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:
June 30, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-52361
BLUEFIRE RENEWABLES, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4590982 | |
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
25108 Marguerite Parkway Suite A-321
Mission Viejo, CA 92692
(Address of principal executive offices)
(949) 588-3767
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
| Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 15, 2017, there were 449,124,553 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 19 |
| Item 4. | Controls and Procedures. | 19 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 19 |
| Item 1A. | Risk Factors. | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 20 |
| Item 3. | Defaults Upon Senior Securities. | 20 |
| Item 4. | Mine Safety Disclosures. | 20 |
| Item 5. | Other Information. | 20 |
| Item 6. | Exhibits. | 20 |
| Signatures | 21 | |
| 2 |
PART I – FINANCIAL INFORMATION
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 450 | $ | 161,991 | ||||
| Prepaid expenses | 21,394 | 977 | ||||||
| Total current assets | 21,844 | 162,968 | ||||||
| Total assets | $ | 21,844 | $ | 162,968 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,202,325 | $ | 1,162,788 | ||||
| Accrued liabilities | 1,799,637 | 1,549,200 | ||||||
| Notes payable | 420,000 | 420,000 | ||||||
| Line of credit, related party | 244,211 | 240,924 | ||||||
| Note payable to a related party | 200,000 | 200,000 | ||||||
| Convertible notes payable, net of discount of $0 and $3,889, respectively | 19,500 | 21,111 | ||||||
| Derivative liability | 24,987 | 27,104 | ||||||
| Total current liabilities | 3,910,660 | 3,621,127 | ||||||
| Total liabilities | 3,910,660 | 3,621,127 | ||||||
Commitments and contingencies (Note 4) | ||||||||
| Redeemable noncontrolling interest | 859,524 | 860,980 | ||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, no par value, 1,000,000 shares authorized; 51 and 51 shares issued outstanding, as of June 30, 2017 and December 31, 2016, respectively | - | - | ||||||
| Common stock, $0.001 par value; 500,000,000 shares authorized; 418,235,664 and 408,235,664 shares issued; and 418,203,492 and 408,203,492 outstanding, as of June 30, 2017 and December 31, 2016, respectively | 418,236 | 408,236 | ||||||
| Additional paid-in capital | 17,071,865 | 17,068,865 | ||||||
| Treasury stock at cost, 32,172 shares at June 30, 2017 and December 31, 2016 | (101,581 | ) | (101,581 | ) | ||||
| Accumulated deficit | (22,136,860 | ) | (21,694,659 | ) | ||||
| Total stockholders’ deficit | (4,748,340 | ) | (4,319,139 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 21,844 | $ | 162,968 | ||||
See accompanying notes to consolidated financial statements
| 3 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For
the Three Months ended June 30, 2017 | For
the Three Months ended June 30, 2016 | For
the Six Months ended June 30, 2017 | For
the Six Months ended June 30, 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Department of Energy grant revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total revenues | - | - | - | - | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Consulting revenue | - | - | - | - | ||||||||||||
| Gross margin | - | - | - | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Project development | 41,978 | 70,130 | 72,781 | 170,427 | ||||||||||||
| General and administrative | 149,047 | 211,065 | 324,972 | 508,626 | ||||||||||||
| Total operating expenses | 191,025 | 281,195 | 397,753 | 679,053 | ||||||||||||
| Operating loss | (191,025 | ) | (281,195 | ) | (397,753 | ) | (679,053 | ) | ||||||||
| Other income and (expense): | ||||||||||||||||
| Amortization of debt discount | - | - | (3,889 | ) | (32,866 | ) | ||||||||||
| Interest expense | (8,476 | ) | (11,437 | ) | (22,156 | ) | (40,740 | ) | ||||||||
| Related party interest expense | (7,329 | ) | (3,343 | ) | (14,476 | ) | (4,783 | ) | ||||||||
| Gain on settlement of accounts payable and accrued liabilities | - | 10,335 | - | 10,335 | ||||||||||||
| Change in fair value of warrant liability | - | - | - | 199 | ||||||||||||
| Change in fair value of derivative liability | (4,362 | ) | - | (5,383 | ) | 151,576 | ||||||||||
| Total other income and (expense) | (20,167 | ) | (4,445 | ) | (45,904 | ) | 83,721 | |||||||||
| Loss before income taxes | (211,192 | ) | (285,640 | ) | (443,657 | ) | (595,332 | ) | ||||||||
| Provision for income taxes | - | - | - | 153 | ||||||||||||
| Net loss | $ | (211,192 | ) | $ | (285,640 | ) | $ | (443,657 | ) | $ | (595,485 | ) | ||||
| Loss attributable to non-controlling interest | (592 | ) | (1,067 | ) | (1,456 | ) | (2,546 | ) | ||||||||
| Net loss attributable to controlling interest | $ | (210,600 | ) | $ | (284,573 | ) | $ | (442,201 | ) | $ | (592,939 | ) | ||||
| Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average common shares outstanding, basic and diluted | 409,412,284 | 410,350,656 | 408,814,604 | 382,877,984 | ||||||||||||
See accompanying notes to consolidated financial statements
| 4 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For
the Six Months Ended |
For
the Six Months Ended |
|||||||
| June 30, 2017 | June 30, 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (443,657) | $ | (595,485 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in the fair value of warrant liability | - | (199 | ) | |||||
| Change in fair value of derivative liability | 5,383 | (151,576 | ) | |||||
| Gain on settlement of accounts payable and accrued liabilities | - | (10,335 | ) | |||||
| Amortization | 3,889 | 32,866 | ||||||
| Depreciation | - | 276 | ||||||
| Excess fair value of common stock issued for accrued interest | - | 7,200 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (20,417) | 5,314 | ||||||
| Accounts payable | 39,537 | 106,580 | ||||||
| Accrued liabilities | 250,437 | 468,337 | ||||||
| Net cash used in operating activities | (164,828) | (137,022 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party line of credit/notes payable | 3,287 | 113,014 | ||||||
| Net cash provided by financing activities | 3,287 | 113,014 | ||||||
| Net decrease in cash and cash equivalents | (161,541) | (24,008 | ) | |||||
| Cash and cash equivalents beginning of period | 161,991 | 26,922 | ||||||
| Cash and cash equivalents end of period | $ | 450 | $ | 2,914 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Conversion of convertible notes payable into common stock | $ | 5,500 | $ | 52,950 | ||||
| Interest converted to common stock | $ | - | $ | 12,547 | ||||
| Derivative liability reclassed to additional paid-in capital | $ | 7,500 | $ | - | ||||
See accompanying notes to consolidated financial statements
| 5 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
BlueFire Ethanol, Inc. (“BlueFire” or the “Company”) was incorporated in the state of Nevada on March 28, 2006. BlueFire was established to deploy the commercially ready and patented process for the conversion of cellulosic waste materials to ethanol (“Arkenol Technology”) under a technology license agreement with Arkenol, Inc. (“Arkenol”). BlueFire’s use of the Arkenol Technology positions it as a cellulose-to-ethanol company with demonstrated production of ethanol from urban trash (post-sorted “MSW”), rice and wheat straws, wood waste and other agricultural residues. The Company’s goal is to develop and operate high-value carbohydrate-based transportation fuel production facilities in North America, and to provide professional services to such facilities worldwide. These “biorefineries” will convert widely available, inexpensive, organic materials such as agricultural residues, high-content biomass crops, wood residues, and cellulose from MSW into ethanol.
On September 30, 2015, the Company filed an amendment to the Company’s articles of incorporation with the Secretary of State of the State of Nevada, which, among other things, established the designation, powers, rights, privileges, preferences and restrictions of the Series A Preferred Stock, no par value per share (the “Series A Preferred Stock”). Among other things, each one (1) share of the Series A Preferred Stock shall have voting rights equal to(x) 0.019607 multiplied by the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator. For purposes of illustration only, if the total issued and outstanding shares of common stock of the Company eligible to vote at the time of the respective vote is 5,000,000, the voting rights of one share of the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000) / 0.49) – (0.019607 x 5,000,000) = 102,036).
The Series A Preferred Stock has no dividend rights, no liquidation rights and no redemption rights, and was created primarily to be able to obtain a quorum and conduct business at shareholder meetings. All shares of the Series A Preferred Stock shall rank (i) senior to the Company’s common stock and any other class or series of capital stock of the Company hereafter created, (ii) pari passu with any class or series of capital stock of the Company hereafter created and specifically ranking, by its terms, on par with the Series A Preferred Stock and (iii) junior to any class or series of capital stock of the Company hereafter created specifically ranking, by its terms, senior to the Series A Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.
Due to the Company’s struggles in securing sufficient financing necessary to enact its business plan, the Board is currently evaluating strategic alternatives which include, among other things, merging or selling the Company, in order to obtain additional capital sufficient to continue operating and meet both our operating and financial obligations. This evaluation is still under way and there can be no assurance that we will be successful in any of these efforts or that we will have sufficient funds to cover our operational and financial obligations over the next twelve months.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The Company has incurred losses since Inception. Management has funded operations primarily through proceeds received in connection with the reverse merger, loans from its Chief Executive Officer, the private placement of the Company’s common stock in December 2007 for net proceeds of approximately $14,500,000, the issuance of convertible notes with warrants in July and in August 2007, various convertible notes, and Department of Energy reimbursements from 2009 to 2015. The Company may encounter further difficulties in establishing operations due to the time frame of developing, constructing and ultimately operating the planned bio-refinery projects.
As of June 30, 2017, the Company has negative working capital of approximately $3,889,000. Management has estimated that operating expenses for the next 12 months will be approximately $750,000 excluding engineering costs related to the development of bio-refinery projects. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company intends to fund its operations with any additional funding that can be secured in the form of equity or debt. As of August 15, 2017, the Company expects the current resources available to them will only be sufficient for a period of approximately one month unless significant additional financing is received. Management has determined that the general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we may consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.
| 6 |
As of December 31, 2010, the Company completed the detailed engineering on our proposed Fulton Project, procured all necessary permits for construction of the plant, and began site clearing and preparation work, signaling the beginning of construction. All site preparation activities have been completed, including clearing and grating of the site, building access roads, completing railroad tie-ins to connect the site to the rail system, and finalizing the layout plan to prepare for the site foundation. In addition, the County of Itawamba sent notice that it would terminate the lease for the Fulton Project on May 10, 2017 if full payment was not made. The Company was unable to make payment but received a letter stating that access to the site would be on a first-come, first-served basis. See Note 4.
We estimate the total construction cost of the bio-refinery to be in the range of approximately $300 million for the Fulton Project. These cost approximations do not reflect any increase/decrease in raw materials or any fluctuation in construction cost that would be realized by the dynamic world metals markets or inflation of general costs of construction. The Company is currently in discussions with potential sources of financing for this facility but no definitive agreements are in place. The Company cannot continue significant development or furtherance of the Fulton project or any other opportunity until financing for the Company and the construction of the Fulton project is obtained.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenues from our planned principal operations.
The Company’s business and operations are very sensitive to general business and economic conditions in the U.S. and worldwide. Specifically, these conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general price of crude oil and gasoline.
The risks related to the Company’s plans to sell engineering services are that the Company currently has no sales and limited marketing capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if we decide to market any of our services. Developing a marketing and sales force is also time consuming and could delay launch of our future bio-ethanol plants. In addition, the Company will compete with other engineering companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The Company’s business and industry is also subject to new innovations in technology. Significant technical changes can have an adverse effect on product lives. Design and development of new products and services are important elements to achieve profitability in the Company’s industry segment. As a result, the Company’s products may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and services and enhance our current products on a timely and cost-effective basis.
The Company’s products must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, the Company may not be able to adapt new or enhanced products to emerging industry standards, and the Company’s new products may not be favorably received. Nor may we have the capital resources to further the development of existing and/or new ones.
| 7 |
Due to the continuing capital constraints at the Company, John Cuzens, our Chief Technology Officer and Senior VP, has begun employment as an engineer in an industry that we feel does not compete with the Company. Mr. Cuzens remains the Chief Technology Officer of the Company, however, his time spent working on BlueFire projects is severely limited and is on a consulting basis. His technical and engineering expertise, including his familiarity with the Arkenol Technology, is important to BlueFire and our failure to retain Mr. Cuzens on a full-time basis, or to attract and retain additional qualified personnel, could adversely affect our planned operations. We do not currently carry key-man life insurance on any of our officers.
The long time horizon of project development and financing for the Company’s intended biorefinery projects may make it difficult to keep key project contracts active and in force with the Company’s limited resources. There is no guarantee the Company can keep them active or find suitable replacements if they do expire or are canceled.
Lastly, the Company may be subject to federal, state and local environmental laws and regulations. The Company does not anticipate material expenditures to comply with such laws and does not believe that regulations will have a material impact on the Company’s financial position, results of operations, or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, and local environmental laws and regulations.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities Exchange Commission. Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2016. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of BlueFire Renewables, Inc., and its wholly-owned subsidiary, BlueFire Ethanol, Inc. BlueFire Ethanol Lancaster, LLC, BlueFire Fulton Renewable Energy LLC (excluding 1% interest sold) and SucreSource LLC are wholly-owned subsidiaries of BlueFire Ethanol, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
Project Development
Project development costs are either expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, project development costs include the research and development expenses related to the Company’s future cellulose-to-ethanol production facilities with almost 100% of the allocation being employee salaries. During the three and six months ended June 30, 2017 and 2016, development costs included in Project Development were approximately $42,000, $73,000, $70,000, and $170,000, respectively.
| 8 |
Fair Value of Financial Instruments
The Company follows the guidance of ASC 820 – “Fair Value Measurement and Disclosure”. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company did not have any Level 1 financial instruments at June 30, 2017 or December 31, 2016.
As of June 30, 2017 and December 31, 2016, the Company’s derivative liabilities are considered a Level 2 item (see Note 3).
As of June 30, 2017 and December 31, 2016 the Company’s redeemable non-controlling interest is considered a Level 3 item and changed during the six months ended June 30, 2017 as follows.
| Balance at December 31, 2016 | $ | 860,980 | ||
| Net loss attributable to non-controlling interest | (1,456 | ) | ||
| Balance at June 30, 2017 | $ | 859,524 |
See Note 6 for details of valuation and changes during the years 2017 and 2016.
The carrying amounts reported in the accompanying consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short term maturities of the financial instruments.
Concentrations of Credit Risk
As of June 30, 2017 and December 31, 2016, four vendors made up approximately 86% and 82% of accounts payable, respectively.
Loss per Common Share
The Company presents basic income (loss) per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. As of June 30, 2017 and 2016, the Company has convertible notes outstanding that are dilutive and convertible into the Company’s common stock. However, due to the net loss in each respective period, these were excluded from diluted EPS as their effects would be anti-dilutive.
| 9 |
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issues Accounting Standard Updates (“ASU”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
NOTE 3 – NOTES PAYABLE
From time-to-time, the Company enters into convertible notes with third parties as indicated below.
For the below convertible notes, the Company determined that since the conversion prices are variable and do not contain a floor, the conversion feature represents a derivative liability upon the ability to convert the loan after the six month period. Since the conversion feature is only convertible after six months, there is no derivative liability upon issuance. However, the Company will account for the derivative liability upon the passage of time and the note becoming convertible if not extinguished.
JMJ Convertible Note
On April 2, 2015, the Company issued a convertible note in favor of JMJ Financial in the principal amount of $100,000 out of a total of a possible $250,000, with a maturity date of April 1, 2017 (the “JMJ Note”). The JMJ Note was issued with a 10% original issue discount, and was convertible at any time. The $10,000 on-issuance discount will be amortized over the life of the note. The Company was to repay any principal balance due under the note including a one-time charge of 12% interest on the principal balance outstanding if not repaid within 90 days. The Company had the option to prepay the JMJ Note prior to maturity. The JMJ Note was convertible into shares of the Company’s common stock as calculated by multiplying 60% of the lowest trade price in the 25 trading days prior to the conversion date.
Due to the variable conversion feature of the note, derivative accounting is required. The Company valued the derivative upon issuance and at each conversion, and reporting date. The initial value of the derivative liability was $412,212, resulting in a day one loss $312,212. The discount on the convertible note is being amortized over the life of the note. During the six months ended June 30, 2016, amortization of the discount was $32,866 with $0 remaining.
| Final
Conversion April 5, 2016 (Excluding Inception) | April 2, 2015 | |||||||
| Annual dividend yield | - | - | ||||||
| Expected life (years) | 0.99 | 2.00 | ||||||
| Risk-free interest rate | 0.56 | % | 0.55 | % | ||||
| Expected volatility | 188 | % | 301.07 | % | ||||
During the six months ended June 30, 2016, the Company issued 105,741,400 shares of common stock for the conversion of approximately $65,500, including approximately $52,950 of principal and $12,550 of accrued interest. As of April 5, 2016, the JMJ Note was fully converted into shares of Company stock and as such repaid in full.
| 10 |
AKR Promissory Note
On April 8, 2014, the Company issued a promissory note in favor of AKR Inc, (“AKR”) in the principal aggregate amount of $350,000 (the “AKR Note”). The AKR Note was due on April 8, 2015; however, the Company has received multiple extensions to the due date moving it to December 31, 2017. The AKR Note requires the Company to (i) incur interest at five percent (5%) per annum; (ii) issue on April 8, 2014 to AKR warrants allowing them to buy 7,350,000 common shares of the Company at an exercise price of $0.007 per common share, such warrants to expire on April 8, 2016 (“AKR Warrant A”); (iii) issue on August 8, 2014 to AKR warrants allowing them to buy 7,350,000 common shares of the Company at an exercise price of $0.007 per common share, such warrants to expire on April 8, 2016 (“AKR Warrant B”); and (iv) issue on November 8, 2014 to AKR warrants allowing them to buy 8,400,000 common shares of the Company at an exercise price of $0.007 per common share, such warrants to expire on April 8, 2016 (“AKR Warrant C”, together with AKR Warrant A and AKR Warrant B the “AKR Warrants”). All AKR Warrants were expired as of April 8, 2016. The Company had the ability to prepay the debt, prior to maturity, as extended, with no prepayment penalty.
The Company valued the AKR Warrants as of the date of the note and recorded a discount of $42,323 based on the relative fair value of the AKR Warrants compared to the debt. The discount was fully amortized as of the original maturity date of April 8, 2015. The Company assessed the fair value of the AKR Warrants based on the Black-Scholes pricing model. See below for variables used in assessing the fair value.
| April 8, 2014 | ||||
| Annual dividend yield | - | |||
| Expected life (years) | 1.41 - 2.00 | |||
| Risk-free interest rate | 0.40 | % | ||
| Expected volatility | 183% - 206 | % | ||
On April 24, 2014, the Company issued an additional promissory note in favor of AKR in the principal aggregate amount of $30,000 (“2nd AKR Note”). The 2nd AKR Note was due on July 24, 2014; however, the Company has received multiple extensions to the due date moving it to December 31, 2017. Pursuant to the terms of the 2ndAKR Note, the Company is to repay any principal balance and interest, at 5% per annum at maturity. The Company may prepay the debt prior to maturity with no prepayment penalty.
Tarpon Bay Convertible Note
Pursuant to a contemplated 3(a)10 transaction, which would be used to reduce aged liabilities of the Company, with Tarpon Bay Partners LLC (“Tarpon”), on August 31, 2016, the Company issued to Tarpon a convertible promissory note in the principal amount of $25,000 (the “Tarpon Initial Note”). Under the terms of the Tarpon Initial Note, the Company shall pay Tarpon $25,000 on the date of maturity which was February 28, 2017. This note is convertible by Tarpon into the Company’s common shares at a 50% discount to the lowest closing bid price for the common stock for the twenty (20) trading days ending on the trading day immediately before the conversion date.
The above note was issued without funds being received. Accordingly, the note was issued with a full on-issuance discount that was amortized over the term of the note. During the six months ended June 30, 2017, amortization of $3,889, was recognized related to the discount on the note. As of June 30, 2017, a discount of $0 remained.
Because the conversion price was variable and did not contain a floor, the conversion feature represented a derivative liability upon issuance. Accordingly, the Company calculated the derivative liability using the Black-Sholes pricing model for the notes upon inception, resulting in a day one loss of approximately $36,000. The derivative liability was marked to market each quarter and as of June 30, 2017 which resulted in a loss of approximately $1,000. The Company used the following assumptions for the three months ended June 30, 2017:
| June 30, 2017 | ||||
| Annual dividend yield | - | |||
| Expected life (years) | 0.01 | |||
| Risk-free interest rate | 0.84 | % | ||
| Expected volatility | 150.26 | % | ||
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During the three months ended June 30, 2017, the Company issued 10,000,000 shares of common stock to pay down $5,500 of the Tarpon Bay Convertible Note. The Company is working with Tarpon Bay in order to ascertain how to move forward with the proposed 3(a)10 transaction.
Kodiak Promissory Note
On December 17, 2014, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with Kodiak Capital Group, LLC (“Kodiak”). Pursuant to the terms of the Purchase Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the registration statement, Kodiak shall commit to purchase up to $1,500,000 of Put Shares, pursuant to Puts (as defined in the Purchase Agreement), covering the Registered Securities (as defined in the Purchase Agreement, and below).
As further consideration for Kodiak entering into and structuring the Purchase Agreement, the Company issued Kodiak a promissory note in the principal aggregate amount of $60,000 (the “Kodiak Note”) that bears no interest and has a maturity date of July 17, 2015. No funds were received for this note. The Company is currently in default of the Kodiak Note.
As of June 30, 2017, the balance outstanding on the Kodiak Note was $40,000.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Fulton Project Lease
On July 20, 2010, the Company entered into a thirty year lease agreement with Itawamba County, Mississippi for the purpose of the development, construction, and operation of the Fulton Project. At the end of the primary 30 year lease term, the Company shall have the right for two additional thirty year terms. The current lease rate is computed based on a per acre rate per month that is approximately $10,300 per month. The lease stipulates the lease rate is to be reduced at the time of the construction start by a Property Cost Reduction Formula which can substantially reduce the monthly lease costs. The lease rate shall be adjusted every five years to the Consumer Price Index.
The Company is currently in default of the lease due to non payment. On May 1, 2017, the Company received a letter from the County of Itawamba stating that the lease for the Fulton Project would be cancelled unless the current balance outstanding plus default interest were paid in full by May 10, 2017. The Company appealed for an extension or forgiveness of the past due liability but was denied and told “The County is actively marketing the real property through its economic developer. The real property is available on a first-come, first-served basis.” Due to the uncertainty of access to the site, the Company stopped the accrual of lease payments on May 10, 2017 and considers the lease cancelled. The Company will work to reinstate when financing is obtained.
Rent expense under non-cancellable leases was approximately $13,676, $44,552, $30,876 and $61,752 during the three and six months ended June 30, 2017 and 2016, respectively.
As of June 30, 2017 and December 31, 2016, $343,010 and $298,468, respectively, of the monthly lease payments were included in accounts payable on the accompanying consolidated balance sheets, respectively.
The Company considers the lease cancelled as of May 10, 2017. As of June 30, 2017, the Company has accrued $46,131 of default interest due to the nonpayment of the lease.
SEC Notice and Settlement
On May 2, 2016, the Company received a written notice from the Securities and Exchange Commission (SEC), as further described elsewhere in this quarterly report. In connection with such notice, on August 1, 2016, the Company entered into a settlement with the SEC. Pursuant to the settlement, the Company agreed to pay a civil penalty of $25,000 to the SEC. On July 29, 2016, the Company made an initial payment of $5,000 to the SEC. The remaining $20,000 balance was to be paid to the SEC over a nine-month period ending on or about June 30, 2017. The Company has accrued the balance on the accompanying consolidated financial statements for such settlement. The Company has yet to make an additional payment due to capital constraints and as of August 15, 2017 the Company has received no further communication from the SEC in regards to the settlement or further payment.
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Legal Proceedings
We are currently not involved in litigation that we believe will have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse effect.
NOTE 5 – RELATED PARTY TRANSACTIONS
Loan Agreement
On December 15, 2010, the Company entered into a loan agreement (the “Loan Agreement”) by and between Arnold Klann, the Chief Executive Officer, Chairman of the board of directors and majority shareholder of the Company, as lender (the “Lender”), and the Company, as borrower. Pursuant to the Loan Agreement, the Lender agreed to advance to the Company a principal amount of Two Hundred Thousand United States Dollars ($200,000) (the “Loan”). The Loan Agreement requires the Company to (i) pay to the Lender a one-time amount equal to fifteen percent (15%) of the Loan (the “Fee Amount”) in cash or shares of the Company’s common stock at a value of $0.50 per share, at the Lender’s option; and (ii) issue the Lender warrants allowing the Lender to buy 500,000 common shares of the Company at an exercise price of $0.50 per common share. The Company has promised to pay in full the outstanding principal balance of any and all amounts due under the Loan Agreement within thirty (30) days of the Company’s receipt of investment financing or a commitment from a third party to provide One Million United States Dollars ($1,000,000) to the Company or one of its subsidiaries (the “Due Date”), to be paid in cash. These warrants expired on December 15, 2013.
Related Party Lines of Credit
On November 10, 2011, the Company obtained a line of credit in the amount of $40,000 from its Chairman/Chief Executive Officer and, at the time, the majority shareholder to provide additional liquidity to the Company as needed, at his sole discretion. Under the terms of the note, the Company is to repay any principal balance and interest, at 12% per annum, within 30 days of receiving qualified investment financing of $100,000 or more. On April 10, 2014, the line of credit was increased to $55,000. On March 13, 2016, the line of credit was increased to $125,000, and then incrementally increased to $250,000 on October 5, 2016. As of June 30, 2017, the outstanding balance on the line of credit was approximately $244,211 with $5,789 remaining under the line. Although the Company has received over $100,000 in financing since this agreement was put into place, Mr. Klann does not hold the Company in default.
As of June 30, 2017, $46,184 in accrued interest is owed under this line of credit and included with accrued liabilities.
Accrued Salaries
As of June 30, 2017 and December 31, 2016, accrued salary due to the Chief Executive Officer included within accrued liabilities was $433,167 and 339,000, respectively.
Total accrued and unpaid salary of all employees is $1,544,657 and $1,330,777 as of June 30, 2017, and December 31, 2016, respectively, representing 24 months of accrual at June 30, 2017.
NOTE 6 – REDEEMABLE NON-CONTROLLING INTEREST
On December 23, 2010, the Company sold a one percent (1%) membership interest in its operating subsidiary, BlueFire Fulton Renewable Energy, LLC (“BlueFire Fulton” or the “Fulton Project”), to an accredited investor for a purchase price of $750,000 (“Purchase Price”). The Company maintains a 99% ownership interest in the Fulton Project. In addition, the investor received a right to require the Company to redeem the 1% interest for $862,500, or any pro-rata amount thereon. The redemption is based upon future contingent events based upon obtaining financing for the construction of the Fulton Project. The third party equity interests in the consolidated joint ventures are reflected as redeemable noncontrolling interests in the Company’s consolidated financial statements outside of equity. The Company accreted the redeemable noncontrolling interest for the total redemption price of $862,500 through the estimated forecasted financial close, originally estimated to be the end of the third quarter of 2011.
Net loss attributable to the redeemable non-controlling interest during for the three and six months ended June 30, 2017 and 2016 was $592, $1,456, $1,067 and $2,546, respectively, which netted against the value of the redeemable non-controlling interest in temporary equity. The allocation of loss was presented on the statement of operations.
NOTE 7 – STOCKHOLDERS’ DEFICIT
Please see Note 3 for information on current conversion of notes payable to the Company’s common stock.
NOTE 8 – SUBSEQUENT EVENTS
On July 10, 2017, the Company issued 18,000,000 shares of common stock to pay down $10,800 of the Tarpon Bay convertible note. See Note 3.
On August 9, 2017, the Company issued 12,888,889 shares of common stock to pay down $5,800 of the Tarpon Bay convertible note. See Note 3.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q and other reports filed by BlueFire Renewables, Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
PLAN OF OPERATION
Our primary business encompasses development activities culminating in the design, construction, ownership and long-term operation of cellulosic ethanol production bio-refineries utilizing the licensed Arkenol Technology in North America. Our secondary business is providing support and operational services to Arkenol Technology based bio-refineries worldwide. As such, we are currently in the development-stage of finding suitable locations and deploying project opportunities for converting cellulose fractions of municipal solid waste and other opportunistic feedstock into ethanol fuels.
Our initial planned bio-refinery in North America is projected as follows:
| ● | A bio-refinery proposed for development and construction previously in conjunction with the DOE, located in Fulton, Mississippi, which will process approximately 700 metric dry tons of woody biomass, mill residue, and other cellulosic waste to produce approximately 19 million gallons of ethanol annually. We estimate the total construction cost of the Fulton Project to be in the range of approximately $300 million. In 2007, we received an Award from the DOE of up to $40 million for the Fulton Project. On December 4, 2009, the DOE announced that the total award for this project has been increased to a maximum of $88 million ARRA and the Energy Policy Act of 2005. As of September 12, 2012, Award 1 was officially closed. On December 23, 2013, the Company received notice from the DOE indicating that the DOE would no longer provide funding under the DOE Grant for the development of the Fulton Project due to the Company’s inability to comply with certain deadlines related to providing certain information to the DOE with respect to the Company’s future financing arrangements for the Fulton Project. On March 17, 2015, the Company received a letter from the DOE stating that because of the upcoming September 2015 expiration date for expending ARRA funding, it cannot reconsider its decision and the Company considers such decision to be final. In 2010, BlueFire signed definitive agreements for the following three crucial contracts related to the Fulton Project: (a) feedstock supply with Cooper Marine, (b) off-take for the ethanol of the facility with Tenaska, and (c) the construction of the facility with MasTec. Also in 2010, BlueFire continued to develop the engineering package for the Fulton Project, and completed both the FEL-2 and FEL-3 stages of engineering readying the facility for construction. As of November 2010, the Fulton Project had all necessary permits for construction, and in that same month we began site clearing and preparation work, signaling the beginning of construction. |
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In 2014, BlueFire signed an Engineering Procurement and Construction (EPC) contract with China Three Gorges Corporation and its subsidiary China International Water & Electric, a large Chinese Engineering Procurement and Construction company. In tandem with the new EPC contractor, the company is engaging Chinese banks to provide the debt financing for the Fulton Project. BlueFire has received a letter of intent from the Export Import Bank of China to provide up to $270 million in debt financing for the Fulton project. The letter of intent and EPC agreement have since expired and BlueFire is actively seeking the remaining equity in order to reestablish the letter of intent or to find other banking entities capable of financing the Fulton Project and to issue the notice to proceed to reestablish the EPC Contract. A commitment for the equity portion of the financing has been the major delay in the financing and the Company is focusing most of its efforts on finding suitable partners. No definitive agreements have been executed in regards to the Letter of Intent for financing.
The Company has received notice from Tenaska Commodities, LLC, the off-take agreement provider for the Fulton Project, that due to the Company’s inability to construct the facility and provide first delivery of ethanol before December 31, 2016 that Tenaska Commodities, LLC terminated the market price contract on December 31, 2016. The Company has identified and received interest from other potential ethanol marketers and off-take companies and is actively seeking a replacement for this contract, but no definitive agreements have been made.
The Company is currently in default of its obligations under the site lease agreement with the County of Itawamba. On May 1, 2017, the Company received a letter from the County of Itawamba stating that the lease for the Fulton Project would be cancelled unless the current balance outstanding plus default interest were paid in full by May 10, 2017. The Company appealed for an extension or forgiveness of the past due liability but was denied and told “The County is actively marketing the real property through its economic developer. The real property is available on a first-come, first-served basis.” Due to the uncertainty of access to the site, the Company stopped the accrual of lease payments on May 10, 2017 and considers the lease cancelled. The Company will continue to speak with the County of Itawamba to keep the site location active as long as possible and work to reinstate the lease when financing is obtained.
The Company is still actively pursuing the Fulton Project and working to reinstate all Project agreements and raise the capital needed to construct the facility but can make no assurances that it will be successful. The engineering package and other pertinent process documents generated can be used at another suitable location if efforts to continue with the Fulton Project are unsuccessful.
Other opportunities are being evaluated by us in North America, although no definitive agreements have been reached.
| ● | In February of 2012, SucreSource announced its first client GS Caltex, a South Korean petroleum company. In the same month, it received the first payment under the Professional Services Agreement (PSA) for work on a facility in South Korea. As of March 31, 2015, SucreSource has completed and fulfilled all initial work and obligations under the fixed portion of the agreement. Any future work product and additional services will be billed on an hourly basis when services are performed as GS Caltex continues to develop facilities in South Korea. |
BlueFire’s capital requirement strategies for its planned bio-refineries and general company operations are as follows:
| ● | Obtain additional operating capital from joint venture partnerships, Federal or State grants or loan guarantees, debt financing or equity financing to fund our ongoing operations and the development of initial bio-refineries in North America. Although the Company is in discussions with potential financial and strategic sources of financing for their planned bio-refineries, no definitive agreements are in place and no assurances can be made that the Company will be able to procure financing on terms acceptable to the Company or at all. |
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| ● | The 2014 Farm Bill made amendments to Title IX of the Food, Conservation, and Energy Act of 2008 (“2014 Farm Bill”) including changes to Section 9003 Biorefinery Assistance Program of Title IX (“9003 Biorefinery Assistance Program” or the “Program”) to expand the Program to enable loan guarantees for renewable chemical and biobased product manufacturing facilities. The 2014 Farm Bill provides mandatory budget authority of $100 million for the fiscal year ending September 2014 and $50 million for each of fiscal years 2015 and 2016. Carryover funding from the 2008 Farm Bill may still be made available. While BlueFire will continue to explore potential opportunities under the 2014 Farm Bill, initial attempts under the 9003 Program have been unsuccessful and unless a qualified lender is identified to participate, an application filing by BlueFire is not imminent. |
| ● | Sale of Company engineering services and design packages to technology licensees. | |
| ● | Apply for public funding to leverage private capital raised by us, as applicable. | |
| ● | Sale of consulting services to project developers and technology companies. | |
| ● | The issuance of debt and/or equity to fund operations. | |
| ● | Leverage existing relationships with Chinese or South Korean strategic partners for investment. | |
| ● | The sale of Company assets or entertaining suitors for acquisition of part or all of Company and the Company’s ongoing projects. |
Due to the Company’s struggles in securing sufficient financing necessary to enact its business plan, the Board is currently evaluating strategic alternatives which include, among other things, merging or selling the Company, in order to obtain additional capital sufficient to continue operating and meet both our operating and financial obligations. This evaluation is still under way, there is no formal plan is in place, and there can be no assurance that we will be successful in any of these efforts or that we will have sufficient funds to cover our operational and financial obligations over the next twelve months.
DEVELOPMENTS IN BLUEFIRE’S BIO-REFINERY ENGINEERING AND DEVELOPMENT
In 2010, BlueFire continued to develop the engineering package for the Fulton Project, and completed the Front-End Loading (FEL) stages 2 and FEL-3 of engineering for the Fulton Project readying the facility for construction. FEL is the process for conceptual development of processing industry projects. This process is used in the petrochemical, refining, and pharmaceutical industries. Front-End Loading is also referred to as Front-End Engineering Design (FEED).
| FEL-1 | FEL-2 | FEL-3 | ||
| * Material Balance | * Preliminary Equipment Design | * Purchase Ready Major Equipment Specifications | ||
| * Energy Balance | * Preliminary Layout | * Definitive Estimate | ||
| * Project Charter | * Preliminary Schedule | * Project Execution Plan | ||
| * Preliminary Estimate | * Preliminary 3D Model | |||
| * Electrical Equipment List | ||||
| * Line List | ||||
| * Instrument Index |
As of November 2010, the Fulton Project had all necessary permits for construction, and in that same month we began site clearing and preparation work, signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the site is now ready for facility construction. In February 2010, we announced that we submitted an application for a $250 million dollar loan guarantee for the Fulton Project, under the DOE LGPO, mentioned above. In August 2010, BlueFire submitted an application for a $250 million loan guarantee with the U.S. Department of Agriculture (“USDA”) under Section 9003 of the 2008 Farm Bill, as defined below (“USDA LG”). Ultimately the USDA rejected the Company’s lender, BNP Paribas, for not meeting certain capital ratios. The Company has since abandoned pursuit of both loan guarantee opportunities but may reapply at a later date as funding opportunities arise.
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The Company is currently in default of its obligations under the site lease agreement with the County of Itawamba. On May 1, 2017, the Company received a letter from the County of Itawamba stating that the lease for the Fulton Project would be cancelled unless the current balance outstanding plus default interest were paid in full by May 10, 2017. The Company appealed for an extension or forgiveness of the past due liability but was denied and told “The County is actively marketing the real property through its economic developer. The real property is available on a first-come, first-served basis.” Due to the uncertainty of access to the site, the Company stopped the accrual of lease payments on May 10, 2017 and considers the lease cancelled. The Company will continue to speak with the County of Itawamba to keep the site location active as long as possible and work to reinstate the lease when financing is obtained.
The Company has received notice from Tenaska Commodities, LLC, the off-take agreement provider for the Fulton Project, that due to the Company’s inability to construct the facility and provide first delivery of ethanol before December 31, 2016 that Tenaska Commodities, LLC terminated the market price contract on December 31, 2016. The Company has identified and received interest from other potential ethanol marketers and off-take companies and is actively seeking a replacement for this contract, but no definitive agreements have been made.
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
Project Development
For the three months ended June 30, 2017, our project development costs were approximately $42,000, compared to project development costs of $70,000 for the same period during 2016. The decrease in project development costs was primarily due to the reduction in the number of employees, the land lease termination by the County of Itawamba, and reduced activities on the Fulton project.
General and Administrative Expenses
General and administrative expenses were approximately $149,000 for the three months ended June 30, 2017, compared to $211,000 for the same period in 2016. The decrease in general and administrative costs is mainly due to the reduction in number of employees and associated overhead costs caused by the Company’s capital constraints.
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
Project Development
For the six months ended June 30, 2017, our project development costs were approximately $72,800 compared to project development costs of $170,400 for the same period during 2016. The decrease in project development costs was primarily due to the reduction in the number of employees, the land lease termination by the County of Itawamba, and reduced activities on the Fulton project.
General and Administrative Expenses
General and administrative expenses were approximately $325,000 for the six months ended June 30, 2017, compared to $508,600 for the same period in 2016. The decrease in general and administrative costs is mainly due to the reduction in number of employees and associated overhead costs caused by the Company’s capital constraints.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders and outside investors. In addition, in the past we have received funds under the grant received from the DOE. Our principal use of funds has been for the further development of our bio-refinery projects, for capital expenditures and general corporate expenses. As our projects are developed to the point of construction, we anticipate significant purchases of long lead time item equipment for construction if the requisite capital can be obtained. As of August 15, 2017, we had cash and cash equivalents of $450.
Management has estimated that operating expenses for the next twelve months will be approximately $750,000, excluding engineering costs related to the development of bio-refinery projects. These matters raise substantial doubt about the Company’s ability to continue as a going concern. For 2017, the Company intends to fund its operations from the potential sale of Fulton Project equity ownership, potential consulting opportunities, from the sale of debt or equity instruments, and from a potential merger or sale of the Company. As of August 15, 2017, the Company expects the current resources, as well as the resources available in the short term under various financing mechanisms, will only be sufficient for a period of approximately one month, depending upon certain funding conditions contained herein, unless significant additional financing is received. Management has determined that general expenditures have been reduced as much as is possible without affecting operations and that additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results.
Changes in Cash Flows
During the six months ended June 30, 2017 and 2016, we used cash of approximately $164,800 and $137,000 in operating activities. During the 2017 period, we had a net loss of approximately $443,700, which included add back non-cash charges of approximately $9,272 and net cash usage stemming from operating assets and liabilities of approximately $269,557. During the 2016 period, we had a net loss of approximately $595,000, which included add back non-cash charges of approximately $(122,000) and net cash usage stemming from operating assets and liabilities of approximately $580,000. The increase in cash used was due to the Company selling the Lancaster property in December 2016 and using the proceeds to pay down accrued payables and fund ongoing operations.
During the six months ended June 30, 2017, we had positive cash flow from financing activities of approximately $3,300 compared to approximately $113,000 for the same period in 2016. During the six months ended June 30, 2017, the Company issued 10,000,000 shares of common stock in the conversion of convertible notes compared to 0 shares of common stock issued during the six months ended June 30, 2016.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates relate to the fair value of warrant liabilities. We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 2, “Summary of Significant Accounting Policies” in the notes to our reviewed financial statements appearing elsewhere in this quarterly report and our annual audited financial statements appearing on Form 10-K. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(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.
On May 6, 2016, the Company reached a settlement with James G. Speirs and James N. Speirs in regard to the lawsuit filed in Orange County Superior Court and subsequently appealed by the Company. Under the settlement agreement, James G. Speirs and James N. Speirs have returned 5,740,741 shares to the Company and they have been subsequently retired to treasury. The case was dismissed with prejudice on May 12, 2016 and the matter closed.
On May 2, 2016, the Company received a written “Wells Notice” from the staff of the SEC indicating that the staff made a preliminary determination to recommend that the SEC bring an administrative proceeding against the Company.
On August 1, 2016, in connection with the Wells Notice, the Company entered into an offer of settlement (the “Wells Settlement”) with the SEC. Pursuant to the Wells Settlement, the Company agreed to pay a twenty-five thousand dollar ($25,000) civil penalty to the SEC.
On October 11, 2016, pursuant to the terms and conditions of the Wells Settlement, the Company made an initial payment of five thousand dollars ($5,000) to the SEC. The remaining balance of the penalty will be paid to the SEC over a nine-month period ending on or about June 30, 2017. The Company has yet to make an additional payment and as of August 15, 2017 the Company has received no further communication from the SEC in regards to the Settlement or further payment.
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Other than as disclosed above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 5, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2017.
Item 3. Defaults Upon Senior Securities.
Other than disclosed herein, there has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
Except as detailed below, there is no other information required to be disclosed under this item which was not previously disclosed.
| Exhibit No. | Description | |
| 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * | |
| 31.2 | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * | |
| 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * | |
| 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * | |
| 101.INS | XBRL Instance Document * | |
| 101.SCH | XBRL Taxonomy Extension Schema * | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase * | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase * | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase * | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase * |
* Filed herewith
| 20 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BLUEFIRE RENEWABLES, INC. | ||
Date: August 15, 2017 |
By: | /s/ Arnold Klann |
| Name: | Arnold Klann | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| (Principal Financial Officer) | ||
| (Principal Accounting Officer) | ||
| 21 |