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EX-5.1 - OPINION LETTER - Bluefire Renewables, Inc. | ex5-1.htm |
EX-23.1 - CONSENT - Bluefire Renewables, Inc. | ex23-1.htm |
As filed
with the Securities and Exchange Commission on November 9,
2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1 Amendment #1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BLUEFIRE
ETHANOL FUELS, INC.
(Name of
small business issuer in its charter)
Nevada
|
2860
|
20-4590982
|
(State
or jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
umber)
|
BlueFire
Ethanol Fuels, Inc.
31
Musick
Irvine,
California 92618
(949) 588-3767 (telephone
number)
(949) 588-3972 (facsimile
number)
(Address
and telephone number of principal executive offices and principal place of
business)
X-Pedited
Transfer Corporation
535
16th
Street, Suite 810
Denver,
CO 80202
(303) 573-1000 (telephone
number)
(Name,
address and telephone number of agent for service)
Copies
to:
Joseph
M. Lucosky, Esq.
Anslow
& Jaclin, LLP
195
Route 9 South, Suite 204
Manalapan,
NJ 07726
Tel:
(732) 409-1212
Fax:
(732) 577-1188
Approximate
date of proposed sale to public: From time to time after the effective date of
this Registration Statement.
If any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the 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
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
|
Amount
to be
Registered
|
Proposed
Maximum
Offering
Price
Per
Share
(1)
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
Amount
of
Registration
Fee
|
||||||||||||
Common
Stock, $0.001 par value per share
|
2,500,000
|
$
|
0.98
|
$
|
2,375,000
|
$
|
$139.89
|
|||||||||
TOTAL
|
2,500,000
|
$
|
0.98
|
$
|
2,375,000
|
$
|
$139.89
|
(2)
|
(1)
|
Estimated
solely for purposes of calculating the registration fee in accordance with
Rule 457(c) under the Securities Act of 1933 based on the average
of the high and low price of the common stock as reported on the
Over-the-Counter Bulletin Board on November 6,
2009.
|
(2) |
Previously
paid as part of the Company’s Registration Statement on Form S-1 filed
with the SEC on September 4,
2009.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The
information in this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION, DATED NOVEMBER 6, 2009
BlueFire
Ethanol Fuels, Inc.
2,500,000 Shares
of Common Stock
This
prospectus relates to the resale by selling stockholders (the “Selling
Stockholders”) of 2,500,000 shares of our common stock $0.001 par value
(the “Common Stock”).
We are
not selling any shares of Common Stock in this offering and, as a result, will
not receive any proceeds from this offering. All of the net proceeds from the
sale of our Common Stock will go to the Selling Stockholders.
The
Selling Stockholders may sell Common Stock from time to time at prices
established on the Over-the-Counter Bulletin Board (the “OTCBB”) or as
negotiated in private transactions, or as otherwise described under the heading
“Plan of Distribution.” The Common Stock may be sold directly or through agents
or broker-dealers acting as agents on behalf of the Selling Stockholders. The
Selling Stockholders may engage brokers, dealers or agents, who may receive
commissions or discounts from the Selling Stockholders. We will pay
substantially all the expenses incident to the registration of the shares;
however, we will not pay for sales commissions and other expenses applicable to
the sale of the shares.
Our
Common Stock is currently listed on the OTCBB under the symbol “BFRE.OB.” On
November 6, 2009, the closing price of our Common Stock was $0.98 per
share.
An
investment in our Common Stock involves significant risks. Investors should not
buy our Common Stock unless they can afford to lose their entire investment. See
“Risk Factors” beginning on page 4.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date of this Prospectus
is ,
2009
PROSPECTUS
SUMMARY
|
1
|
SUMMARY
FINANCIAL DATA
|
3
|
RISK
FACTORS
|
4
|
FORWARD-LOOKING
STATEMENTS
|
8
|
USE
OF PROCEEDS
|
9
|
DETERMINATION
OF OFFERING PRICE
|
9
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
9
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATIONS
|
11
|
DESCRIPTION
OF BUSINESS
|
17
|
LEGAL
PROCEEDINGS
|
25
|
MANAGEMENT
|
25
|
EXECUTIVE
COMPENSATION
|
28
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
32
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
34
|
DESCRIPTION
OF SECURITIES
|
35
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
36
|
SELLING
STOCKHOLDERS
|
37
|
PLAN
OF DISTRIBUTION
|
38
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
|
39
|
LEGAL
MATTERS
|
40
|
EXPERTS
|
40
|
ADDITIONAL
INFORMATION
|
40
|
i
This
summary provides an overview of certain information contained elsewhere in this
Prospectus and does not contain all of the information that you should consider
or that may be important to you. Before making an investment decision, you
should read the entire Prospectus carefully, including the “Risk Factors”
section, the financial statements and the notes to the financial statements. In
this Prospectus, the terms “BlueFire,” “Company,” “we,” “us” and “our” refer to
BlueFire Ethanol Fuels, Inc. and our operating subsidiary.
Our
Company
We are
BlueFire Ethanol Fuels, Inc., a Nevada corporation. Our goal is to develop, own
and operate high-value carbohydrate-based transportation fuel plants, or
biorefineries, to produce ethanol, a viable alternative to fossil fuels, and to
provide professional services to biorefineries worldwide. Our biorefineries will
convert widely available, inexpensive, organic materials such as agricultural
residues, high-content biomass crops, wood residues and cellulose from municipal
solid wastes into ethanol. This versatility enables us to consider a wide
variety of feedstocks and locations in which to develop facilities to become a
low cost producer of ethanol. We have licensed for use a patented process from
Arkenol, Inc., a Nevada corporation (“Arkenol”), to produce ethanol from
cellulose (the “Arkenol Technology”). We are the exclusive North America
licensee of the Arkenol Technology. We may also utilize certain biorefinery
related rights, assets, work-product, intellectual property and other know-how
related to 19 ethanol project opportunities originally developed by ARK Energy,
Inc, a Nevada corporation, to accelerate our deployment of the Arkenol
Technology.
Company
History
We are a
Nevada corporation that was initially organized as Atlanta Technology Group,
Inc., a Delaware corporation, on October 12, 1993. The Company was re-named
Docplus.net Corporation on December 31, 1998, and further re-named Sucre
Agricultural Corp. (“Sucre”) and re-domiciled as a Nevada corporation on March
6, 2006. Finally, on May 24, 2006, in anticipation of the reverse
merger by which it would acquire BlueFire Ethanol, Inc. (“BlueFire”), a
privately held Nevada corporation organized on March 28, 2006, as described
below, the Company was re-named to its current name BlueFire Ethanol Fuels,
Inc.
On June
27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with
BlueFire Ethanol, Inc. (“BlueFire Ethanol”). At the time of Reverse
Merger, the Company was a blank-check company and had no operations, revenues or
liabilities. The only asset possessed by the Company was $690,000 in cash which
continued to be owned by the Company at the time of the Reverse Merger. In
connection with the Reverse Merger, the Company issued BlueFire Ethanol
17,000,000 shares of common stock, approximately 85% of all of the outstanding
common stock of the Company, for all the issued and outstanding BlueFire Ethanol
common stock. The Company stockholders retained 4,028,264 shares of Company
common stock. As a result of the Reverse Merger, BlueFire Ethanol
became our wholly-owned subsidiary. On June 21, 2006, prior to and in
anticipation of the Reverse Merger, Sucre sold 3,000,000 shares of common stock
to two related investors in a private offering of shares pursuant to Rule 504
for proceeds of $1,000,000.
The
Company’s shares of common stock began trading under the symbol “BFRE.PK” on the
Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began
trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007. On November 6,
2009, the closing price of our Common Stock was $0.98 per share.
Our
executive offices are located at 31 Musick, Irvine, California 92618 and
our telephone number at such office is (949) 588-3767.
Recent
Developments
In
February 2009, the Company obtained a line of credit in the amount of $570,000
from Arkenol Inc, its technology licensor, to provide additional liquidity to
the Company as needed. Under the terms of the note, the Company is to make
interest-only payments at the end of each calendar quarter at a rate of 6% per
annum on any outstanding principal balance. Any outstanding balance is to be
paid in full within 30 days of receiving qualified investment financing of at
least $2,000,000. As of November 6, 2009, there were no amounts outstanding as
the Company had received proceeds of approximately $3.8 million from the
Department of Energy, of which a portion of said proceeds were used to repay the
amounts advanced.
1
The
Offering
Common
Stock Being Offered By Selling Stockholders
|
2,500,000
shares of Common Stock.
|
|
Initial
Offering Price
|
The
initial offering price for shares of our Common Stock will be determined
by prevailing prices established on the OTCBB or as negotiated in private
transactions, or as otherwise described in “Plan of
Distribution.”
|
|
Terms
of the Offering
|
The
Selling Stockholders will determine when and how they will sell the Common
Stock offered in this prospectus.
|
|
Termination
of the Offering
|
The
offering will conclude upon the earliest of (i) such time as all of
the Common Stock has been sold pursuant to the registration statement,
(ii) two years or (iii) such time as all of the Common Stock become
eligible for resale without volume limitations pursuant to Rule 144 under
the Securities Act of 1933, as amended (the “Securities Act”), or any
other rule of similar effect.
|
|
Use
of Proceeds
|
We
are not selling any shares of Common Stock in this offering and, as a
result, will not receive any proceeds from this
offering.
|
|
OTCBB
Trading Symbol
|
“BFRE.OB”
|
|
Risk
Factors
|
The
Common Stock offered hereby involves a high degree of risk and should not
be purchased by investors who cannot afford the loss of their entire
investment. See “Risk Factors” beginning on page
4.
|
2
You
should read the summary financial data set forth below in conjunction with
“Management’s Discussion and Analysis of Financial Condition or Plan of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus. We derived the financial data as of the period
ending June 30, 2009 and 2008 and for the period from March 28, 2006 (Inception)
to June 30, 2009, from our financial statements included in this report. The
historical results are not necessarily indicative of the results to be expected
for any future period.
STATEMENT
OF OPERATIONS :
|
Six
Months
Ended
June 30
|
Period
from
March
28, 2006
(Inception)
to
June
30
|
||||||||||
2009
|
2008
|
2009
|
||||||||||
Revenues
|
$
|
125,890
|
$
|
143,985
|
$
|
1,250,398
|
||||||
Total
operating expenses
|
1,740,745
|
7,161,844
|
29,487,319
|
|||||||||
Operating
loss
|
(1,614,855
|
)
|
(7,017,859
|
)
|
(28,236,921
|
)
|
||||||
Net
Loss
|
$
|
(4,520,132
|
)
|
$
|
(6,853,155
|
)
|
$
|
(34,722,641
|
)
|
|||
Basic
and diluted loss per common share
|
$
|
(0.16
|
)
|
$
|
(0.24
|
)
|
||||||
Weighted
average common shares outstanding basic and
diluted
|
28,102,709
|
28,057,200
|
BALANCE
SHEET :
|
At
June 30,
2009
|
At
December 31,
2008
|
||||||
Cash
and cash equivalents
|
$
|
696,912
|
$
|
2,999,599
|
||||
Current
assets
|
$
|
851,520
|
$
|
3,781,484
|
||||
Total
assets
|
$
|
1,026,054
|
$
|
3,967,596
|
||||
Current
liabilities
|
$
|
504,494
|
$
|
1,855,502
|
||||
Total
liabilities
|
$
|
6,332,110
|
$
|
1,855,502
|
||||
Total
stockholders’ equity
|
$
|
5,306,056
|
$
|
2,112,094
|
3
This
registration statement contains forward-looking statements that involve risks
and uncertainties. These statements can be identified by the use of
forward-looking terminology such as “believes,” “expects,” “intends,” “plans,”
“may,” “will,” “should,” or “anticipation” or the negative thereof or other
variations thereon or comparable terminology. Actual results could differ
materially from those discussed in the forward-looking statements as a result of
certain factors, including those set forth below and elsewhere in this
Registration Statement. The following risk factors should be considered
carefully in addition to the other information in this Registration Statement,
before purchasing any of the Company’s securities.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
SINCE
INCEPTION, WE HAVE HAD LIMITED OPERATIONS AND HAVE INCURRED NET LOSSES OF
$34,722,641 AND WE NEED ADDITIONAL CAPITAL TO EXECUTE OUR BUSINESS
PLAN.
We have
had limited operations and have incurred net losses of $34,722,641 for the
period from March 28, 2006 (Inception) through June 30, 2009, of which
$16,629,134 was cash used in our operating activities. We have generated minimal
revenues from consulting, approximately $1,186,828 in grant revenue from the
Department of Energy, and no revenues from operations. We have yet to begin
ethanol production or construction of ethanol producing plants. Since the
Reverse Merger, we have been engaged in organizational activities, including
developing a strategic operating plan, plant engineering and development
activities, entering into contracts, hiring personnel, developing processing
technology, and raising private capital. Our continued existence is dependent
upon our ability to obtain additional debt and/or equity financing. We are
uncertain given the economic landscape when to anticipate the beginning
construction of a plant given the availability of capital. We estimate the total
cost including contingencies to be in the range of approximately $100 million to
$120 million for our first plant. We plan to raise additional funds
through project financings, grants and/or loan guarantees, or through future
sales of our common stock, until such time as our revenues are sufficient to
meet our cost structure, and ultimately achieve profitable operations. There is
no assurance we will be successful in raising additional capital or achieving
profitable operations. Wherever possible, our Board of Directors will attempt to
use non-cash consideration to satisfy obligations. In many instances, we believe
that the non-cash consideration will consist of restricted shares of our common
stock. These actions will result in dilution of the ownership interests of
existing shareholders may further dilute common stock book value, and that
dilution may be material.
OUR
CELLULOSE-TO-ETHANOL TECHNOLOGIES ARE UNPROVEN ON A LARGE-SCALE COMMERCIAL BASIS
AND PERFORMANCE COULD FAIL TO MEET PROJECTIONS, WHICH COULD HAVE A DETRIMENTAL
EFFECT ON THE LONG-TERM CAPITAL APPRECIATION OF OUR STOCK.
While
production of ethanol from corn, sugars and starches is a mature technology,
newer technologies for production of ethanol from cellulose biomass have not
been built at large commercial scales. The technologies being utilized by us for
ethanol production from biomass have not been demonstrated on a commercial
scale. All of the tests conducted to date by us with respect to the Arkenol
Technology have been performed on limited quantities of feedstocks, and we
cannot assure you that the same or similar results could be obtained at
competitive costs on a large-scale commercial basis. We have never utilized
these technologies under the conditions or in the volumes that will be required
to be profitable and cannot predict all of the difficulties that may arise. It
is possible that the technologies, when used, may require further research,
development, design and testing prior to larger-scale commercialization.
Accordingly, we cannot assure you that these technologies will perform
successfully on a large-scale commercial basis or at all.
OUR
BUSINESS EMPLOYS LICENSED ARKENOL TECHNOLOGY WHICH MAY BE DIFFICULT TO PROTECT
AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
We
currently license our technology from Arkenol. Arkenol owns 11 U.S.
patents, 21 foreign patents, and has one foreign patent pending and may file
more patent applications in the future. Our success depends, in part, on our
ability to use the Arkenol Technology, and for Arkenol to obtain patents,
maintain trade secrecy and not infringe the proprietary rights of third parties.
We cannot assure you that the patents of others will not have an adverse effect
on our ability to conduct our business, that we will develop additional
proprietary technology that is patentable or that any patents issued to us or
Arkenol will provide us with competitive advantages or will not be challenged by
third parties. Further, we cannot assure you that others will not independently
develop similar or superior technologies, duplicate elements of the Arkenol
Technology or design around it.
It is
possible that we may need to acquire other licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. We cannot
assure you that any license would be made available to us on acceptable terms,
if at all, or that we would prevail in any such contest. In addition, we could
incur substantial costs in defending ourselves in suits brought against us for
alleged infringement of another party’s patents in bringing patent infringement
suits against other parties based on our licensed patents.
4
In
addition to licensed patent protection, we also rely on trade secrets,
proprietary know-how and technology that we seek to protect, in part, by
confidentiality agreements with our prospective joint venture partners,
employees and consultants. We cannot assure you that these agreements will not
be breached, that we will have adequate remedies for any breach, or that our
trade secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
OUR
SUCCESS DEPENDS UPON ARNOLD KLANN, OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
CHRISTOPHER SCOTT, OUR CHIEF FINANCIAL OFFICER, AND JOHN CUZENS, OUR CHIEF
TECHNOLOGY OFFICER AND SENIOR VICE PRESIDENT.
We
believe that our success will depend to a significant extent upon the
efforts and abilities of (i) Arnold Klann, our Chairman and Chief Executive
Officer, due to his contacts in the ethanol and cellulose industries and
his overall insight into our business, (ii) Christopher Scott, our Chief
Financial Officer, due to his proficiency in U.S. GAAP and accounting policies,
and (iii) John Cuzens, our Chief Technology Officer and Senior Vice President
for his technical and engineering expertise, including his familiarity with the
Arkenol Technology. Our failure to retain Mr. Klann, Mr. Scott or
Mr. Cuzens, or to attract and retain additional qualified personnel, could
adversely affect our operations. We do not currently carry key-man life
insurance on any of our officers, and as of October 31, 2009 the employment
agreements for the above individuals have expired, and each executive is
employed on a month-to-month basis.
COMPETITION
FROM LARGE PRODUCERS OF PETROLEUM-BASED GASOLINE ADDITIVES AND OTHER COMPETITIVE
PRODUCTS MAY IMPACT OUR PROFITABILITY.
Our
proposed ethanol plants will also compete with producers of other gasoline
additives made from other raw materials having similar octane and oxygenate
values as ethanol. The major oil companies have significantly greater resources
than we have to develop alternative products and to influence legislation and
public perception of ethanol. These other companies also have significant
resources to begin production of ethanol should they choose to do
so.
We will
also compete with producers of other gasoline additives having similar octane
and oxygenate values as ethanol. An example of such other additives is MTBE, a
petrochemical derived from methanol. MTBE costs less to produce than ethanol.
Many major oil companies produce MTBE and because it is petroleum-based, its use
is strongly supported by major oil companies. Alternative fuels, gasoline
oxygenates and alternative ethanol production methods are also continually under
development. The major oil companies have significantly greater resources than
we have to market MTBE, to develop alternative products, and to influence
legislation and public perception of MTBE and ethanol.
OUR
BUSINESS PROSPECTS WILL BE IMPACTED BY CORN SUPPLY.
Our
ethanol will be produced from cellulose, however currently most ethanol is
produced from corn, which is affected by weather, governmental policy, disease
and other conditions. A significant increase in the availability of corn and
resulting reduction in the price of corn may decrease the price of ethanol and
harm our business.
IF
ETHANOL AND GASOLINE PRICES DROP SIGNIFICANTLY, WE WILL ALSO BE FORCED TO REDUCE
OUR PRICES, WHICH POTENTIALLY MAY LEAD TO FURTHER LOSSES.
Prices
for ethanol products can vary significantly over time and decreases in price
levels could adversely affect our profitability and viability. The price of
ethanol has some relation to the price of gasoline. The price of ethanol tends
to increase as the price of gasoline increases, and the price of ethanol tends
to decrease as the price of gasoline decreases. Any lowering of gasoline prices
will likely also lead to lower prices for ethanol and adversely affect our
operating results. We cannot assure you that we will be able to sell our ethanol
profitably, or at all.
INCREASED
ETHANOL PRODUCTION FROM CELLULOSE IN THE UNITED STATES COULD INCREASE THE DEMAND
AND PRICE OF FEEDSTOCKS, REDUCING OUR PROFITABILITY.
New
ethanol plants that utilize cellulose as their feedstock may be under
construction or in the planning stages throughout the United States. This
increased ethanol production could increase cellulose demand and prices,
resulting in higher production costs and lower profits.
PRICE
INCREASES OR INTERRUPTIONS IN NEEDED ENERGY SUPPLIES COULD CAUSE LOSS OF
CUSTOMERS AND IMPAIR OUR PROFITABILITY.
Ethanol
production requires a constant and consistent supply of energy. If there is any
interruption in our supply of energy for whatever reason, such as availability,
delivery or mechanical problems, we may be required to halt production. If we
halt production for any extended period of time, it will have a material adverse
effect on our business. Natural gas and electricity prices have historically
fluctuated significantly. We purchase significant amounts of these resources as
part of our ethanol production. Increases in the price of natural gas or
electricity would harm our business and financial results by increasing our
energy costs.
5
OUR
BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING TO CONSTRUCT AND OPERATE
OUR BIOREFINERY PROJECTS AND WE MAY NOT BE ABLE TO OBTAIN SUCH FUNDING WHICH
COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL
CONDITION.
Our
business plan depends on the completion of up to 19 numerous biorefinery
projects. Although each facility will have specific funding requirements, our
proposed facility in Lancaster, CA will require approximately $100-$120 million
to fund. We will be relying on additional financing, and funding from such
sources as Federal and State grants and loan guarantee programs. We
are currently in discussions with potential sources of financing but no
definitive agreements are in place. If we cannot achieve the requisite financing
or complete the projects as anticipated, this could adversely affect our
business, the results of our operations, prospects and financial
condition.
RISKS
RELATED TO GOVERNMENT REGULATION AND SUBSIDIZATION
FEDERAL
REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE, WHICH COULD CAUSE
AN EROSION OF THE CURRENT COMPETITIVE STRENGTH OF THE ETHANOL
INDUSTRY.
Congress
currently provides certain federal tax credits for ethanol producers and
marketers. The current ethanol industry and our business initially depend on the
continuation of these credits. The credits have supported a market for ethanol
that might disappear without the credits. These credits may not continue beyond
their scheduled expiration date or, if they continue, the incentives may not be
at the same level. The revocation or amendment of any one or more of these tax
incentives could adversely affect the future use of ethanol in a material way,
and we cannot assure investors that any of these tax incentives will be
continued. The elimination or reduction of federal tax incentives to the ethanol
industry could have a material adverse impact on the industry as a
whole.
LAX
ENFORCEMENT OF ENVIRONMENTAL AND ENERGY POLICY REGULATIONS MAY ADVERSELY AFFECT
DEMAND FOR ETHANOL
Our
success will depend in part on effective enforcement of existing environmental
and energy policy regulations. Many of our potential customers are unlikely to
switch from the use of conventional fuels unless compliance with applicable
regulatory requirements leads, directly or indirectly, to the use of ethanol.
Both additional regulation and enforcement of such regulatory provisions are
likely to be vigorously opposed by the entities affected by such requirements.
If existing emissions-reducing standards are weakened, or if governments are not
active and effective in enforcing such standards, our business and results of
operations could be adversely affected. Even if the current trend toward more
stringent emission standards continues, we will depend on the ability of ethanol
to satisfy these emissions standards more efficiently than other alternative
technologies. Certain standards imposed by regulatory programs may limit or
preclude the use of our products to comply with environmental or energy
requirements. Any decrease in the emission standards or the failure to enforce
existing emission standards and other regulations could result in a reduced
demand for ethanol. A significant decrease in the demand for ethanol will reduce
the price of ethanol, adversely affect our profitability and decrease the value
of your stock.
COSTS
OF COMPLIANCE WITH BURDENSOME OR CHANGING ENVIRONMENTAL AND OPERATIONAL SAFETY
REGULATIONS COULD CAUSE OUR FOCUS TO BE DIVERTED AWAY FROM OUR BUSINESS AND OUR
RESULTS OF OPERATIONS TO SUFFER
Ethanol
production involves the emission of various airborne pollutants, including
particulate matter, carbon monoxide, carbon dioxide, nitrous oxide, volatile
organic compounds and sulfur dioxide. The production facilities that we will
build will discharge water into the environment. As a result, we are subject to
complicated environmental regulations of the U.S. Environmental Protection
Agency and regulations and permitting requirements of the states where our
plants are to be located. These regulations are subject to change and such
changes may require additional capital expenditures or increased operating
costs. Consequently, considerable resources may be required to comply with
future environmental regulations. In addition, our ethanol plants could be
subject to environmental nuisance or related claims by employees, property
owners or residents near the ethanol plants arising from air or water
discharges. Ethanol production has been known to produce an odor to which
surrounding residents could object. Environmental and public nuisance claims, or
tort claims based on emissions, or increased environmental compliance costs
could significantly increase our operating costs.
OUR
PROPOSED NEW ETHANOL PLANTS WILL ALSO BE SUBJECT TO FEDERAL AND STATE LAWS
REGARDING OCCUPATIONAL SAFETY
Risks of
substantial compliance costs and liabilities are inherent in ethanol production.
We may be subject to costs and liabilities related to worker safety and job
related injuries, some of which may be significant. Possible future
developments, including stricter safety laws for workers and other individuals,
regulations and enforcement policies and claims for personal or property damages
resulting from operation of the ethanol plants could reduce the amount of cash
that would otherwise be available to further enhance our business.
6
RISKS
RELATED TO OUR COMMON STOCK AND THIS OFFERING
THERE
IS NO LIQUID MARKET FOR OUR COMMON STOCK.
Our
shares are traded on the OTCBB and the trading volume has historically been very
low. An active trading market for our shares may not develop or be sustained. We
cannot predict at this time how actively our shares will trade in the public
market or whether the price of our shares in the public market will reflect our
actual financial performance.
OUR
COMMON STOCK PRICE HAS FLUCTUATED CONSIDERABLY AND STOCKHOLDERS MAY NOT BE ABLE
TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SUCH SHARES WERE
PURCHASED
The
market price of our common stock may fluctuate significantly. From
July 11, 2006, the day we began trading publicly as BFRE.PK, and November 6,
2009 traded as BFRE.OB, the high and low price for our common stock has been
$7.90 and $0.51 per share, respectively. Our share price has
fluctuated in response to various factors, including not yet beginning
construction of our first plant, needing additional time to organize engineering
resources, issues relating to feedstock sources, trying to locate suitable plant
locations, locating distributors and finding funding sources.
OUR
COMMON STOCK MAY BE CONSIDERED “A PENNY STOCK” AND MAY BE DIFFICULT FOR YOU TO
SELL
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock has been for much of its trading history since July
11, 2006, and may continue to be less than $5.00 per share, and therefore may be
designated as a “penny stock” according to SEC rules. This designation requires
any broker or dealer selling these securities to disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and
determine that the purchaser is reasonably suitable to purchase the securities.
These rules may restrict the ability of brokers or dealers to sell our common
stock and may affect the ability of investors to sell their shares.
FAILURE
TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION
404 OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND OPERATING RESULTS
It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. If we are unable to comply with these requirements of the
Sarbanes-Oxley Act, we may not be able to obtain the independent accountant
certifications that the Sarbanes-Oxley Act requires of publicly traded
companies.
If we
fail to comply in a timely manner with the requirements of Section 404 of the
Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common stock.
Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning
with the annual report on Form 10-K for our fiscal period ended December 31,
2007, we were required to prepare assessments regarding internal controls over
financial reporting and beginning with our annual report on Form 10-K for our
fiscal period ending December 31, 2009, our independent auditors will be
required to furnish a report on our internal control over financial reporting.
We continually are in the process of documenting and testing our internal
control procedures in order to satisfy these requirements, which has resulted in
increased general and administrative expenses and has shifted management time
and attention from revenue-generating activities to compliance activities. There
can be no assurance that our auditors will be able to issue an unqualified
opinion on management’s assessment of the effectiveness of our internal control
over financial reporting. Failure to achieve and maintain an effective internal
control environment or complete our Section 404 certifications could have a
material adverse effect on our stock price.
In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more than a
remote likelihood that a misstatement of the financial statements that is more
than inconsequential will not be prevented or detected.
7
In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
Any
failure to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act of 2002. Inadequate internal
controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.
OUR
PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY
NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS
The
Company’s Chairman and President controls approximately 49% of its current
outstanding shares of voting common stock. He may be able to exert significant
control over our management and affairs requiring stockholder approval,
including approval of significant corporate transactions. This concentration of
ownership may expedite approvals of company decisions, or have the effect of
delaying or preventing a change in control, adversely affect the market price of
our common stock, or be in the best interests of all our
stockholders.
YOU
COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As of
October 31, 2009, we had 28,385,715 shares of common stock outstanding and no
shares of preferred stock outstanding. We are authorized to issue up
to 100,000,000 shares of common stock and 1,000,000 shares of preferred stock.
To the extent of such authorization, our Board of Directors will have the
ability, without seeking stockholder approval, to issue additional shares of
common stock or preferred stock in the future for such consideration as the
Board of Directors may consider sufficient. The issuance of additional common
stock or preferred stock in the future may reduce your proportionate ownership
and voting power.
WE
HAVE NOT AND DO NOT INTEND TO PAY ANY DIVIDENDS. AS A RESULT, YOU MAY ONLY BE
ABLE TO OBTAIN A RETURN ON INVESTMENT IN OUR COMMON STOCK IF ITS VALUE
INCREASES.
We have
not paid dividends in the past and do not plan to pay dividends in the near
future. We expect to retain earnings to finance and develop our business. In
addition, the payment of future dividends will be directly dependent upon our
earnings, our financial needs and other similarly unpredictable factors. As a
result, the success of an investment in our common stock will depend upon future
appreciation in its value. The price of our common stock may not appreciate in
value or even maintain the price at which you purchased our shares.
Included
in this prospectus are “forward-looking” statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot assure you that the
expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those anticipated in
forward-looking statements as a result of certain factors, including matters
described in the section titled “Risk Factors.” Forward-looking statements
include those that use forward-looking terminology, such as the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should,” and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in these
forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and we cannot assure you that actual results
will be consistent with these forward-looking statements. Important factors that
could cause our actual results, performance or achievements to differ from these
forward-looking statements include the following:
8
·
|
the
availability and adequacy of our cash flow to meet our
requirements,
|
||
·
|
economic,
competitive, demographic, business and other conditions in our local and
regional markets,
|
||
·
|
changes
or developments in laws, regulations or taxes in the ethanol or energy
industries,
|
||
·
|
actions
taken or not taken by third-parties, including our suppliers and
competitors, as well as legislative, regulatory, judicial and other
governmental authorities,
|
||
·
|
competition
in the ethanol industry,
|
||
·
|
the
failure to obtain or loss of any license or permit,
|
||
·
|
success
of the Arkenol Technology,
|
||
·
|
changes
in our business and growth strategy (including our plant building strategy
and co-location strategy), capital improvements or development
plans,
|
||
·
|
the
availability of additional capital to support capital improvements and
development, and
|
||
·
|
other
factors discussed under the section entitled “Risk Factors” or elsewhere
in this registration statement.
|
All
forward-looking statements attributable to us are expressly qualified in their
entirety by these and other factors. We undertake no obligation to update or
revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
We will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. All of the net proceeds from the sale of our Common Stock will go
to the Selling Stockholders as described below in the sections entitled “Selling
Stockholders” and “Plan of Distribution”.
The
prices at which the shares of Common Stock covered by this prospectus may
actually be sold will be determined by the prevailing public market price for
shares of Common Stock, by negotiations between the Selling Shareholders and
buyers of our Common Stock in private transactions or as otherwise described in
“Plan of Distribution.”
RELATED
STOCKHOLDER MATTERS
Market
Information
Our
shares of common stock began trading under the symbol “BFRE.PK” on the Pink
Sheets of the National Quotation Bureau on July 11, 2006 and later began trading
on the OTCBB under the symbol “BFRE.OB” on June 19, 2007.
The
following table sets forth the high and low bid information for our common stock
for each quarter since we completed the Reverse Merger and began trading on July
11, 2006. The prices reflect inter-dealer quotations, do not include retail
mark-ups, markdowns or commissions and do not necessarily reflect actual
transactions.
QUARTERLY
COMMON STOCK PRICE RANGES
Quarter
ended
|
Low
Price
|
High
Price
|
||||||
September
30, 2006
|
$
|
1.35
|
$
|
6.80
|
||||
December
31, 2006
|
$
|
1.47
|
$
|
4.00
|
||||
March
31, 2007
|
$
|
3.99
|
$
|
7.70
|
||||
June
30, 2007
|
$
|
5.40
|
$
|
7.15
|
||||
September
30, 2007
|
$
|
3.30
|
$
|
6.40
|
||||
December
31, 2007
|
$
|
3.15
|
$
|
5.01
|
||||
March
31, 2008
|
$
|
3.00
|
$
|
4.15
|
||||
June
30, 2008
|
$
|
3.05
|
$
|
4.40
|
||||
September
30, 2008
|
$
|
2.05
|
$
|
4.15
|
||||
December
31, 2008
|
$
|
0.55
|
$
|
2.15
|
||||
March
31, 2009
|
$
|
0.51
|
$
|
1.00
|
||||
June
30, 2009
|
$
|
0.55
|
$
|
1.60
|
||||
September
30, 2009
|
$
|
0.80
|
$
|
1.20
|
9
Holders
As of
October 31, 2009 a total of 28,385,715 shares of the Company’s common stock are
currently outstanding held by approximately 2,750 shareholders of
record.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is X-Pedited Transfer
Corporation with its business address at 535 16th Street, Suite 810, Denver, CO
80202.
Dividends
We have
not declared or paid any dividends on our common stock and intend to retain any
future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying dividends on our
common stock for the foreseeable future. There are no restrictions on
our present ability to pay dividends to stockholders of our common stock, other
than those prescribed by Nevada law.
Securities
Authorized for Issuance under Equity Compensation Plans
2006
INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN, AS AMENDED
In order
to compensate our officers, directors, employees and/or consultants, on December
14, 2006 our Board of Directors approved and stockholders ratified by consent
the 2006 Incentive and Non-Statutory Stock Option Plan (the
“Plan”). The Plan has a total of 10,000,000 shares reserved for
issuance.
On
October 16, 2007, the Board of Directors reviewed the Plan. As such, it
determined that the Plan was to be used as a comprehensive equity incentive
program for which the Board of Directors serves as the plan administrator and,
therefore, amended the Plan (the “Amended and Restated Plan”) to add the ability
to grant restricted stock awards.
Under the
Amended and Restated Plan, an eligible person in the Company’s service may
acquire a proprietary interest in the Company in the form of shares or an option
to purchase shares of the Company’s common stock. The amendment includes certain
previously granted restricted stock awards as having been issued under the
Amended and Restated Plan.
As of
October 31, 2009, we have issued the following stock options and grants under
the Amended and Restated Plan:
Equity
Compensation Plan Information
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights and number of shares of restricted stock
|
Weighted
average
exercise
price
of
outstanding
options,
warrants
and
rights(2)
|
Number
of securities remaining available for future issuance
|
|||||||||
Equity
compensation plans approved by security holders under the Amended and
Restated Plan
|
3,534,321
|
(1)
|
$
|
2.48
|
6,465,679
|
|||||||
Equity
compensation not pursuant to a plan
|
802,203
|
(3)
|
$
|
3.98
|
||||||||
Total
|
4,125,274
|
(1) Of
this amount, 20,000 options have been exercised.
(2)
Excludes shares of restricted stock issued under the Plan.
(3)
Includes a warrant to purchase 200,000 shares of its common stock at an exercise
price of $5.00 per share to a certain consultant issued by the Company on
November 9, 2006, for consulting services.
10
RULE
10B-18 TRANSACTIONS
The
following table provides information about purchases by BlueFire of shares of
BlueFire’s common stock as of November 6, 2009. All repurchases were
made in compliance with the safe harbor provisions of Rule 10b-18 under the
Securities Exchange Act of 1934, subject to market conditions, applicable legal
requirements and other factors.
A monthly
summary of the repurchase activity as of November 6, 2009 is as
follows:
Issuer
Purchases of Equity Securities 1
Period
|
Total
number
of
shares
purchased
|
Average
price
paid
per
share
|
Total
number
of
shares
purchased
as
part
of publicly
announced
plans
or
programs
|
Maximum
number
(or
approximate
dollar
value)
of
shares that
may
yet be
purchased
under
the
plans or
programs
|
||||||||||||
4/1/08
– 4/30/08
|
9,901
|
$
|
3.48
|
0
|
0
|
|||||||||||
5/1/08
– 5/31/08
|
0
|
0
|
0
|
|||||||||||||
6/1/08
– 6/30/08
|
0
|
0
|
0
|
|||||||||||||
7/1/08
– 7/31/08
|
7,525
|
$
|
3.60
|
0
|
0
|
|||||||||||
8/1/08
– 8/31/08
|
3,000
|
$
|
2.64
|
0
|
0
|
|||||||||||
9/1/08
– 9/30/08
|
11,746
|
$
|
2.73
|
0
|
0
|
|||||||||||
Total
|
32,172
|
$
|
3.16
|
0
|
0
|
(1)
|
The
Company implemented a stock repurchase program effective April 1, 2008
with the intent to repurchase BlueFire shares in accordance with SEC Rule
10b-18. As of November 6, 2009, the Company repurchased a total of
32,172 shares at a cost of approximately $101,581. Under the stock
repurchase program, the Company is not obligated to repurchase any
additional shares of common stock.
|
FINANCIAL
CONDITION OR PLAN OF OPERATIONS
THE
FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED
ELSEWHERE IN THIS REGISTRATION STATEMENT. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS,
THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE
INCLUDED ELSEWHERE IN THIS REGISTRATION STATEMENT.
BUSINESS
OVERVIEW
We are a
Nevada corporation with a goal to develop, own and operate high-value
carbohydrate-based transportation fuel plants, or biorefineries, to produce
ethanol, a viable alternative to fossil fuels, and to provide professional
services to biorefineries worldwide. Our biorefineries will convert widely
available, inexpensive, organic materials such as agricultural residues,
high-content biomass crops, wood residues and cellulose from municipal solid
wastes into ethanol. This versatility enables us to consider a wide variety of
feedstocks and locations in which to develop facilities to become a low cost
producer of ethanol. We have licensed for use a patented process from Arkenol,
Inc., a Nevada corporation (“Arkenol”), to produce ethanol from cellulose (the
“Arkenol Technology”). We are the exclusive North America licensee of the
Arkenol Technology. We may also utilize certain biorefinery related rights,
assets, work-product, intellectual property and other know-how related to 19
ethanol project opportunities originally developed by ARK Energy, Inc, a Nevada
corporation, to accelerate our deployment of the Arkenol
Technology.
11
Recent
Developments in Bluefire’s Biorefinery Engineering and Development
During
the third quarter in 2008, BlueFire continued to develop the engineering package
for the Lancaster Biorefinery, and finalized the Front-End Loading
(FEL) 3 stage of engineering for the Lancaster Biorefinery. FEL is the process
for conceptual development of processing industry projects. This process is used
in the petrochemical, refining, and pharmaceutical industries. Front-End Loading
is also referred to as Front-End Engineering Design (FEED). There are three
stages in the FEL process:
FEL-1
*
Material Balance
*
Energy Balance
*
Project Charter
|
FEL-2
*
Preliminary Equipment Design
*
Preliminary Layout
*
Preliminary Schedule
*
Preliminary Estimate
|
FEL-3
*
Purchase Ready Major Equipment Specifications
*
Definitive Estimate
*
Project Execution Plan
*
Preliminary 3D Model
*
Electrical Equipment List
*
Line List
*
Instrument Index
|
In July
2008, BlueFire signed a teaming agreement with Amalgamated Research, Inc.
(“ARI”) for the exclusive right to use its Simulated Moving Bed Chromatographic
Separation (“SMB”) technology for the separation of concentrated sulfuric acid
and simple sugars. By using ARI’s SMB, BlueFire recovers approximately 99% of
the entrained sugars in the acid/sugar stream.
In July
2008, BlueFire was granted a conditional-use permit from the County of Los
Angeles, Department of Regional Planning, to permit the construction of the
Lancaster Biorefinery. However, a subsequent appeal of the county
decision, which BlueFire overcame, combined with the waiting period under the
California Environmental Quality Act, pushed the effective date of the now
non-appealable permit approval to December 12, 2008.
On
February 12, 2009 we were issued our Authority to Construct permit by the
Antelope Valley Air Quality Management District.
On
October 15, 2009, BlueFire announced the strategic relocation of its second
planned biorefinery (DOE Facility) to Fulton, Mississippi.
PLAN
OF OPERATION
We plan
to raise additional funds through joint venture partnerships, Federal or State
grants or loan guarantees, project debt financings or through future sales of
our common stock, until such time as our revenues are sufficient to meet our
cost structure, and ultimately achieve profitable operations. There is no
assurance that we will be successful in raising additional capital or achieving
profitable operations. Our consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties. We will
need financing within 12 months to execute our business plan.
We have
not developed our own proprietary technology but rather we are a licensee of the
Arkenol Technology and therefore have benefited from Arkenol’s research and
development efforts and cost expenditures.
Our
business will encompass development activities culminating in the construction
and long-term operation of ethanol production biorefineries. 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. We
do not plan to significantly increase our number of employees over the next 12
months.
For the
next 12 months, our Plan of Operations is 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 biorefineries
in North America.
|
·
|
The
Energy Policy Act of 2005 (“EPAct 2005”) provides for grants and loan
guarantee programs to incentivize the growth of the cellulosic ethanol
market. These programs include a Cellulosic Biomass Ethanol and Municipal
Solid Waste Guarantee Program under which the U.S. Department of Energy
(“DOE”) could provide loan guarantees up to $250 million per qualified
project. BlueFire plans to pursue all available opportunities
within the Farm EPAct 2005.
|
·
|
In
June 2008 the Food, Conservation and Energy Act of 2008 (“Farm Bill”) was
signed into law. The 2008 Farm Bill also modified existing
incentives, including ethanol tax credits and import duties and
established a new tax credit for cellulosic biofuels. The Farm Bill
also authorized new biofuels loan and grant programs, but these will
be subject to appropriations, likely starting with the FY2010 budget
request. BlueFire plans to pursue all available opportunities
within the Farm Bill.
|
12
·
|
Utilize
proceeds from reimbursements under the Department of Energy
contract.
|
·
|
As
available and as applicable to our business plans, applications for public
funding will be submitted to leverage private capital raised by
us.
|
Our
initial planned projects in North America are projected as follows:
·
|
We
intend to build a facility that will process approximately 190 tons of
green waste material per day to produce roughly 3.9 million gallons of
ethanol annually. In connection therewith, on November 9, 2007, we
purchased the facility site which is located in Lancaster,
California. Permit applications were filed on June 24, 2007, to
allow for construction of the Lancaster facility. On December
12, 2008 we were issued our Conditional Use Permit by the County of Los
Angeles. On February 12, 2009 we were issued our Authority to
Construct permit by the Antelope Valley Air Quality Management
District.
|
·
|
We
are also developing a facility for construction in a joint effort with the
Department of Energy. This facility will use approximately 700 metric dry
tons per day of green waste and wood waste currently disposed in the
landfill to produce about 16.6 to 18 million gallons of ethanol annually.
Preliminary engineering design is in progress and permitting for this
facility will commence once all required preliminary engineering design is
completed. We have received an Award from the DOE of up to $40
million for the Facility. On or around October 4, 2007, we finalized Award
1 for a total approved budget of just under $10,000,000 with the DOE. This
award is a 60%/40% cost share, whereby 40% of approve costs may be
reimbursed by the DOE pursuant to the total $40 million award announced in
February 2007. As of June 30, 2009, BlueFire has been reimbursed
approximately $1,187,000 from the Department of Energy under this award.
The Company has been successful in amending its award to include costs
previously incurred in connection with the development of the Lancaster
site which have a direct attributable benefit to the DOE
Biorefinery. In October 2009, the Company received additional
funds of approximately $3,800,000, which is more than the previously
disclosed range of approximately $2,300,000 to $3,000,000. The
remainder of financing for this project is yet to be
determined.
|
·
|
Several
other opportunities are being evaluated by us in North America but no
definitive plans have been made. Discussions with various
landfill owners are underway to duplicate our proposed facility throughout
North America although no definitive agreements have been
reached.
|
RESULTS
OF OPERATIONS
Results
of Operations for the Six Months Ended June 30, 2009 Compared to the Six Months
Ended June 30, 2008
The
following table presents certain consolidated statement of operations
information for the six months ended June 30, 2009 and 2008. The discussion
following the table is based on these results.
For
the Six Months ended June 30,
|
For
the Six Months ended June 30,
|
|||||||
2009
|
2008
|
|||||||
Revenues:
|
||||||||
Consulting
fees
|
$
|
14,570
|
$
|
-
|
||||
Department
of Energy Grant
|
111,320
|
143,985
|
||||||
Total
revenues
|
125,890
|
143,985
|
||||||
Operating
expenses:
|
||||||||
Project
development, including stock based compensation of $0 and $1,486,000,
respectively
|
643,389
|
4,977,307
|
||||||
General
and administrative, including stock based compensation of $0, and
$1,136,000, respectively
|
1,097,356
|
2,184,537
|
||||||
Related
party license fee
|
-
|
-
|
||||||
Total
operating expenses
|
1,740,745
|
7,161,844
|
||||||
Operating
loss
|
(1,614,855
|
)
|
(7,017,859
|
)
|
||||
Other
income and (expense):
|
||||||||
Loss
from change in fair value of warrant liability
|
(2,912,480
|
)
|
-
|
|||||
Other
income
|
7,203
|
164,704
|
||||||
Financing
related charge
|
-
|
-
|
||||||
Amortization
of debt discount
|
-
|
-
|
||||||
Interest
expense
|
-
|
-
|
||||||
Related
party interest expense
|
-
|
-
|
||||||
Loss
on extinguishment of debt
|
-
|
-
|
||||||
Net
loss
|
$
|
(4,520,132
|
)
|
$
|
(6,853,155
|
)
|
||
Basic
and diluted loss per common share
|
$
|
(0.16
|
)
|
$
|
(0.24
|
)
|
||
Weighted
average common shares outstanding, basic and diluted
|
28,102,709
|
28,057,200
|
13
Revenues
from Department of Energy Grant
Revenues for
the six months ended June 30, 2009 was $111,320, comparing to 143,985 for the
six months ended June 30, 2008.
Project
Development
General
and Administrative Expenses
General
and Administrative Expenses were $1,097,356 for the six months ended June 30,
2009, compared to $2,184,537 for the same period in 2008. The decrease in
general and administrative costs is mainly due the full amortization of share
based compensation. Included in general and administrative expenses in the six
months ended June 30, 2009 and 2008, was approximately $0 and $1,136,000,
respectively of non-cash share-based compensation expense, incurred in
connection with our 2007 and 2006 Stock Option award.
Interest
Income
Interest
income for the six months ended June 30, 2009 was $7,203, compared to $164,704
for the same period in 2008, in each case, related to funds
invested.
Results
of Operations for the Fiscal Year Ended December 31, 2008 Compared to the Fiscal
Year Ended December 30, 2007
The
following table presents certain consolidated statement of operations
information for the year ended December 31, 2008 and 2007. The discussion
following the table is based on these results.
For
the Twelve
Months
ended
December
31,
|
For
the Twelve Months ended December 31,
|
|||||||
2008
|
2007
|
|||||||
Revenues:
|
||||||||
Consulting
Fees
|
$
|
-
|
$
|
49,000
|
||||
Department
of Energy Grant
|
1,075,508
|
-
|
||||||
Total
revenues
|
1,075,508
|
49,000
|
||||||
Operating
expenses:
|
||||||||
Project
development, including stock based compensation of $2,078,356, and
$2,387, respectively
|
10,535,278
|
4,930,739
|
||||||
General
and administrative, including stock based compensation of 1,690,921, and
$4,061,808, respectively
|
4,136,235
|
5,595,125
|
||||||
Related
party license fee
|
1,000,000
|
-
|
||||||
Total
operating expenses
|
15,671,513
|
10,525,864
|
||||||
Operating
loss
|
(14,596,005
|
)
|
(10,476,864
|
)
|
||||
Other
income and (expense):
|
||||||||
Other
income
|
225,411
|
18,903
|
||||||
Financing
related charge
|
-
|
(211,660
|
)
|
|||||
Amortization
of debt discount
|
-
|
(676,982
|
)
|
|||||
Interest
expense
|
-
|
(56,097
|
)
|
|||||
Related
party interest expense
|
-
|
(55,348
|
)
|
|||||
Loss
on extinguishment of debt
|
-
|
(2,818,370
|
)
|
|||||
Net
loss
|
$
|
(14,370,594
|
)
|
$
|
(14,276,418
|
)
|
||
Basic
and diluted loss per common share
|
$
|
(0.51
|
)
|
$
|
(0.65
|
)
|
||
Weighted
average common shares outstanding, basic and diluted
|
28,064,572
|
21,848,126
|
14
Revenue
from Department of Energy Grant
Revenue in
2008 was approximately $1,076,000 and related to a federal grant from the United
States Department of Energy, (“U.S. DOE”). The grant generally provides for
payment in connection with related development and construction
costs involving commercialization of our technologies.
Project
Development
In 2008,
our project development costs were approximately $10,535,000 compared to project
development costs of $4,931,000 for the same period during
2007. Included in project development costs in 2008 and 2007, was
approximately $4,901,000 and $970,000, respectively of expense incurred from
various engineering firms for the design and development of the
biorefineries. Included in project development costs in 2008 and
2007, was approximately $2,078,000 and $2,388,000, respectively of non-cash
share-based compensation expense, incurred in connection with our 2007 and 2006
Stock Option awards. The increase in project development costs is due
to the increased activity in the design and engineering development of the
biorefineries.
General
and Administrative Expenses
General
and Administrative Expenses were approximately $4,136,000 in 2008, compared to
$5,595,000 for the same period in 2007. Included in general and
administrative expenses in 2008 and 2007, was approximately $1,691,000 and
$4,062,000, respectively of non-cash share-based compensation expense, incurred
in connection with our 2007 and 2006 Stock Option award. The decrease
in general and administrative costs is mainly due to a decrease in share based
compensation.
Interest
Income
Interest
income was approximately $225,000 in 2008, compared to approximately $18,000 in
2007, related to funds invested. The increase in interest income from
the same period in 2007 is mainly due to the fact that we had not yet completed
our offering of common stock till the end of 2007.
Related
Party License Fee
In 2008
the Company incurred the remaining cost of the Arkenol technology license fee of
$970,000. This is a one time fee.
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. Our principal use of funds has been for the further
development of our Biorefinery Projects, for capital expenditures and general
corporate expenses. During the twelve months ended December 31, 2008,
there were no proceeds received from the sale of company securities. There were
no additional proceeds received from the exercise of stock
options. During the twelve months ended December 31, 2007, proceeds
of approximately $17,394,500 were received from the sale of securities in
connection with various private placements. Additional proceeds of $40,000 were
received from the exercise of stock options. As of June 30, 2009, we had
cash and cash equivalents of approximately $696,912.
15
In
February 2009, the Company obtained a line of credit in the amount of $570,000
from Arkenol Inc, its technology licensor, to provide additional liquidity to
the Company as needed. As of November 6, 2009, there were no amounts
outstanding. Management has estimated that cash operating expenses for the next
twelve months will approximate $2,600,000, excluding engineering costs related
to the development of biorefinery projects, and before implementing any cost
cutting measures. During 2009, the Company intends to fund its operations with
its current working capital, and proceeds from reimbursements under the
Department of Energy contract which are approximately $3,800,000.
As of
November 6, 2009, the Company had approximately $3,600,000 in cash. Management
believes that our Company’s cash will be sufficient to meet our working
capital requirements for the next twelve month period, but will not be
sufficient to move forward beyond the development stage of either of our first
two Projects, at which point further funding will be necessary through either
debt or equity offerings. However, we cannot assure you that such financing will
be available to us on favorable terms, or at all. If necessary, management has
determined that general and administrative expenditures could be reduced with
measures such as a reduction of headcount, reducing employee benefits and/or
salary deferral, as needed. If the Company is not successful in
obtaining additional financing for the construction of the Lancaster
Biorefinery, and its DOE Biorefinery, by the end of 2010, it may be limited
in its ability to further their development and/or design until additional
proceeds are received by the Company.
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
are described below under the heading “Revenue Recognition.” We also have other
key accounting estimates and policies, but we believe that these other policies
either do not generally require us to make estimates and judgments that are as
difficult or as subjective, or it is less likely that they would have a material
impact on our reported results of operations for a given period. For additional
information see Note 2, “Summary of Organization and Significant Accounting
Policies” in the notes to our audited financial statements for the year ended
December 31, 2008 appearing elsewhere in this prospectus. 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.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This statement clarifies fair
value as permitted under other accounting pronouncements but does not require
any new fair value measurements. However, for some entities, the application of
this statement will change current practice. The Company will be required to
adopt SFAS No. 157 as of January 1, 2008 and is currently in the process of
evaluating the impact, if any; the adoption of SFAS No. 157 will have on its
financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
141(R)"), which replaces FAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FAS 141(R) is to be applied prospectively to business
combinations.
16
In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS 168"). The
FASB Accounting Standards Codification ("Codification") will become the source
of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The Codification will
supersede all then-existing non-SEC accounting and reporting standards. SFAS 168
is effective for interim and annual periods ending after September 15, 2009. In
the FASB's view, the issuance of SFAS 168 and the Codification will not change
GAAP, and therefore we do not expect the adoption of SFAS 168 to have an effect
on our consolidated financial statements or disclosures.
In June
2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No.
46(R)" ("SFAS 167"). SFAS 167 is intended to improve financial reporting by
providing additional guidance to companies involved with variable interest
entities and by requiring additional disclosures about a company's involvement
in variable interest entities. This standard is effective for interim and annual
periods ending after November 15, 2009. The adoption of this standard will not
have a material impact on our consolidated financial statements.
In June
2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial
Assets" ("SFAS 166"). SFAS 166 is a revision to SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
and will require more information about transfers of financial assets and where
companies have continuing exposure to the risk related to transferred financial
assets. It eliminates the concept of a qualifying special purpose entity,
changes the requirements for derecognizing financial assets, and requires
additional disclosure. This standard is effective for interim and annual periods
ending after November 15, 2009. The adoption of this standard will not have a
material impact on our consolidated financial statements.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"), which
modifies the subsequent event guidance in AICPA AU Section 560. The three
modifications to the subsequent events guidance in AU Section 560 are: 1) To
name the two types of subsequent events either as recognized or non-recognized
subsequent events, 2) To modify the definition of subsequent events to refer to
events or transactions that occur after the balance sheet date, but before the
financial statement are issued or available to be issued and 3) To require
entities to disclose the date through which an entity has evaluated subsequent
events and the basis for that date, i.e. whether that date represents the date
the financial statements were issued or were available to be issued. The Company
adopted this standard, as required, for the period ended June 30, 2009. Adoption
of SFAS No. 165 did not have a material impact on the Company's consolidated
financial statements.
In
April 2008, the FASB issued Emerging Issues Task
Force ("EITF") 07-05, Determining whether an Instrument (or Embedded
Feature) Is Indexed to an Entity's Own Stock". EITF 07-5 applies to any
freestanding financial instruments or embedded features that have
the characteristics of a derivative, as defined by SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and to any
freestanding financial instruments that are potentially settled in an entity's
own common stock. EITF 07-05 is effective for financial statements
issued for
fiscal years beginning after December 15, 2008. On
January 1, 2009, we adopted the provisions of EITF 07-05, which had a
significant impact on our financial statements. See the quarterly financial
information included within this registration statement for the disclosure of
this impact.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does not have any off-balance sheet arrangements.
COMPANY
HISTORY
Our
Company
We are
BlueFire Ethanol Fuels, Inc., a Nevada corporation. Our goal is to develop, own
and operate high-value carbohydrate-based transportation fuel plants, or
biorefineries, to produce ethanol, a viable alternative to fossil fuels, and to
provide professional services to biorefineries worldwide. Our biorefineries will
convert widely available, inexpensive, organic materials such as agricultural
residues, high-content biomass crops, wood residues and cellulose from municipal
solid wastes into ethanol. This versatility enables us to consider a wide
variety of feedstocks and locations in which to develop facilities to become a
low cost producer of ethanol. We have licensed for use a patented process from
Arkenol, Inc., a Nevada corporation (“Arkenol”), to produce ethanol from
cellulose (the “Arkenol Technology”). We are the exclusive North America
licensee of the Arkenol Technology. We may also utilize certain biorefinery
related rights, assets, work-product, intellectual property and other know-how
related to 19 ethanol project opportunities originally developed by ARK Energy,
Inc, a Nevada corporation, to accelerate our deployment of the Arkenol
Technology.
17
Company
History
We are a
Nevada corporation that was initially organized as Atlanta Technology Group,
Inc., a Delaware corporation, on October 12, 1993. The Company was re-named
Docplus.net Corporation on December 31, 1998, and further re-named Sucre
Agricultural Corp. (“Sucre”) and re-domiciled as a Nevada corporation on March
6, 2006. Finally, on May 24, 2006, in anticipation of the reverse
merger by which it would acquire BlueFire Ethanol, Inc. (“BlueFire”), a
privately held Nevada corporation organized on March 28, 2006, as described
below, the Company was re-named to its current name BlueFire Ethanol Fuels,
Inc.
On June
27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with
BlueFire Ethanol, Inc. (“BlueFire Ethanol”). At the time of Reverse
Merger, the Company was a blank-check company and had no operations, revenues or
liabilities. The only asset possessed by the Company was $690,000 in cash which
continued to be owned by the Company at the time of the Reverse Merger. In
connection with the Reverse Merger, the Company issued BlueFire Ethanol
17,000,000 shares of common stock, approximately 85% of all of the outstanding
common stock of the Company, for all the issued and outstanding BlueFire Ethanol
common stock. The Company stockholders retained 4,028,264 shares of Company
common stock. As a result of the Reverse Merger, BlueFire Ethanol
became our wholly-owned subsidiary. On June 21, 2006, prior to and in
anticipation of the Reverse Merger, Sucre sold 3,000,000 shares of common stock
to two related investors in a private offering of shares pursuant to Rule 504
for proceeds of $1,000,000.
The
Company’s shares of common stock began trading under the symbol “BFRE.PK” on the
Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began
trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007. On November 6,
2009, the closing price of our Common Stock was $0.98 per share.
Our
executive offices are located at 31 Musick, Irvine, California 92618 and
our telephone number at such office is (949) 588-3767.
BUSINESS
OF ISSUER
PRINCIPAL
PRODUCTS OR SERVICES AND THEIR MARKETS
Our goal
is to develop, own and operate high-value carbohydrate-based transportation fuel
plants, or biorefineries, to produce ethanol, a viable alternative to fossil
fuels, and to provide professional services to biorefineries worldwide. Our
biorefineries will convert widely available, inexpensive, organic materials such
as agricultural residues, high-content biomass crops, wood residues and
cellulose from municipal solid wastes into ethanol. This versatility enables us
to consider a wide variety of feedstocks and locations in which to develop
facilities to become a low cost producer of ethanol.
We have
licensed for use the Arkenol Technology, a patented process from Arkenol to
produce ethanol from cellulose for sale into the transportation fuel market. We
are the exclusive North America licensee of the Arkenol Technology.
ARKENOL
TECHNOLOGY
The
production of chemicals by fermenting various sugars is a well-accepted science.
Its use ranges from producing beverage alcohol and fuel-ethanol to making citric
acid and xantham gum for food uses. However, the high price of sugar and the
relatively low cost of competing petroleum based fuel has kept the production of
chemicals mainly confined to producing ethanol from corn sugar.
In the
Arkenol Technology process, incoming biomass feedstocks are cleaned and ground
to reduce the particle size for the process equipment. The pretreated material
is then dried to a moisture content consistent with the acid concentration
requirements for breaking down the biomass, then hydrolyzed (degrading the
chemical bonds of the cellulose) to produce hexose and pentose (C5 and C6)
sugars at the high concentrations necessary for commercial fermentation. The
insoluble materials left are separated by filtering and pressing into a cake and
further processed into fuel for other beneficial uses. The remaining acid-sugar
solution is separated into its acid and sugar components. The separated sulfuric
acid is recirculated and reconcentrated to the level required to breakdown the
incoming biomass. The small quantity of acid left in the sugar solution is
neutralized with lime to make hydrated gypsum which can be used as an
agricultural soil conditioner. At this point the process has produced a clean
stream of mixed sugars (both C6 and C5) for fermentation. In an ethanol
production plant, naturally-occurring yeast, which Arkenol has specifically
cultured by a proprietary method to ferment the mixed sugar stream, is mixed
with nutrients and added to the sugar solution where it efficiently converts
both the C6 and C5 sugars to fermentation beer (an ethanol, yeast and water
mixture) and carbon dioxide. The yeast culture is separated from the
fermentation beer by a centrifuge and returned to the fermentation tanks for
reuse. Ethanol is separated from the now clear fermentation beer by conventional
distillation technology, dehydrated to 200 proof and denatured with unleaded
gasoline to produce the final fuel-grade ethanol product. The still bottoms,
containing principally water and unfermented sugar, is returned to the process
for economic water use and for further conversion of the sugars.
18
Simply
put, the process separates the biomass into two main constituents: cellulose and
hemicellulose (the main building blocks of plant life) and lignin (the “glue”
that holds the building blocks together), converts the cellulose and
hemicellulose to sugars, ferments them and purifies the fermentation liquids
into ethanol and other end-products.
ARK
ENERGY
BlueFire
may also utilize certain biorefinery related rights, assets, work-product,
intellectual property and other know-how related to nineteen (19) ethanol
project opportunities originally developed by ARK Energy, Inc., a Nevada
corporation to accelerate BlueFire’s deployment of the Arkenol Technology. The
opportunities consist of ARK Energy’s previous relationships, analysis, site
development, permitting experience and market research on various potential
project locations within North America. ARK Energy has transferred these assets
to us and we valued these business assets based on management’s best estimates
as to its actual costs of development. In the event we successfully finance the
construction of a project that utilizes any of the transferred assets from ARK
Energy, we are required to pay ARK Energy for the costs ARK Energy incurred in
the development of the assets pertaining to that particular project or location.
We did not incur the costs of a third party valuation but based our valuation of
the assets acquired by (i) an arms length review of the value assigned by ARK
Energy to the opportunities are based on the actual costs it incurred in
developing the project opportunities, and (ii) anticipated financial benefits to
us.
PILOT
PLANTS
From
1994-2000, a test pilot biorefinery plant was built and operated by Arkenol in
Orange, California to test the effectiveness of the Arkenol Technology using
several different types of raw materials containing cellulose. The types of
materials tested included: rice straw, wheat straw, green waste, wood wastes,
and municipal solid wastes. Various equipment for use in the process was also
tested and process conditions were verified leading to the issuance of the
certain patents in support of the Arkenol Technology.
In 2002,
using the results obtained from the Arkenol California test pilot plant, JGC
Corporation, based in Japan, built and operated a bench scale facility followed
by another test pilot biorefinery plant in Izumi, Japan. At the Izumi plant,
Arkenol retained the rights to the Arkenol Technology while the operations of
the facility were controlled by JGC Corporation.
BIOREFINERY
PROJECTS
WE
ARE CURRENTLY IN THE DEVELOPMENT STAGE OF BUILDING BIOREFINERIES IN NORTH
AMERICA.
We plan
to use the Arkenol Technology and utilize JGC’s operations knowledge from the
Izumi test pilot plant to assist in the design and engineering of our facilities
in North America. MECS and Briderson Engineering, Inc. (“Brinderson”) will
provide the preliminary design package for our first facility and Brinderson
will complete the detailed engineering design of the plant. This completed
design should provide the blueprint for subsequent plant
constructions.
We intend
to build a facility that will process approximately 190 tons of green waste
material per day to produce roughly 3.9 million gallons of ethanol annually. In
connection therewith, on November 9, 2007, we purchased the facility site which
is located in Lancaster, California. Permit applications were filed
on June 24, 2007, to allow for construction of the Lancaster facility. The Los
Angeles County Planning Commission issued a Conditional Use Permit for the
Lancaster Project in July of 2008. However, a subsequent appeal of the county
decision, which BlueFire overcame, combined with the waiting period under the
California Environmental Quality Act, pushed the effective date of the now
non-appealable permit approval to December 12, 2008. On February 12,
2009 we were issued our Authority to Construct permit by the Antelope Valley Air
Quality Management District.
In 2008,
BlueFire continued to develop the engineering package for the Lancaster
Biorefinery, and finalized the Front-End Loading (FEL) 3 stage of
engineering for the Lancaster Biorefinery. FEL is the process for
conceptual development of processing industry projects. This process is
used in the petrochemical,
refining, and pharmaceutical industries. Front-End Loading is
also referred to as Front-End Engineering Design (FEED). There are three
stages in the FEL process:
FEL-1
*
Material Balance
*
Energy Balance
*
Project Charter
|
FEL-2
*
Preliminary Equipment Design
*
Preliminary Layout
*
Preliminary Schedule
*
Preliminary Estimate
|
FEL-3
*
Purchase Ready Major Equipment Specifications
*
Definitive Estimate
*
Project Execution Plan
*
Preliminary 3D Model
*
Electrical Equipment List
*
Line List
*
Instrument Index
|
19
We
estimate the total cost including contingencies to be in the range of
approximately $100 million to $120 million for this first plant. This amount is
significantly greater than our previous estimations communicated to the public.
This is due in part to a combination of significant increases in materials costs
on the world market from the last estimate till now, and the complexity of our
first commercial deployment. Recently, prices for materials have been declining,
and we expect, that throughout 2009, items like structural and specialty steel
will continue to decline significantly in price with other materials of
construction following suit. The cost approximations above do not reflect any
decrease in raw materials or any savings in construction cost.
The
uncertainties of the world credit markets have also caused a delay in the
financing we needed to enable placement of equipment orders for the construction
of our Lancaster Project and which would allow us to achieve a sustainable
construction schedule after breaking ground. Hence, to insure a timely and
continuous construction of the project, BlueFire’s board of directors determined
it is prudent to delay Lancaster's groundbreaking until all the necessary funds
are in place. Project activities have advanced to a point that once credit is
available, orders can be immediately placed and construction started. We remain
optimistic in being able to raise the additional capital necessary once the new
federal administration’s policies take hold and the capital markets
normalize. We are currently in discussions with potential sources of financing
for this facility, including opportunities for grants and loan guarantees, but
no definitive agreements are in place.
We are
also developing a facility for construction in a joint effort with the
Department of Energy. This facility will use approximately 700 metric dry tons
of green waste per day and wood waste currently disposed in the landfill to
produce about 16.6 to 18 million gallons of ethanol annually. Preliminary
engineering design is in progress and permitting for this facility will commence
once all required preliminary engineering design is completed. We
have received an Award from the DOE of up to $40 million for the Facility. On or
around October 4, 2007, we finalized Award 1 for a total approved budget of just
under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40%
of approve costs may be reimbursed by the DOE pursuant to the total $40 million
award announced in February 2007. As of December 31, 2008 BlueFire has been
reimbursed approximately $1,076,000 from the Department of Energy under this
award. The remainder of financing for this project is yet to be
determined.
The
Company is simultaneously researching and considering other suitable locations
for other similar biorefineries.
STATUS
OF PUBLICLY ANNOUNCED NEW PRODUCTS AND SERVICES
On
December 11, 2008 BlueFire announced a Professional Services Agreement (“PSA”)
with Ubiex, Inc. a South Korean development company. Under the PSA
BlueFire will provide the preliminary engineering design package and technical
support for Ubiex, Inc.
DISTRIBUTION
METHODS OF THE PRODUCTS OR SERVICES
We will
utilize existing ethanol distribution channels to sell the ethanol that is
produced from our plants. For example, we will enter into an agreement with an
existing refiner or blender to purchase the ethanol and sell it into the
Southern California transportation fuels market. Ethanol is currently mandated
at a blend level of 5.7% in California which represents a 700+
million gallon per year market. We are also exploring the potential of onsite
blending of E85 (85% Ethanol, 15% gasoline) and direct marketing to fueling
stations. There are approximately 1900 E85 fueling stations in the United
States.
COMPETITIVE
BUSINESS CONDITIONS AND THE SMALL BUSINESS ISSUER’S COMPETITIVE POSITION IN THE
INDUSTRY AND METHODS OF COMPETITION
COMPETITION
Most of
the ethanol supply in the United States is derived from corn according to the
Renewable Fuels Association (“RFA”) website (HTTP://WWW.ETHANOLRFA.ORG/) and as
of February 28, 2009 is produced at approximately 190 facilities, ranging in
size from 300,000 to 115 million gallons per year, located predominately in the
corn belt in the Midwest.
Traditional
corn-based production techniques are mature and well entrenched in the
marketplace, and the entire industry’s infrastructure is geared toward corn as
the principal feedstock.
With the
Arkenol Technology the principle difference from traditional processes apart
from production technique is the acquisition and choice of feedstock. The use of
a non-commodity based non-food related biomass feedstock enables us to use
feedstock typically destined for disposal, i.e. wood waste, yard trimmings and
general green waste. All ethanol producers regardless of production technique
will fall subject to market fluctuation in the end product,
ethanol.
Due to
the feedstock variety we are able to process, we are able to locate production
facilities in and around the markets where the ethanol will be consumed thereby
giving us a competitive advantage against much larger traditional producers who
must locate plants near their feedstock, i.e. the corn belt in the Midwest and
ship the ethanol to the end market.
20
However,
in the area of biomass-to-ethanol production, there are few companies and no
commercial production infrastructure is built. As we continue to advance our
biomass technology platform, we are likely to encounter competition for the same
technologies from other companies that are also attempting to manufacture
ethanol from cellulosic biomass feedstocks.
Ethanol
production is also expanding internationally. Ethanol produced or processed in
certain countries in Central American and the Caribbean region is eligible for
tariff reduction or elimination upon importation to the United States under a
program known as the Caribbean Basin Initiative. Large ethanol producers, such
as Cargill, have expressed interest in building dehydration plants in
participating Caribbean Basin countries, such as El Salvador, which would
convert ethanol into fuel-grade ethanol for shipment to the United States.
Ethanol imported from Caribbean Basin countries may be a less expensive
alternative to domestically produced ethanol and may affect our ability to sell
our ethanol profitably.
There are
approximately twenty one next generation biofuel companies that have received
grants from the Department of Energy for development purposes.
INDUSTRY
OVERVIEW
On
December 19, 2007 President Bush signed into law the Energy Independence and
Security Act of 2007 (Energy Act of 2007). The Energy Act of 2007
provides for an increase in the supply of alternative fuel sources by setting a
mandatory Renewable Fuel Standard (RFS) requiring fuel producers to use at least
36 billion gallons of biofuel by 2022, 16 billion gallon of which must come from
cellulosic derived fuel. Additionally, the Energy Act of 2007 called
for reducing U.S. demand for oil by setting a national fuel economy standard of
35 miles per gallon by 2020 – which will increase fuel economy standards by 40
percent and save billions of gallons of fuel.
In June
2008 the Food, Conservation and Energy Act of 2008 (Farm Bill) was signed into
law. The 2008 Farm Bill also modified existing incentives, including
ethanol tax credits and import duties and established a new integrated tax
credit of $1.01/gallon for cellulosic biofuels. The Farm Bill also
authorized new biofuels loan and grant programs, which will be subject to
appropriations, likely starting with the FY2010 budget request.
Historically,
producers and blenders had a choice of fuel additives to increase the oxygen
content of fuels. MTBE (methyl tertiary butyl ether), a petroleum-based
additive, was the most popular additive, accounting for up to 75% of the fuel
oxygenate market. However, in the United States, ethanol is replacing MTBE as a
common fuel additive. While both increase octane and reduce air pollution, MTBE
is a presumed carcinogen which contaminates ground water. It has already been
banned in California, New York, Illinois and 16 other states. Major oil
companies have voluntarily abandoned MTBE and it is scheduled to be phased out
under the Energy Policy Act. As MTBE is phased out, we expect demand for ethanol
as a fuel additive and fuel extender to rise. A blend of 5.5% or more of
ethanol, which does not contaminate ground water like MTBE, effectively complies
with U.S. Environmental Protection Agency requirements for reformulated
gasoline, which is mandated in most urban areas.
Ethanol
is a clean, high-octane, high-performance automotive fuel commonly blended in
gasoline to extend supplies and reduce emissions. In 2004, according to the
American Coalition for Ethanol, 3% of all United States gasoline was blended
with some percentage of ethanol. The most common blend is E10, which contains
10% ethanol and 90% gasoline. There is also growing federal government support
for E85, which is a blend of 85% ethanol and 15% gasoline.
Ethanol
is a renewable fuel produced by the fermentation of starches and sugars such as
those found in grains and other crops. Ethanol contains 35% oxygen by weight
and, when combined with gasoline, it acts as an oxygenate, artificially
introducing oxygen into gasoline and raising oxygen concentration in the
combustion mixture with air. As a result, the gasoline burns more completely and
releases less unburnt hydrocarbons, carbon monoxide and other harmful exhaust
emissions into the atmosphere. The use of ethanol as an automotive fuel is
commonly viewed as a way to reduce harmful automobile exhaust emissions. Ethanol
can also be blended with regular unleaded gasoline as an octane booster to
provide a mid-grade octane product which is commonly distributed as a premium
unleaded gasoline.
Studies
published by the Renewable Fuel Association indicate that approximately 8.1
billion gallons of ethanol was consumed in 2008 in the United States and every
automobile manufacturer approves and warrants the use of E10. Because the
ethanol molecule contains oxygen, it allows an automobile engine to more
completely combust fuel, resulting in fewer emissions and improved performance.
Fuel ethanol has an octane value of 113 compared to 87 for regular unleaded
gasoline. Domestic ethanol consumption has tripled in the last eight years, and
consumption increases in some foreign countries, such as Brazil, are even
greater in recent years. For instance, 40% of the automobiles in Brazil operate
on 100% ethanol, and others use a mixture of 22% ethanol and 78% gasoline. The
European Union and Japan also encourage and mandate the increased use of
ethanol.
For every
barrel of ethanol produced, the American Coalition for Ethanol estimates that
1.2 barrels of petroleum are displaced at the refinery level, and that since
1978, U.S. ethanol production has replaced over 14.0 billion gallons of imported
gasoline or crude oil. According to a Mississippi State University Department of
Agricultural Economics Staff Report in August 2003, a 10% ethanol blend results
in a 25% to 30% reduction in carbon monoxide emissions by making combustion more
complete. The same 10% blend lowers carbon dioxide emissions by 6% to
10%.
21
During
the last 20 years, ethanol production capacity in the United States has grown
from almost nothing to an estimated 7.6 billion gallons per year in 2008. In the
United States, ethanol is primarily made from starch crops, principally from the
starch fraction of corn. Consequently, the production plants are concentrated in
the grain belt of the Midwest, principally in Illinois, Iowa, Minnesota,
Nebraska and South Dakota.
In the
United States, there are two principal commercial applications for ethanol. The
first is as an oxygenate additive to gasoline to comply with clean air
regulations. The second is as a voluntary substitute for gasoline - this is a
purely economic choice by gasoline retailers who may make higher margins on
selling ethanol-blended gasoline, provided ethanol is available in the local
market. The U.S. gasoline market is currently approximately 170 billion gallons
annually, so the potential market for ethanol (assuming only a 10% blend) is 17
billion gallons per year. Increasingly, motor manufacturers are producing
flexible fuel vehicles (particularly sports utility vehicle models) which can
run off ethanol blends of up to 85% (known as E85) in order to obtain exemptions
from fleet fuel economy quotas. There are now in excess of 5 million flexible
fuel vehicles on the road in the United States and automakers will produce
several millions per year, offering further potential for significant growth in
ethanol demand.
CELLULOSE
TO ETHANOL PRODUCTION
In a 2002
report, “Outlook For Biomass Ethanol Production Demand,” the U.S. Energy
Information Administration found that advancements in production technology of
ethanol from cellulose could reduce costs and result in production increases of
40% to 160% by 2010. Biomass (cellulosic feedstocks) includes agricultural
waste, woody fibrous materials, forestry residues, waste paper, municipal solid
waste and most plant material. Like waste starches and sugars, they are often
available for relatively low cost, or are even free. However, cellulosic
feedstocks are more abundant, global and renewable in nature. These waste
streams, which would otherwise be abandoned, land-filled or incinerated, exist
in populated metropolitan areas where ethanol prices are higher.
SOURCES
AND AVAILABILITY OF RAW MATERIALS
The U.S.
DOE and USDA in its April 2005 report “BIOMASS AS FEEDSTOCK FOR A BIOENERGY AND
BIOPRODUCTS INDUSTRY: THE TECHNICAL FEASIBILITY OF A BILLION-TON ANNUAL SUPPLY”
found that about one billion tons of cellulosic materials from agricultural and
forest residues are available to produce more than one-third of the current U.S.
demand for transportation fuels.
DEPENDENCE
ON ONE OR A FEW MAJOR CUSTOMERS
Currently,
we have no dependence on one or a few major customers.
We are
negotiating definitive agreements but no definitive agreements have been signed
as of yet. See “DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES.”
DEPENDENCE
ON THE US DEPARTMENT OF ENERGY
Since the
downturn of the economy in mid to late 2008, we have been relying more heavily
on the DOE for grant and loan guarantee funding opportunities, as well as
renegotiating our current $40 million award to allow for reimbursements on costs
previously incurred in connection with the development of the Lancaster site
which have a direct attributable benefit to the DOE Biorefinery.
Since the
enactment of the American Recovery & Reinvestment Act (ARRA) by President
Obama in February 2009, the DOE has been mandated to release ARRA funds first,
which have subsequently pushed back the expediency of distribution of other
awards like the renegotiation of our $40 million award.
In so
saying, the Company is now dependant on the priority the DOE puts on the
renegotiation of our current award, and any future funding opportunities, versus
any mandates they may be under by the Obama Administration.
22
PATENTS,
TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR
CONTRACTS
On March
1, 2006, we entered into a Technology License Agreement with Arkenol, for use of
the Arkenol Technology. Arkenol holds the following patents in relation to the
Arkenol Technology: 11 U.S. patents, 21 foreign patents, and one pending foreign
patent. According to the terms of the agreement, we were granted an exclusive,
non-transferable, North American license to use and to sub-license the Arkenol
technology. The Arkenol Technology, converts cellulose and waste materials into
ethanol and other high value chemicals. As consideration for the grant of the
license, we are required to make a onetime payment of $1,000,000 at first
project funding and for each plant make the following payments: (1) royalty
payment of 3% of the gross sales price for sales by us or our sublicensees of
all products produced from the use of the Arkenol Technology (2) and a onetime
license fee of $40.00 per 1,000 gallons of production capacity per plant.
According to the terms of the agreement, we made a onetime exclusivity fee
prepayment of $30,000 during the period ended December 31, 2006. As of December
31, 2008, we have accrued the remaining liability of $970,000 to Arkenol, and as
of March 11, 2009 we have paid Arkenol in full for the license. All sub-licenses
issued by us will provide for payments of any other license fees and royalties
due Arkenol.
NEED
FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
We are
not subject to any government oversight for our current operations other than
for corporate governance and taxes. However, the production facilities that we
will be constructing will be subject to various federal, state and local
environmental laws and regulations, including those relating to the discharge of
materials into the air, water and ground, the generation, storage, handling,
use, transportation and disposal of hazardous materials, and the health and
safety of our employees. In addition, some of these laws and regulations will
require our facilities to operate under permits that are subject to renewal or
modification. These laws, regulations and permits can often require expensive
pollution control equipment or operational changes to limit actual or potential
impacts to the environment. A violation of these laws and regulations or permit
conditions can result in substantial fines, natural resource damages, criminal
sanctions, permit revocations and/or facility shutdowns.
EFFECT
OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
Currently,
the federal government encourages the use of ethanol as a component in
oxygenated gasoline. This is a measure to both protect the environment, and, to
utilize biofuels as a viable renewable domestic fuel to reduce U.S. dependence
on foreign oil.
The
ethanol industry is heavily dependent on several economic incentives to produce
ethanol, including federal ethanol supports. Ethanol sales have been favorably
affected by the Clean Air Act amendments of 1990, particularly the Federal
Oxygen Program which became effective November 1, 1992. The Federal Oxygen
Program requires the sale of oxygenated motor fuels during the winter months in
certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol
use has increased due to a second Clean Air Act program, the Reformulated
Gasoline Program. This program became effective January 1, 1995, and requires
the sale of reformulated gasoline in nine major urban areas to reduce
pollutants, including those that contribute to ground level ozone, better known
as smog. Increasingly stricter EPA regulations are expected to increase the
number of metropolitan areas deemed in non-compliance with Clean Air Standards,
which could increase the demand for ethanol.
On
October 22, 2004, President Bush signed H.R. 4520, which contained the
Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended the federal excise
tax structure effective as of January 1, 2005. Before this, ethanol-blended fuel
was taxed at a lower rate than regular gasoline (13.2 cents on a 10% blend).
Under VEETC, the existing ethanol excise tax exemption is eliminated, thereby
allowing the full federal excise tax of 18.4 cents per gallon of gasoline to be
collected on all gasoline and allocated to the highway trust fund. The bill
created a new volumetric ethanol excise tax credit of 51 cents per gallon of
ethanol blended. Refiners and gasoline blenders would apply for this credit on
the same tax form as before only it would be a credit from general revenue, not
the highway trust fund. Based on volume, the VEETC is expected to allow much
greater refinery flexibility in blending ethanol. VEETC is scheduled to expire
in 2013. The 2008 Farm Bill amended this credit: Starting the year after
7.5 billion gallons of ethanol are produced and/or imported in the United
States, the value of the credit will be lowered to 45 cents per gallon—it is
expected that the United States passed this mark in 2008, leading to a reduction
in the credit starting in 2009.
The
Energy Policy Act of 2005 established a renewable fuel standard (RFS) to
increase in the supply of alternative sources for automotive fuels. The RFS was
expanded by the Energy Independence and Security Act of 2007. The RFS requires
the blending of renewable fuels (including ethanol and biodiesel) in
transportation fuel. In 2008, fuel suppliers must blend 9.0 billion gallons of
renewable fuel into gasoline; this requirement increases annually to 36 billion
gallons in 2022. The expanded RFS also specifically mandates the use of
“advanced biofuels”—fuels produced from non-corn feedstocks and with 50% lower
lifecycle greenhouse gas emissions than petroleum fuel—starting in 2009. Of the
36 billion gallons required in 2022, at least 21 billion gallons must be
advanced biofuel. There are also specific quotas for cellulosic biofuels and for
biomass-based diesel fuel. On May 1, 2007, EPA issued a final rule on the RFS
program detailing compliance standards for fuel suppliers, as well as a system
to trade renewable fuel credits between suppliers. EPA has not yet
initiated a rulemaking on the lifecycle analysis methods necessary to categorize
fuels as advanced biofuels. While this program is not a direct subsidy for the
construction of biofuels plants, the market created by the renewable fuel
standard is expected to stimulate growth of the biofuels industry.
23
The Food,
Conservation, and Energy Act of 2008 (2008 Farm Bill) provides for, among other
things, grants for demonstration scale Biorefineries, and loan guarantees for
commercial scale Biorefineries that produce advanced Biofuels (i.e., any fuel
that is not corn-based). Section 9003 includes a Loan Guarantee Program under
which the U.S.D.A. could provide loan guarantees up to $250 million to fund
development, construction, and retrofitting of commercial-scale refineries.
Section 9003 also includes a grant program to assist in paying the costs of the
development and construction of demonstration-scale biorefineries to demonstrate
the commercial viability which can potentially fund up to 50% of project
costs.
Some
other noteworthy governmental actions regarding the production of biofuels are
as follows:
Small
Ethanol Producer Credit:
A tax
credit valued at 10 cents per gallon of ethanol produced. The credit may be
claimed on the first 15 million gallons of ethanol produced by a small producer
in a given year. Qualified applicants are any ethanol producer with
production capacity below 60 million gallons per year. This credit is scheduled
to terminate on December 31, 2010, unless ortherwise extended by
law.
Credit
for Production of Cellulosic Biofuel:
An
integrated tax credit whereby Producers of cellulosic biofuel can claim up to
$1.01 per gallon tax credit. The credit for cellulosic ethanol varies with other
ethanol credits such that the total combined value of all credits is $1.01 per
gallon. As the VEETC and/or the Small Ethanol Producer Credits (outlined above)
decrease, the per-gallon credit for cellulosic ethanol production increases by
the same amount (ie the value of the credit is reduced by the amount of the
VEETC and the Small Ethanol Producer Credit—currently, the value would be 40
cents per gallon). The credit applies to fuel produced after December 31,
2008. This credit is scheduled to terminate on December 31,
2012.
Special
Depreciation Allowance for Cellulosic Biofuel Plant Property:
A
taxpayer may take a depreciation deduction of 50% of the adjusted basis of a new
cellulosic biofuel plant in the year it is put in service. Any portion of the
cost financed through tax-exempt bonds is exempted from the depreciation
allowance. Before amendment by P.L. 110-343, the accelerated depreciation
applied only to cellulosic ethanol plants that break down cellulose through
enzymatic processes—the amended provision applies to all cellulosic biofuel
plants acquired after December 20, 2006, and placed in service before January 1,
2013. This accelerated depreciation allowance is scheduled to terminate on
December 31, 2012.
ESTIMATE
OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON RESEARCH AND
DEVELOPMENT ACTIVITIES
For the
fiscal year ending December 31, 2007 and 2008, we spent roughly $4,930,739 and
$10,535,278 on project development costs, respectively.
To date,
project development costs include the research and development expenses related
to our future cellulose-to-ethanol production facilities including site
development, and engineering activities.
COSTS
AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE AND
LOCAL)
We will
be subject to extensive air, water and other environmental regulations and we
will have to obtain a number of environmental permits to construct and operate
our plants, including, air pollution construction permits, a pollutant discharge
elimination system general permit, storm water discharge permits, a water
withdrawal permit, and an alcohol fuel producer’s permit. In addition, we may
have to complete spill prevention control and countermeasures
plans.
The
production facilities that we will build are subject to oversight activities by
the federal, state, and local regulatory agencies. There is always a risk that
the federal agencies may enforce certain rules and regulations differently than
state environmental administrators. State or federal rules are subject to
change, and any such changes could result in greater regulatory burdens on plant
operations. We could also be subject to environmental or nuisance claims from
adjacent property owners or residents in the area arising from possible foul
smells or other air or water discharges from the plant.
NUMBER
OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES
We had 9
full time employees as of November 6, 2009 and 3 part time employees. None of
our employees are subject to a collective bargaining agreement, and we believe
that our relationship with our employees is good.
REPORTS
TO SECURITY HOLDERS
We are
subject to the reporting obligations of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These obligations include filing an annual report
under cover of Form 10, with audited financial statements, unaudited quarterly
reports on Form 10-Q and the requisite proxy statements with regard to annual
stockholder meetings. The public may read and copy any materials the Company
files with the Securities and Exchange Commission (the “SEC”) at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0030. The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
24
We are currently not involved in
any litigation that we believe could 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 could have a
material adverse effect.
MANAGEMENT
Directors
and Executive Officers
The
following table and biographical summaries set forth information, including
principal occupation and business experience, about our directors and executive
officers as of November 6, 2009. There is no familial relationship between or
among the nominees, directors or executive officers of the Company.
NAME
|
AGE
|
POSITION
|
OFFICER
AND/OR DIRECTOR SINCE
|
|||
Arnold
Klann
|
57
|
President,
CEO and Director
|
June
2006
|
|||
Necitas
Sumait
|
49
|
Secretary,
SVP and Director
|
June
2006
|
|||
Christopher
Scott
|
35
|
Chief
Financial Officer
|
March
2007
|
|||
John
Cuzens
|
57
|
SVP,
Chief Technology Officer
|
June
2006
|
|||
Chris
Nichols
|
43
|
Director
|
June
2006
|
|||
Joseph
Emas
|
54
|
Director
|
July
2007
|
|||
Victor
Doolan
|
68
|
Director
|
July
2007
|
The
Company’s Directors serve in such capacity until the first annual meeting of the
Company’s shareholders and until their successors have been elected and
qualified. The Company’s officers serve at the discretion of the Company’s Board
of Directors, until their death, or until they resign or have been removed from
office.
There are
no agreements or understandings for any director or officer to resign at the
request of another person and none of the directors or officers is acting on
behalf of or will act at the direction of any other person. The activities of
each director and officer are material to the operation of the Company. No other
person’s activities are material to the operation of the Company.
Arnold
R. Klann – Chairman of the Board and Chief Executive Officer
Mr. Klann
has been our Chairman of the Board and Chief Executive Officer since our
inception in March 2006. Mr. Klann has been President of ARK Energy, Inc. and
Arkenol, Inc. from January 1989 to present. Mr. Klann has an AA from
Lakeland College in Electrical Engineering.
Necitas
Sumait – Senior Vice President and Director
Mrs.
Sumait has been our Director and Senior Vice President since our inception in
March 2006. Prior to this, Mrs. Sumait was Vice President of ARK Energy/Arkenol
from December 1992 to July 2006. Mrs. Sumait has a MBA in Technological
Management from Illinois Institute of Technology and a B.S. in Biology from De
Paul University.
Christopher
Scott - Chief Financial Officer
Mr. Scott
has been our Chief Financial Officer since March 2007. Prior to this, from 2002
to March 2007, Mr. Scott was most recently the CFO/CCO and FinOp of Westcap
Securities, Inc, an NASD Member Broker/Dealer and Investment Bank headquartered
in Irvine, CA. Mr. Scott currently holds the Series 7, 63, 24, 27 FINRA
licenses, and has also in the past held his Series 4, 53, and 55 FINRA licenses.
From 1997 to 2002, Mr. Scott was a General Securities and Registered Options
Principal at First Allied Securities Inc. Mr. Scott earned his Bachelor’s Degree
in Business Administration, with a concentration in Finance, from CSU,
Fullerton.
25
John
Cuzens - Chief Technology Officer and Senior Vice President
Mr.
Cuzens has been our Chief Technology Officer and Senior Vice President since our
inception in March 2006. Mr. Cuzens was a Director from March 2006 until
his resignation from the Board of Directors in July 2007. Prior to
this, he was Director of Projects Wahlco Inc. from 2004 to June 2006. He was
employed by Applied Utility Systems Inc from 2001 to 2004 and Hydrogen Burner
Technology form 1997-2001. He was with ARK Energy and Arkenol from 1991 to 1997
and is the co-inventor on seven of Arkenol’s eight U.S. foundation patents for
the conversion of cellulosic materials into fermentable sugar products using a
modified strong acid hydrolysis process. Mr. Cuzens has a B.S. Chemical
Engineering degree from the University of California at Berkeley.
Chris
Nichols – Director (Chairman, Compensation Committee)
Mr.
Nichols has been our Director since our inception in March 2006. Mr.
Nichols is currently the Chairman of the Board and Chief Executive Officer of
Advanced Growing Systems, Inc. Since 2003 Mr. Nichols was the Senior Vice
President of Westcap Securities’ Private Client Group. Prior to this, Mr.
Nichols was a Registered Representative at Fisher Investments from December 2002
to October 2003. He was a Registered Representative with Interfirst Capital
Corporation from 1997 to 2002. Mr. Nichols is a graduate of
California State University in Fullerton with a B.A. degree in
Marketing.
Joseph
Emas – Director (Chairman, Nomination Committee)
Mr. Emas
is licensed to practice law in Florida, New Jersey and New York. Since 2001, Mr.
Emas has been the senior partner of Joseph I. Emas, P.A. Mr. Emas specializes in
securities regulation, corporate finance, mergers and acquisitions and corporate
law. Mr. Emas received his Honors BA at University of Toronto, Bachelor of
Administrative Studies, with distinction, at York University in Toronto, his JD,
cum laude from Nova Southeastern Shepard Broad Law School and his LL.M. in
Securities Regulation at Georgetown University Law Center. Mr. Emas was an
Adjunct Professor of Law at Nova Southeastern Shepard Broad Law School. Mr. Emas
received the William Smith Award, Pro Bono Advocate for Children in 2000 and the
2006 Child Advocacy Award in Florida and is the author of “Update of Juvenile
Jurisdiction Florida Practice in Juvenile Law.” Mr. Emas has been a member of
the Juvenile Court Rules Committee for the State of Florida from 1999 through
2006, and currently sits on the Florida Child Advocacy Committee. Mr. Emas
serves on the Board of Directors of HQ Sustainable Maritime Industries,
Inc.
Victor
Doolan – Director (Chairman, Audit Committee)
Mr.
Doolan served for approximately three years as president of Volvo Cars North
America until his retirement in March 2005. Prior to joining Volvo, Mr. Doolan
served as the Executive Director of the Premier Automotive Group, the luxury
division of Ford Motor Company from July 1999 to June 2002. Mr. Doolan also
enjoyed a 23-year career with BMW, culminating with his service as President of
BMW of North America from September 1993 to July 1999. Mr. Doolan has worked in
the automotive industry for approximately 36 years. Mr. Doolan
currently serves on the Board of Directors for Sonic Automotive,
Inc.
Significant
Employee
William
Davis - VP Project Management
Mr. Davis
is currently Vice President of Project Management for us. Prior to this he was
Director of Power Plant Project Development for Diamond Energy from 2001 to
2006. Prior to this he was VP of Business Development for Oxbow Power. He has
over 30 years in the energy business and was an energy advisor to the Governor
of California. He has been involved in domestic and international power project
development. Mr. Davis is a registered Architect in three states and graduated
from California State University at San Luis Obispo with a Bachelors
of Architecture and a Masters of Science in Architecture.
FAMILY
RELATIONSHIPS
There are
no family relationships among our directors, executive officers, or persons
nominated or chosen by the Company to become directors or executive
officers.
SUBSEQUENT
EXECUTIVE RELATIONSHIPS
There are
no family relationships among our directors and executive officers. No director
or executive officer has been a director or executive officer of any business
which has filed a bankruptcy petition or had a bankruptcy petition filed against
it during the past five years. No director or executive officer has been
convicted of a criminal offense or is the subject of a pending criminal
proceeding during the past five years. No director or executive officer has been
the subject of any order, judgment or decree of any court permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities during the past five
years. No director or officer has been found by a court to have violated a
federal or state securities or commodities law during the past five
years.
26
None of
our directors or executive officers or their respective immediate family members
or affiliates are indebted to us.
COMMITTEES
OF THE BOARD OF DIRECTORS
Each of
our Audit Committee, Compensation Committee and Nomination Committee are
composed of a majority of independent board members and are also chaired by an
independent board member.
Audit
Committee
Victor
Doolan, Chairman
Christopher
Nichols
Joseph
Emas
Compensation
Committee
Christopher
Nichols, Chairman
Victor
Doolan
Joseph
Emas
Nomination
Committee
Joseph
Emas, Chairman
Christopher
Nichols
Victor
Dolan
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Section
16(a) of the Exchange Act requires the Company’s directors, executive officers
and persons who beneficially own 10% or more of a class of securities registered
under Section 12 of the Exchange Act to file reports of beneficial ownership and
changes in beneficial ownership with the SEC. Directors, executive officers and
greater than 10% stockholders are required by the rules and regulations of the
SEC to furnish the Company with copies of all reports filed by them in
compliance with Section 16(a). To the best of the Company’s knowledge, any
reports required to be filed were timely filed as of November 6,
2009.
CODE
OF ETHICS
The
Company has adopted a Code of Ethics that applies to the small business issuer’s
directors, officers and key employees.
BOARD
NOMINATION PROCEDURE
There
have been no material changes to the procedures by which security holders may
recommend nominees to the Company’s board of directors since the Company
provided disclosure on such process on its proxy statement on Form Def14A, as
amended, filed on May 22, 2009 with the SEC.
27
The
following table sets forth information with respect to compensation paid by us
to our officers and directors during the two most recent fiscal years. This
information includes the dollar value of base salaries, bonus awards and number
of stock options granted, and certain other compensation, if any.
2008/2007
SUMMARY
COMPENSATION TABLE YEAR
NAME
AND PRINCIPAL
POSITION
|
YEAR
|
SALARY
($)
|
BONUS
($)
|
STOCK
AWARDS
($)
|
OPTIONS
AWARDS
($)
(3)
|
NON-
EQUITY
INCENTIVE
PLAN
COMPENSATION
($)
|
CHANGE
IN
PENSION
VALUE
AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)
|
ALL
OTHER
COMPENSATION
($)
|
TOTAL
($)
|
||||||||||||||||||
Arnold
Klann Director and President
|
2008
|
226,000
|
-
|
24,600
|
(1)
|
-
|
250,600
|
||||||||||||||||||||
2007
|
216,583
|
51,780
|
5,070
|
(1)
|
750,519
|
1,023,952
|
|||||||||||||||||||||
Necitas
Sumait Director, Secretary and VP
|
2008
|
176,500
|
-
|
24,600
|
(1)
|
201,100
|
|||||||||||||||||||||
2007
|
149,500
|
51,780
|
5,070
|
(1)
|
556,521
|
762,871
|
|||||||||||||||||||||
John
Cuzens Treasurer and VP
|
2008
|
175,250
|
-
|
-
|
-
|
175,250
|
|||||||||||||||||||||
2007
|
149,500
|
51,780
|
556,521
|
757,801
|
|||||||||||||||||||||||
Christopher
Scott Chief Financial Officer
|
2008
|
163,750
|
-
|
-
|
-
|
163,750
|
|||||||||||||||||||||
2007
|
86,250
|
51,780
|
275,001
|
(2)
|
556,521
|
969,552
|
|||||||||||||||||||||
Chris
Nichols Director
|
2008
|
5,000
|
24,600
|
(1)
|
29,600
|
||||||||||||||||||||||
2007
|
7,500
|
(4)
|
5,070
|
(1)
|
12,570
|
||||||||||||||||||||||
Joseph
Emas Director
|
2008
|
5,000
|
24,600
|
(1)
|
29,600
|
||||||||||||||||||||||
2007
|
5,000
|
25,350
|
(1)
|
30,350
|
|||||||||||||||||||||||
Victor
Doolan Director
|
2008
|
5,000
|
24,600
|
(1)
|
29,600
|
||||||||||||||||||||||
2007
|
5,000
|
25,350
|
(1)
|
30,350
|
(1)
|
Reflects
value of shares of restricted common stock received as compensation as
Director. See notes to consolidated financial statements for
valuation.
|
(2)
|
Reflects
value of 50,000 shares of restricted common stock received as compensation
related to February 2007 employment
agreement.
|
(3)
|
Valued
based on the Black-Scholes valuation model at the date of grant, see note
to the consolidated financial
statements.
|
(4)
|
Includes
partial 2006 compensation of $2,500 paid in
2007.
|
28
2008
GRANTS OF PLAN-BASED AWARDS TABLE
ESTIMATED
FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS
|
ESTIMATED
FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS
|
|||||||||||||
Name
|
Grant
Date
|
Approval
Date
|
Number
of Non-Equity Incentive Plan Units Granted (#)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
All
Other Stock Awards: Number of Shares of Stock or Units (#)
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards ($ / SH)
|
Closing
Price on Grant Date ($ / SH)
|
|
Arnold
Klann
|
None
|
|||||||||||||
Necitas
Sumait
|
None
|
|||||||||||||
Christopher
Scott
|
None
|
|||||||||||||
John
Cuzens
|
None
|
|||||||||||||
Chris
Nichols
|
None
|
|||||||||||||
Joseph
Emas
|
None
|
|||||||||||||
Victor
Doolan
|
None
|
2008
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||
NAME
|
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
EXERCISABLE
|
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
UNEXERCISABLE
|
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS
(#)
|
OPTION
EXERCISE
PRICE
($)
|
OPTION
EXPIRATION
DATE
|
NUMBER
OF
SHARES
OR
UNITS
OF
STOCK
THAT
HAVE
NOT
VESTED
(#)
|
MARKET
VALUE
OF
SHARES
OR
UNITS
OF
STOCK
THAT
HAVE
NOT
VESTED
($)
|
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER
OF
UNEARNED
SHARES,
UNITS
OR
OTHER
RIGHTS
THAT
HAVE
NOT
VESTED
(#)
|
EQUITY
INCENTIVE PLAN AWARDS:
MARKET
OR
PAYOUT
VALUE
OF
UNEARNED
SHARES,
UNITS
OR
OTHER
RIGHTS
THAT
HAVE
NOT
VESTED
($)
|
||||
Arnold
Klann
|
1,000,000
|
-
|
2.00
|
12/14/11
|
|||||||||
28,409
|
-
|
3.52
|
12/20/12
|
||||||||||
125,000(1)
|
125,000(1)
|
3.20
|
12/20/12
|
||||||||||
Necitas
Sumait
|
450,000
|
-
|
2.00
|
12/14/11
|
|||||||||
118,750(1)
|
87,500(1)
|
3.20
|
12/20/12
|
||||||||||
John
Cuzens
|
450,000
|
-
|
2.00
|
12/14/11
|
|||||||||
118,750(1)
|
87,500(1)
|
3.20
|
12/20/12
|
||||||||||
Christopher
Scott
|
118,750(1)
|
87,500(1)
|
3.20
|
12/20/12
|
|||||||||
Chris
Nichols
|
|||||||||||||
Joseph
Emas
|
|||||||||||||
Victor
Doolan
|
(1) 50%
vested immediately upon grant in 2007, 25% vests on closing remainder of
Lancaster Project Funding, 25% vests at the start of construction of Lancaster
Project
29
2008
OPTION EXERCISES AND STOCK VESTED TABLE
OPTION
AWARDS
|
STOCK
AWARDS
|
||||
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on Vesting
($)
|
||
Arnold
Klann
|
|||||
Necitas
Sumait
|
|||||
Christopher
Scott
|
|||||
John
Cuzens
|
|||||
Chris
Nichols
|
|||||
Joseph
Emas
|
|||||
Victor
Doolan
|
2008
PENSION BENEFITS TABLE
NAME
|
PLAN
NAME
|
NUMBER
OF YEARS
CREDITED
SERVICE
(#)
|
PRESENT
VALUE OF
ACCUMULATED BENEFIT
($)
|
PAYMENTS
DURING
LAST
FISCAL YEAR
($)
|
Arnold
Klann
|
||||
Necitas
Sumait
|
||||
Christopher
Scott
|
||||
John
Cuzens
|
||||
Chris
Nichols
|
||||
Joseph
Emas
|
||||
Victor
Doolan
|
2008
NONQUALIFIED DEFERRED COMPENSATION TABLE
NAME
|
EXECUTIVE
CONTRIBUTION
IN
LAST
FISCAL YEAR
($)
|
REGISTRANT
CONTRIBUTIONS IN
LAST FISCAL
YEARS
($)
|
AGGREGATE
EARNINGS
IN LAST
FISCAL YEAR
($)
|
AGGREGATE
WITHDRAWALS
/
DISTRIBUTIONS
($)
|
AGGREGATE
BALANCE
AT LAST
FISCAL
YEAR-END
($)
|
Arnold
Klann
|
|||||
Necitas
Sumait
|
|||||
Christopher
Scott
|
|||||
John
Cuzens
|
|||||
Chris
Nichols
|
|||||
Joseph
Emas
|
|||||
Victor
Doolan
|
30
2008
DIRECTOR COMPENSATION TABLE
NAME
|
Year
|
FEES
EARNED
OR
PAID
IN
CASH
($)
|
STOCK
AWARDS
($)
(1)
|
OPTION
AWARDS
($)
|
NON-EQUITY
INCENTIVE
PLAN COMPENSATION
($)
|
CHANGE
IN
PENSION
VALUE
AND
NONQUALIFIED DEFERRED
COMPENSATION
EARNINGS
($)
|
ALL
OTHER
COMPENSATION
($)
|
TOTAL
($)
|
Necitas
Sumait
|
2008
|
24,600
|
24,600
|
|||||
Chris
Nichols
|
2008
|
5,000
|
24,600
|
29,600
|
||||
Joseph
Emas
|
2008
|
5,000
|
24,600
|
29,600
|
||||
Victor
Doolan
|
2008
|
5,000
|
24,600
|
29,600
|
||||
Arnold
Klann
|
2008
|
24,600
|
24,600
|
(1)
|
Reflects
value of shares of restricted common stock received as compensation as
Director. See notes to consolidated financial statements for
valuation.
|
2008
ALL OTHER COMPENSATION TABLE
NAME
|
YEAR
|
PERQUISITES
AND OTHER PERSONAL BENEFITS
($)
|
TAX
REIMBURSEMENTS
($)
|
INSURANCE
PREMIUMS
($)
|
COMPANY
CONTRIBUTIONS TO RETIREMENT AND 401(K) PLANS
($)
|
SEVERANCE
PAYMENTS/
ACCRUALS
($)
|
CHANGE
IN
CONTROL
PAYMENTS/
ACCRUALS
($)
|
TOTAL
($)
|
Arnold
Klann
|
||||||||
Necitas
Sumait
|
||||||||
Christopher
Scott
|
||||||||
John
Cuzens
|
||||||||
Chris
Nichols
|
||||||||
Joseph
Emas
|
||||||||
Victor
Doolan
|
2008
PERQUISITES TABLE
NAME
|
YEAR
|
PERSONAL
USE OF
COMPANY
CAR/PARKING
|
FINANCIAL
PLANNING
LEGAL
FEES
|
CLUB
DUES
|
EXECUTIVE
RELOCATION
|
TOTAL
PERQUISITES
AND
OTHER
PERSONAL
BENEFITS
|
Arnold
Klann
|
||||||
Necitas
Sumait
|
||||||
Christopher
Scott
|
||||||
John
Cuzens
|
||||||
Chris
Nichols
|
||||||
Joseph
Emas
|
||||||
Victor
Doolan
|
31
2008
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
NAME
|
BENEFIT
|
BEFORE
CHANGE IN CONTROL
TERMINATION
W/O
CAUSE
OR FOR GOOD REASON
|
AFTER
CHANGE IN
CONTROL
TERMINATION
W/O
CAUSE
OR GOOD
REASON
|
VOLUNTARY
TERMINATION
|
DEATH
|
DISABILITY
|
CHANGE
IN CONTROL
|
||||||
Arnold
Klann
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
||||||||||||
Necitas
Sumait
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
||||||||||||
Christopher
Scott (1)
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
||||||||||||
John
Cuzens
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
||||||||||||
Chris
Nichols
|
N/A
|
||||||||||||
Joseph
Emas
|
N/A
|
||||||||||||
Victor
Doolan
|
N/A
|
(1) The
disability benefit came into effect with the signing of Mr. Scott’s employment
agreement on March 31, 2008.
EMPLOYMENT
CONTRACTS
On June
27, 2006, the Company entered into employment agreements with three of its
executive officers. The employment agreements are for a period of three years,
with prescribed percentage increases beginning in 2007 and can be cancelled upon
a written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual amount due under the
employment agreements is approximately $520,000. As of October 31, 2009 the
employment agreements for the Company’s executive officers have expired, and
each executive is employed on a month-to-month basis.
In
addition, on June 27, 2006, the Company entered into a Directors agreement with
four individuals to join the Company’s board of directors. Under the terms of
the agreement the non-employee Director (Chris Nichols) will receive annual
compensation in the amount of $5,000 and all Directors receive a onetime grant
of 5,000 shares of the Company’s common stock. The common shares vested
immediately. The value of the common stock granted was determined to be
approximately $67,000 based on the estimated fair market value of the Company’s
common stock over a reasonable period of time.
In
addition, on July 9, 2007, the Company entered into a Directors agreement with
two individuals to join the Company’s board of directors. Under the terms of the
agreement these non-employee Directors will receive annual compensation in the
amount of $5,000 and all Directors receive a one-time grant of 5,000 shares of
the Company’s common stock. The common shares vest immediately. The value of the
common stock granted was determined to be approximately $50,700 based on the
estimated fair market value of the Company’s common stock over a reasonable
period of time.
On July
31, 2008, the Board of Directors approved the re-election of Victor Doolan,
Joseph Emas, Christopher Nichols, Arnold Klann and Necitas Sumait. The Company
also resolved to grant each Board Chair, and the Secretary each an additional
5,000 shares of stock. The value of the common stock granted at the time of the
grant was determined to be approximately $123,000 based on the estimated fair
market value of the Company’s common stock.
Technology
Agreement with Arkenol, Inc.
On March
1, 2006, the Company entered into a Technology License agreement with Arkenol,
Inc. (“Arkenol”), which the Company’s majority shareholder and other family
members hold an interest in. Arkenol has its own management and board separate
and apart from the Company. According to the terms of the agreement, the Company
was granted an exclusive, non-transferable, North American license to use and to
sub-license the Arkenol technology. The Arkenol Technology, converts
cellulose and waste materials into Ethanol and other high value chemicals. As
consideration for the grant of the license, the Company shall make a one time
payment of $1,000,000 at first project construction funding and for each plant
make the following payments: (1) royalty payment of 4% of the gross sales price
for sales by the Company or its sub licensees of all products produced from the
use of the Arkenol Technology (2) and a one time license fee of $40.00 per 1,000
gallons of production capacity per plant. According to the terms of the
agreement, the Company made a one-time exclusivity fee prepayment of $30,000
during the period ended December 31, 2006. The agreement term is for 30 years
from the effective date.
32
During
2008, due to the receipt of proceeds from the Department of Energy, the Board of
Directors determined that the Company had triggered its obligation to incur the
full $1,000,000 Arkenol License fee. The Board of Directors determined that the
receipt of these proceeds constituted “First Project Construction Funding” as
established under the Arkenol technology agreement. As such, the statement of
operation reflects the one-time license fee of $1,000,000 and the unpaid balance
of $970,000 was included in license fee payable to related party on the
accompanying consolidated balance sheet as of December 31, 2008. The
prepaid fee to related party of $30,000 was eliminated as of December 31,
2008. The Company paid the $970,000 to the related party subsequent
to year end.
Asset
Transfer Agreement with Ark Entergy, Inc.
On March
1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement
with ARK Energy, Inc. (“ARK Energy”), which is owned (50%) by the Company’s CEO.
ARK Energy has its own management and board separate and apart from the Company.
Based upon the terms of the agreement, ARK Energy transferred certain rights,
assets, work-product, intellectual property and other know-how on project
opportunities that may be used to deploy the Arkenol technology (as described in
the above paragraph). In consideration, the Company has agreed to pay a
performance bonus of up to $16,000,000 when certain milestones are met. These
milestones include transferee’s project implementation which would be
demonstrated by start of the construction of a facility or completion of
financial closing whichever is earlier. The payment is based on ARK Energy’s
cost to acquire and develop 19 sites which are currently at different stages of
development. As of December 31, 2008, the Company had not incurred any
liabilities related to the agreement.
Related
Party Line of Credit
In March
2007, the Company obtained a line of credit in the amount of $1,500,000 from its
Chairman/Chief Executive Officer and majority shareholder to provide additional
liquidity to the Company as needed. Under the terms of the note, the Company is
to repay any principal balance and interest, at 10% per annum, within 30 days of
receiving qualified investment financing of $5,000,000 or more. As of December
31, 2007, the Company repaid its outstanding balance on line of credit of
approximately $631,000 which included interest of $37,800. This line of credit
was terminated with the closing of the private placement in December 2007 and
the subsequent line of credit balance repayment.
On
February 24, 2009, the Company entered into a Revolving Line of Credit (the
“Line of Credit”) with Arkenol, a related party. The Line of Credit is for a
maximum principal amount of five hundred seventy thousand ($570,000) dollars
with an annual interest rate of six (6%) percent compounded annually and paid
quarterly. The Company may from time to time in its sole discretion
draw down up to the maximum five hundred seventy thousand ($570,000) dollars.
The Company has promised to pay in full the outstanding principal balance of any
amounts due under the Line of Credit within thirty (30) days of the Company’s
receipt of investment financing, in the amount of at least two million
($2,000,000) dollars. The financing must provide for at least one
million five hundred thousand ($1,500,000) dollars for general working capital
and/or general corporate purposes. The Lender at its option may
require all outstanding sums due on the Line of Credit to become immediately due
and payable as a condition precedent to any transaction effecting a change of
control of the Company. Any monies not paid within thirty (30) days
of the due date will be subject to a late charge in the amount of ten (10%) of
the entire remaining unpaid balance at the time of delinquency under the Line of
Credit. The Company’s Chief Executive Officer, Chairman of the Board of
Directors and majority stockholder Arnold Klann, holds a 25.5% interest in the
Lender. As of November 6, 2009, there were no amounts outstanding as the Company
had received proceeds of approximately $3.8 million from the Department of
Energy, of which a portion of said proceeds were used to repay the amounts
advanced.
Purchase
of Property and Equipment
During
the year ended December 31, 2007, the Company purchased various office furniture
and equipment from ARK Energy costing approximately $39,000. In 2008,
the Company did not purchase any items from ARK Energy.
Notes
Payable
On July
13, 2007, the Company issued several convertible notes aggregating a total of
$500,000 with eight accredited investors including $25,000 invested by the
Company’s Chief Financial Officer. In 2008, no additional notes were
issued.
33
AND
MANAGEMENT
As of
October 31, 2009, our authorized capitalization was 101,000,000 shares of
capital stock, consisting of 100,000,000 shares of common stock, $0.001 par
value per share and 1,000,000 shares of preferred stock, no par value per share.
As of October 31, 2009, there were 28,385,715 shares of our common
stock outstanding, all of which were fully paid, non-assessable and entitled to
vote. Each share of our common stock entitles its holder to one vote on each
matter submitted to the stockholders.
The
following table sets forth, as of November 6, 2009, the number of shares of our
common stock owned by (i) each person who is known by us to own of record
or beneficially five percent (5%) or more of our outstanding shares,
(ii) each of our directors, (iii) each of our executive officers and
(iv) all of our directors and executive officers as a group. Unless
otherwise indicated, each of the persons listed below has sole voting and
investment power with respect to the shares of our common stock beneficially
owned.
Executive
Officers, Directors, and More than 5% Beneficial Owners
The
address of each owner who is an officer or director is c/o the Company at 31
Musick, Irvine California 92618.
Title
of Class
|
Name
of Beneficial Owner (1)
|
Number
of
shares
|
Percent
of
Class
(2)
|
|||||||
Common
|
Arnold
Klann, Chairman and Chief Executive Officer
|
14,363,909
|
(4)
|
48.63
|
%
|
|||||
Common
|
Necitas
Sumait, Senior Vice President and Director
|
1,786,750
|
(5)
|
6.17
|
%
|
|||||
Common
|
John
Cuzens, Chief Technology Officer and Senior Vice President
|
1,752,250
|
(6)
|
6.05
|
%
|
|||||
Common
|
Chris
Scott, Chief Financial Officer
|
176,600
|
(7)
|
*
|
||||||
Common
|
Chris
Nichols, Director
|
50,000
|
*
|
|||||||
Common
|
Victor
Doolan, Director
|
17,000
|
*
|
|||||||
Common
|
Joseph
Emas, Director
|
11,000
|
*
|
|||||||
Common
|
Quercus
Trust (3)
|
11,581,211
|
(8)
|
34.12
|
%
|
|||||
All
officers and directors as a group (7 persons)
|
18,157,509
|
58.94
|
%
|
|||||||
All
officers, directors and 5% holders as a group (8 persons)
|
29,738,720
|
81.79
|
%
|
(1) |
Beneficial
ownership is determined in accordance
with Rule 13d-3 of the Exchange Act and generally includes voting
or investment power with respect to
securities.
|
(2)
|
Figures
may not add up due to rounding of percentages.
|
(3)
|
David
Gelbaum and Monica Chavez Gelbaum are co-trustees of The Quercus
Trust. Each of David Gelbaum and Monica Chavez Gelbaum, acting
alone, has the power to exercise voting and investment control over the
shares of common stock owned by the Trust.
|
(4)
|
Includes
options to purchase 1,153,409 shares of common stock vested at November 6,
2009.
|
(5)
|
Includes
options to purchase 568,750 shares of common stock vested at November 6,
2009.
|
(6)
|
Includes
options to purchase 568,750 shares of common stock vested at November
6, 2009.
|
(7)
|
Includes
options and warrants to purchase 128,750 shares of common stock vested at
November 6, 2009.
|
(8)
|
Includes
a warrant to purchase 5,555,556 shares of common
stock.
|
SHARE
ISSUANCES/CONSULTING AGREEMENTS
On
January 1, 2007, the Company entered into an employment agreement with a former
consultant to be Vice President of Project Management. Pursuant to the terms of
this agreement, the consultant was issued 10,000 shares of the Company’s
restricted common stock.
On February 13,
2007, the Company entered into a consulting agreement with a corporate
technology consultant. The consultant shall review, comment, and implement as
requested by the Company on any Information Technology rollout. Under the terms
of the agreement consultant will receive 12,500 restricted shares of the
Company’s common stock at the signing of the agreement, 12,500 shares on June 1,
2007, 12,500 shares on September 1, 2007, and 12,500 shares on December 1,
2007.
In
addition, on July 7, 2007, the Company entered into a Directors agreement with
two individuals to join the Company’s board of directors. Under the terms of the
agreement these non-employee Directors will receive annual compensation in
the amount of $5,000 and all Directors receive a one time grant of 5,000 shares
of the Company’s common stock. The common shares vest immediately. The value of
the common stock granted was determined to be approximately $66,000 based
on the fair market value of the Company’s common stock of $5.07 on the date of
the grant. As of September 30, 2007, the Company expensed all of the costs
approximating $81,000 to general and administrative expenses
On August
27, 2009, the Company entered into a 6-month Consulting Agreement with Mirador
Consulting, Inc. Pursuant to the Agreement, the Company will receive services in
connection with mergers and acquisitions, corporate finance, corporate finance
relations, introductions to other financial relations companies and other
financial services. As consideration for these services, the Company
will make monthly cash payments of $3,000 and has issued 200,000 restricted
shares of the Company’s common stock in exchange for $200. In addition, the
Company granted the consultant options to purchase 100,000 shares of common
stock at an exercise price of $3.00 per share. The option expires in one year.
As of September 30, 2009 the Company has expensed all the costs related to this
Agreement to general and administrative expenses.
34
STOCK
OPTION ISSUANCES UNDER AMENDED 2006 PLAN
On
December 20, 2007 the Company’s Board of Directors granted the following stock
options to employees and outside consultants as compensation:
DATE
ISSUED:
|
OPTIONEE
NAME
|
NUMBER
OF OPTIONS
|
TYPE
|
PRICE
|
EXPIRATON
DATE
|
December
20, 2007
December
20, 2007
|
Arnold
Klann, Officer and Director
|
28,409
250,000
|
ISO
(1)
NSO
(2)
|
$3.52
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
December
20, 2007
|
Necitas
Sumait, Officer and Director
|
31,250
175,000
|
ISO
(1)
NSO
(2)
|
$3.20
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
December
20, 2007
|
John
Cuzens, Officer
|
31,250
175,000
|
ISO
(1)
NSO
(2)
|
$3.20
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
December
20, 2007
|
Chris
Scott, Officer
|
31,250
175,000
|
ISO
(1)
NSO
(2)
|
$3.20
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
December
20, 2007
|
Bill
Davis, Employee
|
31,250
175,000
|
ISO
(1)
NSO
(2)
|
$3.20
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
December
20, 2007
|
Rigel
Stone, Employee
|
31,250
150,000
|
ISO
(1)
NSO
(2)
|
$3.20
$3.20
|
December
20, 2012
December
20, 2012
|
December
20, 2007
|
Barbi
Rios, Employee
|
5,000
|
ISO
(1)
|
$3.20
|
December
20, 2012
|
December
20, 2007
|
Scott
Olson, Outside Consultant
|
10,000
|
NSO
(3)
|
$3.20
|
December
20, 2012
|
December
20, 2007
|
Aleshia
Knickerbocker, Outside Consultant
|
2,500
|
NSO
(3)
|
$3.20
|
December
20, 2012
|
December
20, 2007
|
Bill
Orr, Outside Consultant
|
10,000
|
NSO
(3)
|
$3.20
|
December
20, 2012
|
December
20, 2007
|
Elsa
Ebro, Outside Consultant
|
5,000
|
NSO
(3)
|
$3.20
|
December
20, 2012
|
Totals
|
1,317,159
|
(1)
|
These
Incentive Stock Options (“ISO”) vested immediately
|
(2)
|
These
Non-Qualified Stock Options (“NSO”) vest as follows:
a. 50%
vested immediately
b. 25%
vest on BlueFire closing remainder of funding for Lancaster
Project
c. 25%
vest at start of construction of Lancaster Project
|
(3)
|
These
NSO’s vested monthly over 12 months (1/12th monthly
vesting)
|
The
Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock, and 1,000,000 shares of no par value preferred stock. As of October 31,
2009, the Company has 28,385,715 shares of common stock outstanding, and no
shares of preferred stock outstanding.
COMMON
STOCK
As of
October 31, 2009, we had 28,385,715 shares of common stock outstanding. The
shares of our common stock presently outstanding, and any shares of our common
stock issues upon exercise of stock options and/or warrants, will be fully paid
and non-assessable. Each holder of common stock is entitled to one vote for each
share owned on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event we liquidate,
dissolve or wind-up our operations, the holders of the common stock are entitled
to share equally and ratably in our assets, if any, remaining after the payment
of all our debts and liabilities and the liquidation preference of any shares of
preferred stock that may then be outstanding. The common stock has no preemptive
rights, no cumulative voting rights, and no redemption, sinking fund, or
conversion provisions. Since the holders of common stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of our Directors, and the holders of the remaining shares by themselves cannot
elect any Directors. Holders of common stock are entitled to receive dividends,
if and when declared by the Board of Directors, out of funds legally available
for such purpose, subject to the dividend and liquidation rights of any
preferred stock that may then be outstanding.
Voting Rights
Each
holder of Common Stock is entitled to one vote for each share of Common Stock
held on all matters submitted to a vote of stockholders.
35
Dividends
Subject
to preferences that may be applicable to any then-outstanding shares of
Preferred Stock, if any, and any other restrictions, holders of Common Stock are
entitled to receive ratably those dividends, if any, as may be declared from
time to time by the Company’s board of directors out of legally available funds.
The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any
future payment of any dividends on Common Stock.
PREFERRED
STOCK
As of
October 31, 2009, we had no shares of preferred stock outstanding. We may issue
preferred stock in one or more class or series pursuant to resolution of the
Board of Directors. The Board of Directors may determine and alter the rights,
preferences, privileges, and restrictions granted to or imposed upon any wholly
unissued series of preferred stock, and fix the number of shares and the
designation of any series of preferred stock. The Board of Directors may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any wholly unissued class or series
subsequent to the issue of shares of that class or series. We have no present
plans to issue any shares of preferred stock.
WARRANTS
As of
October 31, 2009, we had warrants to purchase an aggregate of 6,813,494
shares of our common stock outstanding. The exercise prices for the warrants
range from $2.90 per share to $5.45 per share, with a weighted average exercise
price of approximately per share of $2.99.
OPTIONS
As of
October 31, 2009, we had options to purchase an aggregate of 3,287,159
shares of our common stock outstanding, with exercise prices for the options
ranging from $2.00 per share to $3.52 per share, with a weighted average
exercise price per share of $2.48.
ANTI-TAKEOVER
PROVISIONS
Our
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
contain provisions that may make it more difficult for a third party to acquire
or may discourage acquisition bids for us. Our Board of Directors may, without
action of our stockholders, issue authorized but unissued common stock and
preferred stock. The issuance of additional shares to certain persons allied
with our management could have the effect of making it more difficult to remove
our current management by diluting the stock ownership or voting rights of
persons seeking to cause such removal. The existence of unissued preferred stock
may enable the Board of Directors, without further action by the stockholders,
to issue such stock to persons friendly to current management or to issue such
stock with terms that could render more difficult or discourage an attempt to
obtain control of us, thereby protecting the continuity of our management. Our
shares of preferred stock could therefore be issued quickly with terms that
could delay, defer, or prevent a change in control of us, or make removal of
management more difficult.
FOR
SECURITIES ACT LIABILITIES
The
Company’s Amended and Restated Bylaws provide for indemnification of directors
and officers against certain liabilities. Officers and directors of the Company
are indemnified generally for any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the corporation, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or proceeding if
he acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful.
The
Company’s Amended and Restated Articles of Incorporation further provides the
following indemnifications:
(a) a
director of the Corporation shall not be personally liable to the Corporation or
to its shareholders for damages for breach of fiduciary duty as a director of
the Corporation or to its shareholders for damages otherwise existing for (i)
any breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) acts revolving
around any unlawful distribution or contribution; or (iv) any transaction from
which the director directly or indirectly derived any improper personal benefit.
If Nevada Law is hereafter amended to eliminate or limit further liability of a
director, then, in addition to the elimination and limitation of liability
provided by the foregoing, the liability of each director shall be eliminated or
limited to the fullest extent permitted under the provisions of Nevada Law as so
amended. Any repeal or modification of the indemnification provided in these
Articles shall not adversely affect any right or protection of a director of the
Corporation under these Articles, as in effect immediately prior to such repeal
or modification, with respect to any liability that would have accrued, but for
this limitation of liability, prior to such repeal or modification.
36
(b) the
Corporation shall indemnify, to the fullest extent permitted by applicable law
in effect from time to time, any person, and the estate and personal
representative of any such person, against all liability and expense (including,
but not limited to attorney's fees) incurred by reason of the fact that he is or
was a director or officer of the Corporation, he is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of, or in any similar managerial or fiduciary position of,
another domestic or foreign corporation or other individual or entity of an
employee benefit plan. The Corporation shall also indemnify any person who is
serving or has served the Corporation as a director, officer, employee,
fiduciary, or agent and that person's estate and personal representative to the
extent and in the manner provided in any bylaw, resolution of the shareholders
or directors, contract, or otherwise, so long as such provision is legally
permissible.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by our directors, officers or
controlling persons in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person in
connection with any securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issues.
The
Selling Stockholders are offering a total of up to 2,500,000 shares of our
common stock. Certain of the Selling Stockholders may be deemed
“underwriters” within the meaning of the Securities Act in connection with the
sale of their Common Stock under this prospectus.
The
column “Shares Owned After the Offering” gives effect to the sale of all the
shares of Common Stock being offered by this prospectus. We agreed to register
for resale shares of Common Stock by the Selling Stockholders listed below. The
Selling Stockholders may from time to time offer and sell any or all of their
shares that are registered under this prospectus. All expenses incurred with
respect to the registration of the Common Stock will be borne by us, but we will
not be obligated to pay any underwriting fees, discounts, commissions or other
expenses incurred by the Selling Stockholders in connection with the sale of
such shares.
The
following table sets forth information with respect to the maximum number of
shares of common stock beneficially owned by the Selling Stockholders named
below and as adjusted to give effect to the sale of the shares offered hereby.
The shares beneficially owned have been determined in accordance with rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. The information in the table below
is current as of the date of this prospectus. All information contained in the
table below is based upon information provided to us by the Selling
Stockholders. The Selling Stockholders are not making any representation that
any shares covered by the prospectus will be offered for sale. The Selling
Stockholders may from time to time offer and sell pursuant to this prospectus
any or all of the Common Stock being registered.
The
Selling Stockholders may, from time to time, offer and sell any or all of their
shares listed in this table. Because the Selling Stockholders are not obligated
to sell their shares, or they may also acquire publicly traded shares of our
common stock, or they may not exercise warrants relating to certain shares
offered under this prospectus, we are unable to estimate how many shares they
may beneficially own after this offering. For presentation of this table,
however, we have estimated the percentage of our common stock beneficially owned
after the offering based on assumptions that the Selling Stockholders exercise
all warrants for shares included in this offering and sell all of the shares
being offered by this Prospectus.
37
No.
of Shares owned
prior
to the
|
No.
of Shares
included
in
|
Shares
Owned
After
The Offering
|
||||||||||||
Selling
Stockholder
|
Offering
(1)
|
Prospectus
|
Number
|
Percentage
|
||||||||||
RCR
Trust I (5)
|
14,363,909
(2)
|
2,000,000
|
12,363,909
|
43.56
|
%
|
|||||||||
Necitas
Sumait (6)
|
1,786,750
(3)
|
250,000
|
1,536,750
|
5.41
|
%
|
|||||||||
John
Cuzens (7)
|
1,752,250
(4)
|
250,000
|
1,502,250
|
5.29
|
%
|
|||||||||
Total
|
2,500,000
|
* Indicates
less than 1%
(1) Beneficial
ownership is determined in accordance with Rule 13d-3(a) of the Exchange Act and
generally includes voting or investment power with respect to
securities.
(2) Includes
options to purchase 1,153,409 shares of common stock vested at November 6,
2009.
(3) Includes
options to purchase 568,750 shares of common stock vested at November 6,
2009.
(4) Includes
options to purchase 568,750 shares of common stock vested at November 6,
2009.
(5) RCR
Trust I acquired its securities on June 27, 2006, pursuant to a stock purchase
agreement (the “Stock Purchase Agreement”) attached as Exhibit 2.1 on the
Company’s Form 10-SB, as filed with the SEC on December 13,
2006. Arnold Klann, acting alone, has voting and dispositive power
over the shares beneficially owned by RCR Trust I. The address of RCR
Trust I is 31 Musick, Irvine, CA 92618, Attn: Arnold Klann.
(6)
Necitas Sumait acquired her securities on June 27, 2006, pursuant to a stock
purchase agreement (the “Stock Purchase Agreement”) attached as Exhibit 2.1 on
the Company’s Form 10-SB, as filed with the SEC on December 13,
2006.
(7) John
Cuzens acquired his securities on June 27, 2006, pursuant to a stock purchase
agreement (the “Stock Purchase Agreement”) attached as Exhibit 2.1 on the
Company’s Form 10-SB, as filed with the SEC on December 13, 2006.
This
prospectus relates to the resale of up to 2,500,000 shares issued held by
certain Selling Stockholders.
The
Selling Stockholders and any of their respective pledges, donees, assignees and
other successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of
the following methods when selling shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales after this registration statement becomes
effective;
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per share;
|
·
|
through
the writing of options on the shares;
|
·
|
a
combination of any such methods of sale; and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The Selling Stockholders
will have the sole and absolute discretion not to accept any purchase offer or
make any sale of shares if they deem the purchase price to be unsatisfactory at
any particular time.
To the
extent permitted by law, the Selling Stockholders may also engage in short sales
against the box after this registration statement becomes effective, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
38
The
Selling Stockholders or their respective pledgees, donees, transferees or other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a Selling Stockholder will attempt to sell
shares of Common Stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
Selling Stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the Selling Stockholders. The Selling
Stockholders that are broker-dealers are deemed to be underwriters. In addition,
the other Selling Stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered in this prospectus, may be
deemed to be “underwriters” as that term is defined under the Securities Act or
the Exchange Act, or the rules and regulations under such acts. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
Discounts,
concessions, commissions and similar selling expenses, if any, attributable to
the sale of shares will be borne by a Selling Stockholder. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act .
The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the shares of Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledgee or secured parties
may offer and sell the shares of Common Stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act amending the
list of Selling Stockholders to include the pledgee, transferee or other
successors in interest as Selling Stockholders under this
prospectus.
The
Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of Common Stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of Selling
Stockholders to include the pledgee, transferee or other successors in interest
as Selling Stockholders under this prospectus.
We are
required to pay all fees and expenses incident to the registration of the shares
of Common Stock. Otherwise, all discounts, commissions or fees incurred in
connection with the sale of our Common Stock offered hereby will be paid by the
selling stockholders.
Each of
the Selling Stockholders acquired the securities offered hereby in the ordinary
course of business and have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of Common Stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of Common Stock by any Selling Stockholder. We will file a supplement
to this prospectus if a Selling Stockholder enters into a material arrangement
with a broker-dealer for sale of Common Stock being registered. If the Selling
Stockholders use this prospectus for any sale of the shares of Common Stock,
they will be subject to the prospectus delivery requirements of the Securities
Act.
Pursuant
to a requirement by the Financial Industry Regulatory Authority, or FINRA, the
maximum commission or discount to be received by any FINRA member or independent
broker/dealer may not be greater than eight percent (8%) of the gross proceeds
received by us for the sale of any securities being registered pursuant to SEC
Rule 415 under the Securities Act of 1933, as amended.
The
anti-manipulation rules of Regulation M under the Exchange Act, may apply to
sales of our Common Stock and activities of the Selling Stockholders. The
Selling Stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale.
On
September 14, 2006, we engaged McKennon, Wilson & Morgan LLP (“Wilson
Morgan”) as our independent accountants. There have been no
disagreements on accounting and financial disclosures with our
accountants.
In
connection with the audits of the fiscal years ended December 31, 2008 and 2007,
and through May 5, 2009, there we no disagreements with McKennon Wilson &
Morgan LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
McKennon Wilson & Morgan LLP’s reports on the Company’s consolidated
financial statements as of and for the years ended December 31, 2008 and 2007
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting
principles.
39
In
connection with the reorganization of Wilson Morgan certain of its audit
partners resigned from Wilson Morgan and have joined DBBMcKennon (“DBB”). On May
5, 2009, Wilson Morgan notified us of their resignation as our independently
registered public accountants.
As a
result of the above, our Audit Committee, and our Board of Directors, on May 5,
2009, approved the resignation of the Wilson Morgan effective May 5, 2009, and
the engagement of DBB as the Company’s independent registered public accounting
firm for the fiscal year ending December 31, 2009 effective May 5,
2009.
The
Company has not consulted with DBB for the fiscal years ending December 31, 2008
and December 31, 2007, and the interim period ending March 31, 2009 regarding
the application of accounting principles to any contemplated or completed
transactions nor the type of audit opinion that might be rendered on the
Company’s financial statements, and neither written or oral advice was provided
that would be an important factor considered by the Company in reaching a
decision as to accounting, auditing or financial reporting issues.
The
validity of the shares of our common stock offered by the Selling Stockholders
has been passed upon by the law firm of Anslow & Jaclin, LLP.
Our
audited consolidated financial statements included in this prospectus as of
December 31, 2008 and 2007, and for the period from March 28, 2006 (Inception)
through December 31, 2008 (as indicated in their reports) have been audited by
McKennon, Wilson & Morgan LLP, Irvine, California, an independent registered
public accounting firm and are included herein in reliance upon the authority as
experts in giving said reports.
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
for the common stock offered by this prospectus. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedule that were filed with the registration statement. For further
information with respect to our Common Stock and us, we refer you to the
registration statement and the exhibits that were filed with the
registration statement. The
Company has disclosed in this registration statement
all material provisions of any contract or document that is filed as
an exhibit. A copy of the registration statement and the exhibits that
were filed with the registration statement may be inspected without charge at
the public reference facilities maintained by the SEC, 100 F Street N.E.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon payment of the prescribed fee or for
free at the SEC’s website, www.sec.gov. Information regarding the operation of
the Public Reference Room may be obtained by calling the SEC at 1(800)
SEC-0330. The SEC maintains a web site that contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov. We
are subject to the information and periodic reporting requirements of the
Exchange Act and, in accordance with the requirements of the Exchange Act, file
periodic reports, proxy statements, and other information with the SEC. These
periodic reports, proxy statements, and other information are available for
inspection and copying at the regional offices, public reference facilities and
web site of the SEC referred to above.
40
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
Interim
Unaudited Financial Statements:
|
|
F-1
|
Balance
Sheets as of June 30, 2009 and December 31, 2008
|
F-2
|
Statements
of Operations for the six months ended June 30, 2009
|
F-3
|
Statements
of Cash Flows for the six months ended June 30, 2009
|
F-4
|
Notes
to Interim Financial
Statements
|
41
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
June
30,
2009
|
December
31,
2008
|
|||||||
ASSETS
|
(unaudited)
|
(audited)
|
||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
696,912
|
$
|
2,999,599
|
||||
Accounts
receivable
|
-
|
-
|
||||||
Department
of Energy grant receivable
|
67,724
|
692,014
|
||||||
Prepaid
expenses
|
86,884
|
89,871
|
||||||
Total
current assets
|
851,520
|
3,781,484
|
||||||
Property
and equipment, net of accumulated depreciation of $32,336 and
$20,761, respectively
|
174,534
|
186,112
|
||||||
Total
assets
|
$
|
1,026,054
|
$
|
3,967,596
|
||||
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
336,604
|
$
|
711,884
|
||||
License
fee payable to related party
|
-
|
970,000
|
||||||
Accrued
liabilities
|
167,890
|
173,618
|
||||||
Total
current liabilities
|
504,494
|
1,855,502
|
||||||
Outstanding
warrant liability
|
5,827,616
|
-
|
||||||
Total
Liabilities
|
6,332,110
|
1,855,502
|
||||||
Commitments
and contingencies (Note 5)
|
-
|
-
|
||||||
Stockholders’
(deficit) equity:
|
||||||||
Preferred
stock, no par value, 1,000,000 shares authorized; none issued and
outstanding
|
-
|
-
|
||||||
Common
stock, $0.001 par value; 100,000,000 shares authorized; 28,144,465 and
28,133,053 shares issued ; 28,112,293 and 28,100,881 shares
outstanding, at June 30, 2009 and December 31,
2008 respectively
|
28,143
|
28,132
|
||||||
Additional
paid-in capital
|
13,818,571
|
32,388,052
|
||||||
Treasury
stock at cost, 32,172 shares
|
(101,581
|
)
|
(101,581
|
)
|
||||
Deficit
accumulated during the development stage
|
(19,051,189
|
)
|
(30,202,509
|
)
|
||||
Total
stockholders’ (deficit) equity
|
(
5,306,056
|
)
|
2,112,094
|
|||||
Total
liabilities and stockholders’ (deficit) equity
|
$
|
1,026,054
|
$
|
3,967,596
|
||||
See
accompanying notes to consolidated financial statements
F-1
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
For
the Six Months ended June 30,
|
For
the Six Months ended June 30,
|
From
March 28, 2006 (inception) Through June 30,
|
||||||||||
2009
|
2008
|
2009
|
||||||||||
Revenues:
|
||||||||||||
Consulting
fees
|
$
|
14,570
|
$
|
-
|
$
|
63,570
|
||||||
Department
of energy grant
|
111,320
|
143,985
|
1,186,828
|
|||||||||
Total
revenues
|
125,890
|
143,985
|
1,250,398
|
|||||||||
Operating
expenses:
|
||||||||||||
Project
development
|
643,389
|
4,977,307
|
16,575,406
|
|||||||||
General
and administrative
|
1,097,356
|
2,184,537
|
11,911,913
|
|||||||||
Related
party license fee
|
-
|
-
|
1,000,000
|
|||||||||
Total
operating expenses
|
1,740,745
|
7,161,844
|
29,487,319
|
|||||||||
Operating
loss
|
(1,614,855
|
)
|
(7,017,859
|
)
|
(28,236,921
|
)
|
||||||
Other
income and (expense):
|
||||||||||||
Loss
from change in fair value of warrant liability
|
(2,912,480
|
)
|
-
|
(2,912,480
|
)
|
|||||||
Other
income
|
7,203
|
164,704
|
254,317
|
|||||||||
Financing
related charge
|
-
|
-
|
(211,660
|
)
|
||||||||
Amortization
of debt discount
|
-
|
-
|
(676,982
|
)
|
||||||||
Interest
expense
|
-
|
-
|
(56,097
|
)
|
||||||||
Related
party interest expense
|
-
|
-
|
(64,448
|
)
|
||||||||
Loss
on extinguishment of debt
|
-
|
-
|
(2,818,370
|
)
|
||||||||
Net
loss
|
$
|
(4,520,132
|
)
|
$
|
(6,853,155
|
)
|
$
|
(34,722,641
|
)
|
|||
Basic
and diluted loss per common share
|
$
|
(0.16
|
)
|
$
|
(0.24
|
)
|
||||||
Weighted
average common shares outstanding, basic and diluted
|
28,102,709
|
28,057,200
|
See
accompanying notes to consolidated financial statements
F-2
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASHFLOWS
(Unaudited)
For
the Six Months
ended
June 30,
|
For
the Six Months
ended
June 30,
|
From
March
28, 2006
(inception)
Through
June 30,
|
||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(4,520,132
|
)
|
$
|
(6,853,155
|
)
|
$
|
(34,722,641
|
)
|
|||
Loss
from change in fair value of warrant liability
|
2,912,480
|
-
|
2,912,480
|
|||||||||
Founders’
shares
|
-
|
-
|
17,000
|
|||||||||
Costs
associated with purchase of Sucre Agricultural Corp
|
-
|
-
|
(3,550
|
)
|
||||||||
Interest
expense on beneficial conversion feature of convertible
notes
|
-
|
-
|
676,983
|
|||||||||
Loss
on extinguishment of convertible debt
|
-
|
-
|
2,718,370
|
|||||||||
Common
stock issued for interest on convertible notes
|
-
|
-
|
55,585
|
|||||||||
Discount
on sale of stock associated with private placement
|
-
|
-
|
211,660
|
|||||||||
Share-based
compensation
|
17,118
|
2,621,923
|
11,122,756
|
|||||||||
Depreciation
|
11,578
|
7,225
|
32,339
|
|||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
-
|
49,000
|
-
|
|||||||||
Department
of Energy grant receivable
|
624,290
|
(143,985
|
)
|
(67,724
|
)
|
|||||||
Prepaid
expenses and other current assets
|
2,987
|
(267,690
|
)
|
(86,885
|
)
|
|||||||
Accounts
payable
|
(375,280
|
)
|
171,478
|
336,603
|
||||||||
Accrued
liabilities
|
(5,728
|
)
|
(133,255
|
)
|
167,890
|
|||||||
License
fee payable to related party
|
(970,000
|
)
|
-
|
-
|
||||||||
Net
cash used in operating activities
|
(2,302,687
|
)
|
(4,548,459
|
)
|
(16,629,134
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||||
Acquisition
of property and equipment
|
-
|
(54,583
|
)
|
(206,873
|
)
|
|||||||
Cash
flows from financing activities:
|
||||||||||||
-
|
(34,469
|
)
|
(101,581
|
)
|
||||||||
Cash
received in acquisition of Sucre Agricultural Corp.
|
-
|
-
|
690,000
|
|||||||||
Proceeds
from sale of stock through private placement
|
-
|
-
|
544,500
|
|||||||||
Proceeds
from exercise of stock options
|
-
|
-
|
40,000
|
|||||||||
Proceeds
from issuance of common stock
|
-
|
-
|
14,360,000
|
|||||||||
Proceeds
from convertible notes payable
|
-
|
-
|
2,500,000
|
|||||||||
Repayment
of notes payable
|
-
|
-
|
(500,000
|
)
|
||||||||
Proceeds
from related party notes payable
|
-
|
-
|
116,000
|
|||||||||
Repayment
of related party notes payable
|
-
|
-
|
(116,000
|
)
|
||||||||
Net
cash provided by financing activities
|
-
|
(34,469
|
)
|
17,532,919
|
||||||||
Net
(decrease) increase in cash and cash equivalents
|
(2,302,687
|
)
|
(4,637,511
|
)
|
696,912
|
|||||||
Cash
and cash equivalents beginning of period
|
2,999,599
|
13,031,939
|
-
|
|||||||||
Cash
and cash equivalents end of period
|
$
|
696,912
|
$
|
8,394,428
|
$
|
696,912
|
||||||
Supplemental
disclosures of cash flow information
|
||||||||||||
Cash
paid during the period for:
|
||||||||||||
Interest
|
$
|
-
|
$
|
-
|
$
|
56,375
|
||||||
Income
taxes
|
$
|
13,700
|
$
|
800
|
$
|
16,900
|
||||||
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||||||
Conversion
of senior secured convertible notes payable
|
$
|
-
|
$
|
-
|
$
|
2,000,000
|
||||||
Interest
converted to common stock
|
$
|
-
|
$
|
-
|
$
|
55,569
|
||||||
Fair
value of warrants issued to placement agents
|
$
|
-
|
$
|
-
|
$
|
725,591
|
See
accompanying notes to consolidated financial statements
F-3
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
(Unaudited)
NOTE
1 - ORGANIZATION AND BUSINESS
BlueFire
Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28,
2006 (“Inception”). 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
Managements’
Plans
The
Company is a development-stage company which has incurred losses since
inception. Management has funded operations primarily through proceeds received
in connection with the reverse merger, loans from its majority shareholder, the
private placement of the Company’s common stock in January 2007, the issuance of
convertible notes with warrants in July and in August 2007, from the sale of the
Company’s common stock in December 2007, which generated net proceeds of
approximately $14,500,000. The proceeds received have been used in operations,
and in funding plant design and development costs. and from
reimbursements from the Department of Energy contract. The Company may encounter
difficulties in establishing these operations due to the time frame of
developing, constructing and ultimately operating the planned biorefinery
projects.
As of
June 30, 2009 and December 31, 2008, the Company had working capital of
approximately $347,000 and $1,926,000 respectively. Management has estimated
that cash operating expenses for the next twelve months will approximate
$2,600,000, excluding engineering costs related to the development of
biorefinery projects, and before implementing any cost cutting
measures. If the Company is not successful in obtaining
additional financing for the construction of the Lancaster Biorefinery, and
its DOE Biorefinery, by the end of the third quarter 2009, it may be
limited in its ability to further their development and/or design until
additional proceeds are received by the Company. During 2009, the Company
intends to fund its operations with its current working capital, proceeds from
reimbursements under the Department of Energy contract which subsequent to June
30, 2009 we received a reimbursement of approximately $3,800,000 and, if needed
monies from the $570,000 related party line of credit. Accordingly,
management expects the resources available to them will be sufficient for a
period in excess of 12 months. If necessary, management has determined that
general and administrative expenditures will be reduced with measures such as a
reduction of headcount, reducing employee benefits and/or salary deferral, as
needed. We are currently seeking additional capital in the form of equity or
debt securities in an effort to enhance our objectives. There are no assurances
that management will be able to raise capital on terms acceptable to the
Company.
The
Company’s Lancaster plant is currently shovel ready and only requires minimal
capital to maintain until funding is obtained for the construction. The
preparation for the construction of this plant was the primary capital use in
2008.
We
estimate the total cost of the biorefinery, including contingencies to be in the
range of approximately $100 million to $120 million for this first plant. This
amount is significantly greater than our previous estimations communicated to
the public. This is due in part to a combination of significant increases in
material costs on the world market from 2006 compared to our latest estimate,
and the complexity of our first commercial deployment. Over recent months,
prices for materials have been declining, and we expect, that throughout 2009,
items like structural and specialty steel will continue to decline significantly
in price with other materials of construction following suit. The cost
approximations above do not reflect any decrease in raw materials or any savings
in construction cost. The Company is currently in discussions with potential
sources of financing, including additional funds under the existing award
from the Department of Energy, for this facility but no definitive agreements
are in place.
Basis
of Presentation
The
accompanying unaudited interim financial statements have been prepared by the
Company pursuant to the rules and regulations of the United States Security
Exchange Commission. Certain information and disclosures normally
included in the annual financial statements prepared in accordance with the
accounting principles generally accepted in the Unites States of America have
been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments and disclosures necessary for a fair
presentation of these financial statements have been included. Such
adjustments consist of normal recurring adjustments. The Company adjusted the
fair value of common stock purchase warrants which have exercise price reset
features, from equity to liability status as if the warrants were treated as a
derivative liability since their date of issue. On January 1, 2009, the
Company recorded the cumulative effect adjustment reducing previously recorded
additional paid-in capital and recoding a charge to beginning
deficit accumulated during the development stage to reflect the
long-term warrant liability at fair value for s (see Note 6 for reconciliation
of adjustment). These interim financial statements should be
read in conjunction with the audited financial statements of the Company for the
year ended December 31, 2008. The results of operations for the six
months ended June 30, 2009 are not necessarily indicative of the results that
may be expected for the full year.
F-4
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. Significant estimates include the fair value of
options and warrants issued during the preceding reporting periods and the
warrant liability recorded during the period. 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 six months
ended June 30, 2009, and for the period from March 28, 2006 (Inception) to June
30, 2009 research and development costs included in Project Development expense
were approximately $643,000 and $12,207,000, respectively.
Fair
Value of Financial Instruments
In
September 2006, the Financial Accounting Standards Board “FASB” issued
Statements of Financial Accounting Standards “SFAS” No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements. SFAS 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008,
the FASB deferred the effective date of SFAS 157 by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On January 1, 2008, we adopted the provisions of
SFAS 157, except as it applies to those nonfinancial assets and nonfinancial
liabilities for which the effective date has been delayed by one year, which we
adopted on January 1, 2009. The adoption of SFAS 157 did not have a
material effect on our financial position or results of operations. The
book values of cash, accounts receivable and accounts payable approximate their
respective fair values due to the short-term nature of these instruments. At
June 30, 2009, the warrant liability was recorded under a level two assumptions;
see Note 4 for discussion of the valuation techniques used to measure the fair
value of the warrant liability.
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 June 30, 2009 and 2008, the Company had approximately
3,287,000 options, and 7,387,000 warrants, respectively, to purchase shares of
common stock. All of these equivalents were excluded from the calculation of
diluted loss per share for the six months ended June 30, 2009 and 2008 as
their exercise prices were above the average fair market value of the Company’s
common stock for the periods indicated. If included their effects would have
been anti-dilutive.
Recent
Accounting Pronouncements
In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles"
("SFAS 168"). The FASB Accounting Standards Codification ("Codification") will
become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission ("SEC") under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The
Codification will supersede all then-existing non-SEC accounting and reporting
standards. SFAS 168 is effective for interim and annual periods ending
after September 15, 2009. In the FASB's view, the issuance of SFAS 168
and the Codification will not change GAAP, and therefore we do not expect the
adoption of SFAS 168 to have an effect on our consolidated financial
statements or disclosures.
F-5
In June
2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation
No. 46(R)" ("SFAS 167"). SFAS 167 is intended to improve financial
reporting by providing additional guidance to companies involved with variable
interest entities and by requiring additional disclosures about a company's
involvement in variable interest entities. This standard is effective for
interim and annual periods ending after November 15, 2009. The adoption of
this standard will not have a material impact on our consolidated financial
statements.
In June
2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial
Assets" ("SFAS 166"). SFAS 166 is a revision to SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", and will require more information about transfers of financial
assets and where companies have continuing exposure to the risk related to
transferred financial assets. It eliminates the concept of a qualifying special
purpose entity, changes the requirements for derecognizing financial assets, and
requires additional disclosure. This standard is effective for interim and
annual periods ending after November 15, 2009. The adoption of this
standard will not have a material impact on our consolidated financial
statements.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"), which
modifies the subsequent event guidance in AICPA AU Section 560. The three
modifications to the subsequent events guidance in AU Section 560 are: 1)
To name the two types of subsequent events either as recognized or
non-recognized subsequent events, 2) To modify the definition of subsequent
events to refer to events or transactions that occur after the balance sheet
date, but before the financial statement are issued or available to be issued
and 3) To require entities to disclose the date through which an entity has
evaluated subsequent events and the basis for that date, i.e. whether that date
represents the date the financial statements were issued or were available to be
issued. The Company adopted this standard, as required, for the period
ended June 30, 2009. Adoption of SFAS No. 165 did not have a
material impact on the Company's consolidated financial statements.
NOTE
3 – DEVELOPMENT CONTRACT
Department
of Energy Award 1
In
February 2007, the Company was awarded a grant for up to $40 million from the
U.S. Department of Energy’s (“DOE”) cellulosic ethanol grant program to develop
a solid waste biorefinery project at a landfill in Southern
California. During October 2007, the Company finalized Award 1 for a total
approved budget of just under $10,000,000 with the DOE. This award is a 60%/40%
cost share, whereby 40% of approved costs may be reimbursed by the DOE pursuant
to the total $40 million award announced in February 2007. As of June 30, 2009,
the Company has recorded a receivable related to the DOE contract of
approximately $68,000. The Company is in the process of amending its award to
include costs previously incurred in connection with the development of the
Lancaster site which have a direct attributable benefit to the DOE
Biorefinery. The Company anticipates additional funds to be
reimbursed in the range of approximately $2,300,000 to
$3,000,000. However, since the award has not been amended, the
Company has not billed the DOE yet and thus, has not recorded the anticipated
reimbursement as a receivable.
NOTE
4 - OUTSTANDING WARRANT LIABILITY
Effective
January 1, 2009 we adopted the provisions of EITF 07-5, " Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 applies to any freestanding financial instruments or embedded
features that have the characteristics of a derivative, as defined by SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and to any freestanding financial instruments that are potentially settled in an
entity’s own common stock. As a result of adopting EITF 07-5, 6,962,963 of our
issued and outstanding common stock purchase warrants previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded
equity treatment. These warrants have an exercise price of $2.90; 5,962,563
warrants expire in December 2012 and 1,000,000 expire August 2010. As
such, effective January 1, 2009 we reclassified the fair value of these common
stock purchase warrants, which have exercise price reset features, from equity
to liability status as if these warrants were treated as a derivative liability
since their date of issue in August 2007 and December 2007. On January 1,
2009, we reclassified from additional paid-in capital, as a cumulative effect
adjustment, $15.7 million to beginning retained earnings and $2.9 million
to a long-term warrant liability to recognize the fair value of such warrants on
such date. The fair value of these common stock purchase warrants increased to
$5.8 million as of June 30, 2009. As such, we recognized a loss of
approximately $2,912,000 from the change in fair value of these warrants for the
six months ended June 30, 2009.
F-6
These
common stock purchase warrants were initially issued in connection with two
issuances, our August 2007 issuance of 689,655 shares of common stock and
our December 2007 issuance of 5,962,963 shares of common stock. The common stock
purchase warrants were not issued with the intent of effectively hedging any
future cash flow, fair value of any asset, liability or any net investment in a
foreign operation. The warrants do not qualify for hedge accounting, and as
such, all future changes in the fair value of these warrants will be recognized
currently in earnings until such time as the warrants are exercised or expire.
These common stock purchase warrants do not trade in an active securities
market, and as such, we estimate the fair value of these warrants using the
Black-Scholes option pricing model using the following assumptions:
June
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
Annual
dividend yield
|
-
|
-
|
||||||
Expected
life (years) of August 2007 issuance
|
1.1
|
1.4
|
||||||
Expected
life (years) of December 2007 issuance
|
3.5
|
3.8
|
||||||
Risk-free
interest rate
|
2.54
|
%
|
1.67
|
%
|
||||
Expected
volatility
|
170
|
%
|
157
|
%
|
Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using weekly pricing observations for recent periods that
correspond to the last thirty-three months. We believe this method produces an
estimate that is representative of our expectations of future volatility over
the expected term of these warrants. We currently have 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.
See Note
7 for discussion regarding the cancellation of warrants subsequent to June 30,
2009.
NOTE
5 - COMMITMENTS AND CONTINGENCIES
Professional
Services Agreement
As of
June 30, 2009, the Company had contracts with several engineering firms. During
the period from inception to June 30, 2009, the Company paid approximately
$5,211,000 to various engineering firms.
Related-Party
Line of Credit
In
February 2009, the Company obtained a line of credit in the amount of $570,000
from Arkenol Inc, its technology licensor, to provide additional liquidity to
the Company as needed. Under the terms of the note, the Company is to make
interest-only payments at the end of each calendar quarter at a rate of 6% per
annum on any outstanding principal balance. Any outstanding balance is to be
paid in full within 30 days of receiving qualified investment financing of at
least $2,000,000. As of June 30, 2009, there were no amounts outstanding as
the Company had received proceeds of approximately $3.8 million from the
Department of Energy, of which a portion of said proceeds were used to repay the
amounts advanced.
Litigation
As of
June 30, 2009, the Company is not a party to any known legal actions in which it
is a defendant. From time to time, parties may threaten claims
against the Company which management believes are without merit. At
the present time, no matters are known to management that would require
adjustment or disclosure in these financial statements.
NOTE
6 -STOCKHOLDERS’ (DEFICIT)/EQUITY
During
the six months ended June 30, 2009 and 2008, and for the period from March 28,
2006 (Inception) to June 30, 2009, the Company amortized stock-based
compensation, including consultants, of approximately $0, $1,136,000, and
$4,255,000 to general and administrative expenses and $0, $1,486,000, and
$4,368,000 to project development expenses, respectively. The Company expects to
record no future compensation expense during the year ending December 31,
2009.
As
discussed in Note 4, as a result of adopting EITF 07-5, 6,962,963 of our issued
and outstanding common stock purchase warrants previously treated as equity
pursuant to the derivative treatment exemption were no longer afforded equity
treatment. As such, effective January 1, 2009 we reclassified the fair value of
these common stock purchase warrants as follows:
Additional
Paid-in
|
Deficit
Accumulated
During
the
Development
|
|||||||
Capital
|
Stage
|
|||||||
Balances
at December 31, 2008
|
$
|
32,388,052
|
$
|
(30,202,509
|
)
|
|||
Cumulative
effect of warrants reclassified
|
(18,586,588
|
)
|
18,586,588
|
|||||
Reclassification
of long term warrant liability
|
(2,915,136
|
)
|
||||||
Stock
issued for services
|
17,107
|
|||||||
Net
loss
|
(4,520,132
|
)
|
||||||
Balances
at June 30, 2009
|
$
|
13,818,571
|
$
|
(19,051,189
|
)
|
F-7
NOTE
7 –SUBSEQUENT EVENTS
On July
23, 2009, the Company renewed all of its existing Directors’ appointments,
issued 6,000 shares to each and paid $5,000 to the three 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. The value of the common stock granted was determined to be approximately
$30,000 based on the fair market value of the Company's common stock of $1.00 on
the date of the grant.
On August
27, 2009, the Company entered into a 6-month Consulting Agreement with Mirador
Consulting, Inc. Pursuant to the Agreement, the Company will receive services in
connection with mergers and acquisitions, corporate finance, corporate finance
relations, introductions to other financial relations companies and other
financial services. As consideration for these services, the Company
will make monthly cash payments of $3,000 and has issued 200,000 restricted
shares of the Company’s common stock in exchange for $200. In addition, the
Company granted the consultant options to purchase 100,000 shares of common
stock at an exercise price of $3.00 per share. The option expires in one year.
The Company valued the common stock based on the value of the Company’s common
stock on the date of grant as performance had been satisfied. As of September
30, 2009 the Company has expensed all the costs related to this Agreement to
general and administrative expenses.
On
October 19, 2009, the Company cancelled 673,200 warrants for $220,000 in
cash.
F-8
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Report
of Independent Registered Public Accounting Firm
|
F-10
|
Consolidated
Balance Sheets as of December 31, 2008 and December 31,
2007
|
F-11
|
Consolidated
Statements of Operations for the years ended December 31, 2008, December
31, 2007 and for the period from March 28, 2006 (Inception) to December
31, 2008
|
F-12
|
Consolidated
Statements of Stockholders’ Equity from March 28, 2006 (inception) to
December 31, 2008
|
F-13
-F-15
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008, December
31, 2007, and for the period from March 28, 2006 (Inception) to December
31, 2008
|
F-16
- F-17
|
Notes
to Consolidated Financial Statements
|
F-18
|
F-9
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders of BlueFire Ethanol Fuels, Inc.
and Subsidiaries
We have
audited the accompanying consolidated balance sheets of BlueFire Ethanol Fuels,
Inc. and subsidiaries, a development-stage company, (the “Company”) as of
December 31, 2008 and 2007 and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the years then ended and
for the period from March 28, 2006 (“Inception”) to December 31, 2008. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of BlueFire Ethanol
Fuels, Inc. and subsidiaries, as of December 31, 2008 and 2007, and the results
of their operations and their cash flows for the years ended, and for the period
from Inception to December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ McKennon Wilson &
Morgan LLP
Irvine,
California
March 26,
2009
F-10
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
December
31,
2008
|
December
31,
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
2,999,599
|
$
|
13,031,939
|
||||
Accounts
receivable
|
-
|
49,000
|
||||||
Department
of Energy grant receivable
|
692,014
|
-
|
||||||
Prepaid
expenses
|
89,871
|
16,542
|
||||||
Total
current assets
|
3,781,484
|
13,097,481
|
||||||
Prepaid
fees to related party
|
-
|
30,000
|
||||||
Property
and equipment, net of accumulated
depreciation
of $20,761 and $409, respectively
|
186,112
|
151,007
|
||||||
Total
assets
|
$
|
3,967,596
|
$
|
13,278,488
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
711,884
|
$
|
382,679
|
||||
License
fee payable to related party
|
970,000
|
-
|
||||||
Accrued
liabilities
|
173,618
|
267,671
|
||||||
Total
current liabilities
|
1,855,502
|
650,350
|
||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, no par value, 1,000,000 shares
authorized;
none issued and outstanding
|
-
|
-
|
||||||
Common
stock, $0.001 par value; 100,000,000
|
||||||||
shares
authorized; 28,133,053 and 28,061,553 shares
|
||||||||
issued
and 28,100,881 and 28,061,553 outstanding, respectively
|
28,132
|
28,061
|
||||||
Additional
paid-in capital
|
32,388,052
|
28,431,992
|
||||||
Treasury
Stock at cost, 32,172 shares
|
(101,581
|
)
|
-
|
|||||
Deficit
accumulated during the development stage
|
(30,202,509
|
)
|
(15,831,915
|
)
|
||||
Total
stockholders’ equity
|
2,112,094
|
12,628,138
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
3,967,596
|
$
|
13,278,488
|
See
accompanying notes to consolidated financial statements
F-11
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the
Twelve
Months ended December 31,
|
For
the
Twelve
Months ended December 31,
|
From
March 28, 2006 (inception) Through December 31,
|
||||||||||
2008
|
2007
|
2008
|
||||||||||
Revenues:
|
||||||||||||
Consulting
Fees
|
$
|
-
|
$
|
49,000
|
$
|
49,000
|
||||||
Department
of Energy Grant
|
1,075,508
|
-
|
1,075,508
|
|||||||||
Total
revenues
|
1,075,508
|
49,000
|
1,124,508
|
|||||||||
Operating
expenses:
|
||||||||||||
Project
development, including stock based compensation of $2,078,356,
$2,387,634 and $4,468,490, respectively
|
10,535,278
|
4,930,739
|
15,932,017
|
|||||||||
General
and administrative, including stock based compensation of 1,690,921,
$4,061,808, and $5,865,040 respectively
|
4,136,235
|
5,595,125
|
10,814,557
|
|||||||||
Related
party license fee
|
1,000,000
|
-
|
1,000,000
|
|||||||||
Total
operating expenses
|
15,671,513
|
10,525,864
|
27,746,574
|
|||||||||
Operating
loss
|
(14,596,005
|
)
|
(10,476,864
|
)
|
(26,622,066
|
)
|
||||||
Other
income and (expense):
|
||||||||||||
Other
income
|
225,411
|
18,903
|
247,114
|
|||||||||
Financing
related charge
|
-
|
(211,660
|
)
|
(211,660
|
)
|
|||||||
Amortization
of debt discount
|
-
|
(676,982
|
)
|
(676,982
|
)
|
|||||||
Interest
expense
|
-
|
(56,097
|
)
|
(56,097
|
)
|
|||||||
Related
party interest expense
|
-
|
(55,348
|
)
|
(64,448
|
)
|
|||||||
Loss
on extinguishment of debt
|
-
|
(2,818,370
|
)
|
(2,818,370
|
)
|
|||||||
Net
loss
|
$
|
(14,370,594
|
)
|
$
|
(14,276,418
|
)
|
$
|
(30,202,509
|
)
|
|||
Basic
and diluted loss per common share
|
$
|
(0.51
|
)
|
$
|
(0.65
|
)
|
||||||
Weighted
average common shares outstanding, basic and diluted
|
28,064,572
|
21,848,126
|
See
accompanying notes to consolidated financial statements
F-12
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
|
Additional
Paid-in
|
Deficit
Accumulated
During
Development
|
Stockholders'
Equity
|
||||||||||||||
Shares
|
Amount
|
Capital
|
Stage
|
(Deficit)
|
|||||||||||||
Balance
at March 28, 2006 (inception)
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Issuance
of founder’s share at $.001 per share
|
17,000,000
|
17,000
|
17,000
|
||||||||||||||
Common
shares retained by Sucre Agricultural Corp., Shareholders
|
4,028,264
|
4,028
|
685,972
|
-
|
690,000
|
||||||||||||
Costs
associated with the acquisition of Sucre Agricultural
Corp.
|
(3,550
|
)
|
(3,550
|
)
|
|||||||||||||
Common
shares issued for services in November 2006 at $2.99 per share
(Note 5)
|
37,500
|
38
|
111,962
|
-
|
112,000
|
||||||||||||
Common
shares issued for services in November 2006 at $3.35 per share (Note
5)
|
20,000
|
20
|
66,981
|
-
|
67,001
|
||||||||||||
Common
shares issued for services in December 2006 at $3.65 per share (Note
5)
|
20,000
|
20
|
72,980
|
-
|
73,000
|
||||||||||||
Common
shares issued for services in December 2006 at $3.65 per share (Note
5)
|
20,000
|
20
|
72,980
|
-
|
73,000
|
||||||||||||
Estimated
value of common shares at $3.99 per share and warrants at $2.90 issuable
for services upon vesting in February 2007 (Note 5)
|
-
|
-
|
160,000
|
-
|
160,000
|
||||||||||||
Share-based
compensation related to options (Note 6)
|
-
|
-
|
114,811
|
-
|
114,811
|
||||||||||||
Share-based
compensation related to warrants (Note 6)
|
-
|
-
|
100,254
|
-
|
100,254
|
||||||||||||
Net
Loss
|
-
|
-
|
-
|
(1,555,497
|
)
|
(1,555,497
|
)
|
||||||||||
Balances
at December 31, 2006
|
21,125,764
|
$
|
21,126
|
$
|
1,382,390
|
$
|
(1,555,497
|
)
|
$
|
(151,981
|
)
|
See
accompanying notes to consolidated financial statements
F-13
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
|
Additional
Paid-in
|
Deficit
Accumulated
During
Development
|
Stockholders’
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
Stage
|
Equity
|
||||||||||||||||
Balances
at December 31, 2006
|
21,125,764
|
$
|
21,126
|
$
|
1,382,390
|
$
|
(1,555,497
|
)
|
$
|
(151,981
|
)
|
|||||||||
Common
shares issued for cash in January 2007, at $2.00 per share to unrelated
individuals, including costs associated with private placement of 6,250
shares and $12,500 cash paid
|
284,750
|
285
|
755,875
|
-
|
756,160
|
|||||||||||||||
Amortization
of share based compensation related to employment agreement in January
2007 $3.99 per share
|
10,000
|
10
|
39,890
|
-
|
39,900
|
|||||||||||||||
Common
shares issued for services in February 2007 at $5.92 per
share
|
37,500
|
38
|
138,837
|
-
|
138,875
|
|||||||||||||||
Adjustment
to record remaining value of warrants at $4.70 per share issued for
services in February 2007
|
-
|
-
|
158,118
|
-
|
158,118
|
|||||||||||||||
Common
shares issued for services in March 2007 at $7.18 per
share
|
37,500
|
37
|
269,213
|
-
|
269,250
|
|||||||||||||||
Fair
value of warrants at $6.11 for services vested in March
2007
|
-
|
-
|
305,307
|
-
|
305,307
|
|||||||||||||||
Fair
value of warrants at $5.40 for services vested in June
2007
|
-
|
-
|
269,839
|
-
|
269,839
|
|||||||||||||||
Common
shares issued for services in June 2007 at $6.25 per share
|
37,500
|
37
|
234,338
|
-
|
234,375
|
|||||||||||||||
Share
based compensation related to employment agreement in February 2007 $5.50
per share
|
50,000
|
50
|
274,951
|
-
|
275,001
|
|||||||||||||||
Common
Shares issued for services in August 2007 at $5.07 per
share
|
13,000
|
13
|
65,901
|
65,914
|
||||||||||||||||
Share
based compensation related to options
|
-
|
-
|
4,692,863
|
-
|
4,692,863
|
|||||||||||||||
Value
of warrants issued in August, 2007 for debt replacement services valued at
$4.18 per share
|
-
|
-
|
107,459
|
-
|
107,459
|
|||||||||||||||
Relative
fair value of warrants associated with July 2007 convertible note
agreement
|
-
|
-
|
332,255
|
-
|
332,255
|
|||||||||||||||
Exercise
of stock options in July 2007 at $2.00 per share
|
20,000
|
20
|
39,980
|
-
|
40,000
|
|||||||||||||||
Relative
fair value of warrants and beneficial conversion feature in connection
with the $2,000,000 convertible note payable in August
2007
|
-
|
-
|
2,000,000
|
-
|
2,000,000
|
|||||||||||||||
Stock
issued in lieu of Interest payments on the senior secured convertible note
at $4.48 and $2.96 per share in October and December
2007
|
15,143
|
15
|
55,569
|
-
|
55,584
|
|||||||||||||||
Conversion
of $2,000,000 note payable in August 2007 at $2.90 per
share
|
689,655
|
689
|
1,999,311
|
-
|
2,000,000
|
|||||||||||||||
Common
shares issued for cash at $2.70 per share, December 2007, net of legal
costs of $90,000 and placement agent cost of $1,050,000
|
5,740,741
|
5,741
|
14,354,259
|
-
|
14,360,000
|
|||||||||||||||
Loss
on Extinguishment of debt in December 2007
|
-
|
-
|
955,637
|
-
|
955,637
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(14,276,418
|
)
|
(14,276,418
|
)
|
|||||||||||||
Balances
at December 31, 2007
|
28,061,553
|
$
|
28,061
|
$
|
28,431,992
|
$
|
(15,831,915
|
)
|
$
|
12,628,138
|
See
accompanying notes to consolidated financial statements
F-14
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common
Stock
|
Additional
Paid-in
|
Deficit
Accumulated
During
Development
|
Treasury
|
Stockholders’
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Stage
|
Stock
|
Equity
|
|||||||||||||||||||
Balances
at December 31, 2007
|
28,061,553
|
$
|
28,061
|
$
|
28,431,992
|
$
|
(15,831,915
|
)
|
$
|
-
|
$
|
12,628,138
|
||||||||||||
Share
based compensation relating to options
|
-
|
-
|
3,769,276
|
-
|
-
|
3,769,276
|
||||||||||||||||||
Common
shares issued for services in July 2008 at $4.10 per share
|
30,000
|
30
|
122,970
|
-
|
-
|
123,000
|
||||||||||||||||||
Common
shares issued for services in July, September, and December 2008 at $3.75,
$2.75, and $.57 per share, respectively
|
41,500
|
41
|
63,814
|
-
|
-
|
63,855
|
||||||||||||||||||
Purchase
of treasury shares between April to September 2008 at an average of
$3.12
|
(32,172
|
)
|
-
|
-
|
-
|
(101,581
|
)
|
(101,581
|
)
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
(14,370,594
|
)
|
-
|
(14,370,594
|
)
|
||||||||||||||||
Balances
at December 31, 2008
|
28,100,881
|
$
|
28,132
|
$
|
32,388,052
|
$
|
(30,202,509
|
)
|
$
|
(101,581
|
)
|
$
|
2,112,094
|
See
accompanying notes to consolidated financial statements
F-15
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the
Twelve
Months
ended
December
31
|
For
the
Twelve
Months
ended to
December
31
|
From
March
28,
2006
(Inception)
to
December 31,
|
||||||||||
2008
|
2007
|
2008
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(14,370,594
|
)
|
$
|
(14,276,418
|
)
|
$
|
(30,202,509
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Founders
shares
|
-
|
-
|
17,000
|
|||||||||
Costs
associated with purchase of Sucre Agricultural Corp
|
-
|
-
|
(3,550
|
)
|
||||||||
Interest
expense on beneficial conversion feature of convertible
notes
|
-
|
676,983
|
676,983
|
|||||||||
Loss
on extinguishment of convertible debt
|
-
|
2,718,370
|
2,718,370
|
|||||||||
Common
stock issued for interest on convertible notes
|
-
|
55,585
|
55,585
|
|||||||||
Discount
on sale of stock associated with private placement
|
-
|
211,660
|
211,660
|
|||||||||
Share-based
compensation
|
3,956,131
|
6,449,441
|
11,105,638
|
|||||||||
Depreciation
|
20,352
|
409
|
20,761
|
|||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
49,000
|
(49,000
|
)
|
-
|
||||||||
Department
of energy grant receivable
|
(692,014
|
)
|
-
|
(692,014
|
)
|
|||||||
Prepaid
fees to related party
|
30,000
|
-
|
-
|
|||||||||
Prepaid
expenses and other current assets
|
(73,329
|
)
|
(16,542
|
)
|
(89,872
|
)
|
||||||
Accounts
payable
|
329,205
|
315,729
|
711,883
|
|||||||||
License
fee payable to related party
|
970,000
|
-
|
970,000
|
|||||||||
Accrued
liabilities
|
(94,053
|
)
|
249,978
|
173,618
|
||||||||
Accrued
interest to related party
|
-
|
(9,100
|
)
|
-
|
||||||||
Net
cash used in operating activities
|
(9,875,302
|
)
|
(3,672,905
|
)
|
(14,326,447
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||||
Acquisition
of property and equipment
|
(55,457
|
)
|
(151,416
|
)
|
(206,873
|
)
|
See
accompanying notes to consolidated financial statements
F-16
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENT OF CASH FLOWS
Cash
flows from financing activities:
|
||||||||||||
Cash
paid for treasury stock
|
(101,581
|
)
|
-
|
(101,581
|
)
|
|||||||
Cash
received in acquisition of Sucre Agricultural Corp.
|
-
|
-
|
690,000
|
|||||||||
Proceeds
from sale of stock through private placement
|
-
|
544,500
|
544,500
|
|||||||||
Proceeds
from exercise of stock options
|
-
|
40,000
|
40,000
|
|||||||||
Proceeds
from issuance of common stock
|
-
|
14,360,000
|
14,360,000
|
|||||||||
Proceeds
from convertible notes payable
|
-
|
2,500,000
|
2,500,000
|
|||||||||
Repayment
of notes payable
|
-
|
(500,000
|
)
|
(500,000
|
)
|
|||||||
Proceeds
from related party notes payable
|
-
|
25,000
|
116,000
|
|||||||||
Repayment
from related party notes payable
|
-
|
(116,000
|
)
|
(116,000
|
)
|
|||||||
Net
cash provided by financing activities
|
(101,581
|
)
|
16,853,500
|
17,532,919
|
||||||||
Net
increase in cash and cash equivalents
|
(10,032,340
|
)
|
13,029,179
|
2,999,599
|
||||||||
Cash
and cash equivalents beginning of period
|
13,031,939
|
2,760
|
-
|
|||||||||
Cash
and cash equivalents end of period
|
$
|
2,999,599
|
$
|
13,031,939
|
$
|
2,999,599
|
||||||
Supplemental
disclosures of cash flow information
|
||||||||||||
Cash
paid during the period for:
|
||||||||||||
Interest
|
$
|
-
|
$
|
56,375
|
$
|
56,375
|
||||||
Income
taxes
|
$
|
2,400
|
$
|
800
|
$
|
3,200
|
||||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||||||
Conversion
of senior secured convertible notes payable
|
$
|
-
|
$
|
2,000,000
|
$
|
2,000,000
|
||||||
Interest
converted to common stock
|
$
|
-
|
$
|
55,569
|
$
|
55,569
|
||||||
Fair
value of warrants issued to placement agents
|
$
|
-
|
$
|
725,591
|
$
|
725,591
|
See
accompanying notes to consolidated financial statements
F-17
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND BUSINESS
BlueFire
Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28,
2006 (“Inception”). 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.
BlueFire's
business will encompass development activities leading to the construction
and long-term operation of production facilities. BlueFire is currently in
the development stage of deploying project opportunities for converting
cellulose fractions of municipal solid waste and other
opportunistic feedstock into ethanol fuels. The Company entered into an
Asset Transfer and Acquisition Agreement with ARK Energy, Inc. ("ARK
Energy"). Based upon the terms of the agreement, ARK Energy transferred
certain rights, assets, work-product, intellectual property and other
know-how on 19 project opportunities, which may be used by BlueFire to
accelerate its deployment of the Arkenol technology.
On June
27, 2006, BlueFire completed a reverse acquisition of Sucre
Agricultural Corp. ("Sucre"), a Delaware corporation. At the time of
acquisition, Sucre had no operations, revenues or liabilities. The only
asset possessed by Sucre was $690,000 in cash which was included in the
acquisition. Sucre was considered a blank-check company prior to the
acquisition. In connection with the acquisition Sucre issued BlueFire
17,000,000 shares of common stock, approximately 85% of the outstanding
common stock of Sucre, for all the issued and outstanding BlueFire common
stock. The Sucre stockholders retained 4,028,264 shares of Sucre common
stock.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Managements’
Plans
The
Company is a development-stage company which has incurred losses since
inception. Management has funded operations primarily through proceeds received
in connection with the reverse merger, loans from its majority shareholder, the
private placement of the Company's common stock in January 2007, the issuance of
convertible notes with warrants in July and in August 2007 and from the sale of
the Company’s common stock in December 2007. The Company may encounter
difficulties in establishing these operations due to the time frame of
developing, constructing and ultimately operating the planned biorefinery
projects.
As of
December 31, 2008, the Company has working capital of approximately $1,926,000.
In December 2007, the Company obtained net proceeds of approximately $14,500,000
from the issuance of its common stock. The proceeds received are
being used in operations, and in funding plant design and development
costs. Management has estimated that operating expenses for the next
twelve months will be approximately $2,300,000, excluding engineering costs
related to the development of biorefinery projects. During 2009, the Company
intends to fund its operations with its current working capital, proceeds from
reimbursements under the Department of Energy contract and if needed monies from
the $570,000 related party line of credit. The Company expects the current
resources available to them will be sufficient for a period in excess of 12
months. If necessary, management has determined that general expenditures will
be reduced and additional capital will be required in the form of equity or debt
securities. There are no assurances that management will be able to raise
capital on terms acceptable to the Company
Additionally,
the Company’s Lancaster plant is currently shovel ready and only requires
minimal capital to maintain until funding is obtained for the construction. The
preparation for the construction of this plant was the primary capital use in
2008.
We
estimate the total cost of the biorefinery, including contingencies to be in the
range of approximately $100 million to $120 million for this first plant. This
amount is significantly greater than our previous estimations communicated to
the public This is due in part to a combination of significant increases in
material costs on the world market from the last estimate until now, and the
complexity of our first commercial deployment. Recently, prices for materials
have been declining, and we expect, that throughout 2009, items like structural
and specialty steel will continue to decline significantly in price with other
materials of construction following suit. The cost approximations above do not
reflect any decrease in raw materials or any savings in construction cost. The
Company is currently in discussions with potential sources of financing for this
facility but no definitive agreements are in place.
F-18
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Changes
in Reporting Entity
The
acquisition of Sucre Agricultural Corp. by BlueFire Ethanol, Inc., as discussed
in Note 1, was accounted for as a reverse acquisition, whereby the assets and
liabilities of BlueFire are reported at their historical cost since the entities
are under common control immediately after the acquisition in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations." The assets and liabilities of Sucre, which were not significant,
were recorded at fair value on June 27, 2006, the date of the acquisition. No
goodwill was recorded in connection with the reverse acquisition since Sucre had
no business. The reverse acquisition resulted in a change in the reporting
entity of Sucre, for accounting and reporting purposes. Accordingly, the
financial statements herein reflect the operations of BlueFire from Inception
and Sucre from June 27, 2006, the date of acquisition, through December 31,
2006. The 4,028,264 shares retained by the stockholders of Sucre have been
recorded on the date of acquisition of June 27, 2006.
Principles
of Consolidation
The
consolidated financial statements include the accounts of BlueFire Ethanol
Fuels, Inc., and its wholly-owned subsidiary, BlueFire Ethanol, Inc. BlueFire
Ethanol Lancaster, LLC and BlueFire Mecca, 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.
Cash
and Cash Equivalents
For
purpose of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents.
Accounts
Receivable
Accounts
receivable are reported net of allowance for expected losses. It
represents the amount management expects to collect from outstanding balances.
Differences between the amount due and the amount management expects to collect
are charged to operations in the year in which those differences are determined,
with an offsetting entry to a valuation allowance. As of December 31, 2008,
there have been no such charges.
Intangible
Assets
License
fees acquired are either expensed or recognized as intangible
assets. The Company recognizes intangible assets when the following
criteria is met: 1) the asset is identifiable, 2) the Company has control over
the asset, 3) the cost of the asset can be measured reliably, and 4)
it is probable that economic benefits will flow to the Company. As of
December 31, 2008, the Company purchased a license (see Note 8) from Arkenol,
Inc., a related party. The license fee was expensed because the
Company is still in the research and development stage and cannot readily
determine the probability of future economic benefits for said
license.
F-19
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation
The
Company’s fixed assets are depreciated using the straight-line method over a
period ranging from one to five years.
Revenue
Recognition
The
Company is currently a developmental-stage company. The Company will recognize
revenues from 1) consulting services rendered to potential sub licensees for
development and construction of cellulose to ethanol projects, 2) sales of
ethanol from its production facilities when (a) persuasive evidence that an
agreement exists; (b) the products have been delivered; (c) the prices are fixed
and determinable and not subject to refund or adjustment; and (d) collection of
the amounts due is reasonably assured.
As
discussed in Note 3, the Company received a federal grant from the United States
Department of Energy, (“U.S. DOE”). The grant generally provides for payment in
connection with related development and construction costs involving
commercialization of our technologies. Revenues from the grant are recognized in
the period during which the conditions under the grant have been met and the
reimbursement is estimatable. The Company determined that the payment received
from the U.S. Department of Energy should be accounted for as
revenues. This determination was based on the fact the Company views
the obtaining of future grants as an ongoing function of its intended
operations. In addition, costs related to government grant revenues
are not readily identifiable, and such costs are recorded in general and
administrative expenses and project development costs and thus could not be
offset.
Project
Development
Project
development costs are either expensed or capitalized. The costs of materials and
equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be classified as property and equipment and depreciated
over their estimated useful lives. To date, project development costs include
the research and development expenses related to the Company's future
cellulose-to-ethanol production facilities. During the years ended
December 31, 2008, 2007 and for the period from March 28, 2006 (Inception) to
December 31, 2008, research and development costs included in Project
Development were approximately $8,457,000, $2,543,000, and $11,463,000
respectively.
Convertible
Debt
Convertible
debt is accounted for under the guidelines established by APB Opinion No. 14
“Accounting for Convertible Debt and Debt issued with Stock Purchase
Warrants” under the direction of Emerging Issues Task Force (“EITF”)
98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios, (“EITF 98-5”)
EITF 00-27 Application of Issue No 98-5 to Certain Convertible Instruments
(“EITF 00-27”), and EITF 05-8 Income Tax Consequences of Issuing Convertible
Debt with Beneficial Conversion Features. The Company records a beneficial
conversion feature (BCF) related to the issuance of convertible debt that have
conversion features at fixed or adjustable rates that are in-the-money when
issued and records the fair value of warrants issued with those instruments. The
BCF for the convertible instruments is recognized and measured by allocating a
portion of the proceeds to warrants and as a reduction to the carrying amount of
the convertible instrument equal to the intrinsic value of the conversion
features, both of which are credited to paid-in-capital.
F-20
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company calculates the fair value of warrants issued with the convertible
instruments using the Black-Scholes valuation method, using the same assumptions
used for valuing employee options for purposes of SFAS No. 123R, except that the
contractual life of the warrant is used. Under these guidelines, the Company
allocates the value of the proceeds received from a convertible debt transaction
between the conversion feature and any other detachable instruments (such as
warrants) on a relative fair value basis. The allocated fair value is recorded
as a debt discount or premium and is amortized over the expected term of the
convertible debt to interest expense. For a conversion price change of a
convertible debt issue, the additional intrinsic value of the debt conversion
feature, calculated as the number of additional shares issuable due to a
conversion price change multiplied by the previous conversion price, is recorded
as additional debt discount and amortized over the remaining life of the
debt.
The
Company accounts for modifications of its Embedded Conversion Features (“ECF’s”)
in accordance with EITF” 06-6”). EITF 06-6 requires the modification
of a convertible debt instrument that changes the fair value of an embedded
conversion feature and the subsequent recognition of interest expense or the
associated debt instrument when the modification does not result in a debt
extinguishment pursuant to EITF 96-19.”Debtor’s Accounting for a Modification or
Exchange of Debt Instruments” (“EITF 96-16”).
Equity
Instruments Issued with Registration Rights Agreement
The
Company accounts for these penalties as contingent liabilities, applying the
accounting guidance of SFAS No. 5, “Accounting for Contingencies”. This
accounting is consistent with views established by the EITF in its consensus set
forth in EITF 05-04 and FASB Staff Positions FSP EITF 00-19-2 “Accounting for
Registration Payment Arrangements”, which was issued December 21, 2006.
Accordingly, the Company recognizes damages when it becomes probable that they
will be incurred and amounts are reasonably estimable.
In
connection with the issuance of common stock on for gross proceeds of
$15,500,000 in December 2007 and the $2,000,000 convertible note financing in
August 2007, the Company was required to file a registration statement on Form
SB-2 or Form S-3 with the Securities and Exchange Commission in order to
register the resale of the common stock under the Securities Act. The Company
filed that registration statement on December 18, 2007 and as required under the
registration rights agreement had the registration statement declared effective
by the Securities and Exchange Commission (“SEC”) on March 27, 2008 and in so
doing incurred no liquidated damages. As of December 31, 2008, the Company does
not believe that any liquidated damages are probable and thus no amounts have
been accrued in the accompanying financial statements.
Income
Taxes
The
Company accounts for income taxes in accordance with Financial Accounting
Standards Board (“FASB”) Statement No. 109 “Accounting for Income Taxes.” SFAS
No. 109 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.
F-21
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
July 2006, the FASB issued Interpretation No. (“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”. 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. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. This Interpretation was effective for the
Company on January 1, 2007. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
Fair
Value of Financial Instruments
The
financial instruments consist of cash, accounts receivable and accounts payable.
The fair value of the financial instruments approximates the carrying value at
December 31, 2008.
Risks
and Uncertainties
The
Company's operations are subject to new innovations in product design and
function. Significant technical changes can have an adverse effect on product
lives. Design and development of new products are important elements to achieve
and maintain profitability in the Company's industry segment. The Company may be
subject to federal, state and local environmental laws and regulations. The
Company does not anticipate expenditures to comply with such laws and does not
believe that regulations will have a material impact on the Company's financial
position, results of operations, or liquidity. The Company believes that its
operations comply, in all material respects, with applicable federal, state, and
local environmental laws and regulations.
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. 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 $250,000. At times, the Company
has cash deposits in excess of federally and institutional insured
limits.
As of
December 31, 2008, the Department of Energy made up 100% of Grant Revenue and
Department of Energy grant receivables. As of December 31, 2007, one
customer made up 100% of all revenues and accounts
receivables. Management believes the loss of these organizations
would have a material impact on the Company’s financial position, results of
operations, and cash flows.
Loss
per Common Share
The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the
consolidated statement of operations. Basic loss per share is computed as net
loss divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants, and other convertible
securities. For both the years ended December 31, 2008 and 2007, the Company had
approximately 3,287,159 options and 7,386,694 warrants, to purchase shares of
common stock that were excluded from the calculation of diluted loss per share
as their effects would have been anti-dilutive.
F-22
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Debt
Issuance Costs
Debt
issuance costs represent costs incurred related to the Company’s senior secured
convertible note payable. These costs were amortized over the term of the note
using the effective interest method and expensed upon conversion of senior
secured convertible note (Note 5).
Share-Based
Payments
The
Company accounts for stock options issued to employees and consultants under
SFAS No. 123(R), “Share-Based Payment”. Under SFAS 123(R), share-based
compensation cost to employees is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the
employee's requisite vesting period.
The
Company measures compensation expense for its non-employee stock-based
compensation under EITF No. 96-18 “Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services” (“EITF 96-18”). The fair value of the option issued or
committed to be issued is used to measure the transaction, as this is more
reliable than the fair value of the services received. The fair value is
measured at the value of the Company's common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty's performance is complete. The fair value of the equity instrument
is charged directly to stock-based compensation expense and credited to
additional paid-in capital.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. However, in February 2008 the
FASB Staff Position No. 157-2 was issued, which delays the effective date of the
requirements of SFAS 157 as to non-financial assets and non-financial
liabilities except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis. The effective date has been
deferred to fiscal years beginning after November 15, 2008 for these
non-financial assets and liabilities. Our adoption of SFAS 157 on January 1,
2008 did not have a material impact on our consolidated financial position,
results of operations or cash flows during the year ended December 31, 2008. The
Company does not expect the deferred portion of the adoption of SFAS 157 to have
a material impact on the financial statements.
In
February 2007, the FASB issued SFAS No. 159, which permits entities to choose to
measure many financial instruments and certain other items at fair value. SFAS
No. 159 also includes an amendment to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which applies to all entities with
available-for-sale and trading securities. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15,
2007. The adoption of SFAS No. 159 did not have a material impact on
the Company's results of operations or financial position.
F-23
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
December 2007, the FASB issued SFAS No. 141(revised 2007), "Business
Combinations" ("SFAS No. 141R"). SFAS No. 141R will significantly change the
accounting for business combinations in a number of areas, including the
treatment of contingent consideration, contingencies, acquisition costs,
in-process research and development and restructuring costs. SFAS No. 141R
includes an amendment to SFAS No. 109, "Accounting for Income Taxes." This
statement is effective for fiscal years beginning after December 15, 2008. The
Company is assessing the impact of SFAS No. 141R and has not determined whether
it will have a material impact on the Company's results of operations or
financial position.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 5” (SFAS No.
160). SFAS No. 160 amends ARB No. 51 to establish accounting
and reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. It also amends certain of ARB
No. 51’s consolidation procedures for consistency with the requirements of SFAS
No. 141(R). This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The statement shall be applied prospectively as of the
beginning of the fiscal year in which the statement is initially
adopted. The Company is in the process of evaluating the impact of
SFAS No. 160 on its financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 provides a framework for selecting
accounting principles for financial statements that are presented in conformity
with GAAP. The Company does not expect that the provisions of SFAS 162 will
result in a change in accounting practice for the Company.
NOTE
3 – DEVELOPMENT CONTRACTS
Department
of Energy Award 1
In
February 2007, the Company was awarded a grant for up to $40 million from the
U.S. Department of Energy's (“DOE”) cellulosic ethanol grant program to develop
a solid waste biorefinery project at a landfill in Southern
California.
During
October 2007, the Company finalized Award 1 for a total approved budget of just
under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40%
of approve costs may be reimbursed by the DOE pursuant to the total $40 million
award announced in February 2007. For the years ended December 31, 2008 and
2007, the Company recorded grant revenue of approximately $1,076,000 and zero,
respectively. As of December 31, 2008 and 2007 the Company recorded a
receivable of approximately $692,000 and zero, respectively related to the DOE
contract.
California
Energy Commission
In March
2007, the Company was selected to receive an award of approximately $1,000,000
in funding from the California Energy Commission (“CEC”). After careful review
and consideration of the CEC Grant Agreement, in January 2008, the Company
determined it would be to the best interest of its shareholders to decline the
acceptance of the grant. The terms under which the Company would have received
the grant came at a premium and clouded otherwise clear ownership structures of
the Company’s technology and its commercial projects. When compared
to other available funding sources this presented difficulties to the Company’s
ongoing fund raising activities with private parties. Thus, the Company believed
it would not be the best interest of their shareholders to execute the
agreement.
F-24
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and Equipment consist of the following:
December
31,
2008
|
December
31,
2007
|
|||||||
Land
|
$
|
109,108
|
$
|
109,108
|
||||
Office
equipment
|
55,089
|
35,629
|
||||||
Furniture
and fixtures
|
42,676
|
6,676
|
||||||
206,873
|
151,413
|
|||||||
Accumulated
depreciation
|
(20,761
|
)
|
(406
|
)
|
||||
$
|
186,112
|
$
|
151,007
|
Depreciation
expense for the years ended December 31, 2008 and 2007 and for the period from
inception to December 31, 2008 was $20,352, $409, and $20,761,
respectively.
Purchase
of Lancaster Land
On
November 9, 2007, the Company purchased approximately 95 acres of land in
Lancaster, California for approximately $109,000, including certain site
surveying and other acquisition costs. The Company intends to use the land for
the construction of their first pilot refinery plant.
NOTE
5 – NOTES PAYABLE
Convertible
Notes Payable
On July
13, 2007, the Company issued several convertible notes aggregating a total of
$500,000 with eight accredited investors including $25,000 from the Company’s
Chief Financial Officer. Under the terms of the notes, the Company
was to repay any principal balance and interest, at 10% per annum within 120
days of the note. The holders also received warrants to purchase common
stock at $5.00 per share. The warrants vested immediately and expire in five
years. The total warrants issued pursuant to this transaction were 200,000 on a
pro-rata basis to investors. The convertible promissory notes were only
convertible into shares of the Company’s common stock in the event of a default.
The conversion price was determined based on one third of the average of the
last-trade prices of the Company’s common stock for the ten trading days
preceding the default date.
The fair
value of the warrants was $990,367 as determined by the Black-Scholes option
pricing model using the following weighted-average assumptions: volatility of
113%, risk-free interest rate of 4.94%, dividend yield of 0%, and a term of five
years.
The
proceeds were allocated between the convertible notes payable and the warrants
issued to the convertible note holders based on their relative fair values
which resulted in $167,744 allocated to the convertible notes and $332,256
allocated to the warrants. The amount allocated to the warrants resulted in a
discount to the convertible notes. The Company amortized the discount
over the term of the convertible notes. During the year ended December 31, 2007,
the Company amortized $332,256 of the discount to interest expense.
F-25
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
accordance with EITF 98-05 “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”,
the Company calculated the value of the beneficial conversion feature to be
approximately $332,000 of which $167,744 was allocated to the convertible notes.
However, since the convertible notes were convertible upon a contingent event,
the value was recorded when such event was triggered.
On
November 7, 2007, the Company re-paid the 10% convertible promissory notes
totaling approximately $516,000 including interest of approximately
$16,000. This included approximately $800 of accrued interest to the
Company’s Chief Financial Officer.
Senior
Secured Convertible Notes Payable
On August
21, 2007, the Company issued senior secured convertible notes aggregating a
total of $2,000,000 with two institutional accredited
investors. Under the terms of the notes, the Company was to repay any
principal balance and interest, at 8% per annum, due August 21, 2009. On a
quarterly basis, the Company has the option to pay interest due in cash or in
stock. The senior secured convertible notes were secured by
substantially all of the Company’s assets. The total warrants issued pursuant to
this transaction were 1,000,000 on a pro-rata basis to investors. These include
class A warrants to purchase 500,000 common stock at $5.48 per share and class B
warrants to purchase an additional 500,000 shares of common stock at $6.32 per
share. The warrants vested immediately and expire in three years. The senior
secured convertible note holders had the option to convert the note into shares
of the Company’s common stock at $4.21 per share at any time prior to maturity.
If, before maturity, the Company consummated a Financing of at least $10,000,000
then the principal and accrued unpaid interest of the senior secured convertible
notes would be automatically converted into shares of the Company’s common stock
at $4.21 per share.
The fair
value of the warrants was approximately $3,500,000 as determined by the
Black-Scholes option pricing model using the following weighted-average
assumptions: volatility of 118%, risk-free interest rate of 4.05%, dividend
yield of 0% and a term of three years. The proceeds were allocated
between the senior secured convertible notes and the warrants issued to the
convertible note holders based on their relative fair values and resulted in
$728,571 being allocated to the senior secured convertible promissory notes and
$1,279,429 allocated to the warrants. The resulting discount was to be amortized
over the life of the notes.
In
accordance with EITF 98-05 “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, as
amended by EITF 00-27, the Company calculated the value of the beneficial
conversion feature to be approximately $1,679,000 of which approximately
$728,000 was allocated to the beneficial conversion feature resulting in 100%
discount to the convertible promissory notes. During the year ended December 31,
2007, the Company amortized approximately $312,000 of the discount related to
the warrants and beneficial conversion feature to interest expense and
$1,688,000 to loss on extinguishment, see below for discussion.
In
addition, the Company entered into a registration rights agreement with the
holders of the senior secured convertible notes agreement whereby the Company
was required to file an initial registration statement with the Securities and
Exchange Commission in order to register the resale of the maximum amount of
common stock underlying the secured convertible notes within 120 days of the
Exchange Agreement (December 19, 2007). The registration statement
was filed with the SEC on December 19, 2007. The registration statement was then
declared effective on March 27, 2008. The Company incurred no liquidated
damages.
F-26
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Modification
of Conversion Price and Warrant Exercise Price on Senior Secured Convertible
Note Payable
On
December 3, 2007, the Company modified the conversion price into common stock on
its outstanding senior secured convertible notes from $4.21 to $2.90 per share.
The Company also modified the exercise price of the Class A and B warrants
issued with convertible notes from $5.48 and $6.32, respectively, to $2.90 per
share.
In
accordance with EITF 96-19 and EITF 06-6, the Company recorded an extinguishment
loss of approximately $2,818,000 for the modification of the conversion price as
the fair value of the conversion price immediately before and after the
modification was greater than 10% of the carrying amount of the original debt
instrument immediately prior to the modification. The loss on
extinguishment was determined based on the difference between the fair value of
the new instruments issued and the previous carrying value of the convertible
debt at the date of extinguishment. Upon modification, the carrying amount of
the senior secured convertible notes payable of $2,000,000 and accrued interest
of approximately $33,000 was converted into a total of 700,922 shares of common
stock at $2.90 and $2.96 per share, respectively. Prior to the
modification, during the quarter ended September 30, 3007, the Company satisfied
its interest obligation of approximately $20,000 by issuing 3,876 shares of the
Company’s common stock at $4.48 per share in lieu of cash.
The
extinguishment loss and non-cash interest expense for the warrants was
determined using the Black-Scholes option pricing model using the following
assumptions: volatility of 122.9%, expected life of 4.72 years, risk free
interest rate of 3.28%, market price per share of $3.26, and no
dividends.
Debt
Issuance Costs
Debt
issuance fees and expenses of approximately $207,000 have been incurred in
connection with the senior secured convertible note. These fees consisted of a
cash payment of $100,000 and the issuance of warrants to purchase 23,731 shares
of common stock. The warrants have an exercise price of $5.45, vested
immediately and expire in five years. The warrants were valued at approximately
$107,000 as determined by the Black-Scholes option pricing model using the
following weighted-average assumptions: volatility of 118%, risk-free interest
rate of 4.05%, dividend yield of 0% and a term of five years. These costs were
amortized over the term of the note using the effective interest method and
expensed upon conversion of senior secured convertible note. During
the year ended December 31, 2007, the Company amortized approximately $32,000 of
the debt issuance costs to interest expense and approximately $175,000 to loss
on extinguishment, see above for further discussion.
NOTE
6 - COMMITMENTS AND CONTINGENCIES
Employment
Agreements
On June
27, 2006, the Company entered into employment agreements with three key
employees. The employment agreements are for a period of three years, with
prescribed percentage increases beginning in 2007 and can be cancelled upon a
written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual amount due under the
employment agreements is approximately $586,000 per year.
On March
31, 2008, the Board of Directors of the Company replaced our Chief Financial
Officer’s previously existing at-will Employment Agreement with a new employment
agreement, effective February 1, 2008, and terminating on May 31, 2009, unless
extended for additional periods by mutual agreement of both parties. The new
agreement contained the following material terms: (i) initial annual salary of
$170,000, paid monthly; and (ii) standard employee benefits; (iii) limited
termination provisions; (iv) rights to Inventions provisions; and (v)
confidentiality and non-compete provisions upon termination of
employment.
F-27
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Board
of Director Arrangements
During
2008, the Company renewed all of its existing Directors appointments, issued
6,000 shares to each and paid $5,000 to the three 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. The value of the common stock granted was determined to
be approximately $123,000 based on the fair market value of the Company’s common
stock of $4.10 on the date of the grant. During the years ended
December 31, 2008, the Company expensed approximately $138,000, related to
the agreements.
On July
7, 2007, the Company entered into an agreement with two Directors to serve on
the Company’s Board. Under the terms of the agreement the individuals
received annual compensation in the amount of $5,000 and a one-time grant of
5,000 shares of the Company’s common stock. In addition, the Company
renewed three of its existing Directors appointment, issued 1,000 shares to each
and paid $5,000 to the one outside member. The value of the common stock granted
was determined to be approximately $66,000 based on the fair market value of the
Company’s common stock of $5.07 on the date of the grant. During the
year ended December 31, 2007, the Company expensed approximately $81,000 related
to the agreements.
Investor
Relations Agreements
On
November 9, 2006, the Company entered into an agreement with a consultant. Under
the terms of the agreement, the Company is to receive investor relations and
support services in exchange for a monthly fee of $7,500, 150,000 shares of
common stock, warrants to purchase 200,000 shares of common stock at $5.00 per
share, expiring in five years, and the reimbursement of certain travel expenses.
The common stock and warrants vested in equal amounts on November 9, 2006,
February 1, 2007, April 1, 2007 and June 1, 2007. The Company accounted for the
agreement under the provisions of EITF 96-18.
At
December 31, 2006, the consultant was vested in 37,500 shares of common
stock. The shares were valued at $112,000 based upon the closing
market price of the Company’s common stock on the vesting date. The warrants
were valued on the vesting date at $100,254 based on the Black-Scholes option
pricing model using the following assumptions: volatility of 88%, expected life
of five years, risk free interest rate of 4.75% and no dividends. The value of
the common stock and warrants was recorded in general and administrative expense
on the accompanying statement of operations.
The
Company revalued the shares on February 1, 2007, vesting date, and recorded an
additional adjustment of $138,875. On February 1, 2007 the warrants were
revalued at $4.70 per share based on the Black-Scholes option pricing method
using the following assumptions: volatility of 102%, expected life of five
years, risk free interest rate of 4.96% and no dividends. The Company recorded
an additional expense of $158,118 related to these vested warrants.
On March
31, 2007, the fair value of the vested common stock issuable under the contract
based on the closing market price of the Company’s common stock was $7.18 per
share and thus expensed $269,250. As of March 31, 2007, the Company estimated
the fair value of the vested warrants issuable under the contract to be $6.11
per share. The warrants were valued on March 31, 2007 based on the Black-Scholes
option pricing model using the following assumptions: volatility of 114%,
expected life of five years, risk free interest rate of 4.58% and no dividends.
The Company recorded an additional estimated expense of approximately $305,000
related to the remaining unvested warrants.
F-28
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company revalued the shares on June 1, 2007, vesting date, and recorded an
additional adjustment of $234,375. On of June 1, 2007 the warrants were revalued
at $5.40 per share based on the Black-Scholes option pricing method using the
following assumptions: volatility of 129%, expected life of four and a half
years, risk free interest rate of 4.97% and no dividends. The Company recorded
an additional expense of $269,839 related to these vested warrants during the
three months ended June 30, 2007.
During
the year ended December 31, 2007, total compensation expense related to the
common stock and warrants was $642,500 and $733,264, respectively.
Professional
Services Agreement
As of
December 31, 2008, the Company had contracts with several engineering firms.
During the period from inception to December 31, 2008, the Company paid
approximately $4,900,000 to various engineering firms.
NOTE
7 -STOCKHOLDERS' EQUITY
Amended
and Restated 2006 Incentive and Nonstatutory Stock Option Plan
On
December 14, 2006, the Company established the 2006 incentive and nonstatutory
stock option plan (the “Plan”). The Plan is intended to further the growth and
financial success of the Company by providing additional incentives to selected
employees, directors, and consultants. Stock options granted under the Plan may
be either "Incentive Stock Options" or "Nonstatutory Options" at the discretion
of the Board of Directors. The total number of shares of Stock which may be
purchased through exercise of Options granted under this Plan shall not exceed
ten million (10,000,000) shares, they become exercisable over a period of no
longer than five (5) years and no less than 20% of the shares covered thereby
shall become exercisable annually.
On
October 16, 2007, the Board reviewed the Plan. As such, it determined
that the Plan was to be used as a comprehensive equity incentive program for
which the Board serves as the Plan administrator; and therefore added the
ability to grant restricted stock awards under the Plan.
Under the
amended and restated Plan, an eligible person in the Company’s service may
acquire a proprietary interest in the Company in the form of shares or an option
to purchase shares of the Company’s common stock. The amendment includes certain
previously granted restricted stock awards as having been issued under the
amended and restated Plan. As of December 31, 2008, 3,307,159 options and
204,500 shares have been issued under the plan. As of December 31,
2008, 6,488,341 shares are still issuable under the Plan.
Stock
Options
On
December 14, 2006, the Company granted options to purchase 1,990,000 shares of
common stock to various employees and consultants having a $2.00 exercise price.
The value of the options granted was determined to be approximately $4,900,000
based on the Black-Scholes option pricing model using the following assumptions:
volatility of 99%, expected life of five (5) years, risk free interest rate of
4.73%, market price per share of $3.05, and no dividends. The Company expensed
the value of the options over the vesting period of two years for the employees.
For non-employees the Company revalued the fair market value of the options at
each reporting period under the provisions of EITF 96-18.
F-29
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
December 20, 2007, the Company granted options to purchase 1,038,750 shares of
the Company’s common stock to various employees and consultants having an
exercise price of $3.20 per share. In addition, on the same date, the Company
granted its President and Chief Executive Officer 250,000 and 28,409 options to
purchase shares of the Company’s common stock having an exercise price of $3.20
and $3.52, respectively. The value of the options granted was
determined to be approximately $3,482,000 based on the Black-Scholes option
pricing model using the following assumptions: volatility of 122.9%,
expected life of five (5) years, risk free interest rate of 3.09%, market price
per share of $3.20, and no dividends. Of the total 1,317,159 options granted on
December 20, 2007, 739,659 vested immediately and 27,500 issued to consultants
vested monthly over a one year period, and 550,000 of the options vested upon
two contingent future events. Management’s belief at the time of the
grant was that the events were probable to occur and were within their control,
and thus accounted for the remaining vesting under SFAS 123(R) by
straight-lining the vesting through the expected date on which the future events
were to occur. At the time, management believed that future date was
June 30, 2008. This determination was based on the fact that the Company
appeared to be on track to receive the permits and the related funding was
available. In June 2008, the Company determined that the June 30, 2008 estimate
would not be met due to delays in receiving the necessary permits and thus
modified the date to September 30, 2008. In September 2008, the Company
determined that the September 30, 2008 deadline would not be met due to the
difficulty in obtaining financing due to the pending collapse of the capital
markets. At that point the remaining unamortized portion was immaterial and
thus, the Company expensed the remaining amounts. Although the options were
expensed according to SFAS 123(R), the recipients are still not fully vested as
the triggering events have not yet occurred.
The
Company accounts for the stock options to consultants under the provisions of
EITF 96-18. In accordance with EITF 96-18, as of December 31, 2008, the options
awarded to consultants under the 2006 and 2007 Stock Option Grant were re-valued
using the Black-Scholes option pricing model with the following assumptions:
volatility of 150%, risk free interest rate of 1.55%, no
dividends, expected life for the 2006 stock option award of three years;
and expected life for the 2007 stock option award of four years.
In
connection with the Company’s 2007 and 2006 stock option awards, during the
years ended December 31, 2008, and 2007 and for the period from March 28, 2006
(Inception) to December 31, 2008, the Company amortized stock based
compensation, including consultants, of approximately $ 1,691,000, $2,452,000
and $4,255,000 to general and administrative expenses and $2,078,000, $2,287,000
and $4,368,000 to project development expenses, respectively. Related to these
the 2007 and 2006 options awards, the Company will not record any future
employee compensation expense.
A summary
of the status of the stock option grants under the Plan as of the years ended
December 31, 2007 and 2008 and changes during this period is presented as
follows:
F-30
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|||||||
Outstanding
January 1, 2007
|
1,990,000
|
$
|
2.00
|
||||||
Granted
during the year
|
1,317,159
|
3.21
|
|||||||
Exercised
during the year
|
(20,000
|
)
|
2.00
|
||||||
Outstanding
December 31, 2007
|
3,287,159
|
$
|
2.48
|
||||||
Granted
during the year
|
-
|
-
|
|||||||
Exercised
during the year
|
-
|
-
|
|||||||
Outstanding
December 31, 2008
|
3,287,159
|
$
|
2.48
|
3.40
|
|||||
Options
exercisable at December 31, 2008
|
2,737,159
|
$
|
2.34
|
3.28
|
The total
amount of cash received from the exercise of stock options and the total
intrinsic value of options exercised during the year ended December 31, 2007,
was $40,000 and $35,000, respectively. There were no amounts received
for the exercise of stock options in 2008. As of December 31, 2008, the average
intrinsic value of the options outstanding is zero as the exercise prices were
in excess of the closing price of the Company’s common stock as of December 31,
2008.
Private
Offerings
On
January 5, 2007, the Company completed a private offering of its stock, and
entered into subscription agreements with four accredited
investors. In this offering, the Company sold an aggregate of 278,500
shares of the Company’s common stock at a price of $2.00 per share for total
proceeds of $557,000. The shares of common stock were offered and
sold to the investors in private placement transactions made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933. In addition, the Company paid $12,500 in cash and issued 6,250 shares
of their common stock as a finder’s fee.
On
December 3, 2007 and December 14, 2007, the Company issued an aggregate of
5,740,741 shares of common stock at $2.70 per share and issued warrants to
purchase 5,740,741 shares of common stock for gross proceeds of
$15,500,000. The warrants have an exercise price of $2.90 per share
and expire five years from the date of issuance.
The value
of the warrants was determined to be approximately $15,968,455 based on the
Black-Scholes option pricing model using the following assumptions: volatility
of 122.9%, expected life of five (5) years, risk free interest rate of 3.28%,
market price per share of $3.26, and no dividends. The relative fair
value of the warrants did not have an impact on the financial statements as they
were issued in connection with a capital raise and recorded as additional
paid-in capital.
The
warrants are subject to “full-ratchet” anti-dilution protection in the event the
Company (other than excluded issuances, as defined) issues any
additional shares of stock, stock options, warrants or any securities
exchangeable into common stock at a price of less than $2.90 per share. If the
Company issues securities for less $2.90 per share then the exercise price for
the warrants shall be adjusted to equal to the lower price.
F-31
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
connection with the capital raise, the Company paid $1,050,000 to placement
agents, $90,000 in legal fees and issued warrants for the purchase of 222,222
shares of common stock. The warrants were valued at $618,133 based on the
Black-Scholes assumptions above as recorded as a cost of the capital raised by
the Company.
Issuance
of Common Stock related to Employment Agreements
In
January 2007, the Company issued 10,000 shares of common stock to an employee in
connection with an employment agreement. The shares were valued on
the initial date of employment at $40,000 based on the closing market of the
Company’s common stock on that date.
On
February 12, 2007, the Company entered into an employment agreement with a key
employee, and simultaneously entered into a consulting agreement with an entity
controlled by such employee; both agreements were effective March 16, 2007.
Under the terms of the consulting agreement, the consulting entity received
50,000 restricted shares of the Company’s common stock. The common stock was
valued at approximately $275,000 based on the closing market price of the
Company’s common stock on the date of the agreement. The shares vest in equal
quarterly installments on February 12, 2007, June 1, December 1, and December 1,
2007. The Company amortized the entire fair value of the common stock of
$275,000 over the vesting period during the year ended December 31,
2007. No additional issuances were made in 2008.
Private
Placement Agreements
During
the year ended December 31, 2007, the Company entered into various placement
agent agreements, whereby payments are only ultimately due if capital is raised.
As of December 31, 2008, no other amounts are due under the
agreements.
Warrants
Outstanding
A summary
of the status of the warrants for the years ended December 31, 2007 and 2008 and
changes during the periods is presented as follows:
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
||||||||||
Outstanding
January 1, 2007 (with 50,000 warrants exercisable)
|
200,000
|
$
|
5.00
|
|||||||||
Issued
during the year
|
7,186,694
|
2.96
|
||||||||||
Outstanding
and exercisable at December 31, 2007
|
7,386,694
|
$
|
3.02
|
4.60
|
||||||||
Issued
during the year
|
-
|
-
|
||||||||||
Outstanding
and exercisable at December 31, 2008
|
7,386,694
|
$
|
3.02
|
3.60
|
F-32
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - RELATED PARTY TRANSACTIONS
Technology
Agreement with Arkenol, Inc.
On March
1, 2006, the Company entered into a Technology License agreement with Arkenol,
Inc. (“Arkenol”), which the Company’s majority shareholder and other family
members hold an interest in. Arkenol has its own management and board separate
and apart from the Company. According to the terms of the agreement, the Company
was granted an exclusive, non-transferable, North American license to use and to
sub-license the Arkenol technology. The Arkenol Technology, converts
cellulose and waste materials into Ethanol and other high value chemicals. As
consideration for the grant of the license, the Company shall make a one time
payment of $1,000,000 at first project construction funding and for each plant
make the following payments: (1) royalty payment of 4% of the gross sales price
for sales by the Company or its sub licensees of all products produced from the
use of the Arkenol Technology (2) and a one time license fee of $40.00 per 1,000
gallons of production capacity per plant. According to the terms of the
agreement, the Company made a one-time exclusivity fee prepayment of $30,000
during the period ended December 31, 2006. The agreement term is for 30 years
from the effective date.
During
2008, due to the receipt of proceeds from the Department of Energy, the Board of
Directors determined that the Company had triggered its obligation to incur the
full $1,000,000 Arkenol License fee. The Board of Directors determined that the
receipt of these proceeds constituted “First Project Construction Funding” as
established under the Arkenol technology agreement. As such, the statement of
operation reflects the one-time license fee of $1,000,000 and the unpaid balance
of $970,000 was included in license fee payable to related party on the
accompanying consolidated balance sheet as of December 31, 2008. The
prepaid fee to related party of $30,000 was eliminated as of December 31,
2008. The Company paid the $970,000 to the related party subsequent
to year end.
Asset
Transfer Agreement with Ark Entergy, Inc.
On March
1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement
with ARK Energy, Inc. (“ARK Energy”), which is owned (50%) by the Company’s CEO.
ARK Energy has its own management and board separate and apart from the Company.
Based upon the terms of the agreement, ARK Energy transferred certain rights,
assets, work-product, intellectual property and other know-how on project
opportunities that may be used to deploy the Arkenol technology (as described in
the above paragraph). In consideration, the Company has agreed to pay a
performance bonus of up to $16,000,000 when certain milestones are met. These
milestones include transferee’s project implementation which would be
demonstrated by start of the construction of a facility or completion of
financial closing whichever is earlier. The payment is based on ARK Energy’s
cost to acquire and develop 19 sites which are currently at different stages of
development. As of December 31, 2008, the Company had not incurred any
liabilities related to the agreement.
Related
Party Line of Credit
In March
2007, the Company obtained a line of credit in the amount of $1,500,000 from its
Chairman/Chief Executive Officer and majority shareholder to provide additional
liquidity to the Company as needed. Under the terms of the note, the Company is
to repay any principal balance and interest, at 10% per annum, within 30 days of
receiving qualified investment financing of $5,000,000 or more. As of December
31, 2007, the Company repaid its outstanding balance on line of credit of
approximately $631,000 which included interest of $37,800. This line of credit
was terminated with the closing of the private placement in December 2007 and
the subsequent line of credit balance repayment.
Purchase
of Property and Equipment
During
the year ended December 31, 2007, the Company purchased various office furniture
and equipment from ARK Energy costing approximately $39,000 (see Note
3). In 2008, the Company did not purchase any items from ARK
Energy.
Notes
Payable
As
mentioned in Note 3, on July 13, 2007, the Company issued several convertible
notes aggregating a total of $500,000 with eight accredited investors including
$25,000 invested by the Company’s Chief Financial Officer. In 2008,
no additional notes were issued.
F-33
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – INCOME TAXES
Income
tax reporting primarily relates to the business of the parent company Blue Fire
Ethanol Fuels, Inc. which experienced a change in ownership on June 27, 2006. A
change in ownership requires management to compute the annual limitation under
Section 382 of the Internal Revenue Code. The amount of benefits the Company may
receive from the operating loss carry forwards for income tax purposes is
further dependent, in part, upon the tax laws in effect, the future earnings of
the Company, and other future events, the effects of which cannot be
determined.
The
Company's deferred tax assets consist solely of net operating loss carry
forwards of approximately $6,615,000 and $3,347,000 at December 31, 2008 and
2007, respectively. For federal tax purposes these carry forwards
expire in twenty years beginning in 2026 and for the State of California
purposes they expire in five years beginning in 2011. A full valuation allowance
has been placed on 100% of the Company's deferred tax assets as it cannot be
determined if the assets will be ultimately used. During the years
ended December 31, 2008 and 2007, and for the period from March 28, 2006
(Inception) to December 31, 2008, the valuation increased by approximately
$3,268,000, $3,002,000, and $6,615,000, respectively.
In
addition, the Company is not current in their federal and state income tax
filings due to previous delinquencies by Sucre prior to the reverse acquisition.
The Company has assessed and determined that the effect of non filing is not
expected to be significant, as Sucre has not had active operations for a
significant period of time.
We filed
U.S. Federal tax returns and U.S. State tax returns. We have identified our U.S.
Federal tax returns as our “major” tax jurisdiction. The U.S. Federal return
years 2005 through 2007 are still subject to tax examination by the U.S.
Internal Revenue Service, however we do not currently have any ongoing tax
examinations.
NOTE
10 -SUBSEQUENT EVENT
Related
Party Line of Credit
In
February 2009, the Company obtained a line of credit in the amount of $570,000
from Arkenol Inc, its technology licensor, to provide additional liquidity to
the Company as needed. Under the terms of the note, the Company is to make
interest-only payments at the end of each calendar quarter at a rate of 6% per
annum on any outstanding principal balance. Any outstanding balance is to be
paid in full within 30 days of receiving qualified investment financing of at
least $2,000,000. As of March 25, 2009, there were no amounts
outstanding.
F-34
BlueFire
Ethanol Fuels, Inc.
2,500,000 Shares
PROSPECTUS
,
2009
42
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers.
The
Company’s Amended and Restated Bylaws provide for indemnification of directors
and officers against certain liabilities. Officers and directors of the Company
are indemnified generally for any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the corporation, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or proceeding if
he acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful.
The
Company’s Amended and Restated Articles of Incorporation further provides the
following indemnifications:
(a) a
director of the Corporation shall not be personally liable to the Corporation or
to its shareholders for damages for breach of fiduciary duty as a director of
the Corporation or to its shareholders for damages otherwise existing for (i)
any breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) acts revolving
around any unlawful distribution or contribution; or (iv) any transaction from
which the director directly or indirectly derived any improper personal benefit.
If Nevada Law is hereafter amended to eliminate or limit further liability of a
director, then, in addition to the elimination and limitation of liability
provided by the foregoing, the liability of each director shall be eliminated or
limited to the fullest extent permitted under the provisions of Nevada Law as so
amended. Any repeal or modification of the indemnification provided in these
Articles shall not adversely affect any right or protection of a director of the
Corporation under these Articles, as in effect immediately prior to such repeal
or modification, with respect to any liability that would have accrued, but for
this limitation of liability, prior to such repeal or modification.
(b) the
Corporation shall indemnify, to the fullest extent permitted by applicable law
in effect from time to time, any person, and the estate and personal
representative of any such person, against all liability and expense (including,
but not limited to attorney's fees) incurred by reason of the fact that he is or
was a director or officer of the Corporation, he is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of, or in any similar managerial or fiduciary position of,
another domestic or foreign corporation or other individual or entity of an
employee benefit plan. The Corporation shall also indemnify any person who is
serving or has served the Corporation as a director, officer, employee,
fiduciary, or agent and that person's estate and personal representative to the
extent and in the manner provided in any bylaw, resolution of the shareholders
or directors, contract, or otherwise, so long as such provision is legally
permissible.
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to our directors, officers, and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item
25. Other Expenses of Issuance and Distribution.
The
estimated expenses payable by us in connection with the registration of the
shares is as follows:
SEC
Registration
|
$
|
500
|
||
Accounting
Fees and Expenses
|
$
|
7,500
|
||
Legal
Fees and Expenses
|
$
|
10,000
|
||
Printing
Costs
|
$
|
1,000
|
||
Miscellaneous
Expenses
|
$
|
2,500
|
||
Total
|
$
|
Item
26. Recent Sales of Unregistered Securities.
In March
2006, upon incorporation, we issued 10,000 shares of $1.00 par value common
stock to various individuals. In connection with the Reverse Merger, these
individuals received an aggregate of 17,000,000 shares of our restricted common
stock.
Prior to
the Reverse Merger, Sucre entered into an agreement with two related investors
for the sale of 3,000,000 free trading shares of the Sucre’s common stock for
gross proceeds of $1,000,000. The previous management of Sucre erroneously
issued 4,000,000 shares of the Sucre’s common stock to the investors. To date,
the excess shares of 1,000,000 have not been returned to the transfer agent. We
have demanded the return of the 1,000,000 and are actively pursuing every
possible channel to get the shares returned. Since we cannot predict the
ultimate outcome, the 1,000,000 shares have been accounted for as outstanding
and included in the common shares retained by Sucre’s stockholders. These
securities were issued exempt from registration pursuant to Rule 504 of
Regulation D of the Securities Act of 1933 as amended.
43
Convertible
Notes Payable
On July
13, 2007, we issued several convertible notes aggregating a total of $500,000
with seven accredited investors, including $25,000 from our Chief Financial
Officer. Under the terms of the notes, we are required to repay any principal
balance and interest, at 10% per annum within 120 days of the note. The
convertible promissory note is convertible only upon default. The holders also
received warrants to purchase common stock at $5.00 per share. The warrants vest
immediately and expire in five years. The total warrants issued pursuant to this
transaction were 200,000 on a pro-rata basis to investors. The convertible
promissory notes are only convertible into shares of our common stock in the
event of a default. The conversion price is determined based on one third of the
average of the last-trade prices of our common stock for the ten trading days
preceding the default date. On November 7, 2007, we re-paid all of our 10%
convertible promissory notes dated July 13, 2007, to all our private investors,
totaling approximately $516,000, including interest of approximately $16,000.
This private offering was completed as an offering exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
Senior
Secured Convertible Notes Payable
On August
21, 2007, we issued senior secured convertible notes (the “Convertible Notes”)
aggregating a total of $2,000,000 with two institutional accredited investors.
Under the terms of the Convertible Notes, we are required to repay any principal
balance and interest, at 8% per annum, due August 21, 2009. On a quarterly
basis, we have the option to pay interest due in cash or in stock. The
Convertible Notes are secured by substantially all of our assets. The total
warrants issued pursuant to this transaction were 1,000,000 on a pro-rata basis
to investors. These include class A warrants to purchase 500,000 common stock at
$5.48 per share and class B warrants to purchase an additional 500,000 shares of
common stock at $6.32 per share. The warrants vest immediately and expire in
three years. The holders of the Convertible Notes have the option to convert the
Convertible Notes into shares of our common stock at $4.21 per share at any time
prior to maturity. If, before maturity, we consummate a financing of at least
$10,000,000, then the principal and accrued unpaid interest of the Convertible
Notes shall be automatically converted into shares of our common stock at $4.21
per share. In addition, we entered into a registration rights agreement with the
holders of the Convertible Notes whereby we are required to file an initial
registration statement on Form SB-2 or Form S-3 with the SEC in order to
register the resale of the maximum amount of common stock underlying the
Convertible Notes within 120 days of the agreement (December 19, 2007). The
registration statement must then be declared effective no later than 90 calendar
days (March 18, 2008), in the event of a full or no review by the SEC, days from
the initial filing date.
In the
event that we fail to file a registration statement within the 120 day period,
we must pay the holder 3% of the face amount as liquidated damages. In the event
that we fail to have the registration statement declared effective by the SEC by
the dates described above, or fail to maintain on the registration statement the
effectiveness of the registration statement thereafter, then we must pay the
holders an amount equal to 2% of the aggregate purchase price paid by each
holder, for each month the registration statement remains uncured. In addition,
if we do not complete a qualified financing within 120 days of the a (December
19, 2007), we must pay the holder an additional 1% of the face amount as
liquidated damages. Liquidated damages cannot exceed 15% of the face amount of
the Convertible Notes. No accrual has been made to the accompanying financial
statements as management does not believe that such damages are probable of
being incurred.
On
December 3, 2007 and December 14, 2007, we consummated an agreement to issue up
to 5,740,741 shares of common stock and warrants to purchase 5,740,741 shares of
common stock for net proceeds of $14,360,000 (the “December Private Placement”).
The warrants have an exercise price of $2.90 per share and expire five years
from the date of issuance.
In
connection with the December Private Placement, we modified the conversion price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per
share.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 and accrued interest of
$33,333 into 700,922 shares of common stock.
Equity
Offering
On
December 3, 2007 and December 14, 2007, the Company consummated an agreement to
issue up to 5,740,741 shares of common stock and warrants to purchase 5,740,741
shares of common stock for aggregate proceeds of $14,360,000. The warrants have
an exercise price of $2.90 per share and expire five years from the date of
issuance.
44
In
addition, the Company entered into a registration rights agreement with the
investors whereby the Company is required to file an initial registration
statement on Form SB-2 (or another applicable registration form) with the SEC in
order to register the resale of the above common stock and warrants to purchase
common stock. The registration statement is required to be filed within 45 days
from December 14, 2007. The registration statement must then be declared
effective no later than 150 calendar days (May 12, 2008) from the initial filing
date.
The
Company also agreed to register the conversion shares and shares underlying the
warrants issued in connection with its previously Convertible Notes. The details
of the registration rights of the Convertible Notes can be found in the
Company’s August 28, 2007 8-K.
In the
event the Company fails to file its initial registration statement within the 45
day period or, in the event that the Company fails to have the registration
statement declared effective by the SEC by the dates described above, then the
Company must pay the investors certain liquidated damages.
Item
27. Exhibits.
Exhibit
No.
|
Description
|
|
2.1
|
Stock
Purchase Agreement and Plan of Reorganization dated May 31, 2006, filed
December 13, 2006 (1)
|
|
3.1
|
Amended
and Restated Articles of Incorporation dated July 2, 2006, filed December
13, 2006 (1)
|
|
3.2
|
Amended
and Restated Bylaws dated May 27, 2006, filed December 13, 2006
(1)
|
|
3.3
|
Second
Amended and Restated Bylaws dated April 24, 2008, filed April 29, 2008
(11)
|
|
4.1
|
Form
of Promissory Note (2)
|
|
4.2
|
Form
of Subscription Agreement (2)
|
|
4.3
|
Description
of Promissory Note dated July 13, 2007 (4)
|
|
4.4
|
Form
of Convertible Promissory Note dated August 22, 2007
(5)
|
|
4.5
|
Form
of Warrant Agreement dated August 22, 2007 (5)
|
|
4.6
|
Stock
Purchase Agreement dated December 3, 2007 (7)
|
|
4.7
|
Securities
Purchase Agreement dated December 14, 2007 (7)
|
|
4.8
|
Form
of Warrant dated December 14, 2007 (7)
|
|
5.1
|
Opinion
of Anslow & Jaclin, LLP as to the validity of the common stock
(8)
|
|
10.1
|
Form
Directors Agreement, filed December 13, 2006 (1)
|
|
10.2
|
Form
Executive Employment Agreement, filed December 13, 2006
(1)
|
|
10.3
|
Arkenol
Technology License Agreement, dated March 1, 2006, filed December 13, 2006
(1)
|
|
10.4
|
ARK
Energy Asset Transfer and Acquisition Agreement, dated March 1, 2006,
filed December 13, 2006 (1)
|
|
10.5
|
Form
of the Consulting Agreement (2)
|
|
10.6
|
Amended
and Restated 2006 Incentive and Nonstatutory Stock Option Plan, dated
December 13, 2006 (6)
|
|
10.7
|
CFO
Employment Agreement (12)
|
|
10.8
|
Employment
Agreement, dated March 31, 2008, issued by the Company
(13)
|
|
10.9
|
Revolving
Line of Credit Agreement, dated February 24, 2009
(14)
|
45
14.1
|
Code
of Ethics (10)
|
|
21.1
|
List
of Subsidiaries (3)
|
|
23.1
|
Consent
of McKennon Wilson & Morgan LLP (8)
|
|
23.2
|
Consent
of Anslow & Jaclin, LLP (included in opinion set forth in Exhibit 5.1
hereto)
|
|
24.1
|
Power
of Attorney (9)
|
|
99.1
|
Audit
Committee Charter (2)
|
|
99.2
|
Compensation
Committee Charter (2)
|
(1)
Incorporated by reference to the Company’s Form 10-SB, as filed with the
SEC on December 13, 2006.
(2)
Incorporated by reference to the Company’s Form 10-SB/A, as filed with the SEC
on February 28, 2007.
(3)
Incorporated by reference to the Company’s Form 10-SB/A, as filed with the SEC
on April 18, 2007.
(4)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
July 16, 2007.
(5)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
August 28, 2007.
(6)
Incorporated by reference to the Company’s Form S-8, as filed with the SEC on
December 17, 2007.
(7)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
December 18, 2007.
(8) Filed
herewith.
(9)
Included on signature page of this Registration Statement.
(10) Incorporated
by reference to the Company’s Form 10K-SB, as filed with the SEC on February 28,
2008.
(11)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
April 29, 2008.
(12)
Incorporated by reference to the Company's Form 10-SB/A, as filed with the SEC
on March 26, 2007.
(13)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
April 7, 2008.
(14)
Incorporated by reference to the Company’s Form 8-K, as filed with the SEC on
March 6, 2009.
Item
28. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
46
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
i. Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
ii. Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
iii. The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
iv. Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
47
SIGNATURES
In
accordance with the requirements of the Securities Act, BlueFire Ethanol Fuels,
Inc., the Registrant, certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, California, on November 9,
2009.
BLUEFIRE
ETHANOL FUELS, INC.
|
|||
By:
|
/s/ Arnold R.
Klann
|
||
Arnold
R. Klann,
|
|||
President
and Chief Executive Officer (Principal Executive Officer)
|
|||
By:
|
/s/Christopher
Scott
|
||
Christopher
Scott
|
|||
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
Arnold R. Klann
|
Director
and Chairman of the Board;
|
November
9, 2009
|
||
Arnold
R. Klann
|
President
and Chief Executive Officer
|
|||
/s/
Necitas Sumait
|
Director,
Secretary
|
November
9, 2009
|
||
Necitas
Sumait
|
and
Senior Vice President
|
|||
/s/
Christopher Scott
|
Chief
Financial Officer
|
November
9, 2009
|
||
Christopher
Scott
|
||||
/s/
John Cuzens
|
Chief
Technology Officer
|
November
9, 2009
|
||
John
Cuzens
|
and
Senior Vice President
|
|||
/s/
Chris Nichols
|
Director
|
November
9, 2009
|
||
Chris
Nichols
|
||||
/s/
Joseph I. Emas
|
Director
|
November
9, 2009
|
||
Joseph
I. Emas
|
||||
/s/
Victor H. Doolan
|
Director
|
November
9, 2009
|
||
Victor
H. Doolan
|
||||