UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September
30, 2014
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File No. 000-52361
BLUEFIRE RENEWABLES, INC.
(Exact name of registrant as specified
in its charter)
Nevada |
|
20-4590982 |
(State
or other jurisdiction of incorporation) |
|
(IRS
Employer Identification No.) |
31 Musick
Irvine, CA 92618
(Address of principal executive offices)
(949) 588-3767
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act:
Large
accelerated filer |
[ ] |
|
Accelerated
filer |
[ ] |
|
|
|
|
|
Non-accelerated
filer |
[ ] |
|
Smaller reporting
company |
[X] |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 19, 2014, there
were 226,890,278 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
PART I –
FINANCIAL INFORMATION
Item 1. Financial Statements.
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 86,868 | | |
$ | 46,992 | |
Costs of financing | |
| - | | |
| 1,031 | |
Prepaid expenses | |
| 13,163 | | |
| 4,636 | |
Total current assets | |
| 100,031 | | |
| 52,659 | |
| |
| | | |
| | |
Property, plant
and equipment, net of accumulated depreciation of $106,746 and $106,041, respectively | |
| 110,535 | | |
| 111,240 | |
Total assets | |
$ | 210,566 | | |
$ | 163,899 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’
DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 920,964 | | |
$ | 1,108,684 | |
Accrued liabilities | |
| 109,086 | | |
| 272,910 | |
Convertible notes
payable, net of discount of $0 and $75,695, respectively | |
| - | | |
| 322,385 | |
Notes payable,
net of discount of $22,017 and $0, respectively | |
| 357,983 | | |
| - | |
Line of credit,
related party | |
| 45,230 | | |
| 11,230 | |
Note payable to
a related party | |
| 200,000 | | |
| 200,000 | |
Derivative liability | |
| - | | |
| 122,309 | |
Total current liabilities | |
| 1,633,263 | | |
| 2,037,518 | |
| |
| | | |
| | |
Outstanding warrant liability | |
| 241 | | |
| 58 | |
Total liabilities | |
| 1,633,504 | | |
| 2,037,576 | |
| |
| | | |
| | |
Non-controlling interest
- redeemable | |
| 859,517 | | |
| 856,044 | |
| |
| | | |
| | |
Stockholders’ deficit: | |
| | | |
| | |
Preferred stock,
no par value, 1,000,000 shares authorized; none issued and outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value;
500,000,000 shares authorized; 226,890,278 and 73,486,861 shares issued; and 226,858,106 and 68,910,395 outstanding, as of
September 30, 2014 and December 31, 2013, respectively | |
| 226,890 | | |
| 68,943 | |
Additional paid-in
capital | |
| 16,561,845 | | |
| 16,123,744 | |
Treasury stock at cost, 32,172 shares
at September 30, 2014 and December 31, 2013 | |
| (101,581 | ) | |
| (101,581 | ) |
Accumulated
deficit | |
| (18,969,609 | ) | |
| (18,820,827 | ) |
Total stockholders’
deficit | |
| (2,282,455 | ) | |
| (2,729,721 | ) |
| |
| | | |
| | |
Total liabilities and stockholders’
deficit | |
$ | 210,566 | | |
$ | 163,899 | |
See accompanying notes to consolidated
financial statements
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the Three
Months ended September 30, 2014 | | |
For the
Three Months ended September 30, 2013 | | |
For the Nine
Months ended September 30, 2014 | | |
For the Nine
Months ended September 30, 2013 | |
| |
| | | |
| | | |
| | | |
| | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Consulting
fees | |
$ | 48,953 | | |
$ | 2,405 | | |
$ | 263,178 | | |
$ | 4,425 | |
Department of
energy grant revenues | |
| 314,970 | | |
| 219,017 | | |
| 1,164,473 | | |
| 836,956 | |
Total revenues | |
| 363,923 | | |
| 221,422 | | |
| 1,427,651 | | |
| 841,381 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenue: | |
| | | |
| | | |
| | | |
| | |
Consulting revenue | |
| 18,792 | | |
| - | | |
| 31,161 | | |
| - | |
Gross margin | |
| 345,131 | | |
| 221,422 | | |
| 1,396,490 | | |
| 841,381 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Project development | |
| 186,757 | | |
| 135,443 | | |
| 602,230 | | |
| 382,131 | |
General and administrative | |
| 264,132 | | |
| 152,605 | | |
| 739,160 | | |
| 551,207 | |
Total operating expenses | |
| 450,889 | | |
| 288,048 | | |
| 1,341,390 | | |
| 933,338 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
| (105,758 | ) | |
| (66,626 | ) | |
| 55,100 | | |
| (91,957 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expense): | |
| | | |
| | | |
| | | |
| | |
Amortization of
debt discount | |
| (47,222 | ) | |
| (52,511 | ) | |
| (131,763 | ) | |
| (178,127 | ) |
Interest expense | |
| (9,613 | ) | |
| (18,740 | ) | |
| (46,165 | ) | |
| (95,187 | ) |
Related party
interest expense | |
| (1,458 | ) | |
| (467 | ) | |
| (3,212 | ) | |
| (1,386 | ) |
Gain on settlement
of accounts payable and accrued liabilities | |
| - | | |
| 96,076 | | |
| 95,990 | | |
| 96,076 | |
Gain / (loss)
from change in fair value of warrant liability | |
| 55 | | |
| 386 | | |
| (183 | ) | |
| 22,241 | |
Gain / (loss)
from change in fair value of derivative liability | |
| (45,048 | ) | |
| 8,504 | | |
| (112,785 | ) | |
| 68,009 | |
Loss on excess
of derivative over face value | |
| - | | |
| - | | |
| - | | |
| (28,507 | ) |
Total other income or (expense) | |
| (103,286 | ) | |
| 33,248 | | |
| (198,118 | ) | |
| (116,881 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (209,044 | ) | |
| (33,378 | ) | |
| (143,018 | ) | |
| (208,838 | ) |
Provision for income taxes | |
| 800 | | |
| - | | |
| 2,291 | | |
| 751 | |
Net loss | |
$ | (209,844 | ) | |
$ | (33,378 | ) | |
$ | (145,309 | ) | |
$ | (209,589 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) attributable
to non-controlling interest | |
| 1,100 | | |
| (376 | ) | |
| 3,473 | | |
| (3,118 | ) |
Net loss attributable
to controlling interest | |
$ | (210,944 | ) | |
$ | (33,002 | ) | |
$ | (148,782 | ) | |
$ | (206,471 | ) |
Basic and diluted
loss per common share | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
Weighted average common
shares outstanding, basic and diluted | |
| 187,175,232 | | |
| 42,298,786 | | |
| 151,334,103 | | |
| 38,006,195 | |
See accompanying notes to consolidated
financial statements
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
| |
For the Nine
Months Ended September 30, 2014 | | |
For the Nine
Months Ended September 30, 2013 | |
| |
| | | |
| | |
Cash flows from operating
activities: | |
| | | |
| | |
Net loss | |
$ | (145,309 | ) | |
$ | (209,589 | ) |
Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
Change in the
fair value of warrant liability | |
| 183 | | |
| (22,241 | ) |
Change in fair
value of derivative liability | |
| 112,785 | | |
| (68,009 | ) |
Loss on excess
fair value of derivative liability | |
| - | | |
| 28,507 | |
Gain on settlement
of accounts payable and accrued liabilities | |
| (95,990 | ) | |
| (96,076 | ) |
Share-based compensation | |
| 46,711 | | |
| 9,075 | |
Amortization | |
| 131,763 | | |
| 206,949 | |
Depreciation | |
| 705 | | |
| 2,435 | |
Changes in operating assets
and liabilities: | |
| | | |
| | |
Accounts receivable | |
| - | | |
| 3,518 | |
Prepaid expenses
and other current assets | |
| (8,527 | ) | |
| (9,580 | ) |
Accounts payable | |
| (14,422 | ) | |
| 191,296 | |
Accrued liabilities | |
| (162,023 | ) | |
| (109,320 | ) |
Net cash used in
operating activities | |
| (134,124 | ) | |
| (73,035 | ) |
| |
| | | |
| | |
Cash flows from investing
activities: | |
| | | |
| | |
Construction in
progress | |
| - | | |
| 14 | |
Net cash provided by investing
activities | |
| - | | |
| 14 | |
| |
| | | |
| | |
Cash flows from financing
activities: | |
| | | |
| | |
Proceeds from
convertible notes payable | |
| 35,000 | | |
| 110,000 | |
Repayment of convertible
notes payable | |
| (275,000 | ) | |
| - | |
Proceeds from
notes payable | |
| 380,000 | | |
| - | |
Net proceeds from
related party line of credit/notes payable | |
| 34,000 | | |
| - | |
Net cash provided by financing
activities | |
| 174,000 | | |
| 110,000 | |
| |
| | | |
| | |
Net increase in cash and
cash equivalents | |
| 39,876 | | |
| 36,979 | |
| |
| | | |
| | |
Cash and cash equivalents
beginning of period | |
| 46,992 | | |
| 59,603 | |
| |
| | | |
| | |
Cash and cash equivalents
end of period | |
$ | 86,868 | | |
$ | 96,582 | |
| |
| | | |
| | |
Supplemental disclosures
of cash flow information | |
| | | |
| | |
Cash paid during the period
for: | |
| | | |
| | |
Interest | |
$ | 98,179 | | |
$ | 5,779 | |
Income taxes | |
$ | 0 | | |
$ | 751 | |
| |
| | | |
| | |
Supplemental schedule of
non-cash investing and financing activities: | |
| | | |
| | |
Conversion of
convertible notes payable into common stock | |
$ | 120,000 | | |
$ | 101,000 | |
Interest converted
to common stock | |
$ | 2,800 | | |
$ | 4,040 | |
Discount on fair
value of warrants issued with note payable | |
$ | 42,380 | | |
$ | - | |
Derivative liability
reclassed to additional paid-in capital | |
$ | - | | |
$ | 86,187 | |
Liabilities settled
in connection with the Liabilities Purchase Agreement | |
$ | 110,935 | | |
$ | - | |
See accompanying notes to consolidated
financial statements
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
BlueFire Renewables, Inc. (“BlueFire”
or the “Company”) was incorporated in the State of Nevada on March 28, 2006. BlueFire was established to deploy the
commercially ready and patented process for the conversion of cellulosic waste materials to ethanol (“Arkenol Technology”)
under a technology license agreement with Arkenol, Inc. (“Arkenol”). BlueFire’s use of the Arkenol Technology
positions it as a cellulose-to-ethanol company with demonstrated production of ethanol from urban trash (post-sorted “MSW”),
rice and wheat straws, wood waste and other agricultural residues. The Company’s goal is to develop and operate high-value
carbohydrate-based transportation fuel production facilities in North America, and to provide professional services to such facilities
worldwide. These “biorefineries” will convert widely available, inexpensive, organic materials such as agricultural
residues, high-content biomass crops, wood residues, and cellulose from MSW into ethanol.
On July 15, 2010, the board of directors
of BlueFire, by unanimous written consent, approved the filing of a Certificate of Amendment to the Company’s Articles of
Incorporation with the Secretary of State of Nevada, changing the Company’s name from BlueFire Ethanol Fuels, Inc. to BlueFire
Renewables, Inc. On July 20, 2010, the Certificate of Amendment was accepted by the Secretary of State of Nevada.
On November 25, 2013, the Company filed
an amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada, to increase
the Company’s authorized common stock from one hundred million (100,000,000) shares of common stock, par value $0.001 per
share, to five hundred million (500,000,000) shares of common stock, par value $0.001 per share.
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Management’s Plans
Going Concern
The Company has historically incurred
recurring losses. Management has funded operations primarily through loans from its majority shareholder, the private placement
of the Company’s common stock in December 2007 for net proceeds of approximately $14,500,000, the issuance of convertible
notes with warrants in July and in August 2007, various convertible notes, and Department of Energy reimbursements from 2009 to
2014. The Company may encounter further difficulties in establishing operations due to the time frame of developing, constructing
and ultimately operating the planned bio-refinery projects.
As of September 30, 2014, the Company
has negative working capital of approximately $1,533,000. Management has estimated that operating expenses for the next 12 months
will be approximately $1,700,000, excluding engineering costs related to the development of bio-refinery projects. These matters
raise substantial doubt about the Company’s ability to continue as a going concern. Throughout the remainder of 2014, the
Company intends to fund its operations with remaining reimbursements under the Department of Energy contract as available, as
well as seek additional funding in the form of equity or debt. The Company’s ability to get reimbursed under the DOE contract
is dependent on the availability of cash to pay for the related costs and the availability of funds remaining under the contract
after the discontinuance of the Department of Energy contract further disclosed in Note 3. As of November 19, 2014, the Company
expects the current resources available to them will only be sufficient for a period of approximately one month unless significant
additional financing is received. Management has determined that the general expenditures must be reduced and additional capital
will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we may
consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms
acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the
scope of our planned development, which could harm our business, financial condition and operating results. The financial statements
do not include any adjustments that might result from these uncertainties.
Additionally, the Company’s Lancaster
plant is currently shovel ready, except for the air permit which the Company will need to renew and only requires minimal capital
to maintain until funding is obtained for the construction. This project shall continue once we receive the funding necessary
to construct the facility.
As of December 31, 2010, the Company
completed the detailed engineering on our proposed Fulton Project, procured all necessary permits for construction of the plant,
and began site clearing and preparation work, signaling the beginning of construction. As of September 30, 2014, all site preparation
activities have been completed, including clearing and grating of the site, building access roads, completing railroad tie-ins
to connect the site to the rail system, and finalizing the layout plan to prepare for the site foundation. As of December 31,
2013, the construction-in-progress was deemed impaired due to the discontinuance of future funding from the DOE further described
in Note 3.
We estimate the total construction
cost of the bio-refineries to be in the range of approximately $300 million for the Fulton Project and approximately $100 million
to $125 million for the Lancaster Biorefinery. These cost approximations do not reflect any increase/decrease in raw materials
or any fluctuation in construction cost that would be realized by the dynamic world metals markets or inflation of general costs
of construction. The Company is currently in discussions with potential sources of financing for these facilities but no definitive
agreements are in place. The Company cannot continue significant development or furtherance of the Fulton project until financing
for the construction of the Fulton plant is obtained.
Basis of Presentation
The accompanying unaudited consolidated
interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities
Exchange Commission. Certain information and disclosures normally included in the annual financial statements prepared in accordance
with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these
financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim consolidated
financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year
ended December 31, 2013. The results of operations for the three and nine months ended September 30, 2014 are not necessarily
indicative of the results that may be expected for the full year.
In July 2014, the Company elected to
early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references
to development stage.
Principles of Consolidation
The consolidated financial statements
include the accounts of BlueFire Renewables, Inc., and its wholly-owned subsidiaries, BlueFire Ethanol, Inc., and SucreSource
LLC. BlueFire Ethanol Lancaster, LLC, and BlueFire Fulton Renewable Energy LLC (excluding 1% interest sold) are wholly-owned subsidiaries
of BlueFire Ethanol, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual
results could materially differ from those estimates.
Project Development
Project development costs are either
expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities,
and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment
and depreciated over their estimated useful lives. To date, project development costs include the research and development expenses
related to the Company’s future cellulose-to-ethanol production facilities. During the three and nine months ended September
30, 2014 and 2013, research and development costs, net of stock-based compensation, included in Project Development expense were
approximately $187,000, $135,000, $602,000 and $382,000, respectively.
Convertible Debt
Convertible debt is accounted for under
the guidelines established by Accounting Standards Codification (“ASC”) 470-20 “Debt with Conversion and Other
Options”. ASC 470-20 governs the calculation of an embedded beneficial conversion, which is treated as an additional discount
to the instruments where derivative accounting (explained below) does not apply. The amount of the value of warrants and beneficial
conversion feature may reduce the carrying value of the instrument to zero, but no further. The discounts relating to the initial
recording of the derivatives or beneficial conversion features are accreted over the term of the debt.
The Company calculates the fair value
of warrants and conversion features issued with the convertible instruments using the Black-Scholes valuation method, using the
same assumptions used for valuing employee options for purposes of ASC 718 “Compensation – Stock Compensation”,
except that the contractual life of the warrant or conversion feature is used. Under these guidelines, the Company allocates the
value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments
(such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized
over the expected term of the convertible debt to interest expense.
The Company accounts for modifications
of its BCF’s in accordance with ASC 470-50 “Modifications and Extinguishments”. ASC 470-50 requires the modification
of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition
of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.
Equity Instruments Issued with Registration
Rights Agreement
The Company accounts for these penalties
as contingent liabilities, applying the accounting guidance of ASC 450 “Contingencies”. This accounting is consistent
with views established in ASC 825 “Financial Instruments”. Accordingly, the Company recognizes damages when it becomes
probable that they will be incurred and amounts are reasonably estimable.
In connection with the Company signing
the $2,000,000 Equity Facility with TCA on March 28, 2012, the Company agreed to file a registration statement related to the
transaction with the Securities and Exchange Commission (“SEC”) covering the shares that may be issued to TCA under
the Equity Facility within 45 days of closing. Although under the Registration Rights Agreement the registration statement was
to be declared effective within 90 days following closing, it was not declared effective. The Company was working with TCA to
resolve this issue and, on April 11, 2014, the Equity Facility was canceled and related convertible note repaid in full. No registration
rights penalties were incurred as part of the repayment.
Fair Value of Financial Instruments
The Company follows the accounting
guidance under ASC 820 “Fair Value Measurements and Disclosures.” Fair value is defined as the exit price, or the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the
use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when
available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based
on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three
levels of inputs that may be used to measure fair value:
|
● |
Level
1. Observable inputs such as quoted prices in active markets; |
|
● |
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
|
● |
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The Company did not have any level
1 financial instruments at September 30, 2014 or December 31, 2013.
As of September 30, 2014, and December
31, 2013 the Company’s warrant and derivative liabilities are considered level 2 items (see Notes 4 and 5).
As of September 30, 2014 and December
31, 2013 the Company’s redeemable non-controlling interest is considered a level 3 item and changed during nine months ended
September 30, 2014 as follows:
Balance
at December 31, 2013 |
|
$ |
856,044 |
|
Net
loss attributable to non-controlling interest |
|
|
3,473 |
|
Balance
at September 30, 2014 |
|
$ |
859,517 |
|
Risks and Uncertainties
The Company’s operations are
subject to new innovations in product design and function. Significant technical changes can have an adverse effect on product
lives. Design and development of new products are important elements to achieve and maintain profitability in the Company’s
industry segment. The Company may be subject to federal, state and local environmental laws and regulations. The Company does
not anticipate expenditures to comply with such laws and does not believe that regulations will have a material impact on the
Company’s financial position, results of operations, or liquidity. The Company believes that its operations comply, in all
material respects, with applicable federal, state, and local environmental laws and regulations.
Loss per Common Share
The Company presents basic loss per
share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed
as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. As of
September 30, 2014 and 2013, the Company had 15,128,571and 428,571 warrants, respectively, for which all of the exercise prices
were in excess of the average closing price of the Company’s common stock during the corresponding period and thus no shares
are considered dilutive under the treasury stock method of accounting and their effects would have been antidilutive due to the
loss in the periods presented.
Derivative Financial Instruments
We do not use derivative financial
instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of our financial instruments.
However, under the provisions ASC 815 – “Derivatives and Hedging” certain financial instruments that have characteristics
of a derivative, as defined by ASC 815, such as embedded conversion features on our Convertible Notes, that are potentially settled
in the Company’s own common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash
settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed
for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement.
Derivative financial instruments are initially recorded, and continuously carried, at fair value each reporting period.
The value of the embedded conversion
feature is determined using the Black-Scholes option pricing model. All future changes in the fair value of the embedded conversion
feature will be recognized currently in earnings until the note is converted or redeemed. Determining the fair value of derivative
financial instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate
risk, credit risk, volatility and other factors. The use of different assumptions could have a material effect on the estimated
fair value amounts.
Redeemable - Non-controlling Interest
Redeemable interest held by third parties
in subsidiaries owned or controlled by the Company is reported on the consolidated balance sheets outside permanent equity. All
non-controlling interest reported in the consolidated statements of operations reflects the respective interests in the income
or loss after income taxes of the subsidiaries attributable to the other parties, the effect of which is removed from the net
income or loss available to the Company. The Company accretes the redemption value of the redeemable non-controlling interest
over the redemption period.
New Accounting Pronouncements
In June 2014, the FASB issued ASU No.
2014-10, which eliminates the concept of a development stage entity, or DSE, in its entirety from GAAP. Under existing guidance,
DSEs are required to report incremental information, including inception-to-date financial information, in their financial statements.
A DSE is an entity devoting substantially all of its efforts to establishing a new business and for which either planned principal
operations have not yet commenced or have commenced but there has been no significant revenues generated from that business. Entities
classified as DSEs will no longer be subject to these incremental reporting requirements after adopting ASU No. 2014-10. ASU No.
2014-10 is effective for fiscal years beginning after December 15, 2014, with early adoption permitted. Retrospective application
is required for the elimination of incremental DSE disclosures. Prior to the issuance of ASU No. 2014-10, the Company had met
the definition of a DSE since its inception. The Company elected to adopt this ASU early, and therefore it has eliminated the
incremental disclosures previously required of DSEs, starting with its June 30, 2014 Quarterly Report on Form 10-Q.
Management does not believe that any
other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
financial statements.
NOTE 3 – DEVELOPMENT CONTRACTS
Department of Energy Awards 1 and
2
In February 2007, the Company was awarded
a grant for up to $40 million from the U.S. Department of Energy’s (“DOE”) cellulosic ethanol grant program
to develop a solid waste biorefinery project at a landfill in Southern California. During October 2007, the Company finalized
Award 1 for a total approved budget of just under $10,000,000 with the DOE. This award was a 60%/40% cost share, whereby 40% of
approved costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007.
In December 2009, as a result of the
American Recovery and Reinvestment Act, the DOE increased the Award 2 to a total of $81 million for Phase II of its Fulton Project.
This is in addition to a renegotiated Phase I funding for development of the biorefinery of approximately $7 million out of the
previously announced $10 million total. This brought the DOE’s total award to the Fulton project to approximately $88 million
In September 2012 Award 1 was officially closed.
Since 2009, our operations had been
financed to a large degree through funding provided by the DOE. We have relied on access to this funding as a source of liquidity
for capital requirements not satisfied by the cash flow from our operations. If we are unable to access government funding our
ability to finance our projects and/or operations and implement our strategy and business plan will be severely hampered.
On December 23, 2013, the Company received
notice from the DOE indicating that the DOE would no longer provide funding under Award 2 due to the Company’s inability
to comply with certain deadlines related to providing certain information to the DOE with respect to the Company’s future
financing arrangements for the Fulton Project. The Company is seeking to re-establish funding under Award 2 and has initiated
the appeals process with the DOE. The Company shall exhaust all options available to it in order to reverse the DOE’s decision.
Without a definitive response to the Company’s request for a reprieve by the DOE, the Company can no longer reimburse for
new project costs incurred after September 30, 2014, except for those related to closing out the award. As of November 19, 2014,
there is still approximately $88,300 available under the grant for costs incurred prior to September 30, 2014, but not yet paid
for, which is required for reimbursement and for costs to close out the award. We cannot guarantee that we will continue to receive
grants, loan guarantees, or other funding for our projects from the DOE.
As of September 30, 2014, the Company
has received reimbursements of approximately $13,079,839 under these awards.
NOTE 4 –NOTES PAYABLE
On March 28, 2012 the Company entered
into a $300,000 promissory note with a third party. See Note 9 for additional information.
As
further described below, the Company has entered into several convertible notes with Asher Enterprises, Inc. Under the terms of
these notes, the Company is to repay any principal balance and interest, at 8% per annum at a given maturity date which is generally
less than one year. The Company has the option to prepay the convertible promissory notes prior to maturity at varying prepayment
penalty rates specified under such notes. Each of the convertible promissory notes are convertible into shares of the Company’s
common stock after six months as calculated by multiplying 58% (42% discount to market) by the average of the lowest three closing
bid prices during the 10 days prior to the conversion date.
The Company determined that since the
conversion prices are variable and do not contain a floor, the conversion feature represents a derivative liability upon the ability
to convert the loan after the six month period specified above. Since the conversion feature is only convertible after six months,
there is no derivative liability upon issuance. However, the Company will account for the derivative liability upon the passage
of time and the note becoming convertible if not extinguished, as defined above.
On
June 13, 2013, the Company issued a convertible note in favor of Asher Enterprises, Inc. in the principal amount of $32,000 pursuant
to the terms above, with a maturity date of March 17, 2014. In accordance with the terms of the note, the note became convertible
on December 10, 2013.
The Company calculated the derivative
liability using the Black-Scholes pricing model for the note upon the initial date the note became convertible and recorded the
fair market value of the derivative liability of approximately $28,000, resulting in a discount to the note. The discount was
amortized over the term of the note and accelerated as the note was converted. As of September 30, 2014, the entire discount was
amortized to interest expense, with no remaining unamortized discount and the note was fully converted into 22,207,699 shares
of common stock.
On
December 19, 2013, the Company issued a convertible note in favor of Asher Enterprises, Inc. in the principal amount of $37,500
which was funded and effective in January 2014 with terms identified above and has a maturity date of December 23, 2014. The conversion
feature was not triggered until July 2014 due to the effective date of the note being in January 2014.
The Company calculated the derivative
liability using the Black-Scholes pricing model for the note upon the initial date the note became convertible and recorded the
fair market value of the derivative liability of approximately $35,290, resulting in a discount to the note. The discount was
amortized over the term of the note and accelerated as the note was converted. As of September 30, 2014, the entire discount was
amortized to interest expense, with no remaining unamortized discount and the note was fully converted into 24,537,990 shares
of common stock. See below for assumptions used in valuing the derivative liability.
Using the Black-Scholes pricing model,
with the range of inputs listed below, we calculated the fair market value of the conversion feature at inception (as applicable),
at each conversion event, and at quarter end. Based on valuation conducted during the three months and at September 30, 2014 of
derivative liabilities related to Asher Enterprises, Inc. notes, the Company recognized a loss on derivative liabilities of $18,686,
which is included in the accompanying statement of operations within gain (loss) from change in fair value of derivative liabilities.
During the three months ending September
30, 2014, the range of inputs used to calculate derivative liabilities noted above were as follows:
|
|
|
Three
months ending |
|
|
|
|
September 30, 2014 |
|
Annual
dividend yield |
|
|
0.00 |
|
Expected
life (years) |
|
|
0.17-
0.11 |
|
Risk-free
interest rate |
|
|
.03-.01 |
% |
Expected
volatility |
|
|
234.68 |
% |
Fees paid
to secure the convertible debts were accounted for as deferred financing costs and capitalized in the accompanying balance sheet
or considered an on-issuance discount to the notes. The deferred financing costs and discounts, as applicable, are amortized over
the term of the notes.
As of the nine months ended September
30, 2014, the Company amortized on-issuance discounts totaling $2,500 with $0 remaining, and costs of financing of $1,031 with
$0 remaining related to these notes.
Tarpon Bay Convertible Notes
Pursuant to a 3(a)10 transaction with
Tarpon Bay Partners LLC (“Tarpon”), on November 4, 2013, the Company issued to Tarpon a convertible promissory note
in the principal amount of $25,000 (the “Tarpon Initial Note”). Under the terms of the Tarpon Initial Note, the Company
shall pay Tarpon $25,000 on the date of maturity which was January 30, 2014. This note was convertible by Tarpon into the Company’s
Common Shares at a 50% discount to the lowest closing bid price for the Common Stock for the twenty (20) trading days ending on
the trading day immediately before the conversion date.
Also pursuant to the 3(a)10 transaction
with Tarpon, on December 23, 2013, the Company issued a convertible promissory note in the principal amount of $50,000 in favor
of Tarpon as a success fee (the “Tarpon Success Fee Note”). The Tarpon Success Fee Note was due on June 30, 2014.
The Tarpon Success Fee Note was convertible into shares of the Company’s common stock at a conversion price for each share
of Common Stock at a 50% discount from the lowest closing bid price in the twenty (20) trading days prior to the day that Tarpon
requests conversion.
Each of the above notes were issued
without funds being received. Accordingly, the notes were issued with a full on-issuance discount that was amortized over the
term of the notes. During the nine months ended September 30, 2014, amortization of approximately $51,960 was recognized to interest
expense related to the discounts on the notes.
As
of September 30, 2014, the Tarpon Initial Note and the Tarpon Success Fee Note were repaid in full.
Because the conversion price was variable
and did not contain a floor, the conversion feature represents a derivative liability upon issuance. Accordingly, the Company
calculated the derivative liability using the Black-Sholes pricing mode for the notes upon inception, resulting in a day one loss
of approximately $96,000. The derivative liability was marked to market each quarter and as of September 30, 2014 which resulted
in a loss of approximately $46,000. The Company used the following range of assumptions for the three months ended September 30,
2014 and December 31, 2013:
|
|
September
30, 2014 |
|
|
December
31, 2013 |
|
Annual
dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected
life (years) |
|
|
0.00
- 0.01 |
|
|
|
0.8 |
|
Risk-free
interest rate |
|
|
0.01%
- 0.02 |
% |
|
|
0.02 |
% |
Expected
volatility |
|
|
229%
- 242 |
% |
|
|
159 |
% |
During the
nine months ended September 30, 2014, the Company paid $25,000 in cash and issued 45,647,727 shares of common stock on the Tarpon
Initial Note and Tarpon Success Fee Note to satisfy all obligations under these notes.
AKR Promissory
Note
On
April 8, 2014, the Company issued a promissory note in favor of AKR Inc, (“AKR”) in the principal aggregate amount
of $350,000 (the “AKR Note”). The AKR Note is due on April 8, 2015, and requires the Company to (i) incur interest
at five percent (5%) per annum; (ii) issue on April 8, 2014 to AKR warrants allowing them to buy 7,350,000 common shares of the
Company at an exercise price of $0.007 per common share, such warrants to expire on April 8, 2016 (“AKR Warrant A”);
(iii) issue on August 8, 2014 to AKR warrants allowing them to buy 7,350,000 common shares of the Company at an exercise price
of $0.007 per common share, such warrants to expire on April 8, 2016 (“AKR Warrant B”); and (iv) issue on November
8, 2014 to AKR warrants allowing them to buy 8,400,000 common shares of the Company at an exercise price of $0.007 per common
share, such warrants to expire on April 8, 2016 (“AKR Warrant C”, together with AKR Warrant A and AKR Warrant B the
“AKR Warrants”). The Company may prepay the debt, prior to maturity with no prepayment penalty.
The
Company valued the AKR Warrants as of the date of the note and recorded a discount of $42,380 based the relative fair value of
the AKR Warrants compared to the debt. During the nine months ended September 30, 2014 the Company amortized $20,363 of the discount
to interest expense. As of September 30, 2014 unamortized discount of $22,017 remains. The Company assessed the fair value of
the AKR Warrants based on the Black-Scholes pricing model. See below for variables used in assessing the fair value.
|
|
April
8, 2014 |
|
Annual
dividend yield |
|
|
- |
|
Expected
life (years) of |
|
|
1.41
- 2.00 |
|
Risk-free
interest rate |
|
|
0.40 |
% |
Expected
volatility |
|
|
183%
- 206 |
% |
On
April 24, 2014, the Company issued a promissory note in favor of AKR in the principal aggregate amount of $30,000 (“2nd
AKR Note”). The 2nd AKR Note was due on July 24, 2014, but was subsequently extended to December 31, 2014. Pursuant
to the terms of the 2nd AKR Note, the Company is to repay any principal balance and interest, at 5% per annum at maturity.
Company may prepay the debt, prior to maturity with no prepayment penalty.
NOTE 5 - OUTSTANDING WARRANT LIABILITY
The Company issued 428,571 warrants
to purchase common stock in connection with the Stock Purchase Agreement entered into on January 19, 2011 with Lincoln Park Capital,
LLC (See Note 9). These warrants are accounted for as a liability under ASC 815. The Company assesses the fair value of the warrants
quarterly based on the Black-Scholes pricing model. See below for variables used in assessing the fair value.
|
|
September 30,
2014 |
|
|
December 31,
2013 |
|
Annual
dividend yield |
|
|
- |
|
|
|
- |
|
Expected
life (years) |
|
|
1.30 |
|
|
|
2.05 |
|
Risk-free
interest rate |
|
|
0.13 |
% |
|
|
0.38 |
% |
Expected
volatility |
|
|
236 |
% |
|
|
150 |
% |
In connection with these warrants,
the Company recognized a gain/(loss) on the change in fair value of warrant liability of approximately $55, $400, $(180), and
$22,200 during the three and nine-months ended September 30, 2014 and 2013, respectively.
Expected volatility is based primarily
on historical volatility. Historical volatility was computed using weekly pricing observations for recent periods that correspond
to the expected life of the warrants. The Company believes this method produces an estimate that is representative of our expectations
of future volatility over the expected term of these warrants. The Company currently has no reason to believe future volatility
over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life
is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Fulton Project Lease
On July 20, 2010, the Company entered
into a thirty year lease agreement with Itawamba County, Mississippi for the purpose of the development, construction, and operation
of the Fulton Project. At the end of the primary 30 year lease term, the Company shall have the right for two additional thirty
year terms. The current lease rate is computed based on a per acre rate per month that is approximately $10,300 per month. The
lease stipulates the lease rate is to be reduced at the time of the construction start by a Property Cost Reduction Formula which
can substantially reduce the monthly lease costs. The lease rate shall be adjusted every five years to the Consumer Price Index.
Rent expense under non-cancellable
leases was approximately $30,900, $30,900, $92,600 and $92,600, during the three
and nine-months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014 and December
31, 2013, $0, and $233,267 of the monthly lease payments were included in accounts payable on the accompanying balance sheets
During the nine months ended September 30, 2014, the County of Itawamba gave the Company credit for past site preparation reimbursements
provided to the County through DOE reimbursements totaling approximately $96,000 which was recorded as a gain in the accompanying
statement of operations. The remaining past due balances from December 31, 2013 were paid in full.
Legal Proceedings
On February 26, 2013, the Company received
notice that the Orange County Superior Court (the “Court”) issued a Minute Order (the “Order”) in connection
with certain shareholders’ claims of breach of contract and declaratory relief related to 5,740,741 warrants (the “Warrants”)
issued by the Company.
Pursuant to the Order, the Court ruled
in favor of the shareholders on the two claims, finding that the Warrants contain certain anti-dilution protective provisions
which provide for the re-adjustment of the exercise price of such Warrants upon certain events and that such exercise price per
share of the Warrants must be decreased to $0.00.
The Company has considered these warrants
exercised based on the notice of exercise received from the respective shareholders in December 2012.
On March 7, 2013, the shareholders
making claims provided their request for judgment based on the Order received, which has been initially refused by the Court via
a second minute order received by the Company on April 8, 2013. On April 15, 2013, the Company’s counsel submitted a proposed
judgment to the Court as per the Courts request, which followed the Order and provided for no monetary damages against the Company.
On May 14, 2013, this proposed judgment was approved by the Court (“Judgment”).
On June 20, 2013, the Company filed
motions to vacate the Judgment, a motion for a new trial, and a motion to stay enforcement of the Judgment, all of which were
denied on June 27, 2013.
On August 2, 2013, pursuant to the
exercise notice of the Warrants, and the Order, the Company issued 5,740,741 shares to certain shareholders. See Note 9 for additional
information.
Other than the above, we are currently
not involved in litigation that we believe will have a materially adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened
against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’
officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse effect.
NOTE 7 - RELATED PARTY TRANSACTIONS
On November 10, 2011, the Company obtained
a line of credit in the amount of $40,000 from its CEO to provide additional liquidity to the Company as needed, at his sole discretion.
Under the terms of the note, the Company is to repay any principal balance and interest, at 12% per annum, within 30 days of receiving
qualified investment financing of $100,000 or more. During the nine months ended September 30, 2014, the CEO advanced the Company
an additional net $34,000 under the line of credit, bringing the balance to $45,230, which is in excess of the line of credit
limit, however, during the nine-months ended September 30, 2014, the Company and the CEO amended this line of credit so that the
maximum amount that could be borrowed is $55,000.
NOTE 8 - REDEEMABLE NON-CONTROLLING
INTEREST
On December 23, 2010, the Company sold
a one percent (1%) membership interest in its operating subsidiary, BlueFire Fulton Renewable Energy, LLC (“BlueFire Fulton”
or the “Fulton Project”), to an accredited investor for a purchase price of $750,000 (“Purchase Price”).
The Company maintains a 99% ownership interest in the Fulton Project. In addition, the investor received a right to require the
Company to redeem the 1% interest for $862,500, or any pro-rata amount thereon. The redemption is based upon future contingent
events based upon obtaining financing for the construction of the Fulton Project. The third party equity interests in the consolidated
joint ventures are reflected as redeemable non-controlling interests in the Company’s consolidated financial statements
outside of equity. The Company accreted the redeemable non-controlling interest for the total redemption price of $862,500 through
the estimated forecasted financial close, originally estimated to be the end of the third quarter of 2011.
Net income (loss) attributable to the
redeemable non-controlling interest for the three and nine-months ended September 30, 2014 and 2013 was $1,100, $(376), $3,473,
$(3,118), respectively.
NOTE 9 - STOCKHOLDERS’ DEFICIT
Stock-Based Compensation
During the three and nine months ended
September 30, 2014 and 2013, the Company recognized stock-based compensation, including consultants, of approximately $0, $0,
$46,711, and $48,200, to general and administrative expenses and $0, $0, $0, and $0 to project development expenses, respectively.
There is no additional future compensation expense to record as of September 30, 2014 based on the previous awards.
Stock Purchase Agreement
On January 19, 2011, the Company signed
a $10 million purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”),
an Illinois limited liability company. The Company also entered into a registration rights agreement with LPC whereby we agreed
to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”)
covering the shares that may be issued to LPC under the Purchase Agreement within ten days of the agreement. Although under the
Purchase Agreement the registration statement was to be declared effective by March 31, 2011, LPC did not terminate the Purchase
Agreement. The registration statement was declared effective on May 10, 2011, without any penalty. The Purchase Agreement was
terminated in July 18, 2013. During the nine months ended September 30, 2014 and 2013 the Company drew $0 on the Purchase Agreement.
Upon signing the Purchase Agreement,
BlueFire received $150,000 from LPC as an initial purchase under the $10 million commitment in exchange for 428,571 shares of
our common stock and warrants to purchase 428,571 shares of our common stock at an exercise price of $0.55 per share. The warrants
contain a ratchet provision in which the exercise price will be adjusted based on future issuances of common stock, excluding
certain issuances; if issuances are at prices lower than the current exercise price (see Note 6). The warrants have an expiration
date of January 2016.
Equity Facility Agreement
On March 28, 2012, BlueFire finalized
a committed equity facility (the “Equity Facility”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited
partnership (“TCA”), whereby the parties entered into (i) a committed equity facility agreement (the “Equity
Agreement”) and (ii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the
terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the Registration
Statement (as defined below), TCA committed to purchase up to $2,000,000 of BlueFire’s common stock, par value $0.001 per
share (the “Shares”), pursuant to Advances (as defined below), covering the Registrable Securities (as defined below).
The purchase price of the Shares under the Equity Agreement was equal to ninety-five percent (95%) of the lowest daily volume
weighted average price of BlueFire’s common stock during the five (5) consecutive trading days after BlueFire delivers to
TCA an Advance notice in writing requiring TCA to advance funds (an “Advance”) to BlueFire, subject to the terms of
the Equity Agreement. The “Registrable Securities” include (i) the Shares; and (ii) any securities issued or issuable
with respect to the Shares by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As further consideration for TCA entering into and structuring the
Equity Facility, BlueFire paid to TCA a fee by issuing to TCA shares of BlueFire’s common stock that equal a dollar amount
of $110,000 (the “Facility Fee Shares”). It was the intention of BlueFire and TCA that the value of the Facility Fee
Shares shall equal $110,000. In the event the value of the Facility Fee Shares issued to TCA did not equal $110,000 after a nine
month evaluation date, the Equity Agreement provided for an adjustment provision allowing for necessary action (either the issuance
of additional shares to TCA or the return of shares previously issued to TCA to BlueFire’s treasury) to adjust the number
of Facility Fee Shares issued. BlueFire also entered into the Registration Rights Agreement with TCA. Pursuant to the terms of
the Registration Rights Agreement, BlueFire was obligated to file a registration statement (the “Registration Statement”)
with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities within 45 days of
closing. BlueFire must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by
the SEC by a date that is no later than 90 days following closing.
On March 28, 2012, BlueFire entered
into a security agreement (the “Security Agreement”) with TCA, related to a $300,000 convertible promissory note issued
by BlueFire in favor of TCA (the “Convertible Note”). The Security Agreement granted to TCA a continuing, first priority
security interest in all of BlueFire’s assets, wheresoever located and whether now existing or hereafter arising or acquired.
On March 28, 2012, BlueFire issued the Convertible Note in favor of TCA. The maturity date of the Convertible Note was March 28,
2013, and the Convertible Note bore interest at a rate of twelve percent (12%) per annum with a default rate of eighteen percent
(18%) per annum. The Convertible Note was convertible into shares of BlueFire’s common stock at a price equal to ninety-five
percent (95%) of the lowest daily volume weighted average price of BlueFire’s common stock during the five (5) trading days
immediately prior to the date of conversion. The Convertible Note had the option to be prepaid in whole or in part at BlueFire’s
option without penalty. The proceeds received by the Company under the purchase agreement were used for general working capital
purposes which include costs reimbursed under the DOE cost share program.
In connection with the Convertible
Note, approximately $93,000 was withheld and immediately disbursed to cover costs of the Convertible Note and Equity Facility
described above. The costs related to the Convertible Note were $24,800 which were capitalized as deferred financing costs; were
amortized on a straight-line basis over the term of the Convertible Note. In addition, $7,500 was dispersed to cover legal fees.
After all costs, the Company received approximately $207,000 in cash from the Convertible Note. Amortization of the deferred financing
costs during the nine months ended September 30, 2014 and 2013 was approximately $0 and $38,600, respectively. As of September
30, 2014, there were no remaining deferred financing costs.
This note contained an embedded conversion
feature whereby the holder could convert the note at a discount to the fair value of the Company’s common stock price. Based
on applicable guidance the embedded conversion feature was considered a derivative instrument and bifurcated. This liability was
recorded on the face of the financial statements as “derivative liability”, and was revalued each reporting period.
During the nine months ended September 30, 2014, the note was repaid in full along with accrued interest and fees thereon. Accordingly,
the remaining derivative liability of $13,189 was transferred to equity.
On April 11, 2014, the Convertible
Note with TCA was repaid in full.
Liability Purchase Agreement
On December 9, 2013, The Circuit Court of
the Second Judicial Circuit in and for Leon County, Florida (the “Court”), entered an order (the “Order”)
approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities
Act of 1933, in accordance with a stipulation of settlement (the “Settlement Agreement”) between the Company, and
Tarpon Bay Partners, LLC, a Florida limited liability company (“Tarpon”), in the matter entitled Tarpon Bay Partners,
LLC v. BlueFire Renewables, Inc., Case No. 2013-CA-2975 (the “Action”). Tarpon commenced the Action against the Company
on November 21, 2013 to recover an aggregate of $583,710 of past-due accounts payable of the Company, which Tarpon had purchased
from certain creditors of the Company pursuant to the terms of separate receivable purchase agreements between Tarpon and each
of such vendors (the “Assigned Accounts”), plus fees and costs (the “Claim”). The Assigned Accounts relate
to certain legal, accounting, financial services, and the repayment of aged debt. The Order provides for the full and final settlement
of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and Tarpon upon execution
of the Order by the Court on December 9, 2013. Notwithstanding anything to the contrary in the Stipulation, the number of shares
beneficially owned by Tarpon will not exceed 9.99% of the Company’s Common Stock. In connection with the Settlement Agreement,
the Company relied on the exemption from registration provided by Section 3(a)(10) under the Securities Act.
Pursuant to the terms of the Settlement Agreement
approved by the Order, the Company shall issue and deliver to Tarpon shares (the “Settlement Shares”) of the Company’s
Common Stock in one or more tranches as necessary, and subject to adjustment and ownership limitations, sufficient to generate
proceeds such that the aggregate Remittance Amount (as defined in the Settlement Agreement) equals the Claim. In addition, pursuant
to the terms of the Settlement Agreement, the Company issued to Tarpon the Tarpon Initial Note in the principal amount of $25,000.
Under the terms of the Tarpon Initial Note, the Company shall pay Tarpon $25,000 on the date of maturity which was January 30,
2014. This Note was convertible by Tarpon into the Company’s Common Shares (See Note 4).
Pursuant to the fairness hearing, the Order,
and the Company’s agreement with Tarpon, on December 23, 2013, the Company issued the Tarpon Success Fee Note in the principal
amount of $50,000 in favor of Tarpon as a commitment fee. The Tarpon Success Fee Note was due on June 30, 2014. The Tarpon Success
Fee Note was convertible into shares of the Company’s common stock (See Note 4).
In connection with the settlement, on December
18, 2013 the Company issued 6,619,835 shares of Common Stock to Tarpon in which gross proceeds of $29,802 were generated from
the sale of the Common Stock. In connection with the transaction, Tarpon received fees of $7,450 and providing payments of $22,352
to settle outstanding vendor payables. During the nine months ended September 30, 2014, the Company issued Tarpon 61,010,000 shares
of Common Stock from which gross proceeds of $163,406 were generated from the sale of the Common Stock. In connection with the
transaction, Tarpon received fees of $42,402 and providing payments of $121,004 to settle outstanding vendor payables. Any shares
not used by Tarpon are subject to return to the Company. Accordingly, the Company accounts for these shares as issued but not
outstanding until the shares have been sold by Tarpon and the proceeds are known. Net proceeds received by Tarpon are included
as a reduction to accounts payable or other liability as applicable, as such funds are legally required to be provided to the
party Tarpon purchased the debt from.
Warrants Exercised
Some of our warrants contain a provision in
which the exercise price is to be adjusted for future issuances of common stock at prices lower than their current exercise price.
In 2012, certain shareholders’ owning
an aggregate of 5,740,741 warrants made claims of the Company that the exercise price of their warrants should have been adjusted
due to a certain issuance of common shares by the Company (see Note 6). The Company believed that said issuance would not trigger
adjustment based on the terms of the respective agreements.
On December 4, 2012, these shareholders presented
exercise forms to the Company to exercise all 5,740,741 warrants for a like amount of common shares. The warrants were exercised
at $0.00, which is the amount the shareholders’ believed the new exercise price should be based the ratchet provision and
their claims.
On February 26, 2013, the Company received
notice that the Court issued an Order in connection with these certain shareholders’ claims of breach of contract and declaratory
relief related to 5,740,741 warrants issued by the Company.
Pursuant to the Order, the Court ruled in
favor of the shareholders on the two claims, finding that the Warrants contain certain anti-dilution protective provisions which
provide for the re-adjustment of the exercise price of such Warrants upon certain events and that such exercise price per share
of the Warrants must be decreased to $0.00.
The Company has considered these warrants
exercised based on the notice of exercise received from the respective shareholders in December 2012. The Company determined,
that based on the Order by the Court a ratchet event had taken place based on the Order and claims made. The Company used December
4, 2012 as the date in which the new terms were considered to be in force based on the Shareholders’ notice to exercise
on that date and the Courts subsequent Order that allowed the Shareholders to do so. On August 2, 2013, the Company issued these
5,740,741 shares.
Note
10 - Subsequent Events
Subsequent
to September 30, 2014, the Company issued to AKR, AKR Warrant C to purchase up to 8,400,000 shares of the Company’s common
stock, in connection with the AKR Note transaction on April 8, 2014 (See Note 4).
Subsequent to September 30, 2014, the
Company signed a new master engineering, procurement and construction contract with the China International Water & Electric
Company, a subsidiary of China Three Gorges Corporation.
Subsequent
to September 30, 2014, the Company received a letter of intent from The Export Import Bank of China to provide up to $270 Million
USD in debt for the Fulton project subject to meeting certain credit criteria and completion of further due diligence.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q
and other reports filed by the Company from time to time with the SEC contain or may contain forward-looking statements and information
that are (collectively, the “Filings”) based upon beliefs of, and information currently available to, the Company’s
management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance
on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings,
the words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company
or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company
with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained
in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2013, filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations,
and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected,
intended, or planned.
Although the Company believes that
the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States,
the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon
which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions
are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date
of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates and actual results. In many
cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s
judgment in its application. There are also areas in which management’s judgment in selecting any available alternative
would not produce a materially different result. The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this report.
PLAN OF OPERATION
Our primary business encompasses development
activities culminating in the design, construction, ownership and long-term operation of cellulosic ethanol production biorefineries
utilizing the licensed Arkenol Technology in North America. Our secondary business is providing support and operational services
to Arkenol Technology based biorefineries worldwide. As such, we are currently in the development-stage of finding suitable locations
and deploying project opportunities for converting cellulose fractions of municipal solid waste and other opportunistic feedstock
into ethanol fuels.
Our initial planned biorefineries in
North America are projected as follows:
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A
bio-refinery, costing approximately $100 million to $125 million, that will process approximately 190 tons of green waste
material annually to produce roughly 3.9 million gallons of ethanol annually. On November 9, 2007, we purchased the facility
site which is located in Lancaster, California for the BlueFire Ethanol Lancaster project (“Lancaster Bio-refinery”).
Permit applications were filed on June 24, 2007, to allow for construction of the Lancaster Bio-refinery. On February 12,
2009, we were issued our “Authority to Construct” permit by the Antelope Valley Air Quality Management District.
In 2009 the Company submitted an application for a $58 million dollar loan guarantee for the Lancaster Bio-refinery with the
DOE Program DE-FOA-0000140 (“DOE LGPO”), which provided federal loan guarantees for projects that employed innovative
energy efficiency, renewable energy, and advanced transmission and distribution technologies. In 2010, the Company was informed
that the loan guarantee for the planned bio-refinery in Lancaster, California, was rejected by the DOE due to a lack of definitive
contracts for feedstock and off-take at the time of submittal of the loan guarantee for the Lancaster Bio-refinery, as well
as the fact that the Company was also pursuing a much larger project in Fulton, Mississippi. The Lancaster plant is currently
shovel ready, except for the air permit which the Company will need to renew once financing is obtained, and only requires
minimal capital to maintain until funding is obtained for the construction. Although the Company originally intended to use
this proposed facility for their first cellulosic ethanol refinery plant, the Company is now considering using it as a bio-refinery
to produce products other than cellulosic ethanol, such as higher value chemicals that would yield fuel additives that could
improve the project economics for a smaller facility. Although the Company is actively seeking financing for this project
no definitive agreements are in place. |
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A
bio-refinery proposed for development and construction previously in conjunction with the DOE, previously located in Southern
California, and now located in Fulton, Mississippi, which will process approximately 700 metric dry tons of woody biomass,
mill residue, and other cellulosic waste to produce approximately 19 million gallons of ethanol annually (“Fulton Project”).
We estimate the total construction cost of the Fulton Project to be in the range of approximately $300 million. In 2007, we
received an Award from the DOE of up to $40 million for the Fulton Project. This award is a 60%/40% cost share, whereby 40%
of approved costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007. In 2008,
the Company began to draw down on the Award 1 monies that were finalized with the DOE. As our Fulton Project developed further,
the Company was able to begin drawing down on Award 2, the second phase of DOE monies. On December 4, 2009, the DOE announced
that the total award for this project was increased to a maximum of $88 million under the American Recovery and Reinvestment
Act of 2009 (“ARRA”) and the Energy Policy Act of 2005. As of September 12, 2012 Award 1 was officially closed.
On December 23, 2013, the Company received notice from the DOE indicating that the DOE would no longer provide funding under
the DOE Grant for the development of the Fulton Project due to the Company’s inability to comply with certain deadlines
related to providing certain information to the DOE with respect to the Company’s future financing arrangements for
the Fulton Project. The Company is seeking to re-establish funding under Award 2 and has initiated the appeals process with
the DOE. The Company shall exhaust all options available to it in order to reverse the DOE’s decision. Until the Company
is notified of the outcome of its appeal or its requests for a reprieve, the company can no longer reimburse for new charges
incurred after September 30, 2014. The Company cannot make any assurances that the DOE’s decision will be reversed .
In 2010, BlueFire signed definitive agreements for the following three crucial contracts related to the Fulton Project: (a)
feedstock supply with Cooper Marine, (b) off-take for the ethanol of the facility with Tenaska, and (c) the construction of
the facility with MasTec. Also in 2010, BlueFire continued to develop the engineering package for the Fulton Project, and
completed both the FEL-2 and FEL-3 stages of engineering readying the facility for construction. As of November 2010, the
Fulton Project has all necessary permits for construction, and in that same month we began site clearing and preparation work,
signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the site is now ready
for facility construction. In February 2010, we announced that we submitted an application for a $250 million dollar loan
guarantee for the Fulton Project, under the DOE LGPO, mentioned above. In February 2011, BlueFire received notice from the
DOE LGPO staff that the Fulton Project’s application will not move forward until such time as the project has raised
the remaining equity necessary for the completion of funding and the company abandoned the DOE LGPO loan guarantee. In August
2010, BlueFire submitted an application for a $250 million loan guarantee with the USDA. In October 2011, BlueFire was notified
by its lender (“Lender”) for the Company’s USDA loan guarantee application that the USDA sent the Lender
notice that they were currently ineligible to participate in the USDA Bio-refinery Assistance Program. No significant progress
was made with the USDA or the Lender and thus the Company abandoned the pursuit of the USDA Loan Guarantee program, however
the Company may reapply at a later date. Recently, the Company signed a new Master Engineering, Procurement, and Construction
contract with the China International Water & Electric Company, a subsidiary of China Three Gorges Corporation (the “EPC”).
In tandem with the new EPC contractor, the also recently received a letter of intent from the Export Import Bank of China
to provide up to $270 Million USD in debt for the Fulton project subject to meeting the credit criteria of the bank and completing
the due diligence process. In Mid 2013, the Company began developing a new integration concept in regards to the Fulton project
where a wood pellet facility would be integrated into the ethanol facility to provide a stronger financing package. A preliminary
design package and due diligence has been completed. The Company continues to explore this option and will utilize whichever
plant design is the most beneficial for financing. |
Several other opportunities are being
evaluated by us in North America, although no definitive agreements have been reached.
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In
November 2011, BlueFire created SucreSource LLC, a wholly owned subsidiary specifically tasked to partner with synergistic
back end companies that need cellulosic sugars as a feedstock for their fermentation or chemical processes. SucreSource will
utilize the Arkenol process to provide the front end technology to partner with these companies. |
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In
February of 2012, SurceSource announced it had retained its first client, GS Caltex, a South Korean petroleum company. In
the same month, it received the first payment under the Professional Services Agreement (the “PSA”) for work on
a facility in South Korea. As of September 30, 2014, SucreSource has completed and fulfilled all initial work and obligations
under the fixed portion of the PSA. In 2014, the company expanded its scope of work with GS Caltex and has begun billing for
additional work product and additional services. Once completed with the expanded services, the Company may provide additional
engineering services which will be billed on an hourly basis when services are performed. |
BlueFire’s capital requirement strategy for its planned
bio-refineries are as follows:
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Pursue
additional operating capital from joint venture partnerships, Federal or State grants or loan guarantees, debt financing or
equity financing to fund our ongoing operations and the development of initial bio-refineries in North America. Although the
Company is in discussions with potential financial and strategic sources of financing for their planned bio-refineries, no
definitive agreements are in place. |
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The
2008 Farm Bill, Title IX (Energy Title) and subsequent funding Bills provides grants for demonstration scale Bio-refineries,
and loan guarantees for commercial scale Bio-refineries that produce advanced Biofuels (i.e., any fuel that is not corn-based).
Section 9003 includes a Loan Guarantee Program under which the USDA could provide loan guarantees up to $250 million to fund
development, construction, and retrofitting of commercial-scale refineries. Section 9003 also includes a grant program to
assist in paying the costs of the development and construction of demonstration-scale bio-refineries to demonstrate the commercial
viability which can potentially fund up to 50% of project costs. BlueFire plans to pursue all available opportunities within
the Farm Bill and the subsequent funding Bills, although initial attempts have been unsuccessful. |
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Utilize
remaining proceeds from reimbursements under the DOE contract. |
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The
Company shall apply for public funding to leverage private capital raised by us, as applicable. |
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Seek additional
clients to perform engineering services for on a contract basis. |
DEVELOPMENTS IN BLUEFIRE’S
BIOREFINERY ENGINEERING AND DEVELOPMENT
BlueFire has completed the engineering
package for the Fulton Project, including Front-End Loading (FEL) stages 2 and FEL-3 of engineering for the Fulton Project readying
the facility for construction. FEL is the process for conceptual development of processing industry projects. This process is
used in the petrochemical, refining, and pharmaceutical industries. Front-End Loading is also referred to as Front-End Engineering
Design (FEED).
There are three stages in the FEL process:
FEL-1 |
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Material Balance |
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Preliminary Equipment Design |
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Purchase Ready Major Equipment Specifications |
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Energy Balance |
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Preliminary Layout |
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Definitive Estimate |
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Project Charter |
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Preliminary Schedule |
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Project Execution Plan |
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Preliminary Estimate |
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Preliminary 3D Model |
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Electrical Equipment List |
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Line List |
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Instrument Index |
As
of November 2010, the Fulton Project had all necessary permits for construction, and in that same month we began site clearing
and preparation work, signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the
site is now ready for facility construction. In February 2010, we announced that we submitted an application for a $250 million
dollar loan guarantee for the Fulton Project, under the DOE LGPO, In February 2011, BlueFire received notice from the DOE LGPO
staff that the Fulton Project’s application would not move forward until such time as the project has raised the remaining
equity necessary for the completion of funding and the company abandoned the DOE LGPO loan guarantee. In August 2010, BlueFire
submitted an application for a $250 million loan guarantee with the U.S. Department of Agriculture (“USDA”) under
Section 9003 of the 2008 Farm Bill, In October 2011, BlueFire was notified by its lender (“Lender”) for the Company’s
USDA loan guarantee application that the USDA sent the Lender notice that they are currently ineligible to participate in the
USDA Bio-refinery Assistance Program. The Company attempted to resolve the issue with the Lender and USDA but as of December 31,
2013, no significant progress has been made with the USDA or the Lender and the Company has abandoned the pursuit of the USDA
Loan Guarantee program. Additionally, as described above, the Company signed a new Master Engineering, Procurement, and Construction
contract with China International Water & Electric Company, a subsidiary of China Three Gorges Corporation, as well as received
a letter of intent from the Export Import Bank of China to provide up to $270 Million USD in debt for the Fulton project subject
to certain credit criteria of the bank and completion of due diligence.
In Mid 2013, the Company began developing
a new integration concept in regards to the Fulton project where a wood pellet facility would be integrated into the ethanol facility
to provide a stronger financing package. A preliminary design package and due diligence has been completed. The Company continues
to explore this option and will utilize whichever plant design is the most beneficial for financing.
On September 27, 2010, the Company
announced a contract with Cooper Marine & Timberlands to provide feedstock for the Company’s planned Fulton Project
for a period of up to 15 years. Under the agreement, Cooper Marine & Timberlands (“CMT”) will supply the project
with all of the feedstock required to produce approximately 19-million gallons of ethanol per year from locally sourced cellulosic
materials such as wood chips, forest residual chips, pre-commercial thinnings and urban wood waste such as construction waste,
storm debris, land clearing; or manufactured wood waste from furniture manufacturing. Under the Agreement, CMT will pursue a least-cost
strategy for feedstock supply made possible by the project site’s proximity to feedstock sources and the flexibility of
BlueFire’s process to use a wide spectrum of cellulosic waste materials in pure or mixed forms. CMT, with several chip mills
in operation in Mississippi and Alabama, is a member company of Cooper/T. Smith one of America’s oldest and largest stevedoring
and maritime related firms with operations on all three U.S. coasts and foreign operations in Central and South America.
On September 20, 2010, the Company
announced an off-take agreement with Tenaska BioFuels, LLC (“TBF”) for the purchase and sale of all ethanol produced
at the Company’s planned Fulton Project. Pricing of the 15-year contract follows a market-based formula structured to capture
the premium allowed for cellulosic ethanol compared to corn-based ethanol giving the Company a credit worthy contract to support
financing of the project. Despite the long-term nature of the contract, the Company is not precluded from the upside in the coming
years as fuel prices rise. TBF, a marketing affiliate of Tenaska, provides procurement and marketing, supply chain management,
physical delivery, and financial services to customers in the agriculture and energy markets, including the ethanol and biodiesel
industries. In business since 1987, Tenaska is one of the largest independent power producers.
RESULTS OF OPERATIONS
For the Three Months Ended September
30, 2014 Compared to the Three Months Ended September 30, 2013
Revenue
Revenues for the three months ended
September 30, 2014 and 2013, were approximately $364,000 and $221,000, respectively. Revenue in both 2014 and 2013 were primarily
related to federal grant revenue from the DOE. The federal grant generally provides for reimbursement in connection with related
development and construction costs involving commercialization of our technologies. The increase in revenue was due primarily
to the Company’s ability to be reimbursed by the DOE for costs incurred in prior periods and from contract revenue from
GS Caltex.
Project Development
For the three months ended September
30, 2014, our project development costs were approximately $187,000 compared to project development costs of $135,000 for the
same period during 2013. The increase in project development costs is mainly due to increased operating activities related to
the Fulton project, the negotiation of contracts, and additional work with the DOE due to the availability of capital resources
available to us in the third quarter of 2014 versus the same period in 2013.
General and Administrative Expenses
General and administrative expenses
were approximately $264,100 for the three months ended September 30, 2014, compared to $152,600 for the same period in 2013. The
increase in general and administrative costs is mainly due to increased legal costs for contract negotiation and travel costs.
Nine Months Ended September 30,
2014 Compared to the Nine Months Ended September 30, 2013
Revenue
Revenues for the nine months ended
September 30, 2014 and 2013, were approximately $1,428,000 and $841,000, respectively. Revenue in both 2014 and 2013 was primarily
related to federal grant revenue from the DOE. The federal grant generally provides for reimbursement in connection with related
development and construction costs involving commercialization of our technologies. The increase in revenue was mainly due to
the Company’s ability to be reimbursed by the DOE for costs incurred in prior periods and paid in the current period and
for contract services revenue from GS Caltex.
Project Development
For the nine months ended September
30, 2014, our project development costs were approximately $602,000 compared to project development costs of $382,000 for the
same period during 2013. The increase in project development costs is mainly due to the fact that project costs were no longer
capitalized in 2014.
General and Administrative Expenses
General and administrative expenses
were approximately $739,000 for the nine months ended September 30, 2014, compared to $551,000 for the same period in 2013. The
increase in general and administrative costs is mainly due to increased legal costs for contract negotiation and travel costs.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations
through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders
and outside investors. In addition, in the past we have received funds under the grant received from the DOE. Our principal use
of funds has been for the further development of our bio-refinery projects, for capital expenditures and general corporate expenses.
As our projects are developed to the point of construction, we anticipate significant purchases of long lead time item equipment
for construction if the requisite capital can be obtained. As of September 30, 2014, we had cash and cash equivalents of approximately
$87,000. As of November 19, 2014, we had cash and cash equivalents of approximately $112,000.
Management has funded operations primarily
through proceeds received in connection with loans from its majority shareholder, the private placement of the Company’s
common stock in December 2007 for net proceeds of approximately $14,500,000, the issuance of convertible notes with warrants in
July and in August 2007, various convertible notes, and Department of Energy reimbursements throughout 2009 to 2014.
Changes in Cash Flows
During the nine months ended September
30, 2014 and 2013, we used cash of approximately $134,000 and $73,000 in operating activates. During the 2014 period we had a
net loss of approximately $145,000, which was offset by non-cash charges of approximately $196,000 and net cash usage stemming
from operating assets and liabilities of approximately $185,000. During the 2013 period we had a net loss of approximately $210,000,
which was offset by non-cash charges of approximately $60,640 and net cash usage stemming from operating assets and liabilities
of approximately $76,000. The increase in cash used in operating activities was primarily a result of greater costs stemming from
travel and contract negotiations.
During the nine months ended September
30, 2014, we used no cash from DOE reimbursements in construction activities at our Fulton Project, compared with net cash receipts
of $14 for the same period in 2013. The lack of net receipts are due to the fact that the Company no longer capitalizes costs
since 2013.
During the nine months ended September
30, 2014, we had positive cash flow from financing activities of approximately $174,000 compared to approximately $110,000 for
the same period in 2013. During the nine months ended September 30, 2014 we received gross proceeds from a convertible note of
approximately $35,000. For the same period in 2013, we received gross proceeds of approximately $110,000 from convertible notes.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases
its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates as a result of different assumptions or conditions.
The methods, estimates, and judgment
we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements.
The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal
of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates
relate to the fair value of warrant liabilities. We also have other key accounting estimates and policies, but we believe that
these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective,
or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional
information see Note 2, “Summary of Significant Accounting Policies” in the notes to our reviewed financial statements
appearing elsewhere in this quarterly report and our annual audited financial statements appearing on Form 10-K. Although we believe
that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may
differ significantly from these estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet
arrangements.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments
and do not engage in any hedging activities.
Item 4. Controls
and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures.
In connection with the preparation
of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, our Principal Executive Officer (“PEO”)
and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls
and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed
by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial
Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however,
that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.
(b) Changes in Internal Control
over Financial Reporting.
There were no changes in our internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER
INFORMATION
Item 1. Legal
Proceedings.
On February 26, 2013, the Company received
notice that the Orange County Superior Court (the “Court”) issued a Minute Order (the “Order”) in connection
with certain shareholders’ claims of breach of contract and declaratory relief related to 5,740,741 warrants (the “Warrants”)
issued by the Company.
Pursuant to the Order, the Court ruled
in favor of the shareholders on the two claims, finding that the Warrants contain certain anti-dilution protective provisions
which provide for the re-adjustment of the exercise price of such Warrants upon certain events and that such exercise price per
share of the Warrants must be decreased to $0.00.
The Company has considered these warrants
exercised based on the notice of exercise received from the respective shareholders in December 2012.
On March 7, 2013, the shareholders
making claims provided their request for judgment based on the Order received, which was initially refused by the Court via a
second minute order received by the Company on April 8, 2013. On April 15, 2013, the Company’s counsel submitted a proposed
judgment to the Court as per the Courts request, which followed the Order and provided for no monetary damages against the Company.
On May 14, 2013, this proposed judgment was approved by the Court (“Judgment”).
On June 20, 2013, the Company filed
motions to vacate the Judgment, a motion for a new trial, and a motion to stay enforcement of the Judgment, all of which were
denied on June 27, 2013.
On August 2, 2013, pursuant to the
exercise notice of the Warrants, and the Order, the Company issued 5,740,741 shares to certain shareholders. See Note 9 in the
accompanying notes to consolidated financial statements for additional information.
Other than as disclosed above, we are
currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse
effect.
Item 1A. Risk
Factors.
We believe there are no changes that
constitute material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December
31, 2013, filed with the SEC on April 15, 2014.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
See
Note 4 for information related to Convertible Notes Payable. Other than the information presented in Note 4 there were no unregistered
sales of the Company’s equity securities during the quarter ended September 30, 2014, other than those previously reported
in a Current Report on Form 8-K.
Item 3. Defaults
Upon Senior Securities.
There has been no default in the payment
of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness
of the Company.
Item 4. Mine
Safety Disclosures.
Not applicable.
Item 5. Other
Information.
Not applicable.
Item 6. Exhibits.
Exhibit
No. |
|
Description |
|
|
|
31.1 |
|
Certification
of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* |
|
|
|
31.2 |
|
Certification
of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* |
|
|
|
32.1 |
|
Certification
of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002* |
|
|
|
32.2 |
|
Certification
of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002* |
|
|
|
101.INS |
|
XBRL
Instance Document** |
101.SCH |
|
XBRL
Taxonomy Extension Schema Document** |
101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document** |
101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document** |
101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document** |
101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document** |
** |
|
In
accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall
be deemed “furnished” herewith not “filed”. |
SIGNATURES
Pursuant to the
requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
BLUEFIRE
RENEWABLES, INC. |
|
|
|
Date:
November 19, 2014 |
By: |
/s/
Arnold Klann |
|
Name: |
Arnold
Klann |
|
Title: |
Chief
Executive Officer |
|
|
(Principal
Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer) |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Arnold Klann, certify that:
1. |
I
have reviewed this Form 10-Q of Bluefire Renewables, Inc.; |
|
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
present in this report; |
|
|
|
4. |
I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
|
|
|
5. |
I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 19, 2014 |
By:
|
/s/
Arnold Klann |
|
|
Arnold
Klann |
|
|
Principal
Executive Officer
Bluefire Renewables, Inc. |
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Arnold Klann, certify that:
1. |
I
have reviewed this Form 10-Q of Bluefire Renewables, Inc.; |
|
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
present in this report; |
|
|
|
4. |
I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
|
|
|
5. |
I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
b) |
Any
fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 19, 2014 |
By:
|
/s/
Arnold Klann |
|
|
Arnold
Klann |
|
|
Principal
Financial Officer
Bluefire Renewables, Inc. |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of
Bluefire Renewables, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2014, as filed with
the U.S. Securities and Exchange Commission on the date hereof, I, Arnold Klann, Principal Executive Officer of the Company, certify
to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002,
that:
| (1) | Such
Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
| (2) | The
information contained in such Quarterly Report on Form 10-Q for the period ended September
30, 2014, fairly presents, in all material respects, the financial condition and results
of operations of the Company. |
Date:
November 19, 2014 |
By:
|
/s/
Arnold Klann |
|
|
Arnold
Klann |
|
|
Principal
Executive Officer
Bluefire Renewables, Inc. |
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of
Bluefire Renewables, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2014, as filed with
the U.S. Securities and Exchange Commission on the date hereof, I, Arnold Klann, Principal Financial Officer of the Company, certify
to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002,
that:
| (1) | Such
Quarterly Report on Form 10-Q for the period ended September 30, 2014, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
| (2) | The
information contained in such Quarterly Report on Form 10-Q for the period ended September
30, 2014, fairly presents, in all material respects, the financial condition and results
of operations of the Company. |
Date:
November 19, 2014 |
By:
|
/s/
Arnold Klann |
|
|
Arnold
Klann |
|
|
Principal
Financial Officer
Bluefire Renewables, Inc. |