UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended:
December 31, 2015
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number:
000-52361
BLUEFIRE
RENEWABLES, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
20-4590982
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
31
Musick
Irvine, CA 92618
(Address
of principal executive offices)
(949)
588-3767
(Issuer’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by checkmark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer
|
[ ]
|
|
Non-accelerated
filer
|
[ ]
|
|
|
|
|
|
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]
The
aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2
of the Exchange Act) computed by reference to the average bid and asked price of such common equity on June 30, 2015, was $826,533.83.
As of March 30, 2016, the registrant has one class of common equity, and the number of shares issued and outstanding of such common
equity was 404,993,005.
Documents
Incorporated By Reference: None.
TABLE
OF CONTENTS
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included
in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected
in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated
in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.”
Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “project,” “plan,”
“will,” “shall,” “should,” and similar expressions, including when used in the negative. Although
we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements.
Important factors that could cause our actual results, performance or achievements to differ from these forward-looking statements
include the following:
|
●
|
the
availability and adequacy of our cash flow to meet our requirements;
|
|
|
|
|
●
|
economic,
competitive, demographic, business and other conditions in our local and regional markets;
|
|
|
|
|
●
|
changes
or developments in laws, regulations or taxes in the ethanol or energy industries;
|
|
|
|
|
●
|
actions
taken or not taken by third-parties, including our suppliers and competitors, as well as legislative, regulatory, judicial
and other governmental authorities;
|
|
|
|
|
●
|
competition
in the ethanol industry;
|
|
|
|
|
●
|
the
failure to obtain or loss of any license or permit;
|
|
|
|
|
●
|
success
of the Arkenol Technology;
|
|
|
|
|
●
|
changes
in our business and growth strategy (including our plant building strategy and co-location strategy), capital improvements
or development plans;
|
|
|
|
|
●
|
the
availability of additional capital to support capital improvements and development; and
|
|
|
|
|
●
|
other
factors discussed under the section entitled “Risk Factors” or elsewhere in this annual report.
|
All
forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake
no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date
initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
PART
I
Item
1. Business.
As
used in this annual report, “we”, “us”, “our”, “BlueFire”, “Company”
or “our company” refers to BlueFire Renewables, Inc.
COMPANY
HISTORY
Our
Company
We
are BlueFire Renewables, Inc., a Nevada corporation (the “Company”). Our goal is to develop, own and operate high-value
carbohydrate-based transportation fuel plants, or bio-refineries, to produce ethanol, a viable alternative to fossil fuels, and
to provide professional services to bio-refineries worldwide. Our bio-refineries will convert widely available, inexpensive, organic
materials such as agricultural residues, high-content biomass crops, wood residues and cellulose from municipal solid wastes into
ethanol. This versatility enables us to consider a wide variety of feedstocks and locations in which to develop facilities to
become a low cost producer of ethanol. We have licensed for use a patented process from Arkenol, Inc., a Nevada corporation (“Arkenol”),
to produce ethanol from cellulose (the “Arkenol Technology”). We are the exclusive North America licensee of the Arkenol
Technology to produce ethanol and will evaluate purchasing a broader license for other products as opportunities arise. We may
also utilize certain bio-refinery related rights, assets, work-product, intellectual property and other know-how related to 19
ethanol project opportunities originally developed by ARK Energy, Inc., a Nevada corporation, to accelerate our deployment of
the Arkenol Technology.
Company
History
We
are a Nevada corporation that was initially organized as Atlanta Technology Group, Inc., a Delaware corporation, on October 12,
1993. The Company was re-named Docplus.net Corporation on December 31, 1998, and further re-named Sucre Agricultural Corp. (“Sucre”)
and re-domiciled as a Nevada corporation on March 6, 2006. Finally, on May 24, 2006, in anticipation of the reverse merger by
which it would acquire BlueFire Ethanol, Inc., a privately held Nevada corporation organized on March 28, 2006, as described below,
the Company was re-named to BlueFire Ethanol Fuels, Inc.
On
June 27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with BlueFire Ethanol, Inc. (“BlueFire
Ethanol”). At the time of Reverse Merger, the Company was a blank-check company and had no operations, revenues or liabilities.
The only asset possessed by the Company was $690,000 in cash which continued to be owned by the Company at the time of the Reverse
Merger. In connection with the Reverse Merger, the Company issued BlueFire Ethanol 17,000,000 shares of common stock, approximately
85% of all of the outstanding common stock of the Company, for all the issued and outstanding BlueFire Ethanol common stock. The
Company stockholders retained 4,028,264 shares of Company common stock. As a result of the Reverse Merger, BlueFire Ethanol became
our wholly-owned subsidiary. On June 21, 2006, prior to and in anticipation of the Reverse Merger, Sucre sold 3,000,000 shares
of common stock to two related investors in a private offering of shares pursuant to Rule 504 for proceeds of $1,000,000.
On
July 20, 2010, the Company changed its name to BlueFire Renewables, Inc. to more accurately reflect our primary business plan
expanding the focus from just building cellulosic ethanol projects to include other advanced biofuels, biodiesel, and other drop-in
biofuels as well as synthetic lubricants as opportunities arise.
The
Company’s shares of common stock began trading under the symbol “BFRE.PK” on the Pink Sheets of the National
Quotation Bureau on July 11, 2006 and later began trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007.
Our shares of common stock are currently quoted on the OTCBB and the OTC Markets under the symbol “BFRE”. On March
28, 2016, the closing price of our Common Stock was $0.0012 per share.
Our
executive offices are located at 31 Musick, Irvine, California 92618 and our telephone number at such office is (949) 588-3767.
Principal
Products or Services and Their Markets
Our
goal is to develop, own and operate high-value carbohydrate-based transportation fuel plants, or bio-refineries, to produce ethanol
and other biofuels that are viable alternative to fossil fuels, and to provide professional services to bio-refineries worldwide.
Our bio-refineries will convert widely available, inexpensive, organic materials such as agricultural residues, high-content biomass
crops, wood residues and cellulose from municipal solid wastes into ethanol. This versatility enables us to consider a wide variety
of feedstocks and locations in which to develop facilities to become a low cost producer of ethanol.
We
have licensed for use the Arkenol Technology, a patented process from Arkenol to produce ethanol from cellulose for sale into
the transportation fuel market. We are the exclusive North America licensee of the Arkenol Technology.
Arkenol
Technology
The
production of chemicals by fermenting various sugars is a well-accepted science. Its use ranges from producing beverage alcohol
and fuel-ethanol to making citric acid and xantham gum for food uses. However, the high price of sugar and the relatively low
cost of competing petroleum based fuel has kept the production of chemicals mainly confined to producing ethanol from corn sugar.
In
the Arkenol Technology process, incoming biomass feedstocks are cleaned and ground to reduce the particle size for the process
equipment. The pretreated material is then dried to a moisture content consistent with the acid concentration requirements for
breaking down the biomass, then hydrolyzed (degrading the chemical bonds of the cellulose) to produce hexose and pentose (C5 and
C6) sugars at the high concentrations necessary for commercial fermentation. The insoluble materials left are separated by filtering
and pressing into a cake and further processed into fuel for other beneficial uses. The remaining acid-sugar solution is separated
into its acid and sugar components. The separated sulfuric acid is recirculated and reconcentrated to the level required to breakdown
the incoming biomass. The small quantity of acid left in the sugar solution is neutralized with lime to make hydrated gypsum which
can be used as an agricultural soil conditioner. At this point the process has produced a clean stream of mixed sugars (both C6
and C5) for fermentation. In an ethanol production plant, naturally-occurring yeast, which Arkenol has specifically cultured by
a proprietary method to ferment the mixed sugar stream, is mixed with nutrients and added to the sugar solution where it efficiently
converts both the C6 and C5 sugars to fermentation beer (an ethanol, yeast and water mixture) and carbon dioxide. The yeast culture
is separated from the fermentation beer by a centrifuge and returned to the fermentation tanks for reuse. Ethanol is separated
from the now clear fermentation beer by conventional distillation technology, dehydrated to 200 proof and denatured with unleaded
gasoline to produce the final fuel-grade ethanol product. The still bottoms, containing principally water and unfermented sugar,
is returned to the process for economic water use and for further conversion of the sugars.
Simply
put, the process separates the biomass into two main constituents: cellulose and hemicellulose (the main building blocks of plant
life) and lignin (the “glue” that holds the building blocks together), converts the cellulose and hemicellulose to
sugars, ferments them and purifies the fermentation liquids into ethanol and other end-products.
Ark
Energy
BlueFire
may also utilize certain bio-refinery related rights, assets, work-product, intellectual property and other know-how related to
nineteen (19) ethanol project opportunities originally developed by ARK Energy, Inc., a Nevada corporation to accelerate BlueFire’s
deployment of the Arkenol Technology. These opportunities consist of ARK Energy’s previous relationships, analysis, site
development, permitting experience and market research on various potential project locations within North America. ARK Energy
has transferred these assets to us and we valued these business assets based on management’s best estimates as to its actual
costs of development. In the event we successfully finance the construction of a project that utilizes any of the transferred
assets from ARK Energy, we are required to pay ARK Energy for the costs ARK Energy incurred in the development of the assets pertaining
to that particular project or location. We did not incur the costs of a third party valuation but based our valuation of the assets
acquired by (i) an arms-length review of the value assigned by ARK Energy to the opportunities are based on the actual costs it
incurred in developing the project opportunities, and (ii) anticipated financial benefits to us. The company has not developed,
paid for, or utilized any of these assets to date.
Pilot
Plants
From
1994-2000, a test pilot bio-refinery plant was built and operated by Arkenol in Orange, California to test the effectiveness of
the Arkenol Technology using several different types of raw materials containing cellulose. The types of materials tested included:
rice straw, wheat straw, green waste, wood wastes, and municipal solid wastes. Various equipment used in the process was also
tested and process conditions were verified leading to the issuance of the certain patents in support of the Arkenol Technology.
In 2002, using the results obtained from the Arkenol California test pilot plant, JGC Corporation, based in Japan, built and operated
a bench scale facility followed by another test pilot bio-refinery plant in Izumi, Japan. At the Izumi plant, Arkenol retained
the rights to the Arkenol Technology while the operations of the facility were controlled by JGC Corporation. Subsequent pilot
facilities have been built by other third parties, including GS Caltex, a South Korean petroleum company, but Arkenol retains
ownership of all intellectual property.
Bio-Refinery
Projects
We
are currently in the development stage of building bio-refineries in North America. We plan to use the Arkenol Technology and
utilize JGC’s operations knowledge from the Izumi test pilot plant to assist in the design and engineering of our facilities
in North America. MECS and Brinderson Engineering, Inc. (“Brinderson”) provided the preliminary design package, while
Brinderson completed the detailed engineering design for our Lancaster Bio-refinery. We feel this completed design should provide
the blueprint for subsequent plant constructions. In 2010, MasTec in conjunction with Zachary Engineering completed the detailed
engineering design for our planned Fulton Mississippi plant, also known as the Fulton Project.
We
intend to build a facility that will process approximately 190 tons of green waste material per day to produce roughly 3.9 million
gallons of ethanol annually. In connection therewith, on November 9, 2007, we purchased the facility site which is located in
Lancaster, California. Permit applications were filed on June 24, 2007, to allow for construction of the Lancaster facility. The
Los Angeles County Planning Commission issued a Conditional Use Permit for the Lancaster Project in July of 2008. However, a subsequent
appeal of the county decision, which BlueFire overcame, combined with the waiting period under the California Environmental Quality
Act, pushed the effective date of the permit approval to December 12, 2008. On February 12, 2009, we were issued our Authority
to Construct permit by the Antelope Valley Air Quality Management District. In December 2011, BlueFire requested an extension
to pay the project’s permits for an additional year while we awaited potential financing. The Company has let the air permits
expire as there were no more extensions available and management deemed the project not likely to start construction in the short-term
due to a lack of financing. BlueFire will need to resubmit for air permits once it is able to raise the necessary financing. The
Company sees the project on hold until we receive the funding to construct the facility.
In
2009, BlueFire completed the engineering package for the Lancaster Bio-refinery, and finalized the Front-End Loading (FEL) 3 stage
of engineering for the Lancaster Bio-refinery. In 2010, BlueFire continued to develop the engineering package for the Fulton Project,
and completed the FEL stages 2 and 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
|
|
FEL-2
|
|
FEL-3
|
*
Material Balance
|
|
*
Preliminary Equipment Design
|
|
*
Purchase Ready Major Equipment Specifications
|
*
Energy Balance
|
|
*
Preliminary Layout
|
|
*
Definitive Estimate
|
*
Project Charter
|
|
*
Preliminary Schedule
|
|
*
Project Execution Plan
|
|
|
*
Preliminary Estimate
|
|
*
Preliminary 3D Model
|
|
|
|
|
*
Electrical Equipment List
|
|
|
|
|
*
Line List
|
|
|
|
|
*
Instrument Index
|
We
estimate the total cost including contingencies to be in the range of approximately $100 million to $125 million for the Lancaster
Bio-refinery. The cost approximations above do not reflect any fluctuations in raw materials or construction costs since the original
pricing estimates and will need to be “rebid” once a suitable financing partner is identified.
The
uncertainties of the world credit markets from 2008 to present caused a delay in the financing we needed to enable placement of
equipment orders for the construction of our Lancaster Bio-refinery, which would allow us to achieve a sustainable construction
schedule after breaking ground. Hence, to insure a timely and continuous construction of the project, BlueFire’s Board of
Directors determined it is prudent to delay Lancaster’s groundbreaking until all the necessary funds are in place. Project
activities have advanced to a point that once credit is available and permits are refiled, orders can be immediately placed and
construction started. This project is considered shovel ready and only requires minimal capital to maintain until funding is obtained
for its construction.
We
are actively seeking financing sources of financing for this facility, but no definitive agreements are in place.
Since
2007, The Company has been developing a facility for construction, which had DOE financial support. This facility will be located
in Fulton, Mississippi, and will use approximately 700 metric dry tons of woody biomass, mill residue, and other cellulosic waste
to produce approximately 19 million gallons of ethanol annually (the “Fulton Project”). In 2007, we received an award
from the DOE of up to $40 million for the Fulton Project. On or around October 4, 2007, we finalized our first award for a total
approved budget of just under $10,000,000 with the DOE (“Award 1”). Award 1 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. Award 1 was
closed out on September 12, 2012. In December 4, 2009, the DOE announced that the award for this project has been increased to
a maximum of $88 million under the American Recovery and Reinvestment Act of 2009 (“ARRA”) and the Energy Policy Act
of 2005. On December 23, 2013, the Company received notice from the DOE indicating that the DOE would no longer provide funding
under its second award due to the Company’s inability to provide agreements related to the balance of plant financing arrangements
for the Fulton Project. On March 17, 2015, the Company received a letter from the DOE stating that because of the upcoming September
2015 expiration date for expending American Recovery and Reinvestment Act (ARRA) funding, it cannot reconsider its decision and
the Company considers such decision to be final. The Company considers the DOE Grant closed as of September 30, 2015. As of December
31, 2015, BlueFire has been reimbursed approximately $14,164,964 from the DOE under this award.
In
2010, BlueFire signed definitive agreements for the following three crucial contracts related to the Fulton Project: (a) feedstock
supply with Cooper Marine and Timberlands Corporation (“Cooper Marine”), (b) off-take for the ethanol of the facility
with Tenaska Biofuels LLC, now Tenaska Commodities LLC (“Tenaska”), and (c) the construction of the facility with
MasTec North America Inc. (“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. 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, as defined below (“USDA
LG”). The Company has since abandoned pursuit of both loan guarantee opportunities but may reapply at a later date as funding
opportunities arise.
In
2014, BlueFire signed an Engineering Procurement and Construction (EPC) contract with China Three Gorges Corporation and its subsidiary
China International Water & Electric, a large Chinese Engineering Procurement and Construction company. In tandem with the
new EPC contractor, the company is engaging Chinese banks to provide the debt financing for the Fulton Project. BlueFire has received
a letter of intent from the Export Import Bank of China to provide up to $270 million in debt financing for the Fulton project.
BlueFire is currently negotiating and working through due diligence but no definitive agreements have yet been executed. 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.
Between
the proposed facilities (Lancaster, CA and Fulton, MS) we expect them to create more than 1,000 construction/manufacturing jobs
if adequately financed and, once in operation, more than 100 new operations and maintenance jobs.
The
Company is also researching and considering other suitable locations for other similar bio-refineries.
Status
of Publically Announced Products or Services
In
February of 2012, SucreSource announced its first client GS Caltex, a South Korean petroleum company. In the same month, it received
the first payment under the Professional Services Agreement (PSA) for work on a facility in South Korea. As of December 31, 2014,
SucreSource has completed and fulfilled all initial work and obligations under the fixed portion of the PSA. Anticipated future
work product and additional services will be billed on an hourly basis when services are performed as GS Caltex continues to develop
additional facilities in South Korea.
Distribution
Methods of Products or Services
We
will utilize existing ethanol distribution channels to sell the ethanol that is produced from our plants. For example, we will
enter into an agreement with an existing refiner or blender to purchase the ethanol and sell it into the Southern California and
Mississippi transportation fuels market. Ethanol is currently mandated at a blend level of 10% nationwide which represents an
approximately 26+ billion gallon per year market. We are also exploring the potential of onsite blending of E85 (85% ethanol,
15% gasoline) and direct marketing to fueling stations. There are approximately 3,400 E85 fueling stations in the United States.
As of the date of this filing, no ethanol is currently being produced or distributed.
Competition
According
to the Renewable Fuels Association (“RFA”) most of the approximately 15.6 billion gallons of ethanol supply in the
United States is derived from corn and, as of January 2015, is produced at approximately 214 facilities, ranging in size from
300,000 to 300 million gallons per year, located predominately in the corn belt in the Midwest.
Traditional
corn-based production techniques are mature and well entrenched in the marketplace, and the entire industry’s infrastructure
is geared toward corn as the principal feedstock.
With
the Arkenol Technology, the principle difference from traditional processes apart from production technique is the acquisition
and choice of feedstock. The use of a non-commodity based non-food related biomass feedstock enables us to use feedstock typically
destined for disposal, i.e. wood waste, yard trimmings and general green waste. All ethanol producers regardless of production
technique will fall subject to market fluctuation in the end product, ethanol.
Due
to the feedstock variety we process, we are able to locate production facilities in and around the markets where the ethanol will
be consumed, thereby giving us a competitive advantage against much larger traditional producers who must locate plants near their
feedstock, i.e. the corn belt in the Midwest, and ship the ethanol to the end market.
However,
in the area of biomass-to-ethanol production, there are few companies, and very little to no commercial production infrastructure
has been built. As we continue to advance our biomass technology platform, we are likely to encounter competition for the same
technologies from other companies that are also attempting to manufacture ethanol from cellulosic biomass feedstocks.
Ethanol
production is also expanding internationally. Ethanol produced or processed in certain countries in Central America and the Caribbean
region is eligible for tariff reduction or elimination upon importation to the United States under a program known as the Caribbean
Basin Initiative. Large ethanol producers, such as Cargill, have expressed interest in building dehydration plants in participating
Caribbean Basin countries, such as El Salvador, which would convert ethanol into fuel-grade ethanol for shipment to the United
States. Ethanol imported from Caribbean Basin countries may be a less expensive alternative to domestically produced ethanol and
may affect our ability to sell our ethanol profitably.
There
are approximately 21 biorefineries supported by the DOE in different stages of development throughout the United States.
Industry
Overview
On
December 19, 2007, President Bush signed into law the Energy Independence and Security Act of 2007 (Energy Act of 2007). The Energy
Act of 2007 provides for an increase in the supply of alternative fuel sources by setting a mandatory Renewable Fuel Standard
(RFS) requiring fuel producers to use at least 36 billion gallons of biofuel by 2022, 16 billion gallons of which must come from
cellulosic derived fuel. Additionally, the Energy Act of 2007 called for reducing U.S. demand for oil by setting a national fuel
economy standard of 35 miles per gallon by 2020 – which will increase fuel economy standards by 40 percent and save billions
of gallons of fuel.
In
June 2008, the Food, Conservation and Energy Act of 2008 (the “Farm Bill”) was signed into law. The 2008 Farm Bill
also modified existing incentives, including ethanol tax credits and import duties and established a new integrated tax credit
of $1.01/gallon for cellulosic biofuels.
On
February 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) at the
urging of President Obama, who signed it into law four days later (“ARRA”). A direct response to the economic crisis,
the Recovery Act has three immediate goals:
|
●
|
Create
new jobs and save existing ones;
|
|
|
|
|
●
|
Spur
economic activity and invest in long-term growth; and
|
|
|
|
|
●
|
Foster
unprecedented levels of accountability and transparency in government spending.
|
The
Recovery Act intends to achieve those goals by:
|
●
|
Providing
$288 billion in tax cuts and benefits for millions of working families and businesses;
|
|
|
|
|
●
|
Increasing
federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224
billion;
|
|
|
|
|
●
|
Making
$275 billion available for federal contracts, grants and loans; and
|
|
|
|
|
●
|
Requiring
recipients of Recovery funds to report quarterly on how they are using the money. All the data is posted on Recovery.gov so
the public can track the Recovery funds.
|
In
addition to offering financial aid directly to local school districts, expanding the Child Tax Credit, and underwriting a process
to computerize health records to reduce medical errors and save on health care costs, the Recovery Act is targeted at infrastructure
development and enhancement. For instance, the Recovery Act plans investment in the domestic renewable energy industry and the
weatherizing of 75% of federal buildings as well as more than one million private homes around the country.
Historically,
producers and blenders had a choice of fuel additives to increase the oxygen content of fuels. MTBE (methyl tertiary butyl ether),
a petroleum-based additive, was the most popular additive, accounting for up to 75% of the fuel oxygenate market. However, in
the United States, ethanol is replacing MTBE as a common fuel additive. While both increase octane and reduce air pollution, MTBE
is a presumed carcinogen which contaminates ground water. It has already been banned in California, New York, Illinois and 22
other states. Major oil companies have voluntarily abandoned MTBE and it is scheduled to be phased out under the Energy Policy
Act. As MTBE is phased out, we expect demand for ethanol as a fuel additive and fuel extender to rise. A blend of 5.5% or more
of ethanol, which does not contaminate ground water like MTBE, effectively complies with U.S. Environmental Protection Agency
requirements for reformulated gasoline, which is mandated in most urban areas.
Ethanol
is a clean, high-octane, high-performance automotive fuel commonly blended in gasoline to extend supplies and reduce emissions.
In 2015, according to the
A
lternative Fuels Data Center,
95% of all United States gasoline was blended with 10%
ethanol. There is also growing federal government support for E85, which is a blend of 85% ethanol and 15% gasoline.
Ethanol
is a renewable fuel produced by the fermentation of starches and sugars such as those found in grains and other crops. Ethanol
contains 35% oxygen by weight and, when combined with gasoline, it acts as an oxygenate, artificially introducing oxygen into
gasoline and raising oxygen concentration in the combustion mixture with air. As a result, the gasoline burns more completely
and releases less unburnt hydrocarbons, carbon monoxide and other harmful exhaust emissions into the atmosphere. The use of ethanol
as an automotive fuel is commonly viewed as a way to reduce harmful automobile exhaust emissions. Ethanol can also be blended
with regular unleaded gasoline as an octane booster to provide a mid-grade octane product which is commonly distributed as a premium
unleaded gasoline.
Studies
published by the Renewable Fuel Association indicate that approximately 13.8 billion gallons of ethanol was consumed in 2012 in
the United States and every automobile manufacturer approves and warrants the use of E10. Because the ethanol molecule contains
oxygen, it allows an automobile engine to more completely combust fuel, resulting in fewer emissions and improved performance.
Fuel ethanol has an octane value of 113 compared to 87 for regular unleaded gasoline. Domestic ethanol consumption has tripled
in the last eight years, and consumption increases in some foreign countries, such as Brazil, are even greater in recent years.
For instance, 40% of the automobiles in Brazil operate on 100% ethanol, and others use a mixture of 22% ethanol and 78% gasoline.
The European Union and Japan also encourage and mandate the increased use of ethanol.
For
every barrel of ethanol produced, the American Coalition for Ethanol estimates that 1.2 barrels of petroleum are displaced at
the refinery level, and that since 1978, U.S. ethanol production has replaced over 14.0 billion gallons of imported gasoline or
crude oil. According to a Mississippi State University Department of Agricultural Economics Staff Report in August 2003, a 10%
ethanol blend results in a 25% to 30% reduction in carbon monoxide emissions by making combustion more complete. The same 10%
blend lowers carbon dioxide emissions by 6% to 10%.
During
the last 20 years, ethanol production capacity in the United States has grown from minimal amounts to an estimated 14.9 billion
gallons per year in 2015. In the United States, ethanol is primarily made from starch crops, principally from the starch fraction
of corn. Consequently, the production plants are concentrated in the grain belt of the Midwest, principally in Illinois, Iowa,
Minnesota, Nebraska and South Dakota.
In
the United States, there are two principal commercial applications for ethanol. The first is as an oxygenate additive to gasoline
to comply with clean air regulations. The second is as a voluntary substitute for gasoline - this is a purely economic choice
by gasoline retailers who may make higher margins on selling ethanol-blended gasoline, provided ethanol is available in the local
market. The U.S. gasoline market is currently approximately 170 billion gallons annually, so the potential market for ethanol
(assuming only a 10% blend) is 17 billion gallons per year. Increasingly, motor manufacturers are producing flexible fuel vehicles
(particularly sports utility vehicle models) which can run off ethanol blends of up to 85% (known as E85) in order to obtain exemptions
from fleet fuel economy quotas. There are now in excess of 5 million flexible fuel vehicles on the road in the United States and
automakers will produce several millions per year, offering further potential for significant growth in ethanol demand.
Cellulose
to Ethanol Production
In
a 2002 report, “Outlook For Biomass Ethanol Production Demand,” the U.S. Energy Information Administration found that
advancements in production technology of ethanol from cellulose could reduce costs and result in production increases of 40% to
160% by 2010. Biomass (cellulosic feedstocks) includes agricultural waste, woody fibrous materials, forestry residues, waste paper,
municipal solid waste and most plant material. Like waste starches and sugars, they are often available for relatively low cost,
or are even free. However, cellulosic feedstocks are more abundant, global and renewable in nature. These waste streams, which
would otherwise be abandoned, land-filled or incinerated, exist in populated metropolitan areas where ethanol prices are higher.
Sources
and Availability of Raw Materials
The
U.S. DOE and USDA in its April 2005 report “BIOMASS AS FEEDSTOCK FOR A BIOENERGY AND BIOPRODUCTS INDUSTRY: THE TECHNICAL
FEASIBILITY OF A BILLION-TON ANNUAL SUPPLY” found that about one billion tons of cellulosic materials from agricultural
and forest residues are available to produce more than one-third of the current U.S. demand for transportation fuels.
Dependence
on One or a Few Major Customers
We
have signed a definitive agreement with Tenaska for the off-take of our Fulton Project, which allows Tenaska to market all ethanol
produced at this facility. See “DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES.”
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts
On
March 1, 2006, we entered into a Technology License Agreement with Arkenol, for use of the Arkenol Technology. Arkenol holds the
following patents in relation to the Arkenol Technology: 11 U.S. patents, 21 foreign patents, and one pending foreign patent.
According to the terms of the agreement, we were granted an exclusive, non-transferable, North American license to use and to
sub-license the Arkenol technology. The Arkenol Technology, converts cellulose and waste materials into ethanol and other high
value chemicals. As consideration for the grant of the license, we are required to make a onetime payment of $1,000,000 at first
project funding or term of a licensee or sublicense project, and for each plant make the following payments: (1) royalty payment
of 3% of the gross sales price for sales by us or our sub-licensees of all products produced from the use of the Arkenol Technology
(2) and a onetime license fee of $40.00 per 1,000 gallons of production capacity per plant. According to the terms of the agreement,
we made a onetime exclusivity fee prepayment of $30,000 during the period ended December 31, 2006. At March 9, 2009, we had paid
Arkenol in full for the license. All sub-licenses issued by us will provide for payments to Arkenol of any other license fees
and royalties due.
Governmental
Approval
We
are not subject to any government oversight for our current operations other than for corporate governance and taxes. However,
the production facilities that we will be constructing will be subject to various federal, state and local environmental laws
and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage,
handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees. In addition, some
of these laws and regulations will require our facilities to operate under permits that are subject to renewal or modification.
These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual
or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial
fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns.
Governmental
Regulation
Currently,
the federal government encourages the use of ethanol as a component in oxygenated gasoline. This is a measure to both protect
the environment, and, to utilize biofuels as a viable renewable domestic fuel to reduce U.S. dependence on foreign oil.
The
ethanol industry is heavily dependent on several economic incentives to produce ethanol, including federal ethanol supports. Ethanol
sales have been favorably affected by the Clean Air Act amendments of 1990, particularly the Federal Oxygen Program which became
effective November 1, 1992. The Federal Oxygen Program requires the sale of oxygenated motor fuels during the winter months in
certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol use has increased due to a second Clean Air Act
program, the Reformulated Gasoline Program. This program became effective January 1, 1995, and requires the sale of reformulated
gasoline in nine major urban areas to reduce pollutants, including those that contribute to ground level ozone, better known as
smog. Increasingly stricter EPA regulations are expected to increase the number of metropolitan areas deemed in non-compliance
with Clean Air Standards, which could increase the demand for ethanol.
The
Energy Policy Act of 2005 established a renewable fuel standard (RFS) to increase in the supply of alternative sources for automotive
fuels. The RFS was expanded by the Energy Independence and Security Act of 2007. The RFS requires the blending of renewable fuels
(including ethanol and biodiesel) in transportation fuel. In 2008, fuel suppliers must blend 9.0 billion gallons of renewable
fuel into gasoline; this requirement increases annually to 36 billion gallons in 2022. The expanded RFS also specifically mandates
the use of “advanced biofuels”—fuels produced from non-corn feedstocks and with 50% lower lifecycle greenhouse
gas emissions than petroleum fuel—starting in 2009. Of the 36 billion gallons required in 2022, at least 21 billion gallons
must be advanced biofuel. There are also specific quotas for cellulosic biofuels and for biomass-based diesel fuel. On May 1,
2007, EPA issued a final rule on the RFS program detailing compliance standards for fuel suppliers, as well as a system to trade
renewable fuel credits between suppliers. Among other provisions, the RFS sets mandatory blend levels for renewable fuels while
also establishing greenhouse gas (GHG) reduction criteria and a methodology for calculating lifecycle GHG emissions. While this
program is not a direct subsidy for the construction of biofuels plants, the market created by the renewable fuel standard is
expected to stimulate growth of the biofuels industry.
The
Farm Bill and subsequent legislation provides for, among other things, 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 U.S.D.A. could provide loan guarantees to fund development, construction,
and retrofitting of commercial-scale refineries.
The
ARRA, passed into law in February 2009 makes $275 billion available for federal contracts, grants, and loans, some of which is
devoted to investment into the domestic renewable energy industry.
Research
and Development Activities
Research
and development costs for the years ending December 31, 2015 and 2014, were approximately $609,000 and $774,000, respectively.
To
date, project development costs include the research and development expenses related to our future cellulose-to-ethanol production
facilities including site development, and engineering activities.
Compliance
with Environmental Laws
We
will be subject to extensive air, water and other environmental regulations and we will have to obtain a number of environmental
permits to construct and operate our plants, including, air pollution construction permits, a pollutant discharge elimination
system general permit, storm water discharge permits, a water withdrawal permit, and an alcohol fuel producer’s permit.
In addition, we may have to complete spill prevention control and countermeasures plans.
The
production facilities that we will build are subject to oversight activities by the federal, state, and local regulatory agencies.
There is always a risk that the federal agencies may enforce certain rules and regulations differently than state environmental
administrators. State or federal rules are subject to change, and any such changes could result in greater regulatory burdens
on plant operations. We could also be subject to environmental or nuisance claims from adjacent property owners or residents in
the area arising from possible foul smells or other air or water discharges from the plant.
Employees
We
have 5 full time employees as of December 31, 2015, and 2 part time employees. None of our employees are subject to a collective
bargaining agreement, and we believe that our relationship with our employees is good.
Where
You Can Find More Information
We
are subject to the reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These obligations include filing an annual report under cover of Form 10-K, with audited financial statements, unaudited quarterly
reports on Form 10-Q and the requisite proxy statements with regard to annual stockholder meetings. The public may read and copy
any materials the Company files with the Securities and Exchange Commission (the “SEC”) at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC.
Item
1A. Risk Factors.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
WE
HAVE HAD LIMITED OPERATIONS, HAVE INCURRED NET LOSSES OF
$1,669,581 over the last two
years
AND WE NEED ADDITIONAL CAPITAL TO EXECUTE OUR BUSINESS PLAN.
We
have had limited operations and have incurred net losses from controlling interest of approximately $1,283,000 for the year ended
December 31, 2015, and $396,000 for the same period in 2014. For the same periods we have generated revenues from consulting of
$0 and approximately $263,000 and approximately $911,000 and $1,331,000 in grant revenue from the DOE and no revenues from ethanol
fuel production, respectively. We have yet to begin ethanol production or construction of ethanol producing plants, other than
the site preparation at the Fulton Project, as discussed herein. Since the Reverse Merger, we have been engaged in developmental
activities, including developing a strategic operating plan, plant engineering and development activities, entering into contracts,
hiring personnel, developing processing technology, and raising private capital. Our continued existence is dependent upon our
ability to obtain additional debt and/or equity financing. We are uncertain given the economic landscape when to anticipate the
beginning construction of a plant given the availability of capital. We estimate the engineering, procurement, and construction
(“EPC”) cost including contingencies to be in the range of approximately $100 million to $125 million for our Lancaster
Bio-refinery, and approximately $300 million for our Fulton Project. We plan to raise additional funds through project financings,
grants and/or loan guarantees, or through future sales of our common stock, until such time as our revenues are sufficient to
meet our cost structure, and ultimately achieve profitable operations. There is no assurance we will be successful in raising
additional capital or achieving profitable operations. Wherever possible, the Company’s Board of Directors (the “Board
of Directors”) will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the
non-cash consideration will consist of restricted shares of our common stock. These actions will result in dilution of the ownership
interests of existing shareholders may further dilute common stock book value, and that dilution may be material.
WE
HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE.
We
have yet to establish any history of profitable operations. In the last two years we have incurred annual operating losses. Operating
losses were $947,229 and $153,749 for fiscal years ended 2015 and 2014, respectively. In 2015, we had a net loss of $1,282,654,
which was partially a result of non-cash charges, namely the amortization of debt discount and a change in the fair value of a
derivative liability. Our revenues have not been sufficient to sustain our operations. We expect that our revenues will not be
sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful commercialization
of at least one commercial scale cellulose to ethanol facility. No assurances can be given when this will occur or that we will
ever be profitable.
AS
OF DECEMBER 31, 2015, THE COMPANY HAS A NEGATIVE WORKING CAPITAL OF APPROXIMATELY $2,260,000.
Management
has estimated that operating expenses for the next 12 months will be approximately $1,500,000, 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 2016, the Company intends to fund its operations by seeking additional funding in the form of equity
or debt. As of December 31, 2015, 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 or at all. 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.
OUR
CELLULOSE-TO-ETHANOL TECHNOLOGIES ARE UNPROVEN ON A LARGE-SCALE COMMERCIAL BASIS AND PERFORMANCE COULD FAIL TO MEET PROJECTIONS,
WHICH COULD HAVE A DETRIMENTAL EFFECT ON THE LONG-TERM CAPITAL APPRECIATION OF OUR STOCK.
While
production of ethanol from corn, sugars and starches is a mature technology, newer technologies for production of ethanol from
cellulose biomass have not been built at large commercial scales. The technologies being utilized by us for ethanol production
from biomass have not been demonstrated on a commercial scale. All of the tests conducted to date by us with respect to the Arkenol
Technology have been performed on limited quantities of feedstocks, and we cannot assure you that the same or similar results
could be obtained at competitive costs on a large-scale commercial basis. We have never utilized these technologies under the
conditions or in the volumes that will be required to be profitable and cannot predict all of the difficulties that may arise.
It is possible that the technologies, when used, may require further research, development, design and testing prior to larger-scale
commercialization. Accordingly, we cannot guarantee that these technologies will perform successfully on a large-scale commercial
basis or at all.
OUR
BUSINESS EMPLOYS LICENSED ARKENOL TECHNOLOGY WHICH MAY BE DIFFICULT TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS
OF THIRD PARTIES.
We
currently license our technology from Arkenol. Arkenol owns 11 U.S. patents, 21 foreign patents, and has one foreign patent pending
and may file more patent applications in the future. Our success depends, in part, on our ability to use the Arkenol Technology,
and for Arkenol to obtain patents, maintain trade secrecy and not infringe the proprietary rights of third parties. We cannot
assure you that the patents of others will not have an adverse effect on our ability to conduct our business, that we will develop
additional proprietary technology that is patentable or that any patents issued to us or Arkenol will provide us with competitive
advantages or will not be challenged by third parties. Further, we cannot assure you that others will not independently develop
similar or superior technologies, duplicate elements of the Arkenol Technology or design around it.
It
is possible that we may need to acquire other licenses to, or to contest the validity of, issued or pending patents or claims
of third parties. We cannot assure you that any license would be made available to us on acceptable terms, if at all, or that
we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves in suits brought against
us for alleged infringement of another party’s patents in bringing patent infringement suits against other parties based
on our licensed patents.
In
addition to licensed patent protection, we also rely on trade secrets, proprietary know-how and technology that we seek to protect,
in part, by confidentiality agreements with our prospective joint venture partners, employees and consultants. We cannot assure
you that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets
and proprietary know-how will not otherwise become known or be independently discovered by others.
OUR
SUCCESS DEPENDS UPON ARNOLD KLANN, OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AND JOHN CUZENS, OUR CHIEF TECHNOLOGY OFFICER AND
SENIOR VICE PRESIDENT.
We
believe that our success will depend to a significant extent upon the efforts and abilities of (i) Arnold Klann, our Chairman
and Chief Executive Officer, due to his contacts in the ethanol and cellulose industries and his overall insight into our business,
and (ii) John Cuzens, our Chief Technology Officer and Senior Vice President for his technical and engineering expertise, including
his familiarity with the Arkenol Technology. Our failure to retain Mr. Klann or Mr. Cuzens, or to attract and retain additional
qualified personnel, could adversely affect our operations. We do not currently carry key-man life insurance on any of our officers.
COMPETITION
FROM LARGE PRODUCERS OF PETROLEUM-BASED GASOLINE ADDITIVES AND OTHER COMPETITIVE PRODUCTS MAY IMPACT OUR PROFITABILITY.
Our
proposed ethanol plants will also compete with producers of other gasoline additives made from other raw materials having similar
octane and oxygenate values as ethanol. The major oil companies have significantly greater resources than we have to develop alternative
products and to influence legislation and public perception of ethanol. These other companies also have significant resources
to begin production of ethanol should they choose to do so.
We
will also compete with producers of other gasoline additives having similar octane and oxygenate values as ethanol. An example
of such other additives is MTBE, a petrochemical derived from methanol. MTBE costs less to produce than ethanol. Many major oil
companies produce MTBE and because it is petroleum-based, its use is strongly supported by major oil companies. Alternative fuels,
gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies
have significantly greater resources than we have to market MTBE, to develop alternative products, and to influence legislation
and public perception of MTBE and ethanol.
OUR
BUSINESS PROSPECTS WILL BE IMPACTED BY CORN SUPPLY.
Our
ethanol will be produced from cellulose, however currently most ethanol is produced from corn, which is affected by weather, governmental
policy, disease and other conditions. A significant increase in the availability of corn and resulting reduction in the price
of corn may decrease the price of ethanol and harm our business prospects.
IF
ETHANOL AND GASOLINE PRICES DROP SIGNIFICANTLY, WE WILL ALSO BE FORCED TO REDUCE OUR PRICES, WHICH POTENTIALLY MAY LEAD TO FURTHER
LOSSES IF AND WHEN WE COMMENCE ETHANOL PRODUCTION.
Prices
for ethanol products can vary significantly over time and decreases in price levels could adversely affect our profitability and
viability as well as ability to get funded. The price of ethanol has some relation to the price of gasoline. The price of ethanol
tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases.
Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect our operating results.
We cannot assure you that we will be able to sell our ethanol profitably, or at all.
INCREASED
ETHANOL PRODUCTION FROM CELLULOSE IN THE UNITED STATES COULD INCREASE THE DEMAND AND PRICE OF FEEDSTOCKS, REDUCING OUR PROFITABILITY.
New
ethanol plants that utilize cellulose as their feedstock may be under construction or in the planning stages throughout the United
States. This increased ethanol production could increase cellulose demand and prices, resulting in higher production costs and
lower profits.
PRICE
INCREASES OR INTERRUPTIONS IN NEEDED ENERGY SUPPLIES COULD CAUSE LOSS OF CUSTOMERS AND IMPAIR OUR PROFITABILITY IF AND WHEN WE
COMMENCE ETHANOL PRODUCTION.
Ethanol
production requires a constant and consistent supply of energy. If there is any interruption in our supply of energy for whatever
reason, such as availability, delivery or mechanical problems, we may be required to halt production. If we halt production for
any extended period of time, it will have a material adverse effect on our business. Natural gas and electricity prices have historically
fluctuated significantly. We purchase significant amounts of these resources as part of our ethanol production. Increases in the
price of natural gas or electricity would harm our business and financial results by increasing our energy costs.
OUR
BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING TO CONSTRUCT AND OPERATE OUR BIOREFINERY PROJECTS AND WE MAY NOT BE ABLE
TO OBTAIN SUCH FUNDING WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
Our
business plan depends on the completion of up to 19 bio-refinery projects. Although each facility will have specific funding requirements,
our proposed Lancaster Bio-refinery will require approximately $100-$125 million in EPC costs, and our proposed Fulton Project
will require approximately $300 million in EPC costs. We will be relying on additional financing, and funding from such sources
as Federal and State grants and loan guarantee programs. We are currently in discussions with potential sources of financing but
no definitive agreements are in place. If we cannot achieve the requisite financing or complete the projects as anticipated, this
could adversely affect our business, the results of our operations, prospects and financial condition.
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 provide agreements related to the balance of plant financing arrangements for the Fulton
Project. On March 17, 2015, the Company received a letter from the DOE stating that because of the upcoming September 2015 expiration
date for expending American Recovery and Reinvestment Act (ARRA) funding, it cannot reconsider its decision and the Company considers
such decision to be final. The Company considers the DOE Grant closed as of September 30, 2015. (See Note 3).
RISKS
RELATED TO GOVERNMENT REGULATION AND SUBSIDIZATION
FEDERAL
REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE, WHICH COULD CAUSE AN EROSION OF THE CURRENT COMPETITIVE STRENGTH
OF THE ETHANOL INDUSTRY.
Congress
currently provides certain federal tax credits for ethanol producers and marketers. The current ethanol industry and our business
initially depend on the continuation of these credits. The credits have supported a market for ethanol that might disappear without
the credits. These credits may not continue beyond their scheduled expiration date or, if they continue, the incentives may not
be at the same level. The revocation or amendment of any one or more of these tax incentives could adversely affect the future
use of ethanol in a material way, and we cannot assure investors that any of these tax incentives will be continued. The elimination
or reduction of federal tax incentives to the ethanol industry could have a material adverse impact on the industry as a whole.
WE
RELY ON ACCESS TO FUNDING FROM THE UNITED STATES DEPARTMENT OF ENERGY. IF WE CANNOT ACCESS GOVERNMENT FUNDING WE MAY BE UNABLE
TO FINANCE OUR PROJECTS AND/OR OUR OPERATIONS.
Our
operations have 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. 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 the second phase of DOE monies (“Award 2”).
We finalized Award 1 with a total reimbursable amount of $6,425,564, and Award 2 with a total reimbursable amount of $81,134,686.
Upon notice of the discontinuation of Award 2, the company had a total reimbursable amount of $7,231,696 and through December
31, 2015, we have an unreimbursed amount of $0 available to us under Award 1, and $0 under Award 2, as the reinstatement of the
grant was not successful and the grant was closed out as of September 30, 2015. Due to the DOE’s discontinuance of Award
2 as stated below, we cannot guarantee that we will receive any future grants, loan guarantees, or other funding for our projects
from the DOE.
The
Company estimates the amounts to be reimbursed by the DOE by applying a portion of approved indirect costs (overhead) to the direct
project costs in a calculation which derives what is known as our indirect rate. This indirect rate is used to reimburse the Company
for the costs incurred that are not directly related to the project. This rate calculation is estimated by the Company, and is
subject to change periodically. In the event that the Company over estimates this rate or under estimates this rate, it may have
an impact to our financial statements and future ability to be reimbursed under the awards.
On
December 23, 2013, BlueFire Renewables, Inc. received notice from the DOE indicating that the DOE would no longer provide funding
under the Company’s for the development of its cellulosic waste facility in Fulton, Mississippi (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. On March 17, 2015, the Company received a
letter from the DOE stating that because of the upcoming September 2015 expiration date for expending American Recovery and Reinvestment
Act (ARRA) funding, it cannot reconsider its decision and the Company considers such decision to be final. The Company considers
the Award closed as of September 30, 2015. There can be no assurances that we will be able to devise a new strategy with respect
to financing of the Fulton Project. Failure to raise additional capital would have a material adverse impact on our operations.
LAX
ENFORCEMENT OF ENVIRONMENTAL AND ENERGY POLICY REGULATIONS MAY ADVERSELY AFFECT DEMAND FOR ETHANOL.
Our
success will depend in part on effective enforcement of existing environmental and energy policy regulations. Many of our potential
customers are unlikely to switch from the use of conventional fuels unless compliance with applicable regulatory requirements
leads, directly or indirectly, to the use of ethanol. Both additional regulation and enforcement of such regulatory provisions
are likely to be vigorously opposed by the entities affected by such requirements. If existing emissions-reducing standards are
weakened, or if governments are not active and effective in enforcing such standards, our business and results of operations could
be adversely affected. Even if the current trend toward more stringent emission standards continues, we will depend on the ability
of ethanol to satisfy these emissions standards more efficiently than other alternative technologies. Certain standards imposed
by regulatory programs may limit or preclude the use of our products to comply with environmental or energy requirements. Any
decrease in the emission standards or the failure to enforce existing emission standards and other regulations could result in
a reduced demand for ethanol. A significant decrease in the demand for ethanol will reduce the price of ethanol, adversely affect
our profitability and decrease the value of your stock.
COSTS
OF COMPLIANCE WITH BURDENSOME OR CHANGING ENVIRONMENTAL AND OPERATIONAL SAFETY REGULATIONS COULD CAUSE OUR FOCUS TO BE DIVERTED
AWAY FROM OUR BUSINESS AND OUR RESULTS OF OPERATIONS TO SUFFER.
Ethanol
production involves the emission of various airborne pollutants, including particulate matter, carbon monoxide, carbon dioxide,
nitrous oxide, volatile organic compounds and sulfur dioxide. The production facilities that we will build will discharge water
into the environment. As a result, we are subject to complicated environmental regulations of the U.S. Environmental Protection
Agency and regulations and permitting requirements of the states where our plants are to be located. These regulations are subject
to change and such changes may require additional capital expenditures or increased operating costs. Consequently, considerable
resources may be required to comply with future environmental regulations. In addition, our ethanol plants could be subject to
environmental nuisance or related claims by employees, property owners or residents near the ethanol plants arising from air or
water discharges. Ethanol production has been known to produce an odor to which surrounding residents could object. Environmental
and public nuisance claims, or tort claims based on emissions, or increased environmental compliance costs could significantly
increase our operating costs.
OUR
PROPOSED NEW ETHANOL PLANTS WILL ALSO BE SUBJECT TO FEDERAL AND STATE LAWS REGARDING OCCUPATIONAL SAFETY.
Risks
of substantial compliance costs and liabilities are inherent in ethanol production. We may be subject to costs and liabilities
related to worker safety and job related injuries, some of which may be significant. Possible future developments, including stricter
safety laws for workers and other individuals, regulations and enforcement policies and claims for personal or property damages
resulting from operation of the ethanol plants could reduce the amount of cash that would otherwise be available to further enhance
our business.
RISKS
RELATED TO OUR COMMON STOCK
THERE
IS NO LIQUID MARKET FOR OUR COMMON STOCK.
Our
shares are traded on the OTCBB and the OTC Markets and the trading volume has historically been very low. An active trading market
for our shares may not develop or be sustained. We cannot predict at this time how actively our shares will trade in the public
market or whether the price of our shares in the public market will reflect our actual financial performance.
THE
MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE AND STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE
AT WHICH SUCH SHARES WERE PURCHASED.
The
market price of our common stock may fluctuate significantly. From July 11, 2006, the day we began trading publicly as BFRE.PK,
and December 31, 2015, traded as BFRE.OB, the high and low price for our common stock has been $7.90 and $0.009 per share, respectively.
Our share price has fluctuated in response to various factors, including needing additional time to organize engineering resources,
issues relating to feedstock sources, trying to locate suitable plant locations, locating distributors, Department of Energy and
Department of Agriculture funding decommittments, issuing additional shares for operations, and finding funding sources.
WE
MAY ENGAGE IN ADDITIONAL FINANCINGS THAT COULD LEAD TO DILUTION OF OUR EXISTING STOCKHOLDERS.
To
date, we have financed our activities through the proceeds from debt and equity financings. Any future financings by us may result
in substantial dilution of the holdings of existing stockholders and could have a negative impact on the market price of our common
stock. Furthermore, we cannot assure you that such future financings will be available on terms favorable to the Company or at
all.
THE
APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES AND INCREASE YOUR
TRANSACTION COSTS TO SELL THOSE SHARES.
The
U.S. Securities and Exchange Commission (the “SEC”) has adopted rule 3a51-1 which establishes the definition of a
“penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving
a penny stock, unless exempt, Rule 15g-9 requires:
|
●
|
that
a broker or dealer approve a person’s account for transactions in penny stocks; and
|
|
|
|
|
●
|
the
broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
|
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
|
●
|
obtain
financial information and investment experience objectives of the person; and
|
|
|
|
|
●
|
make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
|
●
|
sets
forth the basis on which the broker or dealer made the suitability determination; and
|
|
|
|
|
●
|
that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
AS
AN ISSUER OF “PENNY STOCK,” THE PROTECTION PROVIDED BY THE FEDERAL SECURITIES LAWS RELATING TO FORWARD LOOKING STATEMENTS
DOES NOT APPLY TO US.
Although
federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under
the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have
the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the
Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure
to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
COMPLIANCE
AND CONTINUED MONITORING IN CONNECTION WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL
EXPENSES.
Changing
laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance
matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their
application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public
disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as
we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue
generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might
be harmed which would could have a significant impact on our stock price and our business. In addition, the ongoing maintenance
of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.
YOU
COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As
of March 30, 2016, we had 404,993,005 shares of common stock outstanding and 51 shares of Series A Preferred Stock outstanding.
We are authorized to issue up to 500,000,000 shares of common stock and 1,000,000 shares of preferred stock. To the extent of
such authorization, or increased authorization, our Board of Directors will have the ability, without seeking stockholder approval,
to issue additional shares of common stock or preferred stock in the future for such consideration as the Board of Directors may
consider sufficient. The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership
and voting power.
WE
HAVE NOT AND DO NOT INTEND TO PAY ANY DIVIDENDS. AS A RESULT, YOU MAY ONLY BE ABLE TO OBTAIN A RETURN ON INVESTMENT IN OUR COMMON
STOCK IF ITS VALUE INCREASES.
We
have not paid dividends in the past and do not plan to pay dividends in the near future. We expect to retain earnings to finance
and develop our business. In addition, the payment of future dividends will be directly dependent upon our earnings, our financial
needs and other similarly unpredictable factors. As a result, the success of an investment in our common stock will depend upon
future appreciation in its value. The price of our common stock may not appreciate in value or even maintain the price at which
you purchased our shares.
THE
MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE.
The
market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements
of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about
our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements,
patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive
effects of future sales of shares of common stock by shareholders and by the Company, and subsequent sales of common stock by
the holders of warrants and options could have an adverse effect on the market price of our shares.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Description of Property.
We
lease approximately 1,500 square feet of furnished office space at 31 Musick, Irvine, California 92618 from 31 Musick LLC for
$3,000 per month on a month-to-month basis.
On
November 9, 2007, we purchased land for the Lancaster Bio-refinery with a purchase price of $109,108. The approximately 10 acre
site is presently vacant and undisturbed except for a water well on the site and to occasional use by off road vehicles. The site
is flat and has no distinguishing characteristics and is adjacent to a solid waste landfill at a site that minimizes visual access
from outside the immediate area.
On
June 14, 2010, we entered in to a lease with Itawamba County, Mississippi. The lease is for 38 acres located in the Port of Itawamba
where our Fulton Project will be located. The lease is a 30 year term and currently is $10,292 per month and will be reduced,
following a formula tied to job creation in the State of Mississippi.
Item
3. 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.
On
July 8, 2013, the Company appealed the Judgment in the Court of Appeal of the State of California, Fourth Appellate District,
Division Three (the “Appellate Court”). On July 26, 2013, the shareholders filed a cross-appeal challenging that portion
of the Judgment which held their fiduciary duty claim was unmeritorious and they were not entitled to monetary damages.
On
December 15, 2015, the Appellate Court issued an opinion (the “Opinion”) that (i) the breach of fiduciary duty cause
of action was unmeritorious; (ii) agreed with the Court’s ruling that no contract damages should be awarded; and (iii) agreed
with the Court’s interpretation of the Warrants that the Anti-Dilution Provisions applied and therefore the Company breached
the Warrants by not notifying the shareholders of a reduction in the exercise price. The Appellate Court
reversed
the Court’s
ruling that the exercise price per share of the Warrants must be reduced to $0.00.
Accordingly,
the Appellate Court reversed the Court’s Judgment and remanded for retrial solely to determine the proper remedy for the
Company’s breach of the Warrants. Pursuant to California Code of Civil Procedure Section 908 and pending retrial, the Appellate
Court authorized the Court to return the parties so far as possible to the positions they occupied before the enforcement of or
execution on the Judgment (i.e., so long as it is possible, by ordering the shareholders to return the stock they received as
a result of the enforcement of the Judgment). Section 908 provides for restitution on reasonable terms and conditions of all property
and rights lost by an erroneous judgment, and also permits entry of a money judgment sufficient to compensate for property or
rights not restored. The Company is pursuing all legal remedies to compel the return of the shares issued as part of the original
judgment.
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
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Common Equity and Related Stockholder Matters.
(a)
Market Information
Our
shares of common stock began trading under the symbol “BFRE.PK” on the Pink Sheets of the National Quotation Bureau
on July 11, 2006 and is now currently quoted on the OTCBB and the OTC Markets under the symbol “BFRE” on June 19,
2007.
The
following table sets forth the high and low trade information for our common stock for each quarter during the past three fiscal
years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily
reflect actual transactions.
Quarter
ended
|
|
Low
Price
|
|
|
High
Price
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
$
|
0.05
|
|
|
$
|
0.15
|
|
June 30, 2013
|
|
$
|
0.02
|
|
|
$
|
0.10
|
|
September 30, 2013
|
|
$
|
0.008
|
|
|
$
|
0.0259
|
|
December 31, 2013
|
|
$
|
0.009
|
|
|
$
|
0.0195
|
|
March 31, 2014
|
|
$
|
0.0015
|
|
|
$
|
0.009
|
|
June 30, 2014
|
|
$
|
0.0023
|
|
|
$
|
0.0044
|
|
September 30, 2014
|
|
$
|
0.0023
|
|
|
$
|
0.0050
|
|
December 31, 2014
|
|
$
|
0.0018
|
|
|
$
|
0.08
|
|
March 31, 2015
|
|
$
|
0.0098
|
|
|
$
|
0.05
|
|
June 30, 2015
|
|
$
|
0.004
|
|
|
$
|
0.017
|
|
September 30, 2015
|
|
$
|
0.0038
|
|
|
$
|
0.0075
|
|
December 31, 2015
|
|
$
|
0.0022
|
|
|
$
|
0.009
|
|
(b)
Holders
As
of March 30, 2016, a total of 404,993,005 shares of the Company’s common stock are currently outstanding held by approximately
834 shareholders of record.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is VStock Transfer with its business address at
18
Lafayette Pl, Woodmere, NY 11598.
(c)
Dividends
We
have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There
are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by
Nevada law.
(d)
Securities Authorized for Issuance under Equity Compensation Plans
2006
Incentive and Non-Statutory Stock Option Plan, as Amended
In
order to compensate our officers, directors, employees and/or consultants, on December 14, 2006, our Board of Directors approved
and stockholders ratified by consent the 2006 Incentive and Non-Statutory Stock Option Plan (the “Plan”). The Plan
has a total of 10,000,000 shares reserved for issuance.
On
October 16, 2007, the Board of Directors reviewed the Plan. As such, it determined that the Plan was to be used as a comprehensive
equity incentive program for which the Board of Directors serves as the plan administrator and, therefore, amended the Plan (the
“Amended and Restated Plan”) to add the ability to grant restricted stock awards.
Under
the Amended and Restated Plan, an eligible person in the Company’s service may acquire a proprietary interest in the Company
in the form of shares or an option to purchase shares of the Company’s common stock. The amendment includes certain previously
granted restricted stock awards as having been issued under the Amended and Restated Plan.
As
of December 31, 2015, we have issued the following stock options and grants under the Amended and Restated Plan:
Equity
Compensation Plan Information
Plan
category
|
|
Number
of securities to
be issued upon exercise
of outstanding options,
warrants and rights and
number of shares of
restricted stock
|
|
|
Weighted
average
exercise price
of outstanding
options, warrants
and rights (1)
|
|
|
Number
of
securities
remaining
available
for future issuance
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders under the Amended and Restated Plan
|
|
|
-
|
|
|
$
|
N/A
|
|
|
|
4,945,730
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes
shares of restricted stock issued under the Plan
|
Rule
10B-18 Transactions
During
the years ended December 31, 2015 and 2014, there were no repurchases of the Company’s common stock by the Company.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE
FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND
“RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.
PLAN
OF OPERATION
Our
primary business encompasses development activities culminating in the design, construction, ownership and long-term operation
of cellulosic ethanol production bio-refineries utilizing the licensed Arkenol Technology in North America. Our secondary business
is providing support and operational services to Arkenol Technology based bio-refineries 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 bio-refineries in North America are projected as follows:
|
●
|
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 or around July
23, 2008, the Los Angeles Planning Commission approved the use permit for construction of the plant. However, a subsequent
appeal of the county decision, which BlueFire overcame, combined with the waiting period under the California Environmental
Quality Act, pushed the effective date of the permit approval to December 12, 2008. 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 Company sees the project on hold until
we receive the funding to construct the facility. We have completed the detailed engineering and design on the project and
are seeking funding in order to build the facility. Additionally, the Company’s Lancaster plant is currently shovel
ready, except for the air permit which the Company will need to renew as stated above, 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 that could improve the
project economics for a smaller facility. The preparation for the construction of this plant was the primary capital use in
the early years of the company. Although the Company is actively seeking financing for this project no definitive agreements
are in place.
|
|
●
|
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. On or around October 4, 2007, we finalized Award
1 for a total approved budget of just under $10,000,000 with the DOE. 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 has been 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. On March 17, 2015, the Company received a letter from the DOE stating that because of the upcoming September
2015 expiration date for expending American Recovery and Reinvestment Act (ARRA) funding, it cannot reconsider its decision
and the Company considers such decision to be final. 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 August
2010, BlueFire submitted an application for a $250 million loan guarantee with the USDA, which would represent substantially
all of the funding shortfall on the project. The Company has since abandoned pursuit of both loan guarantee opportunities
but may reapply at a later date as funding opportunities arise.
|
In
2014, BlueFire signed an Engineering Procurement and Construction (EPC) contract with China Three Gorges Corporation and its subsidiary
China International Water & Electric, a large Chinese Engineering Procurement and Construction company. In tandem with the
new EPC contractor, the company is engaging Chinese banks to provide the debt financing for the Fulton Project. BlueFire has received
a letter of intent from the Export Import Bank of China to provide up to $270 million in debt financing for the Fulton project.
BlueFire is currently in negotiations and working through due diligence but no definitive agreements have yet been executed. 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
December 23, 2013, the Company received notice from the Department of Energy (the “DOE”) indicating that the DOE would
no longer provide funding under the Company’s DOE grant (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. On March 17, 2015, the Company received
a letter from the DOE stating that because of the upcoming September 2015 expiration date for expending American Recovery and
Reinvestment Act (ARRA) funding, it cannot reconsider its decision and the Company considers such decision to be final. The Company
considers the Award closed as of September 30, 2015.
Several
other opportunities are being evaluated by us in North America, although no definitive agreements have been reached.
|
●
|
In
February of 2012, SucreSource announced its first client GS Caltex, a South Korean petroleum company. In the same month, it
received the first payment under the Professional Services Agreement (PSA) for work on a facility in South Korea. As of December
31, 2014, SucreSource has completed and fulfilled all initial work and obligations under the fixed portion of the agreement.
Future work product and additional services will be billed on an hourly basis when services are performed as GS Caltex continues
to develop facilities in South Korea.
|
BlueFire’s
capital requirement strategies for its planned bio-refineries are as follows:
|
●
|
Attempt
to obtain 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.
|
|
|
|
|
●
|
Look
to acquire revenue producing, strategic assets that can be used to speed up implementation of the Company’s business
plan.
|
|
|
|
|
●
|
Sale
of Company engineering services and design packages to technology licensees.
|
|
|
|
|
●
|
Seek
out partners for acquisition of our developed projects or for the Company.
|
|
|
|
|
●
|
The
Company can look to apply for public funding to leverage private capital raised by us, as applicable.
|
DEVELOPMENTS
IN BLUEFIRE’S BIO-REFINERY ENGINEERING AND DEVELOPMENT
In
2010, BlueFire continued to develop the engineering package for the Fulton Project, and completed the 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
|
|
FEL-2
|
|
FEL-3
|
*
Material Balance
|
|
*
Preliminary Equipment Design
|
|
*
Purchase Ready Major Equipment Specifications
|
*
Energy Balance
|
|
*
Preliminary Layout
|
|
*
Definitive Estimate
|
*
Project Charter
|
|
*
Preliminary Schedule
|
|
*
Project Execution Plan
|
|
|
*
Preliminary Estimate
|
|
*
Preliminary 3D Model
|
|
|
|
|
*
Electrical Equipment List
|
|
|
|
|
*
Line List
|
|
|
|
|
*
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, mentioned above. 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, as defined below (“USDA LG”). The Company has since abandoned pursuit of both loan guarantee opportunities
but may reapply at a later date as funding opportunities arise.
In
2014, BlueFire signed an Engineering Procurement and Construction (EPC) contract with China Three Gorges Corporation and its subsidiary
China International Water & Electric, a large Chinese Engineering Procurement and Construction company. In tandem with the
new EPC contractor, the company is engaging Chinese banks to provide the debt financing for the Fulton Project. BlueFire has received
a letter of intent from the Export Import Bank of China to provide up to $270 million in debt financing for the Fulton project.
BlueFire is currently in negotiations, and working through due diligence, but no definitive agreements have yet been executed.
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”), now Tenaska Commodities
LLC, 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
Year
Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Revenue
Revenue
excluding unbilled grant revenue, for the years ended December 31, 2015 and December 31, 2014, was approximately $911,500 and
$1,595,000, respectively, and was primarily related to a federal grant from the DOE. The grant generally provides for reimbursement
in connection with related development and construction costs involving commercialization of our technologies. The decrease in
revenue was mainly due to the close-out of the DOE Award in fiscal 2015 versus the same period in fiscal 2014.
Project
Development
For
the year ended December 31, 2015, our project development costs were approximately $609,000, compared to project development costs
of $774,000 for the same period during 2014. The decrease in project development costs is mainly due to the closing out of the
Department of Energy grant and reduced activities on the Fulton project.
General
and Administrative Expenses
General
and Administrative Expenses were approximately $1,250,000 for the year ended December 31, 2015, compared to $910,000 for the same
period in 2014. The increase in general and administrative costs is mainly due to increased insurance and legal costs, as well
as costs incurred for the close out of the DOE Award.
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 December 31, 2015, we had cash
and cash equivalents of approximately $26,922. As of March 30, 2016, we had cash and cash equivalents of approximately $5,000.
Historically, we have funded our operations though the following transactions:
On
December 19, 2013, the Company entered into an agreement to borrow $37,500 under a short-term convertible note payable with a
third party which was funded and recorded in January 2014. Under the terms of the agreement, the note incurred interest at eight
percent per annum and was due on December 23, 2014. The note was convertible into common shares at any time after six months at
a discount to the then market price of our common stock. The Company could prepay the convertible debt, prior to maturity at varying
prepayment penalty rates specified under the agreement.
On
April 8, 2014, the Company finalized a $350,000 promissory note in favor of AKR Inc. (the “AKR Note”). The maturity
date of the AKR Note is April 8, 2015, and bears interest at a rate of five percent per annum. The maturity date of the note has
subsequently been extended to June 30, 2016.
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 June 30, 2016. 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.
On
December 17, 2014, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Kodiak Capital
Group, LLC (“Kodiak”). Pursuant to the terms of the Purchase Agreement, for a period of twenty-four (24) months commencing
on the date of effectiveness of the registration statement, Kodiak shall commit to purchase up to $1,500,000 of the Company’s
common stock, par value $0.001 per share (the “Put Shares”), pursuant to Puts (as defined in the Purchase Agreement),
covering the Registered Securities (as defined in the Purchase Agreement). In 2015, Kodiak purchased 20,000,000 of common stock
for $147,000.
On
April 2, 2015, the Company issued a convertible note in favor of JMJ Financial in the principal amount of $100,000 out of a total
of a possible $250,000, with a maturity date of April 1, 2017 (the “JMJ Note”). The JMJ Note was issued with a 10%
original issue discount, and is convertible at any time. The Company has the option to prepay the JMJ Note prior to maturity.
The JMJ Note is convertible into shares of the Company’s common stock as calculated by multiplying 60% of the lowest trade
price in the 25 trading days prior to the conversion date.
On
May 12, 2015, the Company issued a convertible note in favor of Vis Vires Group, Inc. in the principal amount of $59,000 with
a maturity date of February 14, 2016. Under the terms of the note, the Company is to repay any principal balance and interest,
at 8% per annum. The Company has the option to prepay the convertible promissory note prior to maturity at varying prepayment
penalty rates specified under the agreement. The convertible promissory note is 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. In accordance with the terms of the note, the note became convertible
on November 8, 2015.
Management
has estimated that operating expenses for the next twelve months will be approximately $1,500,000, 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. For the remainder of 2016, the Company intends to fund its operations with consulting revenue from
GS Caltex and others, from the sale of Fulton Project equity ownership, and from the sale of debt or equity instruments. As of
March 30, 2016, the Company expects the current resources, as well as the resources available in the short term under various
financing mechanisms, will only be sufficient for a period of approximately one month, depending upon certain funding conditions
contained herein, unless significant additional financing is received. Management has determined that general expenditures have
been reduced as much as is possible without affecting operations and that additional capital will be required in the form of equity
or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue
liabilities due to our limited cash reserves. 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.
Changes
in Cash Flows
During
the years ended December 31, 2015 and 2014, the Company used cash in operating activities of $277,211 and $198,858, respectively.
In 2015, our net loss of $1,281,907 was offset by non-cash adjustments of $285,350 and operating assets and liabilities of $719,345.
In 2014, our net loss of $387,674 was offset by non-cash adjustments of $223,167 and operating assets and liabilities of $34,351.
We
received proceeds from Vis Vires Group, Inc., Asher Enterprises and JMJ Financial in the form of convertible notes for cash of
$155,000 for the year ended December 31, 2015, versus cash of approximately $35,000 for the year ended December 31, 2014. In 2015,
we sold common stock for gross proceeds of $147,000. In 2014, we received loans from AKR of $380,000 and net advances on a related
party line of credit of $34,000 whereas in 2015, there were no such financings. In 2014, the Company also repaid a prior convertible
note payable with $275,000 in cash.
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, impairment of long-lived assets, commitments
and contingencies, and revenue recognition. 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 consolidated financial statements
appearing elsewhere in this report. 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
7A. Quantitative and Qualitative Disclosures About Market Risk.
We
do not hold any derivative instruments and do not engage in any hedging activities.
Item
8. Financial Statements.
Our
consolidated financial statements are contained in pages F-2 through F-24 which appear at the end of this annual report.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures
Our
management team, under the supervision and with the participation of our principal executive officer and our principal financial
officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of
the last day of the fiscal period covered by this report, December 31, 2015. The term disclosure controls and procedures means
our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to management, including our principal executive and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December
31, 2015.
(b)
Management’s Assessment of Internal Control over Financial Reporting
Our
principal executive officer and our principal financial officer, are responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management is required to base its
assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework,
such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in
Internal
Control-Integrated Framework
, is known as the COSO Report. Our principal executive officer and our principal financial officer
have chosen the COSO framework on which to base their assessment. Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31, 2015.
It
should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute
assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain
assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless
of how remote.
(c)
Changes in Internal Controls Over Financial Reporting
During
the most recently completed year, there were no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers, and Corporate Governance.
Directors
and Executive Officers
The
following table and biographical summaries set forth information, including principal occupation and business experience, about
our directors and executive officers as of March 30, 2015. There is no familial relationship between or among the nominees, directors
or executive officers of the Company.
NAME
|
|
AGE
|
|
POSITION
|
|
OFFICER
AND/OR
DIRECTOR SINCE
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
64
|
|
President,
CEO and Director
|
|
June
2006
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
55
|
|
Secretary,
SVP and Director
|
|
June
2006
|
|
|
|
|
|
|
|
John
Cuzens
|
|
64
|
|
SVP,
Chief Technology Officer
|
|
June
2006
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
49
|
|
Director
|
|
June
2006
|
|
|
|
|
|
|
|
Joseph
Sparano
|
|
68
|
|
Director
|
|
March
2011
|
The
Company’s directors serve in such capacity until the first annual meeting of the Company’s shareholders and until
their successors have been elected and qualified. The Company’s officers serve at the discretion of the Company’s
board of directors, until their death, or until they resign or have been removed from office.
There
are no agreements or understandings for any director or officer to resign at the request of another person and none of the directors
or officers is acting on behalf of or will act at the direction of any other person. The activities of each director and officer
are material to the operation of the Company. No other person’s activities are material to the operation of the Company.
Arnold
R. Klann – Chairman of the Board and Chief Executive Officer
Mr.
Klann has been our Chairman of the Board and Chief Executive Officer since our inception in March 2006. Mr. Klann has been President
of Arkenol, Inc. from January 1989 to present. Previously, he was President of ARK Energy, Inc. Mr. Klann has an AA from Lakeland
College in Electrical Engineering. Mr. Klann has over 30 years experience in developing and commercializing new technologies in
the energy industry. BlueFire believes that Mr. Klann’s contacts in the ethanol and cellulose industries and his overall
insight into our business are a valuable asset to the Company.
Necitas
Sumait – Senior Vice President and Director
Mrs.
Sumait has been our Director and Senior Vice President since our inception in March 2006. Prior to this, Mrs. Sumait was Vice
President of ARK Energy/Arkenol from December 1992 to July 2006. Mrs. Sumait has a MBA in Technological Management from Illinois
Institute of Technology and a B.S. in Biology from DePaul University. BlueFire believes that Mrs. Sumait’s project development
work with, and insight into, the environmental regulation and policy of our business is a valuable asset to the Company.
John
Cuzens – Chief Technology Officer and Senior Vice President
Mr.
Cuzens has been our Chief Technology Officer and Senior Vice President since our inception in March 2006. Mr. Cuzens was a Director
from March 2006 until his resignation from the Board of Directors in July 2007. Prior to this, he was Director of Projects Wahlco
Inc. from 2004 to June 2006. He was employed by Applied Utility Systems Inc from 2001 to 2004 and Hydrogen Burner Technology form
1997-2001. He was with ARK Energy and Arkenol from 1991 to 1997 and is the co-inventor on seven of Arkenol’s eight U.S.
foundation patents for the conversion of cellulosic materials into fermentable sugar products using a modified strong acid hydrolysis
process. Mr. Cuzens has a B.S. Chemical Engineering degree from the University of California at Berkeley.
Chris
Nichols – Director (Chairman, Compensation Committee)
Mr.
Nichols has been our Director since our inception in March 2006. Mr. Nichols is currently the Chief Sales Officer for Field Nation,
LLC. Previously, Mr. Nichols was the Chairman of the Board and Chief Executive Officer of Advanced Growing Systems, Inc. From
2003 to 2006, Mr. Nichols was the Senior Vice President of Westcap Securities’ Private Client Group. Prior to this, Mr.
Nichols was a Registered Representative at Fisher Investments from December 2002 to October 2003. He was a Registered Representative
with Interfirst Capital Corporation from 1997 to 2002. Mr. Nichols is a graduate of California State University in Fullerton with
a B.A. degree in Marketing. The Company believes that Mr. Nichols’ experience in public company financing will assist us
with the formation of new capital into the Company.
Joseph
Sparano – Director
Mr.
Sparano served as an executive advisor to the Western States Petroleum Association’s (“WSPA”) board of directors
until his retirement in April 2011. WSPA is an non-profit trade association that represents companies that account for the bulk
of petroleum exploration, production, refining, transportation and marketing in the six western states of Arizona, California,
Hawaii, Nevada, Oregon and Washington. In his role as executive advisor, Mr. Sparano advises the WSPA’s President and Chairman
on matters related to the trade organization’s operations and advocacy in six Western states (CA, AZ, NV, WA, OR, HI). Mr.
Sparano has served in such role since January 2010, at which time he resigned as the President of the WSPA, a role in which he
served since March 2003. Prior to joining the WSPA, from March 2000 to March 2003, Mr. Sparano served as the President of Tesoro
Petroleum Corporation’s (“Tesoro”) West Coast Regional Business Unit and as Vice President of the company’s
Heavy Fuels Marketing segment. Tesoro is an independent marketer and refiner of petroleum products. Prior to joining Teroso, from
September 1990 to August 1995, Mr. Sparano served as the Chairman and Chief Executive Officer of Pacific Refining Company, a California
based petroleum refining operation. Mr. Sparano graduated cum laude from the Stevens Institute of Technology, receiving a B.S.
in chemical engineering. The Company believes that Mr. Sparano’s experience in both mergers and acquisitions and in representing
the oil and gas industry will assist us with the formation of new strategic partnerships.
Family
Relationships
There
are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors
or executive officers.
Executive
Legal Proceedings
Except
as set forth below, no director or executive officer has been a director or executive officer of any business which has filed
a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director or executive officer
has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director
or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the
past five years. No director or officer has been found by a court to have violated a federal or state securities or commodities
law during the past five years.
None
of our directors or executive officers or their respective immediate family members or affiliates are indebted to us.
Committees
of the Board of Directors
Each
of our Audit Committee, Compensation Committee and Nomination Committee are composed of a majority of independent board members
and are also chaired by an independent board member.
Audit
Committee
Christopher
Nichols, Chairman; Joseph Sparano
Compensation
Committee
Christopher
Nichols, Chairman; Joespeh Sparano
Nomination
Committee
Joseph
Sparano, Chairman; Arnold Klann; Necitas Sumait
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more
of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in
beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and
regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a). To the
best of the Company’s knowledge, any reports required to be filed were timely filed as of March 30, 2016.
Code
of Ethics
The
Company has adopted a Code of Ethics that applies to the Registrant’s directors, officers and key employees.
Board
Nomination Procedure
There
has been no material change to the procedures by which security holders may recommend nominees to the Company’s board of
directors since the Company provided disclosure on such process on its proxy statement on Schedule 14A, as amended, filed on May
19, 2010, with the SEC.
Item
11. Executive Compensation.
The
following table sets forth information with respect to compensation paid by us to our executive officers during the three most
recent fiscal years. This information includes the dollar value of base salaries, bonus awards and number of stock options granted,
and certain other compensation, if any.
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)(2)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($) (1)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
2015
|
|
|
|
226,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
226,000
|
|
Chief
Executive Officer,
|
|
2014
|
|
|
|
226,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
226,000
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
2015
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Secretary,
|
|
2014
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
2015
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Treasurer,
|
|
2014
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects
the value of shares of restricted common stock issued as compensation for serving on the Company’s board of directors.
See notes to the consolidated financial statements for valuation.
|
|
|
|
|
(2)
|
In
2015, due to a lack of capital, the Company accrued and did not pay seven months of executive salary totaling $341,833.
|
2015
Outstanding Equity Awards at Fiscal Year
OPTION
AWARDS
|
|
|
|
|
STOCK
AWARDS
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
|
Option
Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
|
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
|
|
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
|
|
Equity
Incentive Plan
Awards: Market
or Payout Value
of Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
Director Compensation Table
Name
|
|
Fees
Earned or Paid in Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Change
in Pension Value and Non- Qualified Deferred Compensation Earnings ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Nichols (1)
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Sparano (1)
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
(1)
|
Reflects
cash amount accrued but not paid as of December 31, 2015
|
Employment
Contracts
On
June 27, 2006, the Company entered into employment agreements with three key employees. The employment agreements were for a period
of three years, which expired in 2010, with prescribed percentage increases beginning in 2007 and could have been cancelled upon
a written notice by either employee or employer (if certain employee acts of misconduct are committed). The total aggregate annual
amount due under the employment agreements was approximately $586,000 per year. These contracts have not been renewed. Each of
the executive officers are currently working for the Company on a month to month basis under the same terms.
On
November 12, 2015, the Board of Directors approved the re-election of Joseph Sparano, Christopher Nichols, Arnold Klann and Necitas
Sumait. As of December 31, 2015, the Company has not yet granted to each member the stock to be issued for this reelection.
Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters.
As
of March 30, 2016, our authorized capitalization was 501,000,000 shares of capital stock, consisting of 500,000,000 shares of
common stock, $0.001 par value per share and 1,000,000 shares of preferred stock, no par value per share. As of December 31, 2015,
there were 308,130,833 shares of our common stock outstanding, all of which were fully paid, non-assessable and entitled to vote.
Each share of our common stock entitles its holder to one vote on each matter submitted to the stockholders.
The
following table sets forth, as of March 30, 2016, the number of shares of our common stock owned by (i) each person who is known
by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii)
each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each
of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.
The
address of each owner who is an officer or director is c/o the Company at 31 Musick, Irvine California 92618.
Name
of Beneficial Owner (1)
|
|
Shares
of Series A Preferred
|
|
|
Percent
of Series A Preferred (2)
|
|
|
Shares
of Common Stock
|
|
|
Percent
of Common Stock (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold Klann
|
|
|
15
|
|
|
|
29.41
|
%
|
|
|
20,290,258
|
|
|
|
5.01
|
%
|
Chief Executive Officer, President,
Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas Sumait
|
|
|
12
|
|
|
|
23.53
|
%
|
|
|
3,096,000
|
|
|
|
*
|
%
|
Senior Vice President, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Cuzens
|
|
|
-
|
|
|
|
0
|
%
|
|
|
3,058,500
|
|
|
|
*
|
|
Chief Technology Officer, Senior Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Nichols
|
|
|
12
|
|
|
|
23.53
|
%
|
|
|
24,500
|
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Sparano
|
|
|
12
|
|
|
|
23.53
|
%
|
|
|
12,000
|
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers and directors as a group
(5 persons)
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
6.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers, directors and 5% holders
as a group (5 persons)
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
6.54
|
%
|
*
denotes less than 1%
|
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power
with respect to securities.
|
|
|
|
|
(2)
|
Figures
may not add up due to rounding of percentages.
|
Share
Issuances/Consulting Agreements
On
November 12, 2015, the Company renewed all of its existing Directors’ appointments, but as of March 30, 2016, the Company
has not yet granted to each member the stock to be issued pursuant to their appointments. The $5,000 to the two outside members
was accrued, and as yet unpaid as of December 31, 2015. Pursuant to the Board of Director agreements, the Company’s “in-house”
board members (CEO and Vice-President) waived their annual cash compensation of $5,000.
Stock
Option Issuances Under Amended 2006 Plan
No
stock options have been granted by the Company’s Board of Directors in 2014 or 2015.
Description
of Securities
The
Company is authorized to issue 500,000,000 shares of $0.001 par value common stock, and 1,000,000 shares of no par value preferred
stock. As of March 30, 2016, the Company had 404,993,005 shares of common stock outstanding, and 51 shares of Series A Preferred
Stock outstanding.
Common
Stock
As
of March 30, 2016, we had 404,993,005 shares of common stock outstanding. The shares of our common stock presently outstanding,
and any shares of our common stock issues upon exercise of stock options and/or warrants, will be fully paid and non-assessable.
Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority
vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the
holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all
our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common
stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since
the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect
all of our Directors, and the holders of the remaining shares by themselves cannot elect any Directors. Holders of common stock
are entitled to receive dividends, if and when declared by the Board of Directors, out of funds legally available for such purpose,
subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.
Voting
Rights
Each
holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders.
Dividends
Subject
to preferences that may be applicable to any then-outstanding shares of preferred stock, if any, and any other restrictions, holders
of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s
board of directors out of legally available funds. The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any future payment of any dividends on common stock.
Preferred
Stock
As
of March 30, 2016, we had 51 shares of preferred stock outstanding. We may issue preferred stock in one or more class or series
pursuant to resolution of the Board of Directors. The Board of Directors may determine and alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series of preferred stock, and fix the number of shares and the
designation of any series of preferred stock. The Board of Directors may increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any wholly unissued class or series subsequent to the issue of shares
of that class or series. We have no present plans to issue any shares of preferred stock.
Series
A Preferred Stock
On
September 30, 2015, the Company filed an amendment to the Company’s articles of incorporation with the Secretary of State
of the State of Nevada, which, among other things, established the designation, powers, rights, privileges, preferences and restrictions
of the Series A Preferred Stock, no par value per share (the “Series A Preferred Stock”). Among other things, each
one (1) share of the Series A Preferred Stock shall have voting rights equal to(x) 0.019607 multiplied by the total issued and
outstanding shares of common stock of the Company eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, minus (z) the Numerator. For purposes of illustration only, if the total issued and outstanding shares of
common stock of the Company eligible to vote at the time of the respective vote is 5,000,000, the voting rights of one share of
the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000) / 0.49) – (0.019607 x 5,000,000) = 102,036).
The
Series A Preferred Stock has no dividend rights, no liquidation rights and no redemption rights, and was created primarily to
be able to obtain a quorum and conduct business at shareholder meetings. All shares of the Series A Preferred Stock shall rank
(i) senior to the Company’s common stock and any other class or series of capital stock of the Company hereafter created,
(ii) pari passu with any class or series of capital stock of the Company hereafter created and specifically ranking, by its terms,
on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Company hereafter created
specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
Warrants
As
of March 30, 2016, we had warrants to purchase an aggregate of 23,100,000 shares of our common stock outstanding. The exercise
prices for the warrants are $0.007.
Options
As
of March 30, 2016, we had no options outstanding.
Anti-Takeover
Provisions
Our
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that may make it more difficult
for a third party to acquire or may discourage acquisition bids for us. Our Board of Directors may, without action of our stockholders,
issue authorized but unissued common stock and preferred stock. The issuance of additional shares to certain persons allied with
our management could have the effect of making it more difficult to remove our current management by diluting the stock ownership
or voting rights of persons seeking to cause such removal. The existence of unissued preferred stock may enable the Board of Directors,
without further action by the stockholders, to issue such stock to persons friendly to current management or to issue such stock
with terms that could render more difficult or discourage an attempt to obtain control of us, thereby protecting the continuity
of our management. Our shares of preferred stock could therefore be issued quickly with terms that could delay, defer, or prevent
a change in control of us, or make removal of management more difficult.
Disclosure
of Commission Position on Indemnification for Securities Act Liabilities
The
Company’s Amended and Restated Bylaws provide for indemnification of directors and officers against certain liabilities.
Officers and directors of the Company are indemnified generally for any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, against expenses,
including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe
his conduct was unlawful.
The
Company’s Amended and Restated Articles of Incorporation further provides the following indemnifications:
(a)
a director of the Corporation shall not be personally liable to the Corporation or to its shareholders for damages for breach
of fiduciary duty as a director of the Corporation or to its shareholders for damages otherwise existing for (i) any breach of
the director’s duty of loyalty to the Corporation or to its shareholders; (ii) acts or omission not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) acts revolving around any unlawful distribution or contribution;
or (iv) any transaction from which the director directly or indirectly derived any improper personal benefit. If Nevada Law is
hereafter amended to eliminate or limit further liability of a director, then, in addition to the elimination and limitation of
liability provided by the foregoing, the liability of each director shall be eliminated or limited to the fullest extent permitted
under the provisions of Nevada Law as so amended. Any repeal or modification of the indemnification provided in these Articles
shall not adversely affect any right or protection of a director of the Corporation under these Articles, as in effect immediately
prior to such repeal or modification, with respect to any liability that would have accrued, but for this limitation of liability,
prior to such repeal or modification.
(b)
the Corporation shall indemnify, to the fullest extent permitted by applicable law in effect from time to time, any person, and
the estate and personal representative of any such person, against all liability and expense (including, but not limited to attorney’s
fees) incurred by reason of the fact that he is or was a director or officer of the Corporation, he is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of, or in any similar managerial or
fiduciary position of, another domestic or foreign corporation or other individual or entity of an employee benefit plan. The
Corporation shall also indemnify any person who is serving or has served the Corporation as a director, officer, employee, fiduciary,
or agent and that person’s estate and personal representative to the extent and in the manner provided in any bylaw, resolution
of the shareholders or directors, contract, or otherwise, so long as such provision is legally permissible.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors,
officers or controlling persons in the successful defense of any action, suit or proceedings) is asserted by such director, officer,
or controlling person in connection with any securities being registered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.
Item
13. Certain Relationships and Related Transactions.
Technology
Agreement with Arkenol, Inc.
On
March 1, 2006, the Company entered into a Technology License agreement with Arkenol, Inc. (“Arkenol”), which the Company’s
Chairman/Chief Executive Officer and other family members hold an interest in. Arkenol has its own management and board separate
and apart from the Company. According to the terms of the agreement, the Company was granted an exclusive, non-transferable, North
American license to use and to sub-license the Arkenol technology. The Arkenol Technology, converts cellulose and waste materials
into Ethanol and other high value chemicals. As consideration for the grant of the license, the Company shall make a one-time
payment of $1,000,000 at first project construction funding or term of a Licensee or sublicense project, and for each plant make
the following payments: (1) royalty payment of 3% of the gross sales price for sales by the Company or its sub licensees of all
products produced from the use of the Arkenol Technology (2) and a one-time license fee of $40.00 per 1,000 gallons of production
capacity per plant. According to the terms of the agreement, the Company made a one-time exclusivity fee prepayment of $30,000
during the period ended December 31, 2006. The agreement term is for 30 years from the effective date.
During
2008, due to the receipt of proceeds from the Department of Energy as well as the term of a sublicense agreement to the Fulton
project, the Board of Directors determined that the Company had triggered its obligation to incur the full $1,000,000 Arkenol
License fee. The Board of Directors determined that the receipt of these proceeds constituted “First Project Construction
Funding” as established under the Arkenol technology agreement. As such, the statement of operation reflects the one-time
license fee of $1,000,000 and the unpaid balance of $970,000 was included in license fee payable to related party on the accompanying
consolidated balance sheet as of December 31, 2008. The prepaid fee to related party of $30,000 was eliminated as of December
31, 2008. The Company repaid the $970,000 to the related party on March 9, 2009.
Asset
Transfer Agreement with Ark Energy, Inc.
On
March 1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement with ARK Energy, Inc. (“ARK Energy”),
which is owned (50%) by the Company’s CEO. ARK Energy has its own management and board separate and apart from the Company.
Based upon the terms of the agreement, ARK Energy transferred certain rights, assets, work-product, intellectual property and
other know-how on project opportunities that may be used to deploy the Arkenol technology (as described in the above paragraph).
In consideration, the Company has agreed to pay a performance bonus of up to $16,000,000 when certain milestones are met. These
milestones include transferee’s project implementation which would be demonstrated by start of the construction of a facility
or completion of financial closing whichever is earlier. The payment is based on ARK Energy’s cost to acquire and develop
19 sites which are currently at different stages of development. The company has not paid for, developed or utilized any of these
assets to date.
Related
Party Loan Agreement
On
December 15, 2010, the Company entered into a loan agreement (the “Loan Agreement”) by and between Arnold Klann, the
Chief Executive Officer, Chairman of the board of directors and, at the time, the majority shareholder of the Company, as lender
(the “Lender”), and the Company, as borrower. Pursuant to the Loan Agreement, the Lender agreed to advance to the
Company a principal amount of $200,000 (the “Loan”). The Loan Agreement requires the Company to (i) pay to the Lender
a one-time amount equal to fifteen percent (15%) of the Loan (the “Fee Amount”) in cash or shares of the Company’s
common stock at a value of $0.50 per share, at the Lender’s option; and (ii) issue the Lender warrants allowing the Lender
to buy 500,000 common shares of the Company at an exercise price of $0.50 per common share, such warrants expired December 15,
2013. The Company has promised to pay in full the outstanding principal balance of any and all amounts due under the Loan Agreement
within thirty (30) days of the Company’s receipt of investment financing or a commitment from a third party to provide $1,000,000
to the Company or one of its subsidiaries (the “Due Date”), to be paid in cash or shares of the Company’s common
stock, at the Lender’s option. The warrants are now expired.
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 twelve
months ended December 31, 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 twelve months ended December 31, 2014,
the Company and the CEO amended this line of credit so that the maximum amount that could be borrowed is $55,000. Subsequent to
December 31, 2015, this line of credit was amended which allowed the Company to borrow an additional $14,000 (See Note 12). Although
the Company has raised more than $100,000, the CEO does not hold the Company in default.
Item
14. Principal Accountant Fees and Services.
a.
Audit Fees: Aggregate fees billed by dbb
mckennon
for professional services rendered for the audit of our annual financial
statements included in Form 10-K and review of our financial statements included in Form 10-Q for the years ended December 31,
2015 and 2014, were approximately $44,430 and $52,100 respectively.
b.
Audit-Related Fees: No fees were billed for assurance and related services reasonably related to the performance of the audit
or review of our financial statements and not reported under “Audit Fees” above in the years ended December 31, 2015
and 2014.
c.
Tax Fees: Aggregate fees billed by dbb
mckennon
for tax services for the years ended December 31, 2015 and 2014, were approximately
$0 and $0.
d.
All Other Fees: Aggregate fees billed for professional services provided by dbb
mckennon
other than those described above
were approximately $175,000 for the year ended December 31, 2015 and $0 for the year ended December 31, 2014. The fees in 2015
were incurred for the Company’s DOE compliance audits that were required by the DOE as part of the close out of Award 2.
The Company was required to obtain a compliance audit for the years ended December 31, 2014, 2013, 2012, and 2011.
dbb
mckennon
was at the 2015 stockholders’ meeting and is expected to be present at the 2016 meeting.
Audit
Committee Pre-Approval Policies and Procedures
The
Company’s Audit Committee has policies and procedures that require the pre-approval by the Audit Committee of all fees paid
to, and all services performed by, the Company’s independent accounting firms. At the beginning of each year, the Audit
Committee approves the proposed services, including the nature, type and scope of services contemplated and the related fees,
to be rendered by these firms during the year. In addition, Audit Committee pre-approval is also required for those engagements
that may arise during the course of the year that are outside the scope of the initial services and fees pre-approved by the Audit
Committee.
Pursuant
to the Sarbanes-Oxley Act of 2002, 100% of the fees and services provided as noted above were authorized and approved by the Audit
Committee in compliance with the pre-approval policies and procedures described herein.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
Exhibit
No.
|
|
Description
|
|
|
|
2.1
|
|
Stock
Purchase Agreement and Plan of Reorganization, dated May 31, 2006 (Incorporated by reference to the Company’s Form 10-SB,
as filed with the SEC on December 13, 2006).
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation, dated July 2, 2006 (Incorporated by reference to the Company’s Form 10-SB, as
filed with the SEC on December 13, 2006).
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws, dated May 27, 2006 (Incorporated by reference to the Company’s Form 10-SB, as filed with the SEC
on December 13, 2006).
|
|
|
|
3.3
|
|
Second
Amended and Restated Bylaws, dated April 24, 2008 (Incorporated by reference to the Company’s Form 8-K, as filed with
the SEC on April 29, 2008).
|
|
|
|
3.4
|
|
Amended
and Restated Articles of Incorporation, dated July 20, 2010 (Incorporated by reference to the Company’s Form 8-K, as
filed with the SEC on July 26, 2010).
|
|
|
|
3.5
|
|
Amendment
to the Articles of Incorporation, dated November 25, 2013 (Incorporated by reference to Exhibit 3.1 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2013)
|
|
|
|
3.6
|
|
Amendment
to the Articles of Incorporation, Series A Preferred Certificate of Designation, dated September 30, 2015 (Incorporated by
reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission
on October 6, 2015)
|
|
|
|
10.1
|
|
Arkenol
Technology License Agreement, dated March 1, 2006 (Incorporated by reference to the Company’s Form 10-SB, as filed with
the SEC on December 13, 2006).
|
|
|
|
10.2
|
|
ARK
Energy Asset Transfer and Acquisition Agreement, dated March 1, 2006 (Incorporated by reference to the Company’s Form
10-SB, as filed with the SEC on December 13, 2006).
|
|
|
|
10.3
|
|
Amended
and Restated 2006 Incentive and Non-Statutory Stock Option Plan, dated December 13, 2006 (Incorporated by reference to the
Company’s Form S-8, as filed with the SEC on December 17, 2007).
|
|
|
|
10.4
|
|
Purchase
Agreement, dated as of January 19, 2011, by and between the Company and Lincoln Park Capital Fund, LLC (Incorporated by reference
to the Company’s Form 8-K, as filed with the SEC on January 24, 2011).
|
|
|
|
10.5
|
|
Registration
Rights Agreement, dated as of January 19, 2011, by and between the Company and Lincoln Park Capital Fund, LLC (Incorporated
by reference to the Company’s Form 8-K, as filed with the SEC on January 24, 2011).
|
|
|
|
14.1
|
|
Code
of Ethics (Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on March 6, 2009).
|
|
|
|
31.1
|
|
Certification
by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a)).*
|
|
|
|
31.2
|
|
Certification
by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a)).*
|
|
|
|
32.1
|
|
Certification
by the 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
by the 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 *
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase *
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase *
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase *
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase *
|
*
filed herewith
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
BLUEFIRE
RENEWABLES, INC.
|
|
|
|
Date:
March 30, 2016
|
By:
|
/s/
Arnold R. Klann
|
|
Name:
|
Arnold
R. Klann
|
|
Title:
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
(Principal
Financial Officer)
|
|
|
(Principal
Accounting Officer)
|
In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Arnold R. Klann
|
|
Chairman,
Chief Executive Officer, President, Principal
|
|
March
30, 2016
|
Arnold
R. Klann
|
|
Executive
Officer, Principal Financial Officer and Principal Accounting Officer
|
|
|
|
|
|
|
|
/s/
Necitas Sumait
|
|
Director,
Secretary and Senior Vice President
|
|
March
30, 2016
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
/s/
John Cuzens
|
|
Chief
Technology Officer and Senior Vice President
|
|
March
30, 2016
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
/s/
Chris Nichols
|
|
Director
|
|
March
30, 2016
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Sparano
|
|
Director
|
|
March
30, 2016
|
Joseph
Sparano
|
|
|
|
|
FINANCIAL
STATEMENTS
Index
to Consolidated Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
BlueFire
Renewables, Inc. and subsidiaries
We
have audited the accompanying consolidated balance sheets of BlueFire Renewables, Inc. and subsidiaries (collectively the “Company”),
as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit, and cash
flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of BlueFire Renewables, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed
in Note 2 of the consolidated financial statements, the Company has limited working capital, incurred losses, and has significant
operating costs expected to be incurred in the next twelve months. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans with respect to these matters are discussed in Note 2. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
dbbmckennon
|
|
Newport
Beach, California
|
|
March
30, 2016
|
|
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,922
|
|
|
$
|
22,134
|
|
Prepaid expenses
|
|
|
9,291
|
|
|
|
6,274
|
|
Total current assets
|
|
|
36,213
|
|
|
|
28,408
|
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation of $107,897 and $107,003, respectively
|
|
|
109,384
|
|
|
|
110,278
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
145,597
|
|
|
$
|
138,686
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
899,887
|
|
|
$
|
962,589
|
|
Accrued liabilities
|
|
|
730,759
|
|
|
|
187,935
|
|
Notes payable
|
|
|
420,000
|
|
|
|
368,665
|
|
Line of credit, related party
|
|
|
45,230
|
|
|
|
45,230
|
|
Note payable to a related party
|
|
|
200,000
|
|
|
|
200,000
|
|
Outstanding warrant
liability
|
|
|
199
|
|
|
|
-
|
|
Total current
liabilities
|
|
|
2,296,075
|
|
|
|
1,764,419
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discount
of $32,886 and $0, respectively
|
|
|
20,084
|
|
|
|
-
|
|
Derivative liability
|
|
|
290,092
|
|
|
|
|
|
Outstanding warrant
liability
|
|
|
-
|
|
|
|
16,567
|
|
Total liabilities
|
|
|
2,606,251
|
|
|
|
1,780,986
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
865,614
|
|
|
|
864,867
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 1,000,000
shares authorized; 51 and no shares issued and outstanding as of December 31, 2015 and 2014, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 500,000,000
shares authorized; 308,163,005 and 226,890,279 shares issued and 308,130,833 and 226,858,107 outstanding, as of December 31,
2015 and 2014, respectively
|
|
|
308,163
|
|
|
|
226,891
|
|
Additional paid-in capital
|
|
|
16,967,128
|
|
|
|
16,584,847
|
|
Treasury stock at cost, 32,172 shares
|
|
|
(101,581
|
)
|
|
|
(101,581
|
)
|
Accumulated deficit
|
|
|
(20,499,978
|
)
|
|
|
(19,217,324
|
)
|
Total stockholders’
deficit
|
|
|
(3,326,268
|
)
|
|
|
(2,507,167
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ deficit
|
|
$
|
145,597
|
|
|
$
|
138,686
|
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the year
ended
|
|
|
For
the year
ended
|
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Consulting
fees
|
|
$
|
-
|
|
|
$
|
263,178
|
|
Department
of Energy grant revenues
|
|
|
911,458
|
|
|
|
1,331,458
|
|
Total
revenues
|
|
|
911,458
|
|
|
|
1,594,636
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
Consulting
revenue
|
|
|
-
|
|
|
|
64,605
|
|
Gross
margin
|
|
|
911,458
|
|
|
|
1,530,031
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Project
development, including stock based compensation of $0, and $0, respectively
|
|
|
608,679
|
|
|
|
774,132
|
|
General
and administrative, including stock based compensation of $0 and $46,711, respectively
|
|
|
1,250,008
|
|
|
|
909,648
|
|
Total
operating expenses
|
|
|
1,858,687
|
|
|
|
1,683,780
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(947,229
|
)
|
|
|
(153,749
|
)
|
|
|
|
|
|
|
|
|
|
Other
income and (expense):
|
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
(201,682
|
)
|
|
|
(142,445
|
)
|
Interest
expense
|
|
|
(42,176
|
)
|
|
|
(51,286
|
)
|
Related
party interest expense
|
|
|
(5,503
|
)
|
|
|
(4,599
|
)
|
Gain
on settlement of accounts payable and accrued liabilities
|
|
|
235,919
|
|
|
|
95,990
|
|
Change
in fair value of warrant liability
|
|
|
16,368
|
|
|
|
(16,509
|
)
|
Change
in fair value of derivative liability
|
|
|
(22,849
|
)
|
|
|
(112,785
|
)
|
Loss
on excess fair value of derivative liability
|
|
|
(312,212
|
)
|
|
|
-
|
|
Total
other income and (expense)
|
|
|
(332,135
|
)
|
|
|
(231,634
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(1,279,364
|
)
|
|
|
(385,383
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
2,543
|
|
|
|
2,291
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,281,907
|
)
|
|
$
|
(387,674
|
)
|
Net
income attributable to noncontrolling interest
|
|
|
747
|
|
|
|
8,823
|
|
Net
loss attributable to controlling interest
|
|
$
|
(1,282,654
|
)
|
|
$
|
(396,497
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share attributable to controlling interest
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
248,518,121
|
|
|
|
170,370,290
|
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
|
Series
A
Preferred Stock
|
|
Common
Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Deficit
|
|
Balances at December 31, 2013
|
|
-
|
|
-
|
|
|
68,910,395
|
|
|
|
68,943
|
|
|
|
16,123,744
|
|
|
|
(18,820,827
|
)
|
|
|
(101,581
|
)
|
|
|
(2,729,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued for conversion
of notes in 2014 at a range of $0.0015 and $0.008 per share
|
|
-
|
|
-
|
|
|
46,745,690
|
|
|
|
46,746
|
|
|
|
26,054
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,800
|
|
Common Shares issued in connection with
3(a)10 transaction in at a range of $0.0026 and $0.0075 per share
|
|
-
|
|
-
|
|
|
65,554,295
|
|
|
|
65,554
|
|
|
|
115,094
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,648
|
|
Common Shares issued in connection with
the conversion of notes pursuant to 3(a)10 transaction in 2014 at a range of $0.0029 and $0.0048 per share
|
|
-
|
|
-
|
|
|
45,647,727
|
|
|
|
45,648
|
|
|
|
6,777
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,425
|
|
Discount on fair value of warrants
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
42,323
|
|
|
|
|
|
|
|
-
|
|
|
|
42,323
|
|
Extinguishment of derivative liabilities
associated with convertible notes
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
270,855
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270,855
|
|
Net loss attributable
to controlling interest
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(396,497
|
)
|
|
|
|
|
|
|
(396,497
|
)
|
Balances at December 31, 2014
|
|
-
|
|
-
|
|
|
226,858,107
|
|
|
|
226,891
|
|
|
|
16,584,847
|
|
|
|
(19,217,324
|
)
|
|
|
(101,581
|
)
|
|
|
(2,507,167
|
)
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
|
Series
A
Preferred Stock
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
Treasury
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
Stock
|
|
|
Deficit
|
|
Balances
at December 31, 2014
|
|
-
|
|
-
|
|
|
226,858,107
|
|
|
|
226,891
|
|
|
|
16,584,847
|
|
|
(19,217,324
|
)
|
|
(101,581
|
)
|
|
|
(2,507,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued for cash pursuant to S-1 in 2015 at a price of $0.03 per share
|
|
-
|
|
-
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
127,000
|
|
|
-
|
|
|
-
|
|
|
|
147,000
|
|
Common
Shares issued for conversion of notes in 2015 at a range of $0.0007 to $0.003 per share
|
|
-
|
|
-
|
|
|
61,272,726
|
|
|
|
61,272
|
|
|
|
57,117
|
|
|
-
|
|
|
-
|
|
|
|
118,389
|
|
Issuance of
Series A Preferred stock
|
|
51
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
Extinguishment
of derivative liabilities associated with convertible notes
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
198,164
|
|
|
-
|
|
|
-
|
|
|
|
198,164
|
|
Net
loss attributable to controlling interest
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,282,654
|
)
|
|
|
|
|
|
(1,282,654
|
)
|
Balances
at December 31, 2015
|
|
5
1
|
|
-
|
|
|
308,130,833
|
|
|
|
308,163
|
|
|
|
16,967,128
|
|
|
(20,499,978
|
)
|
|
(101,581
|
)
|
|
|
(3,326,268
|
)
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the year
ended
|
|
|
For
the year
ended
|
|
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,281,907
|
)
|
|
$
|
(387,674
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change
in fair value of warrant liability
|
|
|
(16,368
|
)
|
|
|
16,509
|
|
Change
in fair value of derivative liability
|
|
|
22,849
|
|
|
|
112,785
|
|
Loss
on excess fair value of derivative liability
|
|
|
312,212
|
|
|
|
-
|
|
Gain
on settlement of accounts payable and accrued liabilities
|
|
|
(235,919
|
)
|
|
|
(95,990
|
)
|
Share-based
compensation
|
|
|
|
|
|
|
46,711
|
|
Amortization
|
|
|
201,682
|
|
|
|
142,445
|
|
Depreciation
|
|
|
894
|
|
|
|
706
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(3,017
|
)
|
|
|
(1,638
|
)
|
Accounts
payable
|
|
|
173,216
|
|
|
|
46,565
|
|
Accrued
liabilities
|
|
|
549,146
|
|
|
|
(79,277
|
)
|
Net
cash used in operating activities
|
|
|
(277,212
|
)
|
|
|
(198,858
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
147,000
|
|
|
|
-
|
|
Proceeds
from convertible notes payable
|
|
|
155,000
|
|
|
|
35,000
|
|
Repayment
of notes payable
|
|
|
(20,000
|
)
|
|
|
(275,000
|
)
|
Proceeds
from notes payable
|
|
|
-
|
|
|
|
380,000
|
|
Proceeds
from related party line of credit/notes payable
|
|
|
-
|
|
|
|
34,000
|
|
Net
cash provided by financing activities
|
|
|
282,000
|
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,788
|
|
|
|
(24,858
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents beginning of period
|
|
|
22,134
|
|
|
|
46,992
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents end of period
|
|
$
|
26,922
|
|
|
$
|
22,134
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
98,179
|
|
Income
taxes
|
|
$
|
2,400
|
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion
of non-secured convertible notes payable
|
|
$
|
118,389
|
|
|
$
|
70,000
|
|
Interest
converted to common stock
|
|
$
|
-
|
|
|
$
|
2,800
|
|
Derivative
liability reclassified to additional paid-in capital
|
|
$
|
198,164
|
|
|
$
|
-
|
|
Discount
on convertible notes payable
|
|
$
|
153,196
|
|
|
$
|
42,323
|
|
Liabilities
settled in connection with the Liability Purchase Agreement
|
|
$
|
|
|
|
$
|
135,432
|
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND BUSINESS
BlueFire
Ethanol, 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
September 30, 2015, the Company filed an amendment to the Company’s articles of incorporation with the Secretary of State
of the State of Nevada, which, among other things, established the designation, powers, rights, privileges, preferences and restrictions
of the Series A Preferred Stock, no par value per share (the “Series A Preferred Stock”). Among other things, each
one (1) share of the Series A Preferred Stock shall have voting rights equal to(x) 0.019607 multiplied by the total issued and
outstanding shares of common stock of the Company eligible to vote at the time of the respective vote (the “Numerator”),
divided by (y) 0.49, minus (z) the Numerator. For purposes of illustration only, if the total issued and outstanding shares of
common stock of the Company eligible to vote at the time of the respective vote is 5,000,000, the voting rights of one share of
the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000) / 0.49) – (0.019607 x 5,000,000) = 102,036).
The
Series A Preferred Stock has no dividend rights, no liquidation rights and no redemption rights, and was created primarily to
be able to obtain a quorum and conduct business at shareholder meetings. All shares of the Series A Preferred Stock shall rank
(i) senior to the Company’s common stock and any other class or series of capital stock of the Company hereafter created,
(ii) pari passu with any class or series of capital stock of the Company hereafter created and specifically ranking, by its terms,
on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Company hereafter created
specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern
The
Company has historically incurred recurring losses. Management has funded operations primarily through loans from its Chairman/Chief
Executive Officer, 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 2015. 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 December 31, 2015, the Company has negative working capital of approximately $2,260,000. Management has estimated that operating
expenses for the next 12 months will be approximately $1,500,000, 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 2016,
the Company intends to fund its operations with any additional funding that can be secured in the form of equity or debt. As of
March 30, 2015, 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 or at all. 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 (Note 3), procured all necessary
permits for construction of the plant, and began site clearing and preparation work, signaling the beginning of construction.
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 through such date 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.
Principles
of Consolidation
The
consolidated financial statements include the accounts of BlueFire Renewables, Inc., and its wholly-owned subsidiary, BlueFire
Ethanol, Inc. BlueFire Ethanol Lancaster, LLC, BlueFire Fulton Renewable Energy LLC (excluding 1% interest sold), and SucreSource
LLC 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. Significant estimates include, but are
not limited to, DOE Grant reimbursements, valuation of warrants and derivative liabilities, and impairment of long-lived assets.
Cash
and Cash Equivalents
For
purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Debt
Issuance Costs
Debt
issuance costs are capitalized and amortized over the term of the debt using the effective interest method, or expensed upon conversion
or extinguishment when applicable. Costs are capitalized for amounts incurred in connection with proposed financings. In the event
the financing related to the capitalized cost is not successful, the costs are immediately expensed (see Note 5).
Accounts
Receivable
Accounts
receivable are reported net of allowance for expected losses. It represents the amount management expects to collect from outstanding
balances. Differences between the amount due and the amount management expects to collect are charged to operations in the year
in which those differences are determined, with an offsetting entry to a valuation allowance. As of December 31, 2015 and 2014,
the Company has no reserve allowance.
Intangible
Assets
License
fees acquired are either expensed or recognized as intangible assets. The Company recognizes intangible assets when the following
criteria are met: 1) the asset is identifiable, 2) the Company has control over the asset, 3) the cost of the asset can be measured
reliably, and 4) it is probable that economic benefits will flow to the Company.
Property
and Equipment
Property
and equipment are stated at cost. The Company’s fixed assets are depreciated using the straight-line method over a period
ranging from three to five years, except land which is not depreciated. Maintenance and repairs are charged to operations as incurred.
Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment,
the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.
During the year ended December 31, 2010, the Company began to capitalize costs in connection with the construction of its Fulton
plant, and continued to do so in 2013 until it was determined that the project should be impaired. A portion of these costs were
reimbursed under the Department of Energy grant discussed in Note 3. The reimbursable portion was treated as a reduction of those
costs.
Impairment
of Long-Lived Assets
The
Company regularly evaluates whether events and circumstances have occurred that indicate the carrying amount of property and equipment
may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, the Company
assesses the potential impairment by determining whether the carrying value of such long-lived assets will be recovered through
the future undiscounted cash flows expected from use of the asset and its eventual disposition. If the carrying amount of the
asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted
market values, discounted cash flows, or external appraisals, as applicable. The Company regularly evaluates whether events and
circumstances have occurred that indicate the useful lives of property and equipment may warrant revision. There was no impairment
as of December 31, 2015 or 2014.
Revenue
Recognition
The
Company will recognize revenues from 1) consulting services rendered to potential sub licensees for development and construction
of cellulose to ethanol projects, 2) sales of ethanol from its production facilities when (a) persuasive evidence that an agreement
exists; (b) the products have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment;
and (d) collection of the amounts due is reasonably assured.
As
discussed in Note 3, the Company received a federal grant from the United States Department of Energy, (“DOE”). The
grant generally provided for payment in connection with related development and construction costs involving commercialization
of our technologies. Grant award reimbursements were recorded as either contra assets or as revenues depending upon whether the
reimbursement is for capitalized construction costs or expenses paid by the Company. Contra capitalized cost and revenues from
the grant were recognized in the period during which the conditions under the grant had been met and the Company had made payment
for the related asset or expense. The Company recognized DOE unbilled grant receivables for those costs that had been incurred
during a period but not yet paid at period end, were otherwise reimbursable under the terms of the grant, and were expected to
be paid in the normal course of business. Realization of unbilled receivables is dependent on the Company’s ability to meet
their obligation for reimbursable costs.
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 years ended December 31, 2015 and 2014, research and development costs included in project development were approximately
$609,000 and $774,000, 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.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740 “Income Taxes” requires the Company to provide a net
deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book
and tax accounting methods and any available operating loss or tax credit carry forwards.
This
Interpretation sets forth a recognition threshold and valuation method to recognize and measure an income tax position taken,
or expected to be taken, in a tax return. The evaluation is based on a two-step approach. The first step requires an entity to
evaluate whether the tax position would “more likely than not,” based upon its technical merits, be sustained upon
examination by the appropriate taxing authority. The second step requires the tax position to be measured at the largest amount
of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company does not have any
uncertain positions which require such analysis.
Fair
Value of Financial Instruments
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 December 31, 2015 and 2014.
As
of December 31, 2015 and 2014, the warrant liability and derivative liability are considered Level 2 items, see Notes 5, 6, and
9.
As
of December 31, 2015 and 2014, the Company’s redeemable noncontrolling interest is considered a Level 3 item and changed
during 2014 and 2015 due to the following:
Balance as of January 1, 2015
|
|
$
|
864,867
|
|
Net gain attributable
to noncontrolling interest
|
|
|
747
|
|
Balance at December 31, 2015
|
|
$
|
865,614
|
|
See
Note 8 for details of valuation and changes during the years 2015 and 2014.
The
carrying amounts reported in the accompanying consolidated financial statements for current assets and current liabilities approximate
the fair value because of the immediate or short term maturities of the financial instruments.
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 non-compliance 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.
Concentrations
of Credit Risk
The
Company maintains its cash accounts in a commercial bank and in an institutional money-market fund account. The total cash balances
held in a commercial bank are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, per insured
bank. At times, the Company has cash deposits in excess of federally insured limits. In addition, the Institutional Funds Account
is insured through the Securities Investor Protection Corporation (“SIPC”) up to $500,000 per customer, including
up to $250,000 for cash. At times, the Company has cash deposits in excess of federally and institutional insured limits.
As
of December 31, 2015 and 2014, the Department of Energy made up 100% of Grant Revenues. Management believes the loss of this organization
will have a material impact on the Company’s financial position, results of operations, and cash flows. The company is currently
investigating alternative sources of funding.
As
of December 31, 2014, one customer made up 100% of the Company’s consulting fees revenue. Management believes the loss of
consulting to this organization would have a material impact on the Company’s financial position, results of operations,
and cash flows.
As
of December 31, 2015 and 2014 four and three vendors made up approximately 78% and 60% of accounts payable, respectively.
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. For the years ended December 31, 2015 and 2014, the Company had no options and 23,528,571 warrants
outstanding, respectively, for which 23,528,571 warrants had an exercise price which was in excess of the average closing price
of the Company’s common stock during the corresponding years and thus 23,528,571 warrants, respectively, are considered
dilutive under the treasury-stock method of accounting. However, due to the net loss in the periods presented, the warrants effects
are antidilutive and therefore, excluded from diluted EPS calculations.
Share-Based
Payments
The
Company accounts for stock options issued to employees and consultants under ASC 718 “Share-Based Payment”. Under
ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award,
and is recognized as expense over the employee’s requisite vesting period.
The
Company measures compensation expense for its non-employee stock-based compensation under ASC 505 “Equity”. The fair
value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair
value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the
commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair
value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.
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.
Lines
of Credit with Share Issuance
Shares
issued to obtain a line of credit are recorded at fair value at contract inception. When shares are issued to obtain a line of
credit rather than in connection with the issuance, the shares are accounted for as equity, at the measurement date in accordance
with ASC 505-50 “Equity-Based Payments to Non-Employees.” The issuance of these shares is equivalent to the payment
of a loan commitment or access fee, and, therefore, the offset is recorded akin to debt issuance costs. The deferred fee is amortized
using the effective interest method, or a method that approximates such over the stated term of the line of credit, or other period
as deemed appropriate.
Redeemable
- Noncontrolling 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. As these redeemable noncontrolling interests provide for redemption features not solely within the control
of the issuer, we classify such interests outside of permanent equity in accordance with ASC 480-10, “Distinguishing Liabilities
from Equity”. All redeemable noncontrolling 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 loss available to the Company. The Company accretes the redemption value of the redeemable noncontrolling
interest over the redemption period using the straight-line method.
New
Accounting Pronouncements
On
February 25, 2016, the Financial Accounting Standards Board (FASB) issued authoritative guidance intended to improve financial
reporting about leasing transactions. The new guidance requires entities to recognize assets and liabilities for leases with lease
terms of more than 12 months. The new guidance also requires qualitative and quantitative disclosures regarding the amount, timing,
and uncertainty of cash flows arising from leases. The new guidance is effective for the Company beginning January 1, 2019. The
Company is evaluating the impact of the new standard on its consolidated financial statements.
In
November 2015, the FASB issued authoritative guidance related to balance sheet classification of deferred taxes. The new guidance
requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance
sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent
in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. The new
authoritative guidance is effective for annual periods, including interim periods within those annual periods, beginning after
December 15, 2016. Early adoption is permitted. The guidance is not expected to have a material impact on the audited annual financial
statements.
In
May 2014, FASB issued authoritative guidance that provides principles for recognizing revenue for the transfer of promised goods
or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services.
This ASU also requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers. On July 9, 2015, FASB agreed to delay the effective date by one year and, accordingly,
the new standard is effective for the Company beginning in the first quarter of fiscal 2018. Early adoption is permitted, but
not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial
application. The Company has not yet selected a transition method nor has it determined the impact of the new standard on its
consolidated financial statements.
In
April 2015, the FASB issued authoritative guidance, which changes the presentation of debt issuance costs in financial statements.
Under this authoritative guidance, an entity presents such costs in the balance sheet as a direct deduction from the related debt
liability rather than as an asset. Amortization of the costs is reported as interest expense. The new guidance is effective for
the Company beginning January 1, 2016. Early adoption is permitted. The guidance is not expected to have a material impact on
the consolidated financial statements.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying financial statements.
NOTE
3 – DEVELOPMENT CONTRACT
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, which was
subsequently moved to Fulton, Mississippi. 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. As stated in the
following paragraph a final determination by the DOE received by the company, is hampering our ability to finance our projects
and/or operations and implement our strategy and business plan. The company is currently investigating alternative sources of
funding.
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. On March 17, 2015, the Company received a
letter from the DOE stating that because of the upcoming September 2015 expiration date for expending American Recovery and Reinvestment
Act (ARRA) funding, it cannot reconsider its decision and the Company considers such decision to be final. The Company considers
the Award closed as of September 30, 2015 and there are no monies available that remain under the grant. We cannot guarantee that
we will continue to receive grants, loan guarantees, or other funding for our projects from the DOE or other governmental agency.
As
of December 31, 2015, the Company has received reimbursements of approximately $14,164,964 under these awards.
NOTE
4 – COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
Property
and equipment
Property
and equipment consist of the following:
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Land
|
|
$
|
109,108
|
|
|
$
|
109,108
|
|
Office
equipment
|
|
|
63,367
|
|
|
|
63,367
|
|
Furniture
and fixtures
|
|
|
44,806
|
|
|
|
44,806
|
|
Property
and equipment - Gross
|
|
|
217,281
|
|
|
|
217,281
|
|
Accumulated
depreciation
|
|
|
(107,897
|
)
|
|
|
(107,003
|
)
|
Property
and equipment - Net of depreciation
|
|
$
|
109,384
|
|
|
$
|
110,278
|
|
Depreciation
expense for the years ended December 31, 2015 and 2014 was $894 and $962, respectively.
During
the years ended December 31, 2015 and 2014, the Company invested $0 in construction activities at our Fulton Project and the construction
costs through 2013 were deemed impaired due to the discontinuance of the DOE Grant described in Note 3.
Accrued
liabilities
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Payroll
and related benefits
|
|
$
|
614,795
|
|
|
$
|
118,214
|
|
Accrued interest
|
|
|
46,033
|
|
|
|
13,256
|
|
Accrued interest –
related party
|
|
|
45,268
|
|
|
|
39,840
|
|
Other
|
|
|
24,663
|
|
|
|
16,625
|
|
Total
|
|
$
|
730,759
|
|
|
$
|
187,935
|
|
NOTE
5 – NOTES PAYABLE
Convertible
Notes Payable
From
time-to-time, the Company enters into convertible notes with Vis Vires Group, Inc. and 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 the agreement. 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.
For
the below convertible notes to Asher Enterprises, 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.
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 December 31,
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 had 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 December 31,
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.
On
May 12, 2015, the Company issued a convertible note in favor of Vis Vires Group, Inc. in the principal amount of $59,000 with
a $4,000 on-issuance discount pursuant to the terms identified above, with a maturity date of February 14, 2016. In accordance
with the terms of the note, the note became convertible on November 8, 2015.
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 $53,195, resulting in a discount
to the note. The discount was being amortized over the term of the note and accelerated as the note is converted. As of December
31, 2015, the entire discount was amortized to interest expense, with no remaining unamortized discount and the note was fully
converted into 26,072,727 shares of common stock.
Using
the Black-Scholes pricing model, with the range of inputs listed below, we calculated the fair market value of the conversion
feature upon it being effective (as applicable), at each conversion event, and at quarter end. The company recognized a loss of
$12,911 and $112,785 during the year ended December 31, 2015 and 2014 based on these valuations which is included in the accompanying
statement of operations.
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Annual dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Expected life (years)
|
|
|
0.08
- 0.16
|
|
|
|
0.04
– 0.18
|
|
Risk-free interest rate
|
|
|
0.14
– 0.29
%
|
|
|
|
0.03
- 0.11
%
|
|
Expected volatility
|
|
|
216%
|
|
|
|
197
- 235%
|
|
On-issuance
discounts applicable to the above notes are amortized over the term of such notes.
JMJ
Convertible Note
On
April 2, 2015, the Company issued a convertible note in favor of JMJ Financial in the principal amount of $100,000 out of a total
of a possible $250,000, with a maturity date of April 1, 2017 (the “JMJ Note”). The JMJ Note was issued with a 10%
original issue discount, and is convertible at any time. The $10,000 on-issuance discount will be amortized over the life of the
note. The Company was to repay any principal balance due under the note including a one-time charge of 12% interest on the principal
balance outstanding if not repaid within 90 days. The Company has the option to prepay the JMJ Note prior to maturity. The JMJ
Note is convertible into shares of the Company’s common stock as calculated by multiplying 60% of the lowest trade price
in the 25 trading days prior to the conversion date.
Due
to the variable conversion feature of the note, derivative accounting is required. The Company valued the derivative upon issuance,
at each reporting period, and as of December 31, 2015 as indicated below. The initial value of the derivative liability was $412,212,
resulting in a day one loss $312,212. The discount on the convertible note is being amortized over the life of the note. For the
year ended December 31, 2015, amortization of the discount was $77,114 with $32,886 remaining.
|
|
Year
ended
December 31, 2015
(excluding inception)
|
|
|
April
2, 2015
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
life (years)
|
|
|
1.25
- 1.75
|
|
|
|
2.00
|
|
Risk-free
interest rate
|
|
|
0.61
- 1.06
|
%
|
|
|
0.55
|
%
|
Expected
volatility
|
|
|
282
- 304
|
%
|
|
|
301
|
%
|
During
the year ended December 31, 2015, the Company issued 35,200,000 shares of common stock for the conversion of $57,030 of principal.
Subsequent to year end, the Company issued additional shares under the terms of the JMJ note (see Note 12).
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 was originally due on April 8, 2015, however, the Company received an extension
through June 30, 2016. The AKR Note 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 $42,323 based the relative fair value of
the AKR Warrants compared to the debt. For the year ended December 31, 2015 and 2014 the Company amortized $11,335 and $30,988,
respectively of the discount to interest expense. As of December 31, 2015 unamortized discount of $0 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 2
nd
AKR Note was due on July 24, 2014, but was subsequently extended to December 31, 2015. Pursuant
to the terms of the 2
nd
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.
For
the year ended December 31, 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 years ended December 31, 2015, and 2014 amortization of $0 and approximately
$51,960, respectively, was recognized to interest expense related to the discounts on the notes.
As
of December 31, 2014, the Tarpon Initial Note and the Tarpon Success Fee Note were repaid in full through the conversion of these
notes for 45,647,727 shares of common stock and a cash payment of $25,000.
Because
the conversion price was variable and did not contain a floor, the conversion feature represented a derivative liability upon
issuance. Accordingly, the Company calculated the derivative liability using the Black-Sholes pricing model 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 December 31, 2014 which resulted in a loss of approximately $46,000. The Company used the following range of assumptions
for the years ended December 31, 2015 and 2014:
|
|
Year
ended
December 31, 2014
|
|
Annual dividend yield
|
|
|
0%
|
|
Expected life (years)
|
|
|
0.001
- 0.25
|
|
Risk-free interest rate
|
|
|
0.01
- 0.05
%
|
|
Expected volatility
|
|
|
229
- 242
%
|
|
During
the year ended December 31, 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. There were no such payments in 2015.
Kodiak
Promissory Note
On
December 17, 2014, the Company entered into the equity Purchase Agreement with Kodiak. Pursuant to the terms of the Purchase Agreement,
for a period of twenty-four (24) months commencing on the date of effectiveness of the registration statement, Kodiak shall commit
to purchase up to $1,500,000 of Put Shares, pursuant to Puts (as defined in the Purchase Agreement), covering the Registered Securities
(as defined in the Purchase Agreement). See Note 9 for more information.
As
further consideration for Kodiak entering into and structuring the Purchase Agreement, the Company issued Kodiak a promissory
note in the principal aggregate amount of $60,000 (the “Kodiak Note”) that bears no interest and had maturity date
of July 17, 2015. The Company has been in discussions with Kodiak in order to extend the maturity date.
As
of December 31, 2015, the balance outstanding on the Kodiak Note was $40,000. No funds were received from the Kodiak Note. Because
the Kodiak Note was issued for no cash consideration, there was a full on-issuance discount, of which $60,000 was amortized as
of December 31, 2015, and $0 remains to be amortized.
NOTE
6 – OUTSTANDING WARRANT LIABILITY
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.
The
Company issued 428,571 warrants to purchase common stock in connection with the Stock Purchase Agreement entered into in 2011
with Lincoln Park Capital, LLC. 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.
|
|
December
31, 2015
|
|
|
December
31, 2014
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
life (years)
|
|
|
0.05
|
|
|
|
1.05
|
|
Risk-free
interest rate
|
|
|
0.14
|
%
|
|
|
0.25
|
%
|
Expected
volatility
|
|
|
216
|
%
|
|
|
357
|
%
|
In
connection with these warrants, the Company recognized a gain/(loss) on the change in fair value of warrant liability of $16,368
and ($16,509) during the years ended December 31, 2015 and 2014, 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.
Subsequent
to year end, these warrants expired without exercise.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
On
June 27, 2006, the Company entered into employment agreements with three key employees. The employment agreements were for a period
of three years, which expired in 2010, with prescribed percentage increases beginning in 2007 and could have been cancelled upon
a written notice by either employee or employer (if certain employee acts of misconduct are committed). The total aggregate annual
amount due under the employment agreements was approximately $586,000 per year. These contracts have not been renewed. Each of
the executive officers are currently working for the Company on a month to month basis under the same terms.
Board
of Director Arrangements
On
November 19, 2013, the Company renewed all of its existing Directors’ appointment, and accrued $5,000 to both of the two
outside members. Pursuant to the Board of Director agreements, the Company’s “in-house” board members (CEO and
Vice-President) waived their annual cash compensation of $5,000. As of March 30, 2015, the Company had not yet issued the 6,000
shares issuable for compensation for the years ending 2013-2015 to each of its Board Members and has accrued the cash portion.
Fulton
Project Lease
On
July 20, 2010, the Company entered into a 30 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 30 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. The below payout schedule does not contemplate reductions available upon the commencement of construction
and commercial operations.
Future
annual minimum lease payments under the above lease agreements, at December 31, 2015 are as follows:
Years ending
|
|
|
|
December
31,
|
|
|
|
2016
|
|
$
|
125,976
|
|
2017
|
|
|
125,976
|
|
2018
|
|
|
125,976
|
|
2019
|
|
|
125,976
|
|
2020
|
|
|
125,976
|
|
Thereafter
|
|
|
2,526,040
|
|
Total
|
|
$
|
3,155,920
|
|
Rent
expense under non-cancellable leases was approximately $123,000, $123,000 during the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, $174,964 and $30,876 of the monthly lease payments were included in accounts payable on the
accompanying balance sheets. As of December 31, 2015, the Company was in technical default of the lease due to non-payment.
Legal
Proceedings
In
2013, the Company was subject to a claim in the Orange County Superior Court (the "Court") by shareholders' of the Company
for breach of contract and declaratory relief related to 5,740,741 warrants previously issued by the Company that contained certain
anti-dilution protective provisions. The Court ruled in favor of the shareholders which required the Company to accept the exercise
of the said warrants at a decreased value $0.00. Accordingly, these warrants were considered exercised as of December 2012 per
the exercise notice received and were issued in August 2013. There were no monetary damages awarded by the Court.
The
Company subsequently appealed the prior rulings and on December 15, 2015, the Appellate Court determined that there was no breach
of fiduciary duty, agreed that there should be no contract damages awarded, agreed that anti-dilution provisions did apply, but
reversed the finding that the exercise price should be reduced to $0.00. The Appellate Court determined that the proper remedy
would be to return the parties so far as possible to the positions they occupied before the execution of the original Court's
ruling and remanded a retrial solely to determine the proper remedy for the breach of the warrants. The Company is pursuing all
legal remedies to compel the return of shares issued as part of the original judgment. This case has no further financial impact
on the Company.
Other than as disclosed 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
8 – REDEEMABLE NONCONTROLLING 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 is reflected as redeemable noncontrolling interests in the Company’s consolidated financial
statements outside of equity. The Company accreted the redeemable noncontrolling interest for the total redemption price of $862,500
through the forecasted financial close, estimated to be the end of the third quarter of 2011.
Net
income attributable to the redeemable noncontrolling interest during the year ended December 31, 2015 was $747 which netted against
the value of the redeemable non-controlling interest in temporary equity. The allocation of net income was presented on the statement
of operations.
NOTE
9 – STOCKHOLDERS’ DEFICIT
Series
A Preferred Stock
We
have authorized the issuance of a total of 1,000,000 shares of our Series A Preferred Stock. See Note 1 for rights and preferences.
Amended
and Restated 2006 Incentive and Nonstatutory Stock Option Plan
On
December 14, 2006, the Company established the 2006 incentive and nonstatutory stock option plan (the “Plan”). The
Plan is intended to further the growth and financial success of the Company by providing additional incentives to selected employees,
directors, and consultants. Stock options granted under the Plan may be either “Incentive Stock Options” or “Nonstatutory
Options” at the discretion of the Board of Directors. The total number of shares of Stock which may be purchased through
exercise of Options granted under this Plan shall not exceed ten million (10,000,000) shares, they become exercisable over a period
of no longer than five (5) years and no less than 20% of the shares covered thereby shall become exercisable annually.
On
October 16, 2007, the Board reviewed the Plan. As such, it determined that the Plan was to be used as a comprehensive equity incentive
program for which the Board serves as the Plan administrator; and therefore added the ability to grant restricted stock awards
under the Plan.
Under
the amended and restated Plan, an eligible person in the Company’s service may acquire a proprietary interest in the Company
in the form of shares or an option to purchase shares of the Company’s common stock. The amendment includes certain previously
granted restricted stock awards as having been issued under the amended and restated Plan. As of December 31, 2015, 3,307,159
options and 1,747,111 shares have been issued under the plan. As of December 31, 2015, 4,945,730 shares are still issuable under
the Plan.
Stock
Options
As
of December 31, 2014, and 2015 there were no options that remained outstanding.
Shares
Issued for Services
For
the years ended December 31, 2015 and 2014, the Company issued no shares of stock for services provided.
Warrants
See
Notes 5, 6, 9 and 10 for warrants issued with debt and equity financings.
There
were no warrant exercises for the years ending December 31, 2015 and 2014.
A
summary of the status of the warrants for the years ended December 31, 2015 and 2015 changes during the periods are presented
as follows:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Outstanding
and exercisable at December 31, 2013
|
|
|
428,571
|
|
|
$
|
0.55
|
|
|
|
2.04
|
|
Issued during the year
|
|
|
23,100,000
|
|
|
|
0.007
|
|
|
|
|
|
Exercised during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired during
the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding and exercisable at December
31, 2014
|
|
|
23,528,571
|
|
|
$
|
0.01
|
|
|
|
1.4
|
|
Issued during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired during
the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding and
exercisable at December 31, 2015
|
|
|
23,528,571
|
|
|
$
|
0.01
|
|
|
|
0.4
|
|
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 the Tarpon Initial Note,
a convertible promissory note in the principal amount of $25,000. Under the terms of the Tarpon Initial Note, the Company was
to pay Tarpon $25,000 on the date of maturity which was January 30, 2014. The Tarpon Initial Note was convertible into shares
of the Company’s common stock (See Note 5).
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
5).
The
Tarpon Initial Note and the Tarpon Success Fee Note were both paid back to Tarpon as of December 31, 2014 (See Note 5).
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. For the year ended December 31, 2014, the Company
issued Tarpon 61,010,000 shares of Common Stock. Pursuant to the issuances in 2014, gross proceeds of $163,406 were generated
from the sale of the Common Stock, of which approximately $122,500 was used to satisfy the Company’s liabilities. 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. As of December 31, 2014, the Company has satisfied all of
its liabilities under the Settlement Agreement.
Kodiak
Purchase Agreement and Registration Rights Agreement
On
December 17, 2014, the Company entered into the equity Purchase Agreement with Kodiak. Pursuant to the terms of the Purchase Agreement,
for a period of twenty-four (24) months commencing on the date of effectiveness of the registration statement, Kodiak shall commit
to purchase up to $1,500,000 of Put Shares, pursuant to Puts (as defined in the Purchase Agreement), covering the Registered Securities
(as defined below).
The
“Registered Securities” means the (a) Put Shares, and (b) any securities issued or issuable with respect to any of
the foregoing 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 to any particular Registered Securities, once issued such securities
shall cease to be Registered Securities when (i) a Registration Statement has been declared effective by the SEC and such Registered
Securities have been disposed of pursuant to a Registration Statement, (ii) such Registered Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such time as such Registered Securities have been otherwise
transferred to holders who may trade such shares without restriction under the Securities Act or (iv) in the opinion of counsel
to the Company, which counsel shall be reasonably acceptable to Investor, such Registered Securities may be sold without registration
under the Securities Act or the need for an exemption from any such registration requirements and without any time, volume or
manner limitations pursuant to Rule 144(b)(i) (or any similar provision then in effect) under the Securities Act.
As
further consideration for Kodiak entering into and structuring the Purchase Agreement, the Company issued Kodiak a promissory
note in the principal aggregate amount of $60,000 (the “Kodiak Note”) that bears no interest and had maturity date
of July 17, 2015. As of December 31, 2015, the balance outstanding on the Kodiak Note was $40,000. Because the note was issued
for no cash consideration, there was a full on-issuance discount, of which $55,714 and $4,286 was amortized as of December 31,
2015 and 2014, and $0 and $55,714 remains to be amortized, respectively.
Concurrently
with the Purchase Agreement, on December 17, 2014, the Company also entered into a registration rights agreement (the “Registration
Rights Agreement”) with Kodiak. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to
file a registration statement (the “Registration Statement”) with the SEC to cover the Registered Securities, within
thirty (30) days of closing, and must use its commercially reasonable efforts to cause the Registration Statement to be declared
effective by the SEC. The Registration was filed, on January 2, 2015, and declared effective on February 11, 2015.
NOTE
10 – RELATED PARTY TRANSACTIONS
Technology
Agreement with Arkenol, Inc.
On
March 1, 2006, the Company entered into a Technology License agreement with Arkenol, Inc. (“Arkenol”), in which the
Company’s Chairman/Chief Executive Officer and other family members hold an interest. Arkenol has its own management and
board separate and apart from the Company. According to the terms of the agreement, the Company was granted an exclusive, non-transferable,
North American license to use and to sub-license the Arkenol technology. The Arkenol Technology, converts cellulose and waste
materials into Ethanol and other high value chemicals. As consideration for the grant of the license, the Company shall make a
onetime payment of $1,000,000 at first project construction funding and for each plant make the following payments: (1) royalty
payment of 4% of the gross sales price for sales by the Company or its sub licensees of all products produced from the use of
the Arkenol Technology (2) and a one-time license fee of $40 per 1,000 gallons of production capacity per plant. There are no
amounts currently due under this agreement.
Asset
Transfer Agreement with Ark Energy, Inc.
On
March 1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement with ARK Energy, Inc. (“ARK Energy”),
which is owned (50%) by the Company’s CEO. ARK Energy has its own management and board separate and apart from the Company.
Based upon the terms of the agreement, ARK Energy transferred certain rights, assets, work-product, intellectual property and
other know-how on project opportunities that may be used to deploy the Arkenol technology (as described in the above paragraph).
In consideration, the Company has agreed to pay a performance bonus of up to $16,000,000 when certain milestones are met. These
milestones include transferee’s project implementation which would be demonstrated by start of the construction of a facility
or completion of financial closing whichever is earlier. The payment is based on ARK Energy’s cost to acquire and develop
19 sites which are currently at different stages of development. As of December 31, 2015 and 2014, the Company had not incurred
any liabilities related to the agreement.
Related
Party Lines of Credit
On
November 10, 2011, the Company obtained a line of credit in the amount of $40,000 from its Chairman/Chief Executive Officer and,
at the time, the majority shareholder 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. On April 10, 2014 the line of credit was increased to $55,000. As of December
31, 2015 and 2014, the outstanding balance on the line of credit was approximately $45,230 with $45,230 remaining under the line.
Subsequent to December 31, 2015, this line of credit was amended which allowed the Company to borrow an additional $14,000 (See
Note 12). Although the Company has received over $100,000 in financing since this agreement was put into place, Mr. Klann does
not hold the Company in default.
Loan
Agreement
On
December 15, 2010, the Company entered into a loan agreement (the “Loan Agreement”) by and between Arnold Klann, the
Chief Executive Officer, Chairman of the board of directors and, at the time, the majority shareholder of the Company, as lender
(the “Lender”), and the Company, as borrower. Pursuant to the Loan Agreement, the Lender agreed to advance to the
Company a principal amount of Two Hundred Thousand United States Dollars ($200,000) (the “Loan”). The Loan Agreement
requires the Company to (i) pay to the Lender a one-time amount equal to fifteen percent (15%) of the Loan (the “Fee Amount”)
in cash or shares of the Company’s common stock at a value of $0.50 per share, at the Lender’s option; and (ii) issue
the Lender warrants allowing the Lender to buy 500,000 common shares of the Company at an exercise price of $0.50 per common share,
such warrants expired on December 15, 2013. The Company has promised to pay in full the outstanding principal balance of any and
all amounts due under the Loan Agreement within thirty (30) days of the Company’s receipt of investment financing or a commitment
from a third party to provide One Million United States Dollars ($1,000,000) to the Company or one of its subsidiaries (the “Due
Date”), to be paid in cash or shares of the Company’s common stock, at the Lender’s option. As of December 31,
2015 and 2014, $200,000 remained outstanding on this loan.
NOTE
11 – INCOME TAXES
The
following table presents the current and deferred tax provision for federal and state income taxes for the years ended December
31, 2015 and 2014.
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Current Tax Provision
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
2,543
|
|
|
|
2,400
|
|
Total
|
|
$
|
2,543
|
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(6,680,044
|
)
|
|
|
(6,686,745
|
)
|
State
|
|
|
(890,083
|
)
|
|
|
(842,874
|
)
|
Valuation Allowance
|
|
|
7,570,127
|
|
|
|
7,529,619
|
|
Total
|
|
|
|
|
|
|
|
|
Total Provision
for income taxes
|
|
$
|
2,543
|
|
|
$
|
2,400
|
|
Current
taxes in 2015 and 2014 consist primarily of minimum state taxes.
Reconciliations
of the U.S. federal statutory rate to the actual tax rate for the years ended December 31, 2015 and 2014 are as follows:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
US
federal statutory income tax rate
|
|
|
30
|
%
|
|
|
30
|
%
|
State
tax - net of benefit
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Permanent
differences
|
|
|
(30)
|
%
|
|
|
(16
|
)%
|
Reserves
and accruals
|
|
|
(22)
|
%
|
|
|
(7)
|
%
|
Changes
in deferred tax assets
|
|
|
18
|
%
|
|
|
(16
|
)%
|
Other
|
|
|
(2)
|
%
|
|
|
|
|
Increase
in valuation allowance
|
|
|
2
|
%
|
|
|
6
|
%
|
Effective
tax rate
|
|
|
0
|
%
|
|
|
1
|
%
|
The
components of the Company’s deferred tax assets for federal and state income taxes as of December 31, 2015 and 2014 consisted
of the following:
|
|
2015
|
|
|
2014
|
|
Deferred
income tax assets
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
7,374,211
|
|
|
$
|
7,501,533
|
|
Reserves
and accruals
|
|
|
195,916
|
|
|
|
28,086
|
|
Valuation
allowance
|
|
|
(7,570,127
|
)
|
|
|
(7,529,619
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s deferred tax assets consist primarily of net operating loss (“NOL”) carry forwards of approximately
$7,374,000 and $7,502,000 at December 31, 2015 and 2014, respectively. At December 31, 2015, the Company had NOL carry forwards
for Federal and California income tax purposes totaling approximately $21.7 million and $21.7 million, respectively. At December
31, 2014, the Company had NOL carry forwards for Federal and California income tax purposes totaling approximately $22.2 million
and $21 million, respectively. The Company’s valuation allowance increased by approximately $40,500 for the year ended December
31, 2015, and decreased by approximately $51,000 for the year ended December 31, 2014. Federal and California NOL’s have
begun to expire and fully expire in 2035 and 2025, respectively. For federal tax purposes these carry forwards expire in twenty
years beginning in 2026.
Income
tax reporting primarily relates to the business of the parent company Blue Fire Ethanol Fuels, Inc. which experienced a change
in ownership on June 27, 2006. A change in ownership requires management to compute the annual limitation under Section 382 of
the Internal Revenue Code. The amount of benefits the Company may receive from the operating loss carry forwards for income tax
purposes is further dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events,
the effects of which cannot be determined.
The
Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The United States Federal
return years 2010 through 2014 are still subject to tax examination by the United States Internal Revenue Service; however, we
do not currently have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board
for the years ended 2012 through 2014 and currently does not have any ongoing tax examinations.
In
addition, the Company is not current in their federal and state income tax filings prior to the reverse acquisition. The Company
has assessed and determined that the effect of non filing is not expected to be significant, as Sucre has not had active operations
for a significant period of time.
NOTE
12 – SUBSEQUENT EVENTS
Subsequent
to year end, the Company has issued a total of 96,830,000 shares to JMJ under the terms of the JMJ Note for conversion of approximately
$62,000 in principal.
Subsequent
to December 31, 2015, the line of credit with the Company's Chairman/CEO was amended, allowing Company to borrow an additional
$14,000 under the terms of the line of credit (See Note 10).