THUNDER BRINGS THE NEWS
Bluefire Renewables, Inc. Quarterly Report (Form10)
5/16/17, 6:11 AM
May 16, 2017 06:11 AM ET (BZ Newswire) --
10-Q
1
form10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended: March 31, 2017
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
Commission
File No. 000-52361
BLUEFIRE
RENEWABLES, INC.
(Exact
name of registrant as specified in its charter)
Nevada
20-4590982
(State
or other jurisdiction
of
incorporation)
(IRS
Employer
Identification
No.)
25108
Marguerite Parkway Suite A-321
Mission
Viejo, CA 92692
(Address
of principal executive offices)
(949)
588-3767
(Registrant’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 whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer
[ ]
Accelerated
filer
[ ]
Non-accelerated
filer
[ ]
Smaller
reporting company
[X]
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As
of May 15, 2017, there were 408,203,492 shares outstanding of the registrant’s common stock.
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
Item
1.
Financial
Statements.
F-1
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
3
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk.
7
Item
4.
Controls
and Procedures.
7
PART
II – OTHER INFORMATION
Item
1.
Legal
Proceedings.
8
Item
1A.
Risk
Factors.
8
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds.
8
Item
3.
Defaults
Upon Senior Securities.
8
Item
4.
Mine
Safety Disclosures.
9
Item
5.
Other
Information.
9
Item
6.
Exhibits.
9
Signatures
10
2
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
March
31, 2017
December
31, 2016
ASSETS
Current
assets:
Cash
and cash equivalents
$6,849
$161,991
Prepaid
expenses
30,144
977
Total
current assets
36,993
162,968
Total
assets
$36,993
$162,968
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
Current
liabilities:
Accounts
payable
$1,158,000
$1,162,788
Accrued
liabilities
1,655,568
1,549,200
Notes
payable
420,000
420,000
Line
of credit, related party
240,924
240,924
Note
payable to a related party
200,000
200,000
Convertible
notes payable, net of discount of $0 and $3,889, respectively
25,000
21,111
Derivative
liability
28,125
27,104
Total
current liabilities
3,727,617
3,621,127
Total
liabilities
3,727,617
3,621,127
Commitments
and contingencies (Note 6)
Redeemable
noncontrolling interest
860,116
860,980
Stockholders’
deficit:
Preferred
stock, no par value, 1,000,000 shares authorized; 51 and 51 shares issued and outstanding as of March 31, 2017 and December
31, 2016, respectively
-
-
Common
stock, $0.001 par value; 500,000,000 shares authorized; 408,235,664 and 408,235,664 shares issued; and 408,203,492 and 408,203,492
outstanding, as of March 31, 2017 and December 31, 2016, respectively
408,236
408,236
Additional
paid-in capital
17,068,865
17,068,865
Treasury
stock at cost, 32,172 shares at March 31, 2017 and December 31, 2016
(101,581)
(101,581)
Accumulated
deficit
(21,926,260
)
(21,694,659)
Total
stockholders’ deficit
(4,550,740
)
(4,319,139)
Total
liabilities and stockholders’ deficit
$36,993
$162,968
See
accompanying notes to consolidated financial statements
F-1
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
For
the Three
Months Ended
March 31, 2017
For
the Three
Months Ended
March 31, 2016
Revenues:
Department
of Energy grant revenue
$-
$-
Total
revenues
-
-
Cost
of revenue
-
-
Gross
margin
-
-
Operating
expenses:
Project
development
30,803
100,297
General
and administrative
175,925
297,561
Total
operating expenses
206,728
397,858
Operating
loss
(206,728)
(397,858)
Other
income and (expense):
Amortization
of debt discount
(3,889)
(32,866)
Interest
expense
(13,680)
(29,303)
Related
party interest expense
(7,147)
(1,440)
Gain
from change in fair value of warrant liability
-
199
Gain
(loss) from change in fair value of derivative liability
(1,021)
151,576
Total
other income and (expense)
(25,737)
88,166
Loss
before income taxes
(232,465)
(309,692)
Provision
for income taxes
-
153
Net
loss
$(232,465)
$(309,845)
Net
loss attributable to noncontrolling interest
(864)
(1,479)
Net
loss attributable to controlling interest
$(231,601)
$(308,366)
Basic
and diluted loss per common share
$(0.00)
$(0.00)
Weighted
average common shares outstanding, basic and diluted
408,203,492
355,159,944
See
accompanying notes to consolidated financial statements
F-2
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For
the Three
Months Ended
March 31, 2017
For
the Three
Months Ended
March 31, 2016
Cash
flows from operating activities:
Net
loss
$(232,465)
$(309,845)
Adjustments
to reconcile net loss to net cash used in operating activities:
Gain
from change in the fair value of warrant liability
-
(199)
Loss
(gain) from change in fair value of derivative liability
1,021
(151,576)
Amortization
of debt discounts
3,889
32,866
Depreciation
-
275
Excess
fair value of common stock issued for accrued interest
-
7,200
Changes
in operating assets and liabilities:
Prepaid
expenses and other current assets
(29,167)
5,314
Accounts
payable
(4,788)
82,966
Accrued
liabilities
106,368
285,143
Net
cash used in operating activities
(155,142)
(47,856)
Cash
flows from financing activities:
Proceeds
from related party line of credit/notes payable
-
24,000
Net
cash provided by financing activities
-
24,000
Net
decrease in cash and cash equivalents
(155,142)
(23,856)
Cash
and cash equivalents beginning of period
161,991
26,922
Cash
and cash equivalents end of period
$6,849
$3,066
Supplemental
disclosures of cash flow information
Cash
paid during the period for:
Interest
$-
$-
Supplemental
schedule of non-cash investing and financing activities:
Conversion
of convertible notes payable into common stock
$-
$52,950
Accrued
interest converted to common stock
$-
$7,700
Derivative
liability reclassed to additional paid-in capital
$-
$139,303
See
accompanying notes to consolidated financial statements
F-3
BLUEFIRE
RENEWABLES, INC. AND SUBSIDIARIES
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.
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 a 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 August
of 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 March 31, 2017, the Company has negative working capital of approximately $3,691,000. 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 May 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 (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-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 until financing for the construction of the Fulton
plant is obtained.
F-4
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
Company’s business, industry and 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
achieving and maintaining 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 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.
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 the 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 sales and marketing.
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.
F-5
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 months ended March 31,
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.
During the three months ended March 31, 2017 and 2016, research and development costs included in Project Development were approximately
$31,000, and $100,000, respectively.
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
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:
F-6
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 March 31, 2017 or December 31, 2016.
As
of March 31, 2017 and December 31, 2016, the Company’s derivative liabilities are considered a Level 2 item (see Notes 4
and 5).
As
of March 31, 2017 and December 31, 2016 the Company’s redeemable noncontrolling interest is considered a Level 3 item and
changed during the three months ended March 31, 2017 as follows.
Balance
at December 31, 2016
$860,980
Net
loss attributable to noncontrolling interest
(864)
Balance
at March 31, 2017
$860,116
See
Note 8 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
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 March 31, 2017 and December 31, 2016, four vendors made up approximately 84% and 82% of accounts payable, respectively.
Loss
per Common Share
The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations.
Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and
other convertible securities. As of March 31, 2017 and 2016, the Company had 0 and 23,100,000 warrants, respectively, for which,
in 2016, 23,100,000 warrants had an exercise price which was in excess of the average closing price of the Company’s common
stock during the corresponding quarter, and thus 0 and 23,100,000 warrants, respectively, were excluded from dilutive EPS calculations
under the treasury stock method of accounting. In addition, due to the net loss in the periods presented, the warrants’
effects are antidilutive and therefore, excluded from diluted EPS calculations.
F-7
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
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 CONTRACTS
Department
of Energy Awards 1 and 2
In
February 2007, the Company was awarded a grant for up to $40 million from the U.S. Department of Energy’s (“DOE”)
cellulosic ethanol grant program to develop a solid waste biorefinery project. 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 Award 2 to a total of $81 million
for Phase II of its Fulton Project. In September 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 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 DOE. The Company considers the grant closed out and completed.
F-8
NOTE
4 - NOTES PAYABLE
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 specified
above. Since the conversion feature is only convertible after six months, there is no derivative liability upon issuance. However,
the Company will account for the derivative liability upon the passage of time and the note becoming convertible if not extinguished.
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 was amortized over the life of the note. During the three months ended March
30, 2016, amortization of the discount was $32,866 with $0 remaining.
Final
Conversion
April 5, 2016
(Excluding Inception)
March
31, 2016
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 three months ended March 31, 2016, the Company issued 96,830,000 shares of common stock for the conversion of approximately
$53,000 of principal and $8,000 of accrued 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 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”). The Company may prepay the debt, prior to maturity with no prepayment penalty.
F-9
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) of
1.41
- 2.00
Risk-free
interest rate
0.40%
Expected
volatility
183%
- 206%
On
April 24, 2014, the Company issued a promissory note in favor of AKR in the principal aggregate amount of $30,000 (“2nd
AKR Note”). The 2nd AKR Note was due on July 24, 2014; however, the Company has received multiple
extensions to the due date moving it to December 31, 2017. Pursuant to the terms of the 2nd AKR Note, the
Company is to repay any principal balance and interest, at 5% per annum at maturity. Company may prepay the debt, prior to maturity
with no prepayment penalty. Pursuant to the terms of the 2nd AKR Note, the Company is to repay any principal balance
and interest, at 5% per annum at maturity. 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 three months ended March 31, 2017, amortization of $3,889, was recognized related
to the discount on the note. As of March 31, 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 March 31, 2017 which resulted in a loss of approximately $1,000. The Company used the following assumptions for the three
months ended March 31, 2017:
March
31, 2017
Annual
dividend yield
-
Expected
life (years) of
0.01
Risk-free
interest rate
0.74%
Expected
volatility
174%
Although
Tarpon Bay can convert the note at any time, as of March 31, 2017 no conversions have occurred. 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 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.
F-10
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 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 March 31, 2017, the balance outstanding on the Kodiak Note was $40,000.
NOTE
5 - 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 on January
19, 2011 with Lincoln Park Capital, LLC. These warrants expired in January 2016 and were accounted for as a liability under ASC
815 as they contain a ratchet provision in which the exercise price will be adjusted based on future issuances of common stock,
excluding certain issuances; if issuances are at prices lower than the current exercise price. 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.
January
19, 2016
Annual
dividend yield
-
Expected
life (years) of
0
Risk-free
interest rate
0.21%
Expected
volatility
179%
In
connection with these warrants, the Company recognized a gain on the change in fair value of warrant liability of approximately
$199 during the three months ended March 31, 2016.
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
6 - 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 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.
F-11
Rent
expense under non-cancellable leases was approximately $30,900, and $30,900 during the three months ended March 31, 2017 and 2016,
respectively.
As
of March 31, 2017 and 2016, $329,334 and $205,840 of the monthly lease payments were included in accounts payable on the accompanying
consolidated balance sheets, respectively.
The
Company 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 with the County of Itawamba. As of March 31, 2017, the Company has accrued $42,521 of default interest due
to the nonpayment of the lease. Subsequent to March 31, 2017, the Company received a demand for payment of the outstanding amount
due to the County of Itawamba. The Company is working with the County of Itawamba to resolve this issue and hopefully ensure continued
access to the potential project site. See Note 10 for more information.
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 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. The Company has yet to make an additional payment and as of May 15, 2017, the Company has received no further
communication from the SEC.
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
7 - 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 Line 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 March
31, 2017, 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.
F-12
As
of March 31, 2017, approximately $38,856 in accrued interest is owed under this line of credit and included with accrued liabilities.
Accrued
Salaries
As
of March 31, 2017 and December 31, 2016, accrued salary due to the Chief Executive Officer included within accrued liabilities
was $395,500 and $339,000, respectively.
Total
accrued and unpaid salary of all employees is $1,416,329 and $1,330,777 as of March 31, 2017, and December 31, 2016, respectively,
representing 21 months of accrual at March 31, 2017.
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 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 noncontrolling interest during for the three months ended March 31, 2017 and 2016 was $864
and $1,479, respectively which netted against the value of the redeemable non-controlling interest in temporary equity. The allocation
of net loss was presented on 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.
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.
F-13
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 for no consideration, in the principal aggregate amount of $60,000 (the “Kodiak Note”) that bears no interest
and has maturity date of July 17, 2015. See Note 4 for additional information.
Concurrently
with the Purchase Agreement, on December 17, 2014, the Company also entered into a registration rights agreement (the “Registration
Rights Agreement”) with Kodiak. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to
file a registration statement (the “Registration Statement”) with the SEC to cover the Registered Securities, within
thirty (30) days of closing, and must use its commercially reasonable efforts to cause the Registration Statement to be declared
effective by the SEC. The Registration was filed on January 2, 2015, and declared effective on February 11, 2015.
The
Purchase Agreement will terminate on the earlier of (i) on the date on which Kodiak shall have purchased Put Shares pursuant to
this Agreement for an aggregate Purchase Price of the Maximum Commitment Amount or (ii) December 31, 2016. The Purchase Agreement
is now terminated.
NOTE
10 - SUBSEQUENT EVENTS
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 has appealed
for an extension or forgiveness of the past due liability but considers the site lease cancelled as of May 10, 2017. As of
the date of this filing, the Company has not received a response to its appeal. See Note 6 for more information.
F-14
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
quarterly report on Form 10-Q and other reports filed by BlueFire Renewables, Inc. (the “Company”) from time to time
with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that
are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions
made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which
are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,”
“estimate,” “expect,” “future,” “intend,” “plan,” or the negative
of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking
statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties,
assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s
operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended,
or planned.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities
laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements
to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments
and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.
Our financial statements would be affected to the extent there are material differences between these estimates and actual results.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s
judgment in its application. There are also areas in which management’s judgment in selecting any available alternative
would not produce a materially different result. The following discussion should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this report.
PLAN
OF OPERATION
Our
primary business encompasses development activities culminating in the design, construction, ownership and long-term operation
of cellulosic ethanol production 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 is projected as follows:
?
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 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.
3
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 and EPC agreement have 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 and to issue the notice to proceed
to reestablish the EPC Contract. 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.
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 terminated 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 currently in default of its obligations under the site lease agreement with the County of Itawamba for the Fulton Project
and subsequent to March 31, 2017, the Company received a letter from the Country of ltawamba stating that the lease for the
Fulton Project would be canceled unless the current balance outstanding plus default interest were paid in full by May 10, 2017.
The Company has appealed for an extension or forgiveness of the past due liability but consider the site lease canceled as of
May 10,2017. As of the date of this filing, the Company has not recived a response to its appeal.
The
Company is still actively pursuing the Fulton Project and working to reinstate all Project agreements and raise the capital
needed to construct the facility but can make no assurances that it will be successful. The engineering package and other pertinent
process documents generated can be used at another suitable location if efforts to continue with the Fulton Project are unsuccessful.
Other
opportunities are being evaluated by us in North America, although no definitive agreements have been reached.
?
In
February of 2012, SucreSource announced its first client GS Caltex, a South Korean petroleum company. In the same month, it
received the first payment under the Professional Services Agreement (PSA) for work on a facility in South Korea. As of 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.
BlueFire’s
capital requirement strategies for its planned bio-refineries and general company operations are as follows:
?
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.
?
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.
4
?
Sale
of Company engineering services and design packages to technology licensees.
?
Apply
for public funding to leverage private capital raised by us, as applicable.
?
Sale
of consulting services to project developers and technology companies.
?
The
issuance of debt and/or equity to fund operations.
?
Leverage
existing relationships with Chinese or South Korean strategic partners for investment.
?
The
sale of Company assets or entertaining suitors for acquisition of part or all of Company’s ongoing projects.
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
FEL-2
FEL-3
*
Material Balance
*
Preliminary Equipment Design
*
Purchase Ready Major Equipment Specifications
*
Energy Balance
*
Preliminary Layout
*
Definitive Estimate
*
Project Charter
*
Preliminary Schedule
*
Project Execution Plan
*
Preliminary Estimate
*
Preliminary 3D Model
*
Electrical Equipment List
*
Line List
*
Instrument Index
As
of November 2010, the Fulton Project had all necessary permits for construction, and in that same month we began site clearing
and preparation work, signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the
site is now ready for facility construction. In February 2010, we announced that we submitted an application for a $250 million
dollar loan guarantee for the Fulton Project, under the DOE LGPO, mentioned above. In August 2010, BlueFire submitted an application
for a $250 million loan guarantee with the U.S. Department of Agriculture (“USDA”) under Section 9003 of the 2008
Farm Bill, as defined below (“USDA LG”). 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.
5
The
Company is currently in default of its obligations under the site lease agreement with the County of Itawamba and the Company
received a letter from the Country of ltawamba stating that the lease for the Fulton Project would be canceled unless the current
balance outstanding plus default interest were paid in full by May 10, 2017. The Company has appealed for an extension or forgiveness
of the past due liability but consider the site lease canceled as of May 10,2017. As of the date of this filing, the Company has
not recived a response to its appeal.
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 terminated 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
For
the Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Project
Development
For
the three months ended March 31, 2017, our project development costs were approximately $31,000, compared to project development
costs of approximately $100,000 for the same period during 2016. The decrease in project development costs was primarily due to
the reduction in the number of employees and reduced activities on the Fulton project.
General
and Administrative Expenses
General
and administrative expenses were approximately $176,000 for the three months ended March 31, 2017, compared to $298,000 for the
same period in 2016. The decrease in general and administrative costs is mainly due to the 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 May 15, 2017, we had cash and
cash equivalents of $3,300.
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 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 May 15, 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.
6
Changes
in Cash Flows
During
the three months ended March 31, 2017 and 2016, we used cash of approximately $155,000 and $48,000 in operating activities, respectively.
During the 2017 period we had a net loss of approximately $232,000, which included add back non-cash net losses of approximately
$4,900 and net cash provided by operating assets and liabilities of approximately $72,400. During the 2016 period, we had a net
loss of approximately $310,000, which included add back non-cash net gains of approximately $111,000 and net cash provided by
operating assets and liabilities of approximately $373,000. The increase in cash usage was due to the Company paying certain accrued
liabilities with the proceeds of the sale of the Lancaster property in December 2016.
During
the three months ended March 31, 2017 and 2016, there were no funds used in investing activities.
During
the three months ended March 31, 2017 and 2016, we had positive cash flow from financing activities of approximately $0 compared
to approximately $24,000, respectively, related to proceeds received from the related party line of credit.
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 derivative liabilities. We also have other key accounting
estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments
that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of
operations for a given period. For additional information see Note 2, “Summary of Significant Accounting Policies”
in the notes to our reviewed financial statements appearing elsewhere in this quarterly report and our annual audited financial
statements appearing on Form 10-K. Although we believe that our estimates and assumptions are reasonable, they are based upon
information presently available, and actual results may differ significantly from these estimates.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
We
do not hold any derivative instruments and do not engage in any hedging activities.
Item
4. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures.
In
connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, our Principal Executive
Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded
that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information
required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer
and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide
absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a company have been detected.
7
(b)
Changes in Internal Control over Financial Reporting.
There
were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
On
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
1A. Risk Factors.
We
believe there are no changes that constitute material changes from the risk factors previously disclosed in our annual report
on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 5, 2017.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
There
were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2017.
Item
3. Defaults Upon Senior Securities.
Other
than disclosed herein, there has been no default in the payment of principal, interest, sinking or purchase fund installment,
or any other material default, with respect to any indebtedness of the Company.
8
Item
4. Mine Safety Disclosures.
Not
applicable.
Item
5. Other Information.
Except
as detailed below, there is no other information required to be disclosed under this item which was not previously disclosed.
On
May 1, 2017 the Company received a letter from the Country of ltawamba stating that the lease for the Fulton Project would
be canceled unless the current balance outstanding plus default interest were paid in full by May 10, 2017. The Company has appealed
for an extension or forgiveness of the past due liability but consider the site lease canceled as of May 10,2017. As of the date
of this filing, the Company has not recived a response to its appeal.
Item
6. Exhibits.
Exhibit
No.
Description
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
9
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:
May 15, 2017
By:
/s/
Arnold Klann
Name:
Arnold
Klann
Title:
Chief
Executive Officer
(Principal
Executive Officer)
(Principal
Financial Officer)
(Principal
Accounting Officer)
10
EX-31.1
2
ex31-1.htm
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I,
Arnold Klann, certify that:
1.
I
have reviewed this Form 10-Q of BlueFire Renewables, Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d)
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
May 15, 2017
By:
/s/
Arnold Klann
Arnold
Klann
Principal Executive Officer
BlueFire Renewables, Inc.
EX-31.2
3
ex31-2.htm
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I,
Arnold Klann, certify that:
1.
I
have reviewed this Form 10-Q of BlueFire Renewables, Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d)
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
May 15, 2017
By:
/s/
Arnold Klann
Arnold
Klann
Principal Financial Officer
BlueFire Renewables, Inc.
EX-32.1
4
ex32-1.htm
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In
connection with this Quarterly Report of BlueFire Renewables, Inc. (the “Company”), on Form 10-Q for the period ended
March 31, 2017, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Arnold Klann, Principal Executive
Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906
of the Sarbanes-Oxley Act of 2002, that:
(1)
Such
Quarterly Report on Form 10-Q for the period ended March 31, 2017, fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)
The
information contained in such Quarterly Report on Form 10-Q for the period ended March 31, 2017, fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date:
May 15, 2017
By:
/s/
Arnold Klann
Arnold
Klann
Principal Executive Officer
BlueFire Renewables, Inc.
EX-33.2
5
ex32-2.htm
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In
connection with this Quarterly Report of BlueFire Renewables, Inc. (the “Company”), on Form 10-Q for the period ended
March 31, 2017, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Arnold Klann, Principal Financial
Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906
of the Sarbanes-Oxley Act of 2002, that:
(1)
Such
Quarterly Report on Form 10-Q for the period ended March 31, 2017, fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)
The
information contained in such Quarterly Report on Form 10-Q for the period ended March 31, 2017, fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date:
May 15, 2016
By:
/s/
Arnold Klann
Arnold
Klann
Principal Financial Officer
BlueFire Renewables, Inc.
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