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, 2016
[ ]
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
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20-4590982
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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25108
Marguerite Parkway Suite A-321
Mission
Viejo, CA 92692
(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
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Non-accelerated
filer
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Accelerated
filer
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[ ]
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Smaller
reporting company
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[X]
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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, 2016, was $515,271.
As of April 5, 2017, the registrant has one class of common equity, and the number of shares issued and outstanding of
such common equity was 408,235,664 and 408,203,492, respectively.
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:
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the
availability and adequacy of our cash flow to meet our requirements;
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economic,
competitive, demographic, business and other conditions in our local and regional markets;
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changes
or developments in laws, regulations or taxes in the ethanol or energy industries;
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actions
taken or not taken by third-parties, including our suppliers and competitors, as well as legislative, regulatory, judicial
and other governmental authorities;
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competition
in the ethanol industry;
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the
failure to obtain or loss of any license or permit;
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success
of the Arkenol Technology;
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changes
in our business and growth strategy (including our plant building strategy and co-location strategy), capital improvements
or development plans;
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the
availability of additional capital to support capital improvements and development; and
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other
factors discussed under the section entitled “Risk Factors” or elsewhere in this annual report.
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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 (“Ark Energy”), 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 April
3, 2017, the closing price of our Common Stock was $
0.0016
per share.
Our
executive offices are located at 25108 Marguerite Parkway Suite A-321, Mission Viejo, CA 92692 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 alternatives 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 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 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 limited 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 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 break
down 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 to be reused. 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, are 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 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 their actual costs of development.
In the event that 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 which are based on
the actual costs it incurred in developing the project opportunities, and (ii) the anticipated financial benefits to us.
The Company has not developed, paid for, or utilized any of these assets to date.
Pilot
Plants
From
1994 through 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 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 the 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 originally planned 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 (defined
below).
We
originally intended 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 (Lancaster Bio-refinery) and to build a facility that will process approximately 700 tons
of green waste material per day to produce roughly 19 million gallons per year annually (Fulton). The Company has abandoned
the Lancaster Project, and has sold the land originally intended for the Lancaster Project. The design can be used on future projects
as capital and opportunities become available.
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 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
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FEL-2
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FEL-3
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Material Balance
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Preliminary Equipment Design
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Purchase Ready Major Equipment Specifications
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Energy Balance
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Preliminary Layout
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Definitive Estimate
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Project Charter
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Preliminary Schedule
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Project Execution Plan
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Preliminary Estimate
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Preliminary 3D Model
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Electrical Equipment List
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Line List
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Instrument Index
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We
estimated 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 opportunity is identified.
Since
2007, the Company has been developing a facility for construction, which had the United States Department of Energy's
(“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 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, 2016, 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 had completed both the FEL-2 and FEL-3 stages of engineering readying the facility for construction.
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 was ready for facility construction. In February 2010, we announced that we applied 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 the project raises the
remaining equity necessary for the completion of funding. In August 2010, BlueFire applied 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”). Ultimately the USDA rejected the Company’s lender, BNP Paribas, for not meeting certain capital ratios. 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. The letter of intent has since expired and BlueFire is actively seeking the remaining equity in
order to reestablish the letter of intent or to find other banking entities capable of financing the Fulton Project. A commitment
for the equity portion of the financing has been the major delay in the financing and the Company is focusing most of its efforts
on finding suitable partners. No definitive agreements have been executed in regards to the Letter of Intent for financing.
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
have been completed. Since world pellet prices have fallen drastically the Company has stopped pursuing this option but
can refocus on it if wood pellet prices become feasible again.
The
Company has received notice from Tenaska Commodities, LLC, the off-take agreement provider for the Fulton Project, that due to
the Company’s inability to construct the facility and provide first delivery of ethanol before December 31, 2016,
Tenaska Commodities, LLC will terminate the market price contract on December 31, 2016. The Company has identified and received
interest from other potential ethanol marketers and off-take companies and is actively seeking a replacement for this contract,
but no definitive agreements have been made.
The
Company is also researching and considering other suitable locations for other similar bio-refineries.
Status
of Publicly 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 15.9 billion gallons of ethanol supply in the
United States is derived from corn and, as of March 2017, is produced at approximately 215 facilities, ranging in size from 300
thousand 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 business of biomass-to-ethanol production, there are few companies, and very little to no commercial production
infrastructure. 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 may be a less expensive alternative to domestically produced ethanol and may affect
our ability to sell our ethanol profitably.
There
are various biorefineries that have been 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 the (“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, however, as of December 31, 2016, ARRA has expired.
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 Alternative 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 were 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 15.5 billion
gallons per year in 2016. 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 million per year, offering further potential for significant growth in ethanol demand.
Cellulose
to Ethanol Production
In
a 2002 report titled “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. There has been no known update to this report.
Sources
and Availability of Raw Materials
The
DOE and USDA in its April 2005 report titled “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. There has
been no known update to this report.
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. This agreement has expired as of December 31, 2016. The Company is searching for a suitable replacement
but no definitive agreements have been reached. 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 to 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. Per
the terms of the agreement, we made a onetime exclusivity fee prepayment of $30,000 during the period ended December 31, 2006.
On 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. Beginning 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 mandated 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, the 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.
Research
and Development Activities
Research
and development costs for the years ended December 31, 2016 and 2015, were approximately $288,000 and $609,000, 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 countermeasure 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 2 full-time employees as of December 31, 2016, and 2 part-time employees.
On
December 31, 2016, Ms. Necitas Sumait, a senior vice-president and Board member, resigned as an executive of the Company and as
a member of the Board of Directors of the Company. The resignation is not the result of any disagreement with the
Company on any matter relating to the Company’s operations, policies or practices.
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 APPROXIMATELY
$2,478,000
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 $1,195,000 for the
year ended December 31, 2016, and $1,283,000 for the same period in 2015. For the same periods, we have generated $0 and
approximately $911,000 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 start of construction of a plant
given the availability of capital. We estimate the engineering, procurement, and construction (“EPC”) costs
including contingencies, to be 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 achieve profitable operations. Wherever possible, the Company’s Board of Directors
(the “Board”) 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.
Due
to the Company’s struggles in securing sufficient financing necessary to enact its business plan, the Board is currently
evaluating strategic alternatives which include, among other things, merging or selling the Company in order to obtain additional
capital sufficient to continue operating and meet both our operating and financial obligations. This evaluation is still under
way, there is no formal plan is in place, and there can be no assurance that we will be successful in any of these efforts or
that we will have sufficient funds to cover our operational and financial obligations over the next twelve months.
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 $1,244,255 and $947,229 for fiscal years ended 2016 and 2015, respectively. In 2016, we had a net loss of
$1,199,315, which was mainly due to the general operating expenses of the Company and 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, 2016, THE COMPANY HAS A NEGATIVE WORKING CAPITAL OF APPROXIMATELY $(3,458,200)
Management
has estimated that operating expenses for the next 12 months will be approximately $750,000, 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 2017, the Company intends to fund its operations by seeking additional funding in the form of equity
or debt. As of December 31, 2016, 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 we are utilizing 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,
the patents remaining active and in effect, 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.
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 former Senior VP 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.
Due
to the continuing capital constraints at the Company, John Cuzens, our Chief Technology Officer and former Senior VP, has sought
employment as an engineer in an industry that we feel does not compete with the Company. Mr. Cuzens remains the Chief Technology
Officer of the Company; however, his time spent working on BlueFire projects is severely limited and is on a consulting basis.
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 any
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 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 as may be required by lending institutions
if such institution is available to finance our projects. 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 (defined below) 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. In June of 2015, the DOE obligated additional funds totaling $873,332 for costs incurred but not reimbursed prior to September
30, 2014 as well as for program required compliance audits for years 2011-2014 (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
RELIED 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 began 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, 2016, 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.
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. In June of 2015, the
DOE obligated additional funds totaling $873,332 for costs incurred but not reimbursed prior to September 30, 2014 as well as
for program required compliance audits for years 2011-2014.
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.
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 OTCQB 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, and on December
31, 2016, traded as BFRE, the high and low price for our common stock has been $7.90 and $0.0001 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:
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that
a broker or dealer approve a person’s account for transactions in penny stocks; and
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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.
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In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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obtain
financial information and investment experience objectives of the person; and
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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.
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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:
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sets
forth the basis on which the broker or dealer made the suitability determination; and
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that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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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 April 5, 2017, we had 408,203,492 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.
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 December 29, 2016, the Company sold the land for a total sale price of $195,000 with
net proceeds of $175,328 to the Company.
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 but will
be reduced, following a formula tied to job creation in the State of Mississippi. The Company is currently in default of the lease
due to nonpayment of rents.
Item
3. Legal Proceedings.
On
May 6, 2016, the Company reached a settlement with James G. Speirs and James N. Speirs in regard to the lawsuit filed in Orange
County Superior Court and subsequently appealed by the Company. Under the settlement agreement, James G. Speirs and James N. Speirs
have returned 5,740,741 shares to the Company and they have been subsequently retired to treasury. The case was dismissed with
prejudice on May 12, 2016 and the matter closed.
On
May 2, 2016, the Company received a written “Wells Notice” from the staff of the SEC indicating that the staff
made a preliminary determination to recommend that the SEC bring an administrative proceeding against the Company.
On
August 1, 2016, in connection with the Wells Notice, the Company entered into an offer of settlement (the “Wells
Settlement”) with the SEC. Pursuant to the Wells Settlement, the Company agreed to pay a twenty-five thousand dollar
($25,000) civil penalty to the SEC.
On
October 11, 2016, pursuant to the terms and conditions of the Wells Settlement, the Company made an initial payment of five thousand
dollars ($5,000) to the SEC. The remaining balance of the penalty will be paid to the SEC over a nine-month period ending
on or about June 30, 2017.
Other
than as disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect
on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive
officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our
subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse
decision could have a material adverse effect.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Common Equity and Related Stockholder Matters.
(a)
Market Information
Our
shares of common stock began trading under the symbol “BFRE.PK” on the Pink Sheets of the National Quotation Bureau
on July 11, 2006 and is now currently quoted on the OTCBB and the OTC Markets under the symbol “BFRE” on June 19,
2007.
The
following table sets forth the high and low trade information for our common stock for each quarter during the past three fiscal
years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily
reflect actual transactions.
Quarter
ended
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Low
Price
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High
Price
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March 31, 2015
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$
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0.0098
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$
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0.05
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June 30, 2015
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$
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0.004
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$
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0.017
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September 30, 2015
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$
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0.0038
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$
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0.0075
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December 31, 2015
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$
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0.0022
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$
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0.009
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March 31, 2016
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$
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0.0011
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$
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0.0042
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June 30, 2016
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$
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0.0012
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$
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0.0033
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September 30, 2016
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$
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0.0011
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$
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0.0030
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December 31, 2016
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$
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0.0011
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$
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0.0030
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(b)
Holders
As
of April 5, 2017, a total of 408,203,492 shares of the Company’s common stock are currently outstanding held
by approximately 850 shareholders of record.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is VStock Transfer, with a 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
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, the Board 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, 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, 2016, we have issued the following stock options and grants under the Amended and Restated Plan:
Equity
Compensation Plan Information
Plan
category
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Number
of securities to
be issued upon exercise
of outstanding options,
warrants and rights and
number of shares
of
restricted stock
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Weighted
average
exercise price
of outstanding
options, warrants
and rights (1)
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Number
of
securities
remaining
available
for future issuance
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Equity compensation plans
approved by security holders under the Amended and Restated Plan
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-
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$
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N/A
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4,873,730
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Equity compensation plans not approved
by security holders
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-
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Total
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-
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(1)
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Excludes
shares of restricted stock issued under the Plan
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Rule
10B-18 Transactions
During
the years ended December 31, 2016 and 2015, 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-refinery in North America are projected as follows:
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A
bio-refinery proposed for development and construction previously in conjunction with the DOE, 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. 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 began 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 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 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 had all necessary permits for construction, and in that same month we began site clearing and preparation
work, signaling the beginning of construction. The Company has received notice from Tenaska Commodities, LLC, the off-take
agreement provider for the Fulton Project, that due to the Company’s inability to construct the facility and provide
first delivery of ethanol before December 31, 2016 that Tenaska Commodities, LLC will terminate the market price contract
on December 31, 2016. The Company has identified and received interest from other potential ethanol marketers and off-take
companies and is actively seeking a replacement for this contract, but no definitive agreements have been made.
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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.
The letter of intent has since expired and BlueFire is actively seeking the remaining equity in order to reestablish the letter
of intent or to find other banking entities capable of financing the Fulton Project. A commitment for the equity portion of the
financing has been the major delay in the financing and the Company is focusing most of its efforts on finding suitable partners.
No definitive agreements have been executed in regards to the Letter of Intent for financing.
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. However, since world pellet prices have fallen drastically, the Company has stopped pursuing this option.
If wood pellet prices increase and make this type of integration feasible again, the Company can further its work on this concept.
Several
other opportunities are being evaluated by us in North America, although no definitive agreements have been reached.
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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 March
31, 2015, SucreSource has completed and fulfilled all initial work and obligations under the fixed portion of the agreement.
Any 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.
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BlueFire’s
capital requirement strategies for its planned bio-refineries and general company operations are as follows:
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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 and no assurances can be made that the Company will be able to procure financing on terms
acceptable to the Company or at all.
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The
2014 Farm Bill made amendments to Title IX of the Food, Conservation, and Energy Act of 2008 (“2014 Farm Bill”)
including changes to Section 9003 Biorefinery Assistance Program of Title IX (“9003 Biorefinery Assistance Program”
or the “Program”) to expand the Program to enable loan guarantees for renewable chemical and biobased
product manufacturing facilities. The 2014 Farm Bill provides mandatory budget authority of $100 million for the fiscal year
ending September 2014 and $50 million for each of fiscal years 2015 and 2016. Carryover funding from the 2008 Farm Bill may
still be made available. While BlueFire will continue to explore potential opportunities under the 2014 Farm Bill,
initial attempts under the 9003 Program have been unsuccessful and unless a qualified lender is identified to participate,
an application filing by BlueFire is not imminent.
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Sale
of Company engineering services and design packages to technology licensees.
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Apply
for public funding to leverage private capital raised by us, as applicable.
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Sale
of consulting services to project developers and technology companies
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The
issuance of debt and/or equity to fund operations.
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Leverage
existing relationships with Chinese or South Korean strategic partners for investment.
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The
sale of Company assets or entertaining suitors for acquisition of part or all of Company’s ongoing projects.
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Due
to the Company’s struggles in securing sufficient financing necessary to enact its business plan, the Board is currently
evaluating strategic alternatives which include, among other things, merging or selling the Company, in order to obtain additional
capital sufficient to continue operating and meet both our operating and financial obligations. This evaluation is still under
way, there is no formal plan is in place, and there can be no assurance that we will be successful in any of these efforts or
that we will have sufficient funds to cover our operational and financial obligations over the next twelve months.
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).
FEL-1
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FEL-2
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FEL-3
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*
Material Balance
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*
Preliminary Equipment Design
|
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*
Purchase Ready Major Equipment Specifications
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*
Energy Balance
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*
Preliminary Layout
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*
Definitive Estimate
|
*
Project Charter
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*
Preliminary Schedule
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*
Project Execution Plan
|
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*
Preliminary Estimate
|
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*
Preliminary 3D Model
|
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*
Electrical Equipment List
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*
Line List
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*
Instrument Index
|
As
of November 2010, the Fulton Project had all necessary permits for construction, and in that same month we began site clearing
and preparation work, signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the
site is now ready for facility construction. In February 2010, we announced that we submitted an application for a $250 million
dollar loan guarantee for the Fulton Project, under the DOE LGPO, 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”). Ultimately the USDA rejected the Company’s lender, BNP Paribas, for
not meeting certain capital ratios. 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.
The letter of intent has since expired and BlueFire is actively seeking the remaining equity in order to reestablish the letter
of intent or to find other banking entities capable of financing the Fulton Project. A commitment for the equity portion of the
financing has been the major delay in the financing and the Company is focusing most of its efforts on finding suitable partners.
No definitive agreements have been executed in regards to the Letter of Intent for financing.
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. Since world pellet prices have fallen drastically the Company has stopped pursuing this option, but can refocus
on it if wood pellet prices become feasible again.
The
Company has received notice from Tenaska Commodities, LLC, the off-take agreement provider for the Fulton Project, that due to
the Company’s inability to construct the facility and provide first delivery of ethanol before December 31, 2016 that Tenaska
Commodities, LLC will terminate the market price contract on December 31, 2016. The Company has identified and received interest
from other potential ethanol marketers and off-take companies and is actively seeking a replacement for this contract, but no
definitive agreements have been made
Results
of Operations
Year
Ended December 31, 2016 Compared to the Year Ended December 31, 2015
Revenue
Revenue
for the years ended December 31, 2016 and December 31, 2015, was $0 and approximately $911,500, respectively, and was primarily
related to a federal grant from the DOE. The grant generally provided for reimbursement in connection with related development
and construction costs involving commercialization of our technologies. The decrease in revenue was due to the close-out of the
DOE Award in fiscal 2016 versus the same period in fiscal 2015.
Project
Development
For
the year ended December 31, 2016, our project development costs were approximately $288,000 compared to $609,000 for the same
period during 2015. The decrease in project development costs is due to the closing out of the Department of Energy grant, the
reduction in number of employees, and reduced activities on the Fulton project.
General
and Administrative Expenses
General
and Administrative Expenses were approximately $956,000 for the year ended December 31, 2016, compared to $1,250,000 for
the same period in 2015. The decrease in general and administrative costs is due a reduction in number of employees and associated
overhead costs caused by the Company’s capital constraints.
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, 2016, we had cash
and cash equivalents of approximately $162,000. As of April 3, 2016, we had cash and cash equivalents of approximately
$6,400. Historically, we have funded our operations though the following transactions:
Management
has estimated that operating expenses for the next twelve months will be approximately $750,000, 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 2017, the Company intends to fund its operations from the sale of the Lancaster land, the potential sale
of Fulton Project equity ownership, potential consulting opportunities, from the sale of debt or equity instruments, and from
a potential merger or sale of the Company. As of April 5, 2017, 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, 2016 and 2015, the Company used cash in operating activities of $235,953 and $277,212, respectively.
In 2016, our net loss of $1,199,315 was offset by non-cash adjustments of ($146,080) $29,249 and operating assets and liabilities
of $1,109,442. 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.
We
received no convertible note proceeds in 2016, verses receiving proceeds of $155,000 for the year ended December 31, 2015. In
2016, we received net advances on a related party line of credit of $195,694 and sold no common stock for cash versus in 2015,
we sold common stock for gross proceeds of $147,000.
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-23 which appear at the end of this annual report.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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, 2016. 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, 2016.
(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, 2016.
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 December 31, 2016. 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
|
|
65
|
|
President,
CEO and Director
|
|
June
2006
|
|
|
|
|
|
|
|
John
Cuzens
|
|
65
|
|
Chief
Technology Officer
|
|
June
2006
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
50
|
|
Director
|
|
June
2006
|
|
|
|
|
|
|
|
Joseph
Sparano
|
|
69
|
|
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 the Chairman of the Board and Chief Executive Officer since our inception in March 2006. Mr. Klann has been
the President of Arkenol, Inc. from January 1989 to present. Previously, he was President of ARK Energy, Inc. As co-founder of
both companies, he has been responsible for the successful development and acquisition of over 610 megawatts of natural gas-fired
cogeneration facilities, and has been the driving force behind the research and development effort leading to the commercialization
of the Arkenol technology. Prior to ARK Energy, he was a Vice President of Engineering and Product Development for GWF Power Systems
Company, where he successfully launched three businesses and managed complex teams for project development and operation. Mr.
Klann’s areas of technical expertise include cogeneration development using natural gas-fired and solid fuels technologies,
ocean thermal energy conversion, and offshore oil exploration design and operations. During his tenure at GWF Power Systems, Mr.
Klann led technical commercialization, development and permitting activities for eight petroleum coke and coal-fired power plants.
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.
John
Cuzens – Chief Technology Officer
Mr.
Cuzens has been the Chief Technology Officer and Senior Vice President since our inception in March 2006 until March 31,
2016, and now only the Chief Technology Officer from April 1, 2016 to Present. 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 and Audit Committee)
Mr.
Nichols has been the Director since our inception in March 2006. Mr. Nichols is currently the CEO for NFI Empire Custom
Built Jeeps. Previously, Mr. Nichols was the Chief Sales Officer for Field Nation LLC from 2010 to August 2016. Mr. Nichols was
also 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 (Chairman Nominating Committee)
Mr.
Sparano served as President of the Western States Petroleum Association’s (“WSPA”) from March 2003 until January
2010, leading the trade association. From January 2010 until his retirement in April 2011, Mr. Sparano served as Executive Advisor
to WSPA’s board of directors, advising WSPA’s President and the Chairman of the Board on matters related to the trade
organization’s operations and advocacy. WSPA is a 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. Prior to joining 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
Tesoro, Mr. Sparano led his own consulting firm, Sparano Consulting, from 1995 until 2000. 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 for 42 years 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 is 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; Joseph Sparano
Nomination
Committee
Joseph
Sparano, Chairman; Arnold Klann;
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 April 5, 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
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold Klann
|
|
|
2016
|
|
|
|
226,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
226,000
|
|
Chief Executive Officer,
|
|
|
2015
|
|
|
|
226,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
226,000
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas Sumait
|
|
|
2016
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Secretary,
|
|
|
2015
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Cuzens
|
|
|
2016
|
|
|
|
45,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
45,000
|
|
Treasurer,
|
|
|
2015
|
|
|
|
180,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
180,000
|
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects
the value of shares of restricted common stock issued as compensation for serving on the Company’s board of directors.
See notes to the consolidated financial statements for valuation.
|
|
|
|
|
(2)
|
All
dollar amounts in the above chart for Year 2016 and approximately half of Year 2015 have been accrued and not paid as of December
31, 2016.
|
2016
Outstanding Equity Awards at Fiscal Year
OPTION
AWARDS
|
|
|
|
|
STOCK
AWARDS
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
|
Option
Exercise
Price ($)
|
|
|
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
($)
|
|
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
|
|
Equity
Incentive Plan
Awards: Market
or Payout Value
of Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
Director Compensation Table
Name
|
|
Fees
Earned or Paid in Cash ($)(1)
|
|
|
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
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
6,000
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Sparano
|
|
|
6,000
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,036
|
|
(1)
|
Reflects
cash amount accrued but not paid as of December 31, 2016
|
Employment
Contracts
On
June 27, 2006, the Company entered into employment agreements with three key employees. The employment agreements were each
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.
Due
to the continuing capital constraints at the Company, Mr. Cuzens, our Chief Technology Officer and Senior VP, has begun
employment as an engineer in an industry that we feel does not compete with the Company. Mr. Cuzens remains the Chief Technology
Officer of the Company, however, his time spent working on BlueFire projects is severely limited and is on a consulting basis.
On
December 31, 2016, Ms. Necitas Sumait resigned as Executive Vice President and a member of the Board of Directors of the
Company effective immediately. The resignation was not the result of any disagreement with the Company on any matter relating
to the Company’s operations, policies or practices.
The
new aggregate amount of the employment contracts is $226,000 per year.
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, 2016, the Company has 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 April 5, 2017, 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,
2016, there were 408,203,492 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 April 3, 2017, 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 25108 Marguerite Parkway Suite A-321, Mission Viejo,
CA 92692
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
|
|
|
27
|
|
|
|
52.94
|
%
|
|
|
20,308,258
|
|
|
|
4.98
|
%
|
Chief Executive Officer, President,
Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Cuzens
|
|
|
-
|
|
|
|
0
|
%
|
|
|
3,058,500
|
|
|
|
.008
|
%
|
Chief Technology Officer, Senior Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Nichols
|
|
|
12
|
|
|
|
23.53
|
%
|
|
|
42,500
|
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Sparano
|
|
|
12
|
|
|
|
23.53
|
%
|
|
|
30,000
|
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers and directors as a group
(4 persons)
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
5.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers, directors and 5% holders
as a group (5 persons)
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
5.74
|
%
|
*
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. The $5,000 to the two outside members,
plus $1,000 for Chairing committees, was accrued, and as yet remains unpaid as of December 31, 2016. 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 2015 or 2016.
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 April 5, 2017, the Company had 408,203,492 shares of common stock outstanding, and 51 shares of Series
A Preferred Stock outstanding.
Common
Stock
As
of April 5, 2017, we had 408,203,492 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 April 5, 2017, 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 other than that discussed below.
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 April 3, 2017, we had no warrants outstanding.
Options
As
of April 3, 2017, we had no options outstanding.
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, 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 paid 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, 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 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.
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. On
March 13, 2016, the line of credit was increased to $125,000, and then incrementally increased to $250,000 on October 5, 2016.
As of December 31, 2016, the outstanding balance on the line of credit was approximately $240,924 with $9,076 remaining under
the line. 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.
As
of December 31, 2016, $31,709 in accrued interest is owed under this line of credit and included with accrued liabilities.
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,
2016 and 2015, were approximately $34,200 and $44,430 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, 2016
and 2015.
c.
Tax Fees: Aggregate fees billed by dbb
mckennon
for tax services for the years ended December 31, 2016 and 2015, 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 $0 for the year ended December 31, 2016 and $175,000 for the year ended December 31, 2015. 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 2016 stockholders’ meeting and is expected to be present at the 2017 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:
April 5, 2017
|
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
|
|
April
5,
2017
|
Arnold
R. Klann
|
|
Executive
Officer, Principal Financial Officer and Principal Accounting Officer
|
|
|
|
|
|
|
|
/s/
John Cuzens
|
|
Chief
Technology Officer and Senior Vice President
|
|
April
5,
2017
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
/s/
Chris Nichols
|
|
Director
|
|
April
5,
2017
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Sparano
|
|
Director
|
|
April
5,
2017
|
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, 2016 and 2015, 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, 2016 and 2015, 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
|
|
April 5,
2017
|
|
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
161,991
|
|
|
$
|
26,922
|
|
Prepaid expenses
|
|
|
977
|
|
|
|
9,291
|
|
Total current assets
|
|
|
162,968
|
|
|
|
36,213
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $82,323 and $107,897, respectively
|
|
|
-
|
|
|
|
109,384
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
162,968
|
|
|
$
|
145,597
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,162,788
|
|
|
$
|
899,887
|
|
Accrued liabilities
|
|
|
1,549,200
|
|
|
|
730,759
|
|
Notes payable
|
|
|
420,000
|
|
|
|
420,000
|
|
Line of credit, related party
|
|
|
240,924
|
|
|
|
45,230
|
|
Note payable to a related party
|
|
|
200,000
|
|
|
|
200,000
|
|
Convertible notes
payable, net of discount of $3,889 and $0, respectively
|
|
|
21,111
|
|
|
|
-
|
|
Derivative liability
|
|
|
27,104
|
|
|
|
-
|
|
Outstanding warrant
liability
|
|
|
-
|
|
|
|
199
|
|
Total current
liabilities
|
|
|
3,621,127
|
|
|
|
2,296,075
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discount of $0 and $32,886,
respectively
|
|
|
-
|
|
|
|
20,084
|
|
Derivative liability
|
|
|
-
|
|
|
|
290,092
|
|
Total liabilities
|
|
|
3,621,127
|
|
|
|
2,606,251
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note
7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
860,980
|
|
|
|
865,614
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 1,000,000
shares authorized; 51 and 51 shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 500,000,000
shares authorized; 408,235,664 and 308,163,005 shares issued and 408,203,492 and 308,130,833 outstanding, as of December 31,
2016 and 2015, respectively
|
|
|
408,236
|
|
|
|
308,163
|
|
Additional paid-in capital
|
|
|
17,068,865
|
|
|
|
16,967,128
|
|
Treasury stock at cost, 32,172 shares
|
|
|
(101,581
|
)
|
|
|
(101,581
|
)
|
Accumulated deficit
|
|
|
(21,694,659
|
)
|
|
|
(20,499,978
|
)
|
Total stockholders’
deficit
|
|
|
(4,319,139
|
)
|
|
|
(3,326,268
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ deficit
|
|
$
|
162,968
|
|
|
$
|
145,597
|
|
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, 2016
|
|
|
December
31, 2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
-
|
|
|
$
|
-
|
|
Department
of Energy grant revenues
|
|
|
-
|
|
|
|
911,458
|
|
Total revenues
|
|
|
-
|
|
|
|
911,458
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
Consulting revenue
|
|
|
-
|
|
|
|
-
|
|
Gross margin
|
|
|
-
|
|
|
|
911,458
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Project development
|
|
|
288,062
|
|
|
|
608,679
|
|
General and administrative,
including stock based compensation of $144 and $0, respectively
|
|
|
956,193
|
|
|
|
1,250,008
|
|
Total operating
expenses
|
|
|
1,244,255
|
|
|
|
1,858,687
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,244,255
|
)
|
|
|
(947,229
|
)
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
Regulatory settlement
|
|
|
(25,000
|
)
|
|
|
-
|
|
Amortization of debt discounts
|
|
|
(53,977
|
)
|
|
|
(201,682
|
)
|
Interest expense
|
|
|
(64,378
|
)
|
|
|
(42,176
|
)
|
Related party interest expense
|
|
|
(16,441
|
)
|
|
|
(5,503
|
)
|
Gain on sale of land
|
|
|
66,220
|
|
|
|
-
|
|
Gain on settlement of accounts payable
and accrued liabilities
|
|
|
16,785
|
|
|
|
235,919
|
|
Change in fair value of warrant liability
|
|
|
199
|
|
|
|
16,368
|
|
Change in fair value of derivative liabilities
|
|
|
160,789
|
|
|
|
(22,849
|
)
|
Loss on excess
fair value of derivative liabilities
|
|
|
(36,317
|
)
|
|
|
(312,212
|
)
|
Total other income
and (expense)
|
|
|
47,880
|
|
|
|
(332,135
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision
for income taxes
|
|
|
(1,196,375
|
)
|
|
|
(1,279,364
|
)
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
|
2,940
|
|
|
|
2,543
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,199,315
|
)
|
|
$
|
(1,281,907
|
)
|
Net income (loss)
attributable to noncontrolling interest
|
|
|
(4,634
|
)
|
|
|
747
|
|
Net loss attributable
to controlling interest
|
|
$
|
(1,194,681
|
)
|
|
$
|
(1,282,654
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share attributable to controlling interest
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Weighted average
common shares outstanding, basic and diluted
|
|
|
395,628,640
|
|
|
|
248,518,121
|
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT 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
|
|
|
51
|
|
|
$
|
-
|
|
|
|
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
STATEMENT 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, 2015
|
|
|
51
|
|
|
|
-
|
|
|
|
308,130,833
|
|
|
$
|
308,163
|
|
|
$
|
16,967,128
|
|
|
$
|
(20,499,978
|
)
|
|
$
|
(101,581
|
)
|
|
$
|
(3,326,268
|
)
|
Common shares issued
for conversion of notes and accrued interest at a price of $0.0006 to $0.0012 per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
105,741,400
|
|
|
|
105,742
|
|
|
|
(33,045
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
72,697
|
|
Common shares returned in May 2016 due
to legal settlement at a price of $0.0018 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,740,741
|
)
|
|
|
(5,741
|
)
|
|
|
(4,593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,334
|
)
|
Common shares issued pursuant to Director’s
Agreements in September 2016 at a price of $0.0020 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
72,000
|
|
|
|
72
|
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
Extinguishment of derivative liabilities
associated with Convertible Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
139,303
|
|
|
|
-
|
|
|
|
-
|
|
|
|
139,303
|
|
Net loss attributable
to controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,194,681
|
)
|
|
|
|
|
|
|
(1,194,681
|
)
|
Balances at December 31, 2016
|
|
|
51
|
|
|
|
-
|
|
|
|
408,203,492
|
|
|
$
|
408,236
|
|
|
$
|
17,068,865
|
|
|
$
|
(21,694,659
|
)
|
|
$
|
(101,581
|
)
|
|
$
|
(4,319,139
|
)
|
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, 2016
|
|
|
December
31, 2015
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,199,315
|
)
|
|
$
|
(1,281,907
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value
of warrant liability
|
|
|
(199
|
)
|
|
|
(16,368
|
)
|
Change in fair value
of derivative liability
|
|
|
(160,789
|
)
|
|
|
22,849
|
|
Loss on excess fair
value of derivative liability
|
|
|
36,317
|
|
|
|
312,212
|
|
Gain on settlement
of accounts payable and accrued liabilities
|
|
|
(16,785
|
)
|
|
|
(235,919
|
)
|
Gain on sale of
land
|
|
|
(66,220
|
)
|
|
|
-
|
|
Share-based compensation
|
|
|
144
|
|
|
|
|
|
Amortization
|
|
|
53,977
|
|
|
|
201,682
|
|
Depreciation
|
|
|
275
|
|
|
|
894
|
|
Excess fair value
of common stock issued for accrued interest
|
|
|
7,200
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
and other current assets
|
|
|
8,314
|
|
|
|
(3,017
|
)
|
Accounts payable
|
|
|
269,353
|
|
|
|
173,216
|
|
Accrued
liabilities
|
|
|
831,775
|
|
|
|
549,146
|
|
Net cash used
in operating activities
|
|
|
(235,953
|
)
|
|
|
(277,212
|
)
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from
sale of land
|
|
|
175,328
|
|
|
|
-
|
|
Net cash used
in investing activities
|
|
|
175,328
|
|
|
|
-
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
147,000
|
|
Proceeds from convertible notes payable
|
|
|
-
|
|
|
|
155,000
|
|
Repayment of notes payable
|
|
|
-
|
|
|
|
(20,000
|
)
|
Proceeds from
related party line of credit/notes payable
|
|
|
195,694
|
|
|
|
-
|
|
Net cash provided
by financing activities
|
|
|
195,694
|
|
|
|
282,000
|
|
Net increase in cash and cash equivalents
|
|
|
135,069
|
|
|
|
4,788
|
|
Cash and cash
equivalents beginning of year
|
|
|
26,922
|
|
|
|
22,134
|
|
Cash and cash
equivalents end of year
|
|
$
|
161,991
|
|
|
$
|
26,922
|
|
Supplemental disclosures of cash flow
information
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
13,216
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
2,939
|
|
|
$
|
2,400
|
|
Supplemental schedule of non-cash investing
and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of
non-secured convertible notes payable
|
|
$
|
52,950
|
|
|
$
|
118,389
|
|
Interest converted
to common stock
|
|
$
|
12,547
|
|
|
$
|
-
|
|
Derivative liability
reclassified to additional paid-in capital
|
|
$
|
139,303
|
|
|
$
|
198,164
|
|
Note payable
issued for services
|
|
|
25,000
|
|
|
|
|
|
Discount on convertible
notes payable
|
|
$
|
-
|
|
|
$
|
153,196
|
|
Gain on settlement of shares
|
|
$
|
10,335
|
|
|
$
|
-
|
|
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.
The
Board is currently evaluating strategic alternatives which include, among other things, merging or selling the Company, if needed,
in order to obtain additional capital sufficient to continue operating and meet both our operating and financial obligations.
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, 2016, the Company has negative working capital of approximately $3,458,200. Management has estimated that
operating expenses for the next 12 months will be approximately $750,000, 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 2017, the Company intends to fund its operations with any additional funding that can be secured in the form of equity
or debt. As of April 3, 2017, the Company expects the current resources available to them will only be sufficient for a
period of less than 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.
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.
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, 2016 and 2015,
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, 2016 or 2015.
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, 2016 and 2015, research and development costs included in project development were approximately
$288,000 and $609,000, 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.
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, 2016 and 2015.
As
of December 31, 2016 and 2015, the warrant liability and derivative liability are considered Level 2 items, see Notes 5, 6, and
9.
As
of December 31, 2016 and 2015, the Company’s redeemable noncontrolling interest is considered a Level 3 item and changed
during 2015 and 2016 due to the following:
Balance as of January 1, 2016
|
|
$
|
865,614
|
|
Net loss attributable
to noncontrolling interest
|
|
|
(4,634
|
)
|
Balance at December 31, 2016
|
|
$
|
860,980
|
|
See
Note 8 for details of valuation and changes during the years 2016 and 2015.
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, the Department of Energy made up 100% of Grant Revenues. We had no such concentration in 2016. The Company
is currently investigating alternative sources of funding.
As
of December 31, 2016 and 2015, four vendors made up approximately 82% and 78% 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 statements 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, 2016 and 2015, the Company had no options and 0 and 23,528,571
warrants outstanding, respectively, for which all exercise prices were in excess of the trading price of the Company’s
common stock during the respective periods. Due to the net loss in the periods presented, the effects of the warrants would
be antidilutive and are, 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
The
Financial Accounting Standards Board (“FASB”) issues Accounting Standard Updates (“ASU”) to amend the
authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes
those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the
Company or (iv) are not expected to have a significant impact on the Company.
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 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 consolidated 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.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated 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. 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 rely on access to this funding
as a source of liquidity for capital requirements not satisfied by the cash flow from our operations. If we are unable to access
government funding our ability to finance our projects and/or operations and implement our strategy and business plan will be
severely hampered.
On
December 23, 2013, the Company received notice from the DOE indicating that the DOE would no longer provide funding under Award
2 due to the Company’s inability to comply with certain deadlines related to providing certain information to the DOE with
respect to the Company’s future financing arrangements for the Fulton Project. 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 June of 2015, the
DOE obligated additional funds totaling $873,332 for costs incurred but not reimbursed prior to September 30, 2014 as well as
for program required compliance audits for years 2011-2014.
As
of September 30, 2015, the Company submitted all final invoices and final documents related to the termination of the grant by
the Department of Energy. The Company considers the grant closed out and completed.
As
of December 31, 2016, 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, 2016
|
|
|
December
31, 2015
|
|
Land
|
|
$
|
-
|
|
|
$
|
109,108
|
|
Office equipment
|
|
|
53,361
|
|
|
|
63,367
|
|
Furniture and
fixtures
|
|
|
28,962
|
|
|
|
44,806
|
|
Property and equipment - Gross
|
|
|
82,323
|
|
|
|
217,281
|
|
Accumulated depreciation
|
|
|
(82,323
|
)
|
|
|
(107,897
|
)
|
Property and
equipment - Net of depreciation
|
|
$
|
-
|
|
|
$
|
109,384
|
|
On
December 29, 2016, the Company sold the land for a total sale price of $195,000 and net proceeds of $175,328 to the Company.
Depreciation
expense for the years ended December 31, 2016 and 2015 was $275 and $894, respectively.
During
the years ended December 31, 2016 and 2015, 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, 2016
|
|
|
December
31, 2015
|
|
Payroll and related benefits
|
|
$
|
1,345,208
|
|
|
$
|
614,795
|
|
Accrued interest
|
|
|
52,017
|
|
|
|
46,033
|
|
Accrued interest – related party
|
|
|
61,709
|
|
|
|
45,268
|
|
Other
|
|
|
90,266
|
|
|
|
24,663
|
|
Total
|
|
$
|
1,549,200
|
|
|
$
|
730,759
|
|
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 Vis Vires Group, 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 accounts for the derivative liability upon the passage of time and the note becoming convertible
if not extinguished.
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 was 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 each reporting period. The Company recognized
a loss of $0 and $12,911 during the years ended December 31, 2016 and 2015 based on these valuations which is included in the
accompanying consolidated statements of operations.
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Annual dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life (years)
|
|
|
-
|
|
|
|
0.08 - 0.16
|
|
Risk-free interest rate
|
|
|
0
|
|
|
|
0.14 – 0.29%
|
|
Expected volatility
|
|
|
0
|
|
|
|
216
|
%
|
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 had the option to prepay the JMJ Note prior to maturity. The JMJ
Note was 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 at the conversion date 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 was being amortized over the life of the note and accelerated
as the note was converted. For the years ended December 31, 2016 and 2015, amortization of the discount was $32,886 and $77,114,
respectively, with $0 remaining as of December 31, 2016.
|
|
Final
Conversion
April 5, 2016
(excluding inception)
|
|
|
December
31, 2015
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected life (years)
|
|
|
0.99
|
|
|
|
1.25 –
2.00
|
|
Risk-free interest rate
|
|
|
0.56
|
%
|
|
|
0.61 – 1.06
|
%
|
Expected volatility
|
|
|
188
|
%
|
|
|
282 - 304
|
%
|
During
the year ended December 31, 2016, the Company issued 105,741,400 shares of common stock for the conversion of $52,950 of principal
and $12,550 of interest. The note was fully converted on April 5, 2016.
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 December 31, 2017. 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 years ended December 31, 2016 and 2015, the Company amortized $0 and $11,335 respectively
of the discount to interest expense. As of December 31, 2016, 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, however, the Company received an extension through December
31, 2017. 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, 2016, the Company amortized on-issuance discounts totaling $0 with $0 remaining, and costs of financing
of $0 with $0 remaining related to these notes.
Tarpon
Bay Convertible Notes
Pursuant
to a contemplated 3(a)10 transaction with Tarpon Bay Partners LLC (“Tarpon”), on August 31, 2016, 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 February 28, 2017. This
note is 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.
The
above note was issued without funds being received. Accordingly, the note was issued with a full on-issuance discount that was
amortized over the term of the note. During the year ended December 31, 2016, amortization of $21,111, was recognized to interest
expense related to the discount on the note. As of December 31, 2016, a discount of $3,889 remained which is being amortized through
the maturity date.
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 $36,000. The derivative liability was marked to market each quarter and
as of December 31, 2016 which resulted in a gain of approximately $9,200. The Company used the following range of assumptions
for the year ended December 31, 2016:
|
|
Year
ended
December 31, 2016
|
|
Annual dividend yield
|
|
|
0
|
%
|
Expected life (years)
|
|
|
0.16 - 0.5
|
|
Risk-free interest rate
|
|
|
0.47 - 0.51
|
%
|
Expected volatility
|
|
|
176 - 196
|
%
|
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 is currently in default of the Kodiak Note.
As
of December 31, 2016, 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, 2016, 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 a 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.
These warrants expired on January 19, 2016.
|
|
January
19, 2016
|
|
|
December
31, 2015
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected life (years)
|
|
|
0
|
|
|
|
0.05
|
|
Risk-free interest rate
|
|
|
0.21
|
%
|
|
|
0.14
|
%
|
Expected volatility
|
|
|
179
|
%
|
|
|
216
|
%
|
In
connection with these warrants, the Company recognized a gain on the change in fair value of warrant liability of $199 and $16,368
during the years ended December 31, 2016 and 2015, 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.
The
warrants expired on January 19, 2016.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Board
of Director Arrangements
On
November 12, 2015, 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.
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, 2016 are as follows:
Years ending
|
|
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
$
|
125,976
|
|
2018
|
|
|
|
125,976
|
|
2019
|
|
|
|
125,976
|
|
2020
|
|
|
|
125,976
|
|
2021
|
|
|
|
125,976
|
|
Thereafter
|
|
|
|
2,400,064
|
|
Total
|
|
|
$
|
3,029,944
|
|
Rent
expense under non-cancellable leases was approximately $123,000 and $123,000 during the years ended December 31, 2016 and 2015,
respectively. As of December 31, 2016 and 2015, $298,468 and $174,964 of the monthly lease payments were included in accounts
payable on the accompanying consolidated balance sheets.
The
Company has received notice from the County of Itawamba that it is currently in default of the lease due to non payment and could
be subject to lease cancellation if it cannot make payments or other arrangements. As of December 31, 2016, the Company has accrued
$34,903 of default interest, at a rate of 10% per annum, due to the nonpayment of the lease. The Company is working with the County
of Itawamaba to resolve this issue and hopefully ensure continued access to the potential project site.
SEC
Notice and Settlement
On
May 2, 2016, the Company received a written notice from the SEC, as further described elsewhere in this annual report. In connection
with such notice, on August 1, 2016, the Company entered into a settlement with the SEC. Pursuant to the settlement, the Company
agreed to pay a civil penalty of $25,000 to the SEC. On July 29, 2016, the Company made an initial payment of $5,000 to the SEC.
The remaining $20,000 balance will be paid to the SEC over a nine-month period ending on or about June 30, 2017. The Company has
accrued the balance on the accompanying consolidated financial statements for such settlement.
Legal
Proceedings
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 (loss) attributable to the redeemable noncontrolling interest during the year ended December 31, 2016 and 2015 was $(4,634)
and $747, respectively, which netted against the value of the redeemable non-controlling interest in temporary equity. The allocation
of net income was presented in the consolidated statements 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.
Stock
Options
As
of December 31, 2016, and 2015 there were no options that remained outstanding.
Shares
Issued for Services
During
the year ended December 31, 2016, the Company issued a total of 72,000 shares to the Board of Directors, pursuant to stock compensation
due to them under their Director Agreements. The Company issued no shares of stock for services provided in 2015.
Warrants
See
Notes 5, 6, 9 and 10 for warrants issued with debt and equity financings.
There
were no warrant issuances for the years ended December 31, 2016 and 2015.
There
were no warrant exercises for the years ending December 31, 2016 and 2015.
A
summary of the status of the warrants for the years ended December 31, 2016 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, 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
|
|
Issued during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired during
the year
|
|
|
23,528,571
|
|
|
|
-
|
|
|
|
|
|
Outstanding and
exercisable at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
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, 2016, the balance outstanding on the Kodiak Note was $40,000. The Company is currently in
default of the Kodiak Note. Because the note was issued for no cash consideration, there was a full on-issuance discount, of which
$0 and $55,714 was amortized during the years ended December 31, 2016 and 2015, and $0 and $0 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 was 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. As of December
31, 2016, the Purchase Agreement with Kodiak has been terminated.
Return
of Shares and Settlement
On
May 6, 2016, the Company reached a settlement with James G. Speirs and James N. Speirs in regards to the lawsuit filed in Orange
County Superior Court and subsequently appealed by the Company. Under the settlement agreement, James G. Speirs and James N. Speirs
have returned the 5,740,741 shares to the Company and they have been subsequently retired to treasury. The case was dismissed
with prejudice on May 12, 2016 and the matter closed.
Board
of Directors Common Stock Issuance
The
Company issued 18,000 shares of common stock to each of its Board Members, which the Company valued at $144 based on the
closing market price of the Company’s common stock on the date of grant. See Note 7 for additional information.
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, 2016 and 2015, 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. On March 13,
2016, the line of credit was increased to $125,000, and then incrementally increased to $250,000 on October 5, 2016. As of December
31, 2016, the outstanding balance on the line of credit was approximately $240,924 with $9,076 remaining under the line. 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.
As
of December 31, 2016 and 2015, $31,709 and $15,268 respectively, in accrued interest is owed under this line of credit and included
with accrued liabilities.
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,
2016 and 2015, $200,000 remained outstanding on this loan.
Accrued
Salaries of Company Officers
As
of December 31, 2016 and 2015, $792,833 and $341,833, respectively, in accrued and unpaid salaries for Company officers Arnold
Klann, John Cuzens, and Necitas Sumait accrued within accrued liabilities in the consolidated financial statements.
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, 2016 and 2015.
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current tax provision
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
2,940
|
|
|
|
2,543
|
|
Total
|
|
$
|
2,940
|
|
|
$
|
2,543
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(382,631
|
)
|
|
|
(227,080
|
)
|
State
|
|
|
(76,619
|
)
|
|
|
(32,542
|
)
|
Valuation allowance
|
|
|
459,250
|
|
|
|
259,622
|
|
Total
|
|
|
|
|
|
|
|
|
Total provision
for income taxes
|
|
$
|
2,940
|
|
|
$
|
2,543
|
|
Current
taxes in 2016 and 2015 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, 2016 and 2015 are as follows:
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
US federal statutory income
tax rate
|
|
|
30
|
%
|
|
|
30
|
%
|
State tax - net
of benefit
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
2
|
%
|
|
|
(14
|
)%
|
Reserves and accruals
|
|
|
(21
|
)%
|
|
|
(15
|
)%
|
Changes in deferred tax assets
|
|
|
32
|
%
|
|
|
(5
|
)%
|
Other
|
|
|
(9
|
)%
|
|
|
7
|
%
|
Increase in valuation
allowance
|
|
|
(38
|
)%
|
|
|
(7
|
)%
|
Effective
tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
components of the Company’s deferred tax assets for federal and state income taxes as of December 31, 2016 and 2015 consisted
of the following:
|
|
2016
|
|
|
2015
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
7,927,043
|
|
|
$
|
7,593,325
|
|
Reserves and accruals
|
|
|
321,448
|
|
|
|
195,916
|
|
Valuation
allowance
|
|
|
(8,248,491
|
)
|
|
|
(7,789,241
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s deferred tax assets consist primarily of net operating loss (“NOL”) carry forwards of approximately
$7,927,000 and $7,593,000 at December 31, 2016 and 2015, respectively. At December 31, 2016, the Company had NOL
carry forwards for Federal and California income tax purposes totaling approximately $23.4 million and $22.2 million,
respectively. At December 31, 2015, the Company had NOL carry forwards for Federal and California income tax purposes totaling
approximately $22.3 million and $22.3 million, respectively. The Company’s valuation allowance increased by
approximately $459,000 for the year ended December 31, 2016, and increased by approximately $260,000 for the year
ended December 31, 2015. Federal and California NOL’s have begun to expire and fully expire in 2036. 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 2014 through 2016 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 2013 through 2016 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.