Series C preferred stock			—				—				30,000
Conversion of accrued interest into Series C preferred stock			—				—				441,000
Warrants issued in connection with convertible notes			—				—				2,007,000
Conversion of Series A preferred stock into Series A1 preferred stock			—				—				2,118,000
Conversion of Series B preferred stock into Series A1 preferred stock			—				—				1,511,000
Conversion of Series C preferred stock into Series B1 preferred stock			—				—				8,414,000
Conversion of notes payable into Series B1 preferred stock			—				—				850,000
Conversion of accrued interest into Series B1 preferred stock			—				—				18,000
Conversion of notes payable into common stock			—				5,257,000				5,257,000
Conversion of accrued interest into common stock			—				863,000				863,000
Conversion of Series A preferred stock into Series A1 common stock			—				3,628,000				3,628,000
Conversion of Series B preferred stock into Series A1 common stock			—				10,011,000				10,011,000
Conversion of Kreido Laboratories common stock into common stock			—				155,000				155,000

See notes to unaudited condensed consolidated financial statements

Kreido Biofuels, Inc.
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2008

NOTE 1 BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of Kreido Biofuels, Inc. (“Kreido” or “the Company”) at June 30, 2008 and for the three and six month periods ended June 30, 2008 and 2007 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the full year. They do not include all information and notes required by United States generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes contained in Kreido’s Annual Report on Form 10-KSB as amended by Form 10-KSB/A for the period from inception (January 13, 1995) through December 31, 2007.

The condensed consolidated financial statements were prepared assuming that the Company is a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 ORGANIZATION

Kreido Biofuels, Inc. was incorporated as Gemwood Productions, Inc. under the laws of the State of Nevada on February 7, 2005. Gemwood Productions, Inc. changed its name to Kreido Biofuels, Inc. on November 2, 2006. The Company took its current form on January 12, 2007 when Kreido Laboratories (“Kreido Labs”), completed a reverse triangular merger with Kreido Biofuels, Inc. The Company wholly-owns two subsidiaries, Kreido Chicago LLC and Kreido Wilmington LLC, which are currently not active, as well as Kreido Labs; its operating subsidiary.

Kreido Labs, formerly known as Holl Technologies Company, was incorporated on January 13, 1995 under the laws of the State of California. Since incorporation, Kreido Labs has been engaged in activities required to develop, patent and commercialize its products. Kreido Labs is the creator of reactor technology that is designed to enhance the manufacturing of a broad range of chemical products.

The cornerstone of Kreido Labs’ technology is its patented STT^® (Spinning Tube in Tube) diffusional chemical reacting system, which is both a licensable process and a licensable system. In 2005, the Company demonstrated how the STT^® could make biodiesel from vegetable oil rapidly with almost complete conversion and less undesirable by-products. The Company has continued to pursue this activity, has built and tested a pilot biodiesel production unit and, prior to June 20, 2008, was in the process of developing the first of its commercial biodiesel production plants in the United States that if constructed and put into operation was expected to produce approximately 33 million to 50 million gallons per year. On June 20, 2008 the Company announced that due to the weakening of the economy, the continued financial market turmoil and the inability to raise needed capital to finance site construction and plant start-up costs, the Company was suspending work regarding its flagship biodiesel production plant at the Port of Wilmington, North Carolina, and would be exploring other alternatives to secure the value of the Kreido assets and the STT^® technology. The Company is pursuing discussion with various parties that have the capacity to acquire some or all of the assets and/or intellectual property of the Company and continue its business but there can be no assurances that any of the interested parties will ultimately purchase any or all of the assets or intellectual property of the Company. If the Company cannot raise adequate cash from the sale of these assets then the Company believes that its cash resources will enable it to continue its business activities through the end of November 2008, assuming that major vendors, advisors, accountants, and attorneys are not paid. The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.

The Company considers itself a development stage enterprise because it has not yet earned significant revenue from its commercial products or biodiesel production plants.

NOTE 3 LIQUIDITY AND GOING CONCERN ISSUES

The Company, a development stage company, has suffered recurring losses from operations and at June 30, 2008 had an accumulated deficit of $45,481,000 that raises substantial doubt about its ability to continue as a going concern.

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2008 and December 31, 2007 is summarized as follows:

		June 30, 2008				December 31, 2007
Furniture and fixtures		$	150,000			$	151,000
Machinery and equipment			1,067,000				857,000
Office equipment			133,000				136,000
Leasehold improvements			254,000				254,000
Spare plant parts and equipment			1,782,000				—
Construction in progress			14,417,000				13,301,000
Total			17,803,000				14,699,000
Less accumulated depreciation and amortization			(611,000	)			(551,000	)
Less valuation reserve			(13,364,000	)			—
Net book value		$	3,828,000			$	14,148,000

The Company has manufactured spare STT^® Reactors, which are in various stages of completion, and has purchased spare parts for these reactors. These reactors and spare parts may be used as backup for a plant once the technology is proven. As of June 30, 2008, because the technology of the STT^® Reactors has not been proven under commercial production conditions and due to funding limitations, the Company has reserved $1,583,000 of the capitalized overhead and labor costs of these spare reactors as well as a significant portion of the cost of the spare parts and equipment as a possible impairment.

Additionally, given the Company’s current financial situation, the Company assessed the potential value of its assets capitalized as construction in progress and determined an estimated value for a realized sale of the equipment that has been constructed. The estimated value was based on discussions with prospective purchasers and vendors and/or manufacturers of the equipment to estimate a reasonably possible realizable amount and fair value. Based on this analysis, as of June 30, 2008 the Company recorded $11 million as a possible impairment reserve against the construction in progress in property and equipment. The Company also assessed the fair value of its remaining property and equipment, excluding construction in progress assets, and has recorded a reserve of $809,000 as a possible impairment of these assets.

The Company accounts for its property and equipment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company tested its property and equipment for recoverability because there is a current expectation that it is more likely than not, the property and equipment will be sold or otherwise disposed of significantly before they are put into service.

Depreciation expense for the three and six months ended June 30, 2008 was $68,000 and $126,000, respectively, including related depreciation for capital leases. Equipment recorded under capital leases totaled $230,000 and $456,000 at June 30, 2008 and December 31, 2007, respectively.

NOTE 5 CONSTRUCTION IN PROGRESS AND PLANT DEVELOPMENT ACTIVITIES

In October 2007, the Company completed the construction and test operation of a pilot biodiesel production unit (“pilot plant”) at an existing biodiesel production facility operated by Foothills Bio-energies, LLC. Full pilot plant operations were never fully undertaken and the Company has requested that any operations be terminated and is planning to retrieve the equipment from the facility in order to prepare it for possible resale to another potential purchaser. As discussed in Note 2 above, the Company suspended the construction and development of the full scale plant site. Upon suspension of the full scale plant development, the Company wrote off $891,000 of costs specific to the proposed plant site which had been previously capitalized as construction in progress. The write off was charged to general and administrative expenses during the three months ended June 30, 2008. As discussed in Note 4 above, the Company has established a possible impairment reserve against the construction in progress for property and equipment. Construction costs incurred and capitalized consist of (1) architectural, design and engineering; (2) labor, overhead and materials to build in-house the four STT^® Reactors; (3) designing, engineering and manufacturing of the plant production unit which includes components such as centrifuges, tanks, control panels and other equipment being built by third parties for delivery to the plant site; and (4) the general contractor fees, engineering and construction of the buildings and physical improvements including tanks, piping, boilers and various lab and other equipment and machinery comprising the plant. As of June 30, 2008, development expenditures of $14.4 million have been incurred and recorded as construction in progress and, approximately $2.3 million has been recorded as outstanding payables for services, equipment and construction work incurred through June 30, 2008 provided by sub-contractors and equipment vendors. The Company has not entered into additional purchase orders and contracts.

NOTE 6 NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated by dividing the net loss applicable to common shares by the weighted-average number of common and common equivalent shares outstanding during the period.  For the six months ended June 30, 2008, there were no potential common equivalent shares used in the calculation of weighted-average common shares outstanding as the effect would be anti-dilutive because of the net loss. During the six months ended June 30, 2008 and 2007, the Company issued additional stock option shares of 75,000 and 1,355,384, respectively. The Company also cancelled stock options of 85,000 and 192,398 shares for the six months ended June 30, 2008 under its 2006 Equity Incentive Plan and 1997 Stock Compensation Program, respectively. No options were cancelled for the same period in 2007.

						Period from
						Inception
		Six Months				(January 13,
		Ended June 30,				1995) through
		2008				June 30, 2008
Weighted-average shares used to compute basic and diluted net loss per common share:			52,671,268				52,671,268
Securities convertible into shares of common stock not used to compute net loss per share because the effect would be anti-dilutive:
Stock options under the 2006 Equity Incentive Plan			3,385,400				3,289,150
Stock options under the 1997 Stock Compensation Program			972,587				1,015,116
Stock associated with warrants arising from private placement of common stock			18,498,519				18,498,519
Other stock associated with warrants			437,355				437,355
			23,293,861				23,240,140

NOTE 7 STOCK-BASED COMPENSATION

Effective January 1, 2006 the Company adopted SFAS 123(R) “Share Based Payment” using the modified prospective approach and accordingly prior periods have not been restated to reflect the impact of SFAS 123(R).

Upon the adoption of SFAS123(R), the Company recorded $2,000 and $5,000 of compensation costs for the six months ended June 30, 2008 and 2007, respectively, relating to stock options granted to employees and non-employees from 2003 to 2006. The compensation costs are based on the fair value of the stock options at the grant date.

In December 2007, the Company issued 100,000 shares restricted common stock to one of its officers. The shares are subject to repurchase by the Company for $1,000 if the officer terminates his employment voluntarily or is terminated for cause before May 31, 2009. This transaction was recorded under deferred compensation and amortized over a period of 18 months. In April 2008, the Company issued 75,000 shares restricted common stock to one of its officers. The shares are subject to repurchase by the Company for $750 if the officer terminates his employment voluntarily or is terminated for cause before April 30, 2009. This transaction was recorded under deferred compensation and amortized over a period of 12 months. Compensation expense for the six months ended June 30, 2008 was $12,000.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The fair value of the options issued during the year ended June 30, 2008 was estimated using the Black-Scholes option-pricing model with the following assumptions: risk free interest rates 2.75% and 3.03%, expected life range of 5.25 to 5.583 years and expected volatility of 92%. The expected stock price volatility assumption was based on the average volatility of similar public companies for the period prior to the Company’s reverse merger. The expected term assumption used in the option pricing model was based on the “safe harbor” approach under SEC Staff Accounting Bulletin (SAB) No. 107, (SAB 107), where the “expected term = ((vesting term + original contractual term) / 2).” The risk free interest rate assumption was based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the expected term. A projected dividend yield of 0% was used as the company has never issued dividends.

Summary stock option activity is as follows:

						Weighted
		Number of				Average Exercise
		Options				Price
Balance at December 31, 2007			4,385,384			$	0.65
Granted			250,000				0.20
Exercised			—				—
Cancelled			(277,397	)			1.00
Balance at June 30, 2008			4,357,987			$	0.44

The Company has recorded in general and administrative expenses, $4,000 of compensation expense for the six month period ended June 30, 2007, relating to stock options issued to non-employees for services rendered during that period. There was no compensation expense for stock options issued to non-employee for the six months ended June 30, 2008.

The following table summarizes information regarding options outstanding and options exercisable at June 30, 2008:

		Options Outstanding												Options Exercisable
						Weighted-Average
Range of Exercise		Outstanding at				Remaining				Weighted-Average				Exercisable at				Weighted-Average
Prices		June 30, 2008				Contractual Life				Exercise Price				June 30, 2008				Exercise Price
$0.09 – 0.19			1,035,573				1.77			$	0.09				910,573			$	0.09
$0.20 – 0.89			2,573,789				9.17				0.36				1,409,631				0.38
$0.90 – 1.85			748,625				8.77				1.17				748,625				1.17
			4,357,987				7.64			$	0.44				3,068,829			$	0.49

On February 1, 2008, the compensation committee of the board of directors agreed to reprice the unvested options held by the Company’s employees under its 2006 Equity Incentive Plan. These options were repriced for only those granted in 2007, with an exercise price above the closing market price on February 1, 2008, which was $0.33 per share. The Company determined the additional compensation expense under SFAS 123(R) to be $22,000. Since the repricing only affected unvested shares, it does not affect amounts already recorded and the increased amount will be recorded over the remaining vesting period.

In accordance with the provisions of SFAS 123(R), the Company has recorded stock-based compensation expense of $493,000 for the six months ended June 30, 2008, which includes the compensation effect for the options repriced. The stock-based compensation expense is based on the fair value of the options at the grant date. Stock-based compensation expense for the six months ended June 30, 2007 was $408,000.

NOTE 8   CONTINGENCY

In March 2004, Kreido Labs and a former officer and shareholder of Kreido Labs reached agreement on the terms of a settlement of disputes arising out of the termination of the former officer and shareholder’s employment with Kreido Labs. The settlement was never completed. The former officer and shareholder has demanded implementation of the settlement including the payment of approximately $190,000 plus interest. Kreido Labs disputes any obligation to the former officer and shareholder. The Company will continue to assess the progress of the dispute.

NOTE 9   SUBSEQUENT EVENT

In July 2008, the Company received $400,000 in full settlement of a claim it had against a former professional advisor. The settlement included a release of all of the Company’s claims against the former professional advisor.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION WHICH OUR MANAGEMENT BELIEVES IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. THIS DISCUSSION SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO OUR CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THIS REPORT, AND WITH OUR ANNUAL REPORT ON FORM 10-KSB FILED ON MARCH 31, 2008 AS AMENDED BY FORM 10-KSB/A FILED ON APRIL 30, 2008.

In addition to historical information, this discussion and analysis contains forward-looking statements that relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “believes,” “estimates,” “expects,” “hopes,” “targets,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects” or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied in the forward-looking statements.

As used in this report, the terms “we,” “us,” and “our,” mean Kreido Biofuels, Inc. and our subsidiaries, unless otherwise indicated.

We took our current form on January 12, 2007, when our wholly-owned subsidiary, Kreido Acquisition Corp., or Acquisition Sub, and Kreido Laboratories, or Kreido Labs, executed a Merger Agreement and Plan of Reorganization, or the Merger Agreement. On January 12, 2007, Acquisition Sub merged with and into Kreido Labs, with Kreido Labs remaining as the surviving corporation and as our wholly-owned subsidiary, or the Merger. Also contemporaneously with the closing of the Merger, we split-off another wholly-owned subsidiary, Gemwood Leaseco, Inc., a Nevada corporation, through the sale of all of the outstanding capital stock of Gemwood Leaseco, Inc., or the Split-Off. As a consequence of the sale of Gemwood Leaseco, Inc., we discontinued all of our business operations which we conducted prior to the closing of the Merger, and spun off all material liabilities existing prior to that date in any way related to our pre-closing business operations. Our primary operations are now those operated by Kreido Labs.

The Merger was treated as a recapitalization of our company for accounting purposes. Our historical financial statements before the Merger were replaced with the historical financial statements of Kreido Labs in all filings with the SEC subsequent to January 12, 2007.

Kreido Labs is a corporation founded to develop proprietary technology for building micro-composite materials for electronic applications. In 1995, Kreido Labs began to develop the technology used in the design and assembly of our STT^® Reactor. Kreido Labs thereafter sought to develop the technology to improve the speed, completeness and efficiency of certain chemical reactions, including esterifications and transesterifications, in the pharmaceutical and chemical industries. We designed and developed the STT^® Reactor which incorporates our proprietary and patented “spinning tube-in-tube” design configuration to improve the speed and yield of chemical reactions. One of the Environmental Protection Agency’s largest laboratories has been using our STT^® Reactor-based technology since 2004 to develop and evaluate new chemical processes and develop and optimize protocols for use of the STT^® Reactor by public and private entities. Beginning in the last quarter of 2005, Kreido Labs began to evaluate the advantages of the STT^® Reactor specifically for the production of biodiesel. In the first quarter of 2006, Kreido Labs elected to focus almost exclusively on the biodiesel industry and began to prepare and execute our current business plan. On January 12, 2007, as a result of the Merger, Kreido Labs became a wholly-owned subsidiary of Kreido Biofuels, Inc.

Plan of Operations

On June 20, 2008, we announced that we were suspending our plan to commercialize our proprietary equipment system for biodiesel production on an industrial scale and to become one of the leading providers of biodiesel in the United States and elsewhere. We expected to execute our business plan by generating revenues from multiple sources: 1) by building and operating our own STT^® biodiesel Production Units; 2) licensing our STT^® Reactor-based technology to others which may require one of our production units to be in operation, and 3) in the longer term, by providing technology and investing in businesses that will develop or use our STT^® Reactor-based technology for production of biofuels and other products. We are now pursuing a limited action plan to realize the value of our assets and our STT^® technology.

Since June 20, 2008, we have wound down our plant development activities, and begun monetizing and physically consolidating selected assets. We have focused our attention on identifying, and engaging in discussions with, other companies that have the capacity to acquire some or all of our assets and continue our business while also addressing supplier-creditor matters. We have reduced our operating costs through curtailing our manufacturing operations, site development and other operating activities as well as reducing our staff from 19 to 7 executive and key technical and accounting personnel who we believe are instrumental in pursuing the Company’s limited action plan and marketing its technology. The Company has incurred, and will continue to incur, costs associated with carrying out its limited action plan. The amount of these costs, which are being expensed as incurred, are expected to have a significant adverse affect on the results of operations and on the Company’s cash position. Additionally, there can be no assurances that any of the interested parties will ultimately purchase any or all of the assets or intellectual property of the Company or that all supplier-creditor matters will be addressed and settled.

The goal of this limited action plan is to effect an orderly disposition of our tangible and intangible assets, satisfy the Company’s liabilities, and ultimately share the remaining assets, if any, among our shareholders. Our ability to successfully carry out the limited action plan and accomplish this goal will be affected by the business conditions in the alternative fuels industry, general economic conditions, and other matters, many of which are beyond our control. Taking into account these factors and various disposition assumptions, some of which may not materialize, we have made impairment adjustments of approximately $13.4 million to the value of our assets at June 30, 2008. Our ability to effectively complete our limited action plan is inherently uncertain. In addition, unanticipated and uncertain events and circumstances occurring subsequent to the date of this Quarterly Report may affect the actual value of our assets, the related impairment adjustments and the results of our plan both favorably or unfavorably.

Consolidated Results of Operations for the six months ended June 30, 2008 and 2007

Operating Expenses

Operating expenses of $17.9 million for the six months ended June 30, 2008 increased by $15.7 million compared to $2.2 million for the same period in 2007. Research and development expense for the six months ended June 30, 2008 were $809,000 compared to $298,000 for the same period in 2007, an increase of $511,000. Research and development expenses increased for the first half of 2008 compared to the same period in 2007 due to the hiring of a chief technology officer and a scientist in the second quarter of 2007 whose costs were not reflected in the earlier months of 2007 and also to the patent valuation write down of $639,000 in 2008. We expect research and development expenses to be at a minimum in the future. General and administrative costs increased to $3.7 million for the six months ended June 30, 2008 from $1.9 million for the same period in 2007. The increase was related primarily to the rental of tanks from Vopak and the write off of capitalized site specific costs related to the proposed full scale plant site, the costs associated with being a public company, an increase in stock compensation expense from the issuance and repricing of stock options to employees and an increase in payroll related costs from the hiring of additional personnel. Also during 2008, we expensed $13.4 million of costs attributed to plant assets and costs associated with building extra reactors and acquiring spare parts as an impairment reserve. We expect general and administrative costs to decrease compared to the first six months of the year as we complete the winding down of our operations and pursue our limited action plan to realize the value of our assets and business. Additionally, we will continue to incur costs associated with operating as a public reporting entity.

Other Income (Expense)

Other income (expense) for the six months ended June 30, 2008 declined to $53,000 from $421,000 for the same period in 2007. Other income for the six months ended June 30, 2008 and 2007 consisted of interest income. The interest income decrease reflects the changes in the available cash balances.

Net Loss

Net loss for the six months ended June 30, 2008 was $17,808,000, or about 908% increase compared to the net loss of $1,766,000 for the same six month period for 2007. There were no net sales or gross profit for the six months ended June 30, 2008 and 2007. We expect to incur net losses for the foreseeable future as we continue to pursue our limited action plan.

Operating expenses of $15.3 million for the three months ended June 30, 2008 increased by $13.8 million compared to $1.5 million for the same period in 2007. Research and development expense for the three months ended June 30, 2008 were $582,000 compared to $278,000 for the same period in 2007, an increase of $304,000. The increase in research and development expenses was due primarily to the patent valuation write down of $398,000 in the second quarter of 2008. General and administrative costs increased to $2.1 million for the three months ended June 30, 2008 from $1.2 million for the same period in 2007. The increase was related primarily to the write off of $891,000 of capitalized site specific costs related to the proposed full scale plant site. Development of the full scale plant site was suspended on June 20, 2008. Also during 2008, we expensed $13.4 million of costs attributed to plant assets and costs associated with building extra reactors and acquiring spare parts as an impairment reserve. We expect general and administrative costs to decrease compared to the prior three months of 2008 as we complete the winding down of our operations and pursue our limited action plan to realize the value of our assets and business. Additionally, we will continue to incur costs associated with operating as a public reporting entity.

Other income (expense) for the three months ended June 30, 2008 declined to $12,000 from $229,000 for the same period in 2007. Other income for the three months ended June 30, 2008 and 2007 consisted of interest income. The interest income decrease reflects the changes in the available cash balances.

Net loss for the three months ended June 30, 2008 was $15,303,000 compared to the net loss of $1,233,000 for the same three month period for 2007. There were no net sales or gross profit for the three months ended June 30, 2008 and 2007. We expect to incur net losses for the foreseeable future as we continue to pursue our limited action plan.

Liquidity and Capital Resources

A summary of our sources and use of cash for the six months ended June 30, 2008, is as follows:

•

Source of cash consisted of interest income of $52,000.

•

Uses of cash consisted of plant development costs including purchases of fixed assets and construction of plant components and reactors of $4.1 million, operating expenses of $2.1 million (net of non-cash expenses such as loss on impairment of property and equipment, stock compensation, and depreciation and amortization), repayment of capital leases of $19,000 and investments in patents of $68,000 for a total use of cash of approximately $6.3 million.

•

The decrease in cash balance to $1.4 million results from net sources of $52,000 less uses of cash of $6.3 million plus an increase in the amounts due to vendors of $1.2 million which will be paid in future periods.

The details of the cash flow activities for the six months ended June 30, 2008 are discussed below.

Net cash used by operating activities for the six months ended June 30, 2008 was $941,000 as compared to net cash provided by operating activities of $680,000 for the same period in 2007. Net cash used by operations in 2008 is primarily related to operating costs and an increase in accounts payable which consisted of certain large payments due to vendors associated with the construction of our biodiesel production plant. In addition, we supplemented our net operating loss with a $13.4 million reserve for the possible impairment of our fixed assets. We also incurred an increase in stock compensation costs compared to the prior period.

Net cash used by investing activities for six months ended June 30, 2008 was approximately $4.1 million which was a decrease from $6.1 million used by investing activities for the same period in 2007. The cash used in 2008 and 2007 consisted primarily of the purchase and construction of equipment and facilities associated with our Wilmington Plant. Costs of the plant consist of: (1) site selection, leasing, permitting and other legal compliance; (2) architectural, design and engineering; (3) labor, overhead and materials to build in-house the STT^® Reactors; (4) designing, engineering and manufacturing of the plant production unit which includes components such as centrifuges, tanks, control panels and other equipment being built by third parties for delivery to the plant site; and (5) the general contractor fees, engineering and construction of the buildings and physical improvements including tanks, piping, boilers and various lab and other equipment and machinery comprising the plant. In addition, approximately $2.3 million has been recorded as outstanding payables for services, equipment and construction work incurred through June 30, 2008 provided by sub-contractors and equipment vendors. We also invested $68,000 in patents for six months ended June 30, 2008.

Net cash used by financing activities for six months ended June 30, 2008 was $19,000 which is due to repayment of capital lease obligations. For the same period in 2007, $22.7 million was provided by financing activities consisting primarily of the private placement sale of our common stock netting proceeds to us of approximately $23 million. This was offset by the repayment of outstanding notes and the payment of capital leases of $151,000.

In furtherance of our limited action plan, in July, 2008, we received $400,000 in full settlement of a claim we had against a former professional advisor, which settlement included a release of all of the Company’s claims against the former professional advisor.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Research and Development

Research and development costs related to the design, development, demonstration, and testing of reactor technology are charged to operations as incurred.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents.

Use of Estimates

Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods covered by the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Depreciation and Amortization

The provision for depreciation of property and equipment is calculated when put into service on the straight-line method over the estimated useful lives of the related assets, generally ranging from five to seven years. Leasehold improvements are amortized over the shorter of the useful life of the related asset or the lease term.

Patents

Capitalized patent costs consist of direct costs associated with obtaining patents such as legal expenses and filing fees. Patent costs are amortized on a straight-line basis over 15 years, which is the expected life, beginning in the month that the patent is issued. Patent costs are capitalized beginning with the filing of the patent application. The patents are tested for impairment annually, or more frequently if events or conditions indicate the asset might be impaired and the carrying value may not be recoverable. These conditions may include an economic downturn, new and or competitive technology, new industry regulations and a change in our operations or business direction. The impairment tests include a comparison of estimated undiscounted cash flows associated with the asset’s carrying amount. If the assessment determines that the fair value is less than the carrying amount of the patent, an impairment charge is recorded to reduce the amount of the patent.

Impairment of Long-Lived Assets

We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance of long-lived assets may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. When factors indicate that long-lived assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining life of the long-lived assets in measuring whether they are recoverable. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, a loss is recorded as the excess of the asset’s carrying amount over its fair value. Management has performed an assessment of the fixed assets of the Company which includes assessments of the future realizable value of the assets through discussion with potential buyers and our current manufactures and vendors though a formal appraisal was not obtained due to its cost. Based on this analysis, we have reserved a significant portion of the amount of our assets for future plants, spare parts and other fixed assets though there can be no assurance that additional reserves or write offs may be required nor that a reduction in the current reserve may be recorded when the actual realized value of the fixed assets are determined through sale or exchange.

Stock-Based Compensation

Effective January 1, 2006, we adopted SFAS 123(R) “Share Based Payment” using the modified prospective approach and accordingly prior periods have not been restated to reflect the impact of SFAS 123(R). Under SFAS 123(R), stock-based awards granted prior to January 1, 2006 will be charged to expense over the remaining portion of their vesting period. These awards will be charged to expense under the straight-line method using the same fair value measurements which were used in calculating pro forma stock-based compensation expense under SFAS 123. For stock-based awards granted on or after January 1, 2006, we determined stock-based compensation based on the fair value method specified in SFAS 123(R), and we will amortize stock-based compensation expense on the straight-line basis over the requisite service period.

For periods prior to January 1, 2006, SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.

Fair Value of Financial Instruments

The carrying values reflected in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short maturity of these instruments. The carrying value of convertible notes payable and capital leases approximates their fair value based upon current market borrowing rates with similar terms and maturities.

Comprehensive Loss

Except for net loss, we have no material components of comprehensive loss, and accordingly, the comprehensive loss is the same as the net loss for all periods presented.

Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We will review the effect of the adoption of this statement, and if it applies, it is likely to have a material effect on our future financial position or results of operations.

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 141 (revised 2007), “Business Combinations.” The new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This Statement is effective for us starting January 1, 2009 and we currently believe it will have no financial impact on us.

In December, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective prospectively, except for certain retrospective disclosure requirements, for fiscal years beginning after December 15, 2008. We currently believe this Statement will have no financial impact on us.

In February 2007, the Financial Accounting Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for us on January 1, 2008. We evaluated the impact of the adoption and determined that it does not have any impact on our current financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We evaluated the impact of the adoption and determined that it does not have any impact on our current financial condition or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(c) of Regulation S-B, promulgated by the SEC.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was performed, under the supervision of, and with the participation of, our management, including the Chief Executive Officer and Chief Financial Officer (who is also our Chief Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-(e) to the Securities Exchange Act of 1934). In performing this evaluation, management reviewed, among other things, the selection, application and monitoring of our historic accounting policies. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures at June 30, 2008 and thereafter were effective and designed to ensure that the information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported on a timely basis.

Changes in Internal Control Over Financial Reporting

No significant changes in our internal controls over financial reporting has occurred during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. LEGAL PROCEEDINGS

From time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.

Item 1A. RISK FACTORS

As a small reporting company, we are not required to provide the information required by this item. However, investors should recognize that an investment in our common stock is highly speculative and involves a high degree of risk. Investors should carefully consider the risks discussed above under “Recent Developments” as well as the various risks discussed in our Annual Report on Form 10-KSB/A for fiscal year ended December 31, 2007 and in our Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2008 that may continue to be applicable in light of the limited action plan described above, before making an investment decision.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

The following exhibits are either filed herewith or incorporated herein by reference:

Exhibit No.				Description		Reference
	2.1			Agreement and Plan of Merger and Reorganization, dated as of January 12, 2007, by and among Kreido Biofuels, Inc., a Nevada corporation, Kreido Acquisition Corp., a California corporation and Kreido Laboratories, a California corporation.		Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	3.1			Amended and Restated Articles of Incorporation of Kreido Biofuels, Inc. (f/k/a Gemwood Productions, Inc.).		Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2006 (File No. 333-130606).
	3.3			Amended and Restated Bylaws of Kreido Biofuels, Inc.		Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 4, 2007 (File No. 333-130606).
	4.1			Form of Investor Warrant of Kreido Biofuels, Inc.		Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	4.2			Form of Lock-Up Agreement by and between Tompkins Capital Group and each of the officers and directors of Kreido Biofuels, Inc., and certain stockholders of Kreido Laboratories.		Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.1			Escrow Agreement, dated as of January 12, 2007, by and between Kreido Biofuels, Inc., Joel A. Balbien and Gottbetter & Partners, LLP.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.2			Form of Subscription Agreement, dated as of January 12, 2007, by and between Kreido Biofuels, Inc. and the investors in the Offering.		Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.3			Form of Registration Rights Agreement, dated as of January 12, 2007, by and between Kreido Biofuels, Inc. and the investors in the Offering.		Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.4			Split-Off Agreement, dated as of January 12, 2007, by and among Kreido Biofuels, Inc., Victor Manuel Savceda, Kreido Laboratories and Gemwood Leaseco, Inc.		Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.5			Form of Indemnity Agreement by and between Kreido Biofuels, Inc. and Outside Directors of Kreido Biofuels, Inc.		Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
	10.6			2006 Equity Incentive Plan.		Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).

Exhibit No.		Description		Reference
10.7		Form of Incentive Stock Option Agreement by and between Kreido Biofuels, Inc. and participants under the 2006 Equity Incentive Plan.		Incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
10.8		Form of Non-Qualified Stock Option Agreement by and between Kreido Biofuels, Inc. and participants under the 2006 Equity Incentive Plan.		Incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 333-130606).
10.9		Binding Term Sheet by and between Kreido Laboratories and Tompkins Capital Group dated as of September 1, 2006.		Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 4, 2007 (File No. 333-130606).
10.10		Amendment to Binding Term Sheet by and between Kreido Laboratories and Tompkins Capital Group dated as of October 25, 2006.		Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 4, 2007 (File No. 333-130606).
10.11		Form of Indemnity Agreement for officers and directors.		Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 4, 2007 (File No. 333-130606).
10.12		Employment Agreement, dated April 4, 2007, by and between Kreido Biofuels, Inc. and Philip Lichtenberger.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2007 (File No. 333-130606).
10.13		Employment Agreement, dated April 10, 2007, by and between Kreido Biofuels, Inc. and Alan McGrevy.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2007 (File No. 333-130606).
10.14		Employment Agreement, dated April 28, 2007, by and between Kreido Biofuels, Inc. and Larry Sullivan.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 2, 2007 (File No. 333-130606).
10.15		Purchase Order Agreement, dated May 22, 2007, by and between Kreido Biofuels, Inc. and Certified Technical Services, L.P.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2007 (File No. 333-130606).
10.16		Amendment No. 1 to Registration Rights Agreement, dated June 12, 2007, by and between Kreido Biofuels, Inc. and certain investors in the Offering.		Incorporated by reference to Exhibit 10.19 to the Amendment No. 3 to the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 21, 2007 (File No. 333-140718).

Exhibit No.				Description		Reference
	10.17			Separation Agreement and General Release dated July 27, 2007 by and between Kreido Biofuels, Inc. and Joel Balbien.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007 (File No. 333-130606).
	10.18			Executive Employment Agreement dated July 27, 2007 by and between Kreido Biofuels, Inc. and G. A. Ben Binninger.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007 (File No. 333-130606).
	10.19			Kreido Biofuels, Inc. Outside Director Compensation Program adopted July 27, 2007.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007 (File No. 333-130606).
	10.20			Commercial Lease Agreement by and between Kreido Biofuels, Inc. and Acaso Partners, LLC effective August 1, 2007.		Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2007 (File No. 333-130606).
	10.21			Employment Agreement, dated April 30, 2008, by and between Kreido Biofuels, Inc. and John M. Philpott.		Incorporated by reference to Exhibit 10.21 to the Amendment to the Annual Report on Form 10-KSB/A filed with the Securities and Exchange Commission on April 30, 2008 (File No. 333-130606).
	31.1			Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934*
	31.2			Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934*
	32.1			Certification of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32.2			Certification of the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

SIGNATURES

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

EXHIBIT INDEX

Exhibit
Number				Description
	31.1			Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934*
	31.2			Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934*
	32.1			Certification of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32.2			Certification of the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*