NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern
The
Company has incurred losses since Inception. Management has funded operations primarily through proceeds received in connection
with the reverse merger, loans from its 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 June 30, 2017, the Company has negative
working capital of approximately $3,889,000. 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. The Company intends to fund its operations with any additional
funding that can be secured in the form of equity or debt. As of August 15, 2017, 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.
As of December 31, 2010, the Company completed
the detailed engineering on our proposed Fulton Project, procured all necessary permits for construction of the plant, and began
site clearing and preparation work, signaling the beginning of construction. 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. In addition, the County of Itawamba sent notice that
it would terminate the lease for the Fulton Project on May 10, 2017 if full payment was not made. The Company was unable to make
payment but received a letter stating that access to the site would be on a first-come, first-served basis. See Note 4.
We
estimate the total construction cost of the bio-refinery 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 this facility but no definitive agreements are in place. The Company cannot continue significant
development or furtherance of the Fulton project or any other opportunity until financing for the Company and the construction
of the Fulton project is obtained.
Risks
and Uncertainties
The
Company has a limited operating history and has not generated revenues from our planned principal operations.
The
Company’s business and operations are very sensitive to general business and economic conditions in the U.S. and worldwide.
Specifically, these conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital
markets and the general price of crude oil and gasoline.
The
risks related to the Company’s plans to sell engineering services are that the Company currently has no sales and limited
marketing capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial
additional expenses if we decide to market any of our services. Developing a marketing and sales force is also time consuming
and could delay launch of our future bio-ethanol plants. In addition, the Company will compete with other engineering companies
that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to
compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The
Company’s business and industry is also subject to new innovations in technology. Significant technical changes can have
an adverse effect on product lives. Design and development of new products and services are important elements to achieve profitability
in the Company’s industry segment. As a result, the Company’s products may quickly become obsolete and unmarketable.
The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands,
develop new products and services and enhance our current products on a timely and cost-effective basis.
The
Company’s products must remain competitive with those of other companies with substantially greater resources. The Company
may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products
or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry
standards, and the Company’s new products may not be favorably received. Nor may we have the capital resources to further
the development of existing and/or new ones.
Due
to the continuing capital constraints at the Company, John 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. His technical
and engineering expertise, including his familiarity with the Arkenol Technology, is important to BlueFire and our failure to
retain Mr. Cuzens on a full-time basis, or to attract and retain additional qualified personnel, could adversely affect our planned
operations. We do not currently carry key-man life insurance on any of our officers.
The
long time horizon of project development and financing for the Company’s intended biorefinery projects may make it difficult
to keep key project contracts active and in force with the Company’s limited resources. There is no guarantee the Company
can keep them active or find suitable replacements if they do expire or are canceled.
Lastly,
the Company may be subject to federal, state and local environmental laws and regulations. The Company does not anticipate material
expenditures to comply with such laws and does not believe that regulations will have a material impact on the Company’s
financial position, results of operations, or liquidity. The Company believes that its operations comply, in all material respects,
with applicable federal, state, and local environmental laws and regulations.
Basis
of Presentation
The
accompanying unaudited consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations
of the United States Securities Exchange Commission. Certain information and disclosures normally included in the annual financial
statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary
for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring
adjustments. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 2016. The results of operations for the three and six months ended June
30, 2017 are not necessarily indicative of the results that may be expected for the full year.
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.
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
with almost 100% of the allocation being employee salaries. During the three and six months ended June 30, 2017 and 2016, development
costs included in Project Development were approximately $42,000, $73,000, $70,000, and $170,000, respectively.
Fair
Value of Financial Instruments
The
Company follows the guidance of ASC 820 – “Fair Value Measurement and Disclosure”. 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 June 30, 2017 or December 31, 2016.
As
of June 30, 2017 and December 31, 2016, the Company’s derivative liabilities are considered a Level 2 item (see Note 3).
As
of June 30, 2017 and December 31, 2016 the Company’s redeemable non-controlling interest is considered a Level 3 item and
changed during the six months ended June 30, 2017 as follows.
Balance
at December 31, 2016
|
|
$
|
860,980
|
|
Net
loss attributable to non-controlling interest
|
|
|
(1,456
|
)
|
Balance
at June 30, 2017
|
|
$
|
859,524
|
|
See
Note 6 for details of valuation and changes during the years 2017 and 2016.
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.
Concentrations
of Credit Risk
As
of June 30, 2017 and December 31, 2016, four vendors made up approximately 86% and 82% of accounts payable, respectively.
Loss
per Common Share
The
Company presents basic income (loss) per share (“EPS”) and diluted EPS on the face of the consolidated statement of
operations. Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock
options, warrants, and other convertible securities. As of June 30, 2017 and 2016, the Company has convertible notes outstanding
that are dilutive and convertible into the Company’s common stock. However, due to the net loss in each respective period,
these were excluded from diluted EPS as their effects would be anti-dilutive.
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.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the
Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related
disclosures.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying financial statements.
NOTE
3 – NOTES PAYABLE
From
time-to-time, the Company enters into convertible notes with third parties as indicated below.
For the below convertible notes, 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. Since the conversion feature is only convertible after
six months, there is no derivative liability upon issuance. However, the Company will account for the derivative liability upon
the passage of time and the note becoming convertible if not extinguished.
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 was 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
and at each conversion, and reporting date. The initial value of the derivative liability was $412,212, resulting in a day one
loss $312,212. The discount on the convertible note is being amortized over the life of the note. During the six months ended
June 30, 2016, amortization of the discount was $32,866 with $0 remaining.
|
|
Final
Conversion
April 5, 2016
(Excluding Inception)
|
|
|
April
2, 2015
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected
life (years)
|
|
|
0.99
|
|
|
|
2.00
|
|
Risk-free
interest rate
|
|
|
0.56
|
%
|
|
|
0.55
|
%
|
Expected
volatility
|
|
|
188
|
%
|
|
|
301.07
|
%
|
During
the six months ended June 30, 2016, the Company issued 105,741,400 shares of common stock for the conversion of approximately
$65,500, including approximately $52,950 of principal and $12,550 of accrued interest. As of April 5, 2016, the JMJ Note was fully
converted into shares of Company stock and as such repaid in full.
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 due on April 8, 2015; however, the Company has received multiple extensions
to the due date moving it to 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”).
All AKR Warrants were expired as of April 8, 2016. The Company had the ability to prepay the debt, prior to maturity, as extended,
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 on the relative fair value
of the AKR Warrants compared to the debt. The discount was fully amortized as of the original maturity date of April 8, 2015.
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)
|
|
|
1.41
- 2.00
|
|
Risk-free
interest rate
|
|
|
0.40
|
%
|
Expected
volatility
|
|
|
183%
- 206
|
%
|
On
April 24, 2014, the Company issued an additional promissory note in favor of AKR in the principal aggregate amount of $30,000
(“2
nd
AKR Note”). The 2
nd
AKR Note was due on July 24, 2014; however, the Company has received
multiple extensions to the due date moving it to 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. The Company may prepay the debt prior to maturity
with no prepayment penalty.
Tarpon
Bay Convertible Note
Pursuant
to a contemplated 3(a)10 transaction, which would be used to reduce aged liabilities of the Company, 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 six months ended June 30, 2017, amortization of $3,889, was recognized related
to the discount on the note. As of June 30, 2017, a discount of $0 remained.
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 June 30, 2017 which resulted in a loss of approximately $1,000. The Company used the following assumptions for the three
months ended June 30, 2017:
|
|
June
30, 2017
|
|
Annual
dividend yield
|
|
|
-
|
|
Expected
life (years)
|
|
|
0.01
|
|
Risk-free
interest rate
|
|
|
0.84
|
%
|
Expected
volatility
|
|
|
150.26
|
%
|
During the three months ended June 30, 2017,
the Company issued 10,000,000 shares of common stock to pay down $5,500 of the Tarpon Bay Convertible Note. The Company is working
with Tarpon Bay in order to ascertain how to move forward with the proposed 3(a)10 transaction.
Kodiak
Promissory Note
On
December 17, 2014, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Kodiak Capital
Group, LLC (“Kodiak”). Pursuant to the terms of the Purchase Agreement, for a period of twenty-four (24) months commencing
on the date of effectiveness of the registration statement, Kodiak shall commit to purchase up to $1,500,000 of Put Shares, pursuant
to Puts (as defined in the Purchase Agreement), covering the Registered Securities (as defined in the Purchase Agreement, and
below).
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 has a maturity date of July 17, 2015. No funds were received
for this note. The Company is currently in default of the Kodiak Note.
As
of June 30, 2017, the balance outstanding on the Kodiak Note was $40,000.
NOTE
4 – COMMITMENTS AND CONTINGENCIES
Fulton
Project Lease
On
July 20, 2010, the Company entered into a thirty year lease agreement with Itawamba County, Mississippi for the purpose of the
development, construction, and operation of the Fulton Project. At the end of the primary 30 year lease term, the Company shall
have the right for two additional thirty year terms. The current lease rate is computed based on a per acre rate per month that
is approximately $10,300 per month. The lease stipulates the lease rate is to be reduced at the time of the construction start
by a Property Cost Reduction Formula which can substantially reduce the monthly lease costs. The lease rate shall be adjusted
every five years to the Consumer Price Index.
The Company is currently in default of the
lease due to non payment. On May 1, 2017, the Company received a letter from the County of Itawamba stating that the lease for
the Fulton Project would be cancelled unless the current balance outstanding plus default interest were paid in full by May 10,
2017. The Company appealed for an extension or forgiveness of the past due liability but was denied and told “The County
is actively marketing the real property through its economic developer. The real property is available on a first-come, first-served
basis.” Due to the uncertainty of access to the site, the Company stopped the accrual of lease payments on May 10, 2017
and considers the lease cancelled. The Company will work to reinstate when financing is obtained.
Rent
expense under non-cancellable leases was approximately $13,676, $44,552, $30,876 and $61,752 during the three and six months ended
June 30, 2017 and 2016, respectively.
As
of June 30, 2017 and December 31, 2016, $343,010 and $298,468, respectively, of the monthly lease payments were included in accounts
payable on the accompanying consolidated balance sheets, respectively.
The
Company considers the lease cancelled as of May 10, 2017. As of June 30, 2017, the Company has accrued $46,131 of default interest
due to the nonpayment of the lease.
SEC
Notice and Settlement
On May 2, 2016, the Company received a written
notice from the Securities and Exchange Commission (SEC), as further described elsewhere in this quarterly 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 was to 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. The Company has yet to make
an additional payment due to capital constraints and as of August 15, 2017 the Company has received no further communication from
the SEC in regards to the settlement or further payment.
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
5 – RELATED PARTY TRANSACTIONS
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 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. 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. These warrants
expired on December 15, 2013.
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 June
30, 2017, the outstanding balance on the line of credit was approximately $244,211 with $5,789 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 June 30, 2017, $46,184 in accrued interest is owed under this line of credit and included with accrued liabilities.
Accrued
Salaries
As
of June 30, 2017 and December 31, 2016, accrued salary due to the Chief Executive Officer included within accrued liabilities
was $433,167 and 339,000, respectively.
Total
accrued and unpaid salary of all employees is $1,544,657 and $1,330,777 as of June 30, 2017, and December 31, 2016, respectively,
representing 24 months of accrual at June 30, 2017.
NOTE
6 – REDEEMABLE NON-CONTROLLING INTEREST
On
December 23, 2010, the Company sold a one percent (1%) membership interest in its operating subsidiary, BlueFire Fulton Renewable
Energy, LLC (“BlueFire Fulton” or the “Fulton Project”), to an accredited investor for a purchase price
of $750,000 (“Purchase Price”). The Company maintains a 99% ownership interest in the Fulton Project. In addition,
the investor received a right to require the Company to redeem the 1% interest for $862,500, or any pro-rata amount thereon. The
redemption is based upon future contingent events based upon obtaining financing for the construction of the Fulton Project. The
third party equity interests in the consolidated joint ventures are reflected as redeemable 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 estimated forecasted financial close, originally estimated to be the end of the third
quarter of 2011.
Net
loss attributable to the redeemable non-controlling interest during for the three and six months ended June 30, 2017 and 2016
was $592, $1,456, $1,067 and $2,546, respectively, which netted against the value of the redeemable non-controlling interest in
temporary equity. The allocation of loss was presented on the statement of operations.
NOTE
7 – STOCKHOLDERS’ DEFICIT
Please
see Note 3 for information on current conversion of notes payable to the Company’s common stock.
NOTE
8 – SUBSEQUENT EVENTS
On
July 10, 2017, the Company issued 18,000,000 shares of common stock to pay down $10,800 of the Tarpon Bay convertible note. See
Note 3.
On
August 9, 2017, the Company issued 12,888,889 shares of common stock to pay down $5,800 of the Tarpon Bay convertible note. See
Note 3.