d883450_10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For
the quarterly period ended March 31, 2008
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For
the transition period from __________ to __________
Commission
File No. 000-52361
BLUEFIRE
ETHANOL FUELS, INC.
(Exact
Name of Registrant in its Charter)
|
Nevada
|
20-4590982
|
|
|
(State
or Other Jurisdiction of
|
(IRS
Employer
|
|
|
Incorporation)
|
Identification
No.)
|
|
31
MUSICK, IRVINE, CALIFORNIA 92618
(Address
of Principal Executive Offices)(Zip Code)
(949)
588-3767
Registrant’s
Telephone Number
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No 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.
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o (Do not
check if a smaller reporting
company)
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
As
of May 14, 2008, there were 28,061,553 shares outstanding of the registrant’s
common stock.
INDEX
PART I
- FINANCIAL INFORMATION
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
1
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
1
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
2
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
3
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
4
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
7
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
11
|
|
|
|
Item
4.
|
Controls
and Procedures
|
11
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
12
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
12
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
12
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
12
|
|
|
|
Item
5.
|
Other
Information
|
12
|
|
|
|
Item
6.
|
Exhibits
|
12
|
Item
1. Financial
Statements
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
March
31,
2008
|
|
|
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,905,760 |
|
|
$ |
13,031,939 |
|
Accounts
receivable
|
|
|
- |
|
|
|
49,000 |
|
Prepaid
expenses
|
|
|
59,583 |
|
|
|
16,542 |
|
Total
current assets
|
|
|
11,965,343 |
|
|
|
13,097,481 |
|
|
|
|
|
|
|
|
|
|
Prepaid
fees to related party
|
|
|
30,000 |
|
|
|
30,000 |
|
Property
and equipment, net of accumulated depreciation
of $3,316 and $406, respectively
|
|
|
154,583 |
|
|
|
151,007 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
12,149,926 |
|
|
$ |
13,278,488 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
790,808 |
|
|
$ |
382,679 |
|
Accrued
liabilities
|
|
|
114,161 |
|
|
|
267,671 |
|
Total
current liabilities
|
|
|
904,969 |
|
|
|
650,350 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 5)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
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; 28,061,553 shares
issued and outstanding
|
|
|
28,061 |
|
|
|
28,061 |
|
Additional
paid-in capital
|
|
|
29,752,689 |
|
|
|
28,431,992 |
|
Deficit
accumulated during the development stage
|
|
|
(18,535,793 |
) |
|
|
(15,831,915 |
) |
Total
stockholders’ equity
|
|
|
11,244,957 |
|
|
|
12,628,138 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
12,149,926 |
|
|
$ |
13,278,488 |
|
See accompanying notes to consolidated financial
statements
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months ended March 31,
|
|
|
For
the Three Months ended March 31,
|
|
|
From
March 28, 2006 (inception) Through March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
49,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
development
|
|
|
1,636,472 |
|
|
|
467,155 |
|
|
|
7,033,213 |
|
General
and administrative
|
|
|
1,166,340 |
|
|
|
1,666,088 |
|
|
|
7,844,660 |
|
Total operating expenses
|
|
|
2,802,812 |
|
|
|
2,133,243 |
|
|
|
14,877,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,802,812 |
) |
|
|
(2,133,243 |
) |
|
|
(14,828,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
98,934 |
|
|
|
- |
|
|
|
120,637 |
|
Financing
related charge
|
|
|
- |
|
|
|
(211,660 |
) |
|
|
(211,660 |
) |
Amortization
of debt discount
|
|
|
- |
|
|
|
- |
|
|
|
(676,982 |
) |
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
(56,097 |
) |
Related
party interest expense
|
|
|
- |
|
|
|
(12,000 |
) |
|
|
(64,448 |
) |
Loss
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
(2,818,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,703,878 |
) |
|
$ |
(2,356,903 |
) |
|
$ |
(18,535,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.10 |
) |
|
$ |
(0.11 |
) |
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
28,061,553 |
|
|
|
21,436,361 |
|
|
|
|
|
See
accompanying notes to consolidated financial statements
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENT OF CASHFLOWS
(Unaudited)
|
|
For
the Three Months ended March 31,
|
|
|
For
the Three Months ended March 31,
|
|
|
From
March 28, 2006 (inception) Through March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,703,878 |
) |
|
$ |
(2,356,903 |
) |
|
$ |
(18,535,793 |
) |
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 |
|
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 |
|
|
|
211,660 |
|
Share-based
compensation
|
|
|
1,320,697 |
|
|
|
1,643,895 |
|
|
|
8,470,204 |
|
Depreciation
|
|
|
2,910 |
|
|
|
- |
|
|
|
3,319 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
49,000 |
|
|
|
- |
|
|
|
- |
|
Prepaid
fees to related party
|
|
|
- |
|
|
|
- |
|
|
|
(30,000 |
) |
Prepaid
expenses and other current assets
|
|
|
(43,041 |
) |
|
|
(50,521 |
) |
|
|
(59,584 |
) |
Accounts
payable
|
|
|
408,129 |
|
|
|
(5,826 |
) |
|
|
790,807 |
|
Accrued
liabilities
|
|
|
(153,510 |
) |
|
|
10,223 |
|
|
|
114,161 |
|
Accrued
interest to related party
|
|
|
- |
|
|
|
12,000 |
|
|
|
- |
|
Net
cash used in operating activities
|
|
|
(1,119,693 |
) |
|
|
(535,472 |
) |
|
|
(5,570,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(6,486 |
) |
|
|
(2,186 |
) |
|
|
(157,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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
|
|
|
- |
|
|
|
120,000 |
|
|
|
116,000 |
|
Repayment
of related party notes payable
|
|
|
- |
|
|
|
(126,500 |
) |
|
|
(116,000 |
) |
Net
cash provided by financing activities
|
|
|
- |
|
|
|
538,000 |
|
|
|
17,634,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(1,126,179 |
) |
|
|
342 |
|
|
|
11,905,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents beginning of period
|
|
|
13,031,939 |
|
|
|
2,760 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents end of period
|
|
$ |
11,905,760 |
|
|
$ |
3,102 |
|
|
$ |
11,905,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
2,500 |
|
|
$ |
56,375 |
|
Income
taxes
|
|
$ |
800 |
|
|
$ |
800 |
|
|
$ |
1,600 |
|
Fair
Value of warrants issued to placement agents
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
725,591 |
|
See accompanying notes to consolidated financial
statements
BLUEFIRE
ETHANOL FUELS, INC. AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(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 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 bio-refinery
projects.
As
of March 31, 2008 and December 31, 2007, the Company has working capital of
approximately $11,060,000 and $12,450,000, respectively. In December 2007, the
Company obtained net proceeds of approximately $14,500,000 from the issuance of
its common stock. The proceeds received are expected to be used in
operations, and in funding plant design and development
costs. Management has estimated that cash operating expenses for the
next twelve months will approximate roughly $2,400,000, excluding engineering
costs related to the development of bio-refinery projects. Although
the costs of construction are not readily determinable, the Company estimates
the cost to be approximately $30 million for its first plant. The Company is
currently in discussions with potential sources of financing 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. These interim
financial statements should be read in conjunction with the audited financial
statements of the Company for the year ended December 31, 2007.
The
results of operations for the three-months ended March 31, 2008 and 2007 are not
necessarily indicative of the results that may be expected for the full
year.
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 reporting 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 three months
ended March 31, 2008 and March 31, 2007, and for the period from March 28, 2006
(Inception) to March 31, 2008 research and development costs included in Project
Development were approximately $960,000, $224,000 and $3,967,000,
respectively.
Fair
Value of Financial Instruments
The
financial instruments consist of cash, and accounts payable. The fair value of
the financial instruments approximates the carrying value at March 31,
2008.
Loss
per Common Share
The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the
consolidated statement of operations. Basic loss per share is computed as net
loss divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants, and other convertible
securities. For the three months ended March 31, 2008 and 2007, the Company had
approximately 3,287,000 and 1,990,000 options, respectively and 7,387,000 and
200,000 warrants, respectively, 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.
Recent
Accounting Pronouncements
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.
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 bio-refinery 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. As of March 31, 2008,
the Company has not recorded a receivable related to the DOE contract as it
cannot be readily estimated due to the uncertainty of the allowable reimbursable
and the reimbursable period.
NOTE
4 - COMMITMENTS AND CONTINGENCIES
Professional
Services Agreement
On
February 26, 2007, the Company entered into an agreement with an engineering
firm, whereby the engineering firm will prepare a design basis for a pilot
facility comprising a capacity of 2.5 to 9 million gallons per year as specified
by the Company, incorporating cellulosic ethanol process technology and the
Arkenol Technology. During the three months ended March 31, 2008 and 2007 and
for the period from March 28, 2006 (inception) to March 31, 2008, the Company
has incurred costs of $430,000, $18,000 and $1,400,000, respectively, of which
all were expensed under project development on the accompanying
statement of operations. At March 31, 2008, amounts included in
accounts payable were approximately $430,000.
NOTE
5 -STOCKHOLDERS’ EQUITY
During
the three months ended March 31, 2008 and 2007, and for the period from March
28, 2006 (Inception) to March 31, 2008, the Company amortized stock-based
compensation, including consultants, of approximately $645,000, $403,000 and
$3,209,000 to general and administrative expenses and $676,000, $243,000 and
$2,966,000 to project development expenses, respectively. The Company expects to
record estimated future compensation expense of approximately $2,310,000 during
the year ending December 31, 2008.
In
accordance with EITF 96-18, as of March 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 weighted average
assumptions: volatility of 126%, remaining expected life of 4.5 years, risk free
interest rate of 2.46% and no dividends.
NOTE
6 – SUBSEQUENT EVENT
Subsequent
to March 31, 2008, the Company entered into various “technical consulting”
agreements. These consulting agreements have a term of up to four
years but can be terminated at any time with a written 10 day or 30 day
notice. Annual costs related to these agreements are estimated to be
approximate $20,000 per agreement totaling $100,000.
You
should read the following discussion and analysis of our financial condition and
plan of operations together with our financial statements and related notes
appearing elsewhere in this quarterly report. Various
statements have been made in this Quarterly Report on Form 10-Q that may
constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may also be
made in BlueFire’s other reports filed with or furnished to the SEC and in other
documents. In addition, from time to time, BlueFire through its management may
make oral forward-looking statements. Forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,”
“intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and
similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. BlueFire undertakes no obligation to update or revise any forward-looking
statements.
PLAN
OF OPERATION
We
plan to raise additional funds through joint venture partnerships, both project
equity and 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.
For
the next 12 months, our Plan of Operations is as follows:
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Obtain
additional operating capital from joint venture partnerships, debt
financing or equity financing to fund our ongoing operations and the
development of initial biorefineries in North
America.
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The
Energy Policy Act of 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. We have received
approval of our pre-application and must now submit a formal application
for a loan guarantee of up to $200 million to support the development of a
55 million gallon per year project in a location to be
determined.
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The
Energy Policy Act of 2005 created a Biorefinery Demonstration Project
Program under which $384 million or another amount appropriated by
Congress is available to fund up to three biorefinery demonstration
projects. Ultimately the DOE was appropriated $385 million for the program
and granted awards of various size to six companies of which we are one.
In October, 2007, we signed the contract for the first phase of the grant
program referred to by the DOE as “Award 1” for pre-construction
activities on our Department of Energy project and expect to
draw down on those funds by the end of the second quarter
2008.
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As
available and as applicable to our business plans, applications for public
funding will be submitted to leverage private capital raised by
us.
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Our
initial planned projects in North America are projected as follows:
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A
facility that will process approximately 170 tons of green waste material
to produce roughly 3 million gallons of ethanol annually. On November 9,
2007, we purchased the facility site which is located in Lancaster,
California “BlueFire Ethanol Lancaster, LLC”. Permit
applications were filed on June 24, 2007 to allow for construction of the
Lancaster facility. We are currently in preliminary engineering. Although
the cost of construction is not readily determinable, we estimate the cost
to be approximately $30 million for this first plant. We are currently in
discussions with potential sources of financing for this facility but no
definitive agreements are in place.
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A
facility proposed for development and construction in conjunction with the
Department of Energy in Southern California. This facility will use
approximately 700 metric dry tons 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. A definitive agreement is being finalized
with Petro-Diamond for the purchase and sale of the ethanol produced from
the facility. We have received an Award from the DOE of up to $40
million for the Department of Energy 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 approved costs may be reimbursed by the DOE pursuant
to the total $40 million award amount in February 2007. The
remainder of financing for this project is yet to be
determined.
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Several
other opportunities are being evaluated by us in North America including
discussions with various landfill owners to duplicate the proposed
Department of Energy project, although no definitive agreements have been
reached.
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RECENT
DEVELOPMENTS
During
the first quarter in 2008, BlueFire continued to develop the engineering package
for its first biorefinery, BlueFire Ethanol Lancaster, LLC. The
Company initiated contract negotiations with two integral companies for the
deployment of the technology.
In
January 2008, BlueFire began negotiating with Brinderson, a detail design and
construction firm based in Costa Mesa, California. In April 2008,
BlueFire executed definitive agreements with Brinderson for the detailed design
and construction of the Lancaster facility.
In
January 2008, BlueFire began negotiating with Roeslein Associates for the
modular construction of key equipment for the BlueFire Ethanol Lancaster, LLC
biorefinery. In April 2008 BlueFire executed definitive agreements
with Roeslein Associates for the modular construction of key equipment for the
Lancaster facility.
In
January 2008, BlueFire completed vendor testing for the
Decrystalyzer-Hydrolyzer-Filter Train with B&P Processing of Saginaw,
Michigan. The testing allowed vendors building the equipment
for the Lancaster facility to have hands-on experience with the technology and
process conditions. This experience helps assist the vendors in
mitigating building and design risks if and when they arise.
RESULTS
OF OPERATIONS
Three
Months Ended March 31, 2008 Compared to the Three Months Ended March 31,
2007
Project
Development
For
the first quarter in 2008, our project development costs were approximately
$1,635,000, compared to project development costs of $467,000 for the same
period during 2007. Included in project development costs in the
first quarter of 2008 and 2007, was approximately $676,000 and $243,000 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
contracts.
General
and Administrative Expense
General
and Administrative Expense were approximately $1,166,000 for the first quarter
of 2008, compared to $1,666,000 for the same period in 2007. Included
in general and administrative expenses in the first quarter of 2008 and 2007,
was approximately $645,000 and $403,000 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 the issuance and valuation of share-based compensation related to the prior
year.
Interest
Income
Interest
income for the first quarter of 2008 was $98,934 related to funds
invested. We did not have interest income for the same period in 2007
as we had not completed our offering of common stock during such time
period.
LIQUIDITY
AND CAPITAL RESOURCES
Our
principal sources of liquidity consist of cash and cash
equivalents. 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. As of March
31, 2008, we had cash and cash equivalents of approximately $12.0
million.
Management
believes that our Company’s cash will be sufficient to meet our working capital
requirements for the next twelve month period, as well as be sufficient to
prepare our first two Projects for construction, at which point further funding
will be necessary. However, we cannot assure you that such financing will be
available to us on favorable terms, or at all. If, after utilizing the existing
sources of capital available to the Company, further capital needs are
identified and the Company is not successful in obtaining the financing, it may
be forced to curtail its existing or planned future operations.
In
addition, as our Projects develop to the point of construction, we anticipate
significant purchases of long lead time item equipment for
construction.
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 requires 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 1, “Summary of Organization and Significant Accounting
Policies” in the notes to our audited financial statements appearing elsewhere
in this quarterly report. Although we believe that our estimates and assumptions
are reasonable, they are based upon information presently available, and actual
results may differ significantly from these estimates.
CASH
AND CASH EQUIVALENTS
For
purpose of the statement of cash flows, we consider all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
REVENUE
RECOGNITION
We
are currently a developmental-stage company and have recognized minimal revenues
to date. We 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.
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 our future cellulose-to-ethanol
production facilities. During the three months ended March 31, 2008, we expensed
all costs related to the facility development.
INCOME
TAXES
The
Company accounts for income taxes in accordance with 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. We provide a valuation allowance to net deferred tax assets
when it is deemed unlikely that we will recover such deferred tax
assets.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
fair value of financial instruments approximated their carrying values at March
31, 2008. The financial instruments consist of cash and accounts
payable.
LOSS
PER COMMON SHARE
The
Company presents basic loss per common share (“EPS”) and diluted EPS on the face
of the consolidated statement of operations. Basic loss per share is computed as
net loss divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, and other convertible
securities. As of March 31, 2008, the Company had outstanding options
and warrants to purchase an aggregate of 10,673,853 shares of common stock that
were excluded from the calculation of diluted loss per share as their effects
would have been anti-dilutive.
CONCENTRATIONS
OF CREDIT RISK
The
Company regularly maintains cash balances at certain financial institutions in
excess of amounts insured by federal agencies.
SHARE-BASED
PAYMENTS
In
December 2004, the FASB issued a revision of SFAS 123 (“SFAS 123(R)”) that
requires compensation costs related to share-based payment transactions to be
recognized in the statement of operations. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the award. SFAS 123(R)
replaces SFAS 123 and was effective as of the first interim period beginning
after January 1, 2006. During the period ended December 31, 2006, the Company
adopted the provisions of SFAS 123(R). No options were outstanding
prior to adoption.
UNCERTAIN
TAX POSITIONS
In
July 2006, the FASB issued FASB Interpretation No.48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, “Accounting for Income Taxes”. This pronouncement
recommends a recognition threshold and measurement process for recording in the
financial statements uncertain tax positions taken or expected to be taken in
the Company’s tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods and
disclosure requirements for uncertain tax positions. The accounting provisions
of FIN 48 will be effective for the Company beginning January 1, 2007. The
Company is in the process of evaluating the impact, if any, the adoption of FIN
48 will have on its financial statements.
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.
OFF-BALANCE
SHEET ARRANGEMENTS
There
are no off-balance sheet arrangements.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
Not
required.
Item
4. Controls
and Procedures
(a) Evaluation of Disclosure Controls and
Procedures. Our management, with the participation of our
Chief Executive Officer, evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive and Chief Financial Officers concluded that our
disclosure controls and procedures as of the end of the period covered by this
report were effective such that the information required to be disclosed by us
in reports filed under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) accumulated and communicated to our management,
including our Chief Executive Officer, as appropriate to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
Management's
Report on Internal Control over Financial Reporting. Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and
find it difficult to properly segregate duties. Often, one or two
individuals control every aspect of the Company's operation and are in a
position to override any system of internal control. Additionally,
smaller reporting companies tend to utilize general accounting software packages
that lack a rigorous set of software controls.
Our
management, with the participation of the Chief Executive Officer, evaluated the
effectiveness of the Company's internal control over financial reporting as of
March 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control - Integrated Framework. Based
on this evaluation, our management, with the participation of the Chief
Executive Officer, concluded that, as of March 31, 2008, our internal control
over financial reporting was effective.
(b) Changes in Internal Control over
Financial Reporting. There were no changes in our internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during our most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
None.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
None.
Item
5. Other
Information
None.
Item
6. Exhibits
Exhibit
Number
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Description of Document
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31.1
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Rule
13a-14(a)/ 15d-14(a) Certification of Arnold Klann.
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31.2
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Rule
13a-14(a)/ 15d-14(a) Certification of Christopher
Scott.
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32.1
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Certification
Pursuant to 18 U.S.C. section 1350 of Arnold Klann.
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32.2
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Certification
Pursuant to 18 U.S.C. section 1350 of Christopher
Scott.
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SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED:
May 14, 2008
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BLUEFIRE
ETHANOL FUELS, INC.
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/s/
Arnold Klann
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Arnold
Klann
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Chief
Executive Officer
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/s/
Christopher Scott
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Christopher
Scott
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Chief
Financial Officer and
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Principal
Accounting Officer
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