Registration of Securities of a Small-Business Issuer — Form 10-SB Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10SB12G Bluefire Ethanol Fuels, Inc. HTML 277K
2: EX-2.1 Stock Purchase Agreement HTML 322K
3: EX-3.1 Amended and Restated Articles of Incorporation HTML 23K
4: EX-3.2 Amended and Restated Bylaws HTML 110K
5: EX-10.1 Form Directors Agreement HTML 79K
6: EX-10.2 Form Executive Employment Agreement HTML 70K
7: EX-10.3 Technology License Agreement HTML 143K
8: EX-10.4 Asset Transfer and Acquisition Agreement HTML 120K
9: EX-21.1 Subsidiaries HTML 6K
Securities
to be registered pursuant to Section 12(b) of the Act:
None
(Title
of
Class)
Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 par value per share
(Title
of
Class)
INFORMATION
REQUIRED IN REGISTRATION STATEMENT
Page
Part
I
Item
1.
Description
of Business
3
Item
2.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
11
Item
3.
Description
of Property
19
Item
4.
Security
Ownership of Certain Beneficial Owners and
Management
19
Item
5.
Directors,
Executive Officers, Promoters and Control Persons
19
Item
6.
Executive
Compensation
21
Item
7.
Certain
Relationships and Related Transactions
22
Item
8.
Description
of Securities
22
Part
II
Item
1.
Market
Price of and Dividends on the Registrant's Common Equity and Related
Shareholder Matters
23
Item
2.
Legal
Proceedings
24
Item
3.
Changes
in and Disagreements with Accountants
24
Item
4.
Recent
Sales of Unregistered Securities
24
Item
5.
Indemnification
of Directors and Officers
24
Part
F/S
Item
1.
Financial
Statements
F-1
Part
III
Item
1.
Index
to Exhibits
25
Item
2.
Description
of Exhibits
25
Signatures
25
Exhibits
1
PART I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included
in this prospectus are "forward-looking" statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot assure you that the
expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those anticipated
in
forward-looking statements as a result of certain factors, including matters
described in the section titled "Risk Factors." Forward-looking statements
include those that use forward-looking terminology, such as the words
"anticipate,""believe,""estimate,""expect,""intend,""may,""project,""plan,""will,""shall,""should," and similar expressions, including when
used
in the negative. Although we believe that the expectations reflected in these
forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and we cannot assure you that actual results
will be consistent with these forward-looking statements. Important factors
that
could cause our actual results, performance or achievements to differ from
these
forward-looking statements include the following:
o
the
availability and adequacy of our cash flow to meet our
requirements,
o
economic,
competitive, demographic, business and other conditions in our local
and
regional
markets,
o
changes
or developments in laws, regulations or taxes in the ethanol or energy
industries,
o
actions
taken or not taken by third-parties, including our suppliers and
competitors, as
well as legislative, regulatory, judicial and other governmental
authorities,
o
competition
in the ethanol industry,
o
the
failure to obtain or loss of any license or
permit,
o
changes
in our business and growth strategy (including our plant building
strategy
and
co-location strategy), capital improvements or development
plans,
o
the
availability of additional capital to support capital improvements
and
development,
and
o
other
factors discussed under the section entitled "Risk Factors" or elsewhere
in this registration
statement.
All
forward-looking statements attributable to us are expressly qualified in their
entirety by these and other factors. We undertake no obligation to update or
revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
2
ITEM
I: DESCRIPTION OF BUSINESS
Company
History
BlueFire
Ethanol Fuels, Inc., a Nevada corporation (the “Company”), was initially
organized as Atlanta Technology Group, Inc., a Delaware corporation, on October12, 1993. The Company was re-named Docplus.net Corporation on December 31,1998,
and further re-named Sucre Agricultural Corp. and re-domiciled as a Nevada
corporation on March 6, 2006. Finally, on May 24, 2006, in anticipation of
the
reverse merger by which it would acquire BlueFire Ethanol, Inc. (“BlueFire”), a
privately held Nevada corporation organized on March 28, 2006, as described
below, the Company was re-named to its current name BlueFire Ethanol Fuels,
Inc.
On
June27, 2006, the Company purchased all 10,000 shares of the issued and outstanding
common stock, par value $1.00, of BlueFire in exchange for 17,000,000 shares
of
the Company’s common stock, par value $0.001, pursuant to a Stock Purchase
Agreement and Plan of Reorganization (“Reverse Merger”). On June 21, 2006, prior
to and in anticipation of the Reverse Merger, Sucre Agricultural Corp. (“Sucre”)
sold 3,000,000 shares of its common stock to two related investors in a private
offering of shares pursuant to Rule 504 for proceeds of $1,000,000. Prior to
the
Reverse Merger, Sucre was not operational and considered a blank-check company,
therefore, all references to the Company’s business and financials throughout
this registration statement reflect the operations of BlueFire. BlueFire is
the
Company’s only wholly owned operating subsidiary.
The
Company’s shares of common stock began trading under the symbol “BFRE” on the
Pink Sheets of the National Quotation Bureau on July 11, 2006. On December8,2006, the closing price of the common stock was $3.05 per share.
Business
of Issuer
Principal
products or services and their markets
The
Company has licensed for use a patented process from Arkenol, Inc. (“Arkenol”)
which produces ethanol from cellulose (“Arkenol Technology”) for sale into the
transportation fuel market. The Company is the exclusive North America licensee
of the Arkenol Technology. The Company has also received, for future
consideration, certain ethanol plant related rights, assets, work-product,
intellectual property and other know-how on 19 ethanol project opportunities
from ARK Energy, Inc., which may be used by the Company to accelerate its
deployment of the Arkenol technology. The Company’s goal is to develop and
operate high-value carbohydrate-based transportation fuel plants to provide
a
viable alternative to fossil fuels. These "biorefineries" will convert widely
available, inexpensive, organic materials such as agricultural residues,
high-content biomass crops, wood residues, and cellulose in municipal solid
wastes into ethanol. This versatility enables the Company to consider a wide
variety of feedstocks and locations in which to develop facilities to become
a
low cost producer of ethanol.
With
Arkenol’s research and development work completed at pilot plants in Southern
California and Izumi, Japan in coordination with JGC Corp., a Japanese
corporation, patent protections in place, the product markets researched, and
plants currently in early stages of development, the Company is positioned
to
become a leader in the development, ownership and operation of cellulose to
ethanol biorefineries.
Arkenol
Technology
The
production of chemicals by fermenting various sugars is a well-accepted science.
Its use ranges from producing beverage alcohol and fuel-ethanol to making citric
acid and xantham gum for food uses. However, the high price of sugar and the
relatively low cost of competing petroleum based fuel has kept the production
of
chemicals mainly confined to producing ethanol from corn sugar.
3
Arkenol
has developed proprietary improvements to a well known conversion technology
known as concentrated acid hydrolysis such that the process is ready for
commercial implementation. These improvements, are: (i) efficient acid recovery
and reconcentration; (ii) high sugar concentration at high purity; (iii) the
ability to ferment C6 and C5 sugars efficiently with conventional microbes;
(iv)
the ability to handle silica in biomass feedstocks; and (v) all by-products
are
usable and marketable.
An
integrated, full-scale commercial process plant consists of six basic unit
operations: (i) Feedstock preparation; (ii) Decrystallization/Hydrolysis
Reaction Vessel; (iii) Solids/Liquid Filtration; (iv) Separation of the acid
and
sugars; (v) Fermentation of the sugars; and (vi) Product
purification.
Incoming
biomass feedstocks are cleaned and ground to reduce the particle size for the
process equipment. The pretreated material is then dried to a moisture content
consistent with the acid concentration requirements for decrystallization
(separation of the cellulose and hemicellulose from the lignin), then hydrolyzed
(degrading the chemical bonds of the cellulose) to produce hexose and pentose
sugars at the high concentrations necessary for commercial fermentation.
Insoluble materials, principally the lignin portion of the biomass input, are
separated from the hydrolyzate by filtering and pressing and further processed
into fuel or other beneficial uses. The remaining acid-sugar solution is
separated into its acid and sugar components by means of an Arkenol-developed
technology that uses commercially available ion exchange resins to separate
the
components without diluting the sugar. The separated sulfuric acid is
recirculated and reconcentrated to the level required by the decrystallization
and hydrolysis steps. The small quantity of acid left in the sugar solution
is
neutralized with lime to make hydrated gypsum, CaSO4 · 2H2O, an insoluble
precipitate which is readily separated from the sugar solution and which also
has beneficial use as an agricultural soil conditioner. At this point the
process has produced a clean stream of mixed sugars (both C6 and C5) for
fermentation. In an ethanol production plant, naturally-occurring yeast, which
Arkenol has been specifically cultured by a proprietary method to ferment the
mixed sugar stream, is mixed with nutrients and added to the sugar solution
where it efficiently converts both the C6 and C5 sugars to fermentation beer
(an
ethanol, yeast and water mixture) and carbon dioxide. The yeast culture is
separated from the fermentation beer by a centrifuge and returned to the
fermentation tanks for reuse. Ethanol is separated from the now clear
fermentation beer by conventional distillation technology, dehydrated to 200
proof with conventional molecular sieve technology, and denatured with unleaded
gasoline to produce the final fuel-grade ethanol product. The still bottoms,
containing principally water and unfermented pentose sugar, is returned to
the
process for economic water use and for further conversion of the pentose
sugars.
Simply
put, the process separates the biomass into two main constituents: cellulose
and
hemicellulose (the main building blocks of plant life) and lignin (the "glue"
that holds the building blocks together), converts the cellulose and
hemicellulose to sugars, ferments them and purifies the fermentation liquids
into products.
From
time
to time, BlueFire may enter into agreements to provide professional services
with various parties that are interested in developing and building an ethanol
plant based on BlueFire’s licensed Arkenol Process. Professional services
include work related to project site selection, feedstock selection and
contracting, product marketing and sales, site development and engineering
design. Such services will be provided by BlueFire on market rates for similar
expertise.
4
Status
of Publicly Announced New Products and Services
None.
Distribution
methods of the products or services
The
Company will utilize existing distribution channels to sell its ethanol into
that is produced from its plants. For example, the Company has entered into
a
Letter of Intent with Petro-Diamond, Inc. (“PDI”) to purchase the ethanol
produced from the Company’s first North American biomass-to-ethanol conversion
facility to be located at a Southern California landfill. PDI is a significant
blender of denatured ethanol into motor fuel in Southern California. Ethanol
is
currently blended year-round at PDI’s terminal facility located in Long Beach,
California.
Competitive
business conditions and the small business issuer's competitive position in
the
industry and methods of competition
Competition
Most
of
the ethanol supply in the United States is derived from corn and is produced
at
approximately 106 facilities, ranging in size from 300,000 to 110 million
gallons per year, located predominately in the corn belt in the Midwest.
According to the Renewable Fuels Association, about 20% of the current
production is by the Archer-Daniels-Midland Company, which owns some of the
largest plants in the country.
Archer-Daniels-Midland
Company accounts for approximately 20% of all domestic capacity with more than
1
billion gallons of production. Its larger plants are wet milling, as opposed
to
dry milling, and each plant produces 150 to 300 million gallons of ethanol
per
year. These large plants have certain cost advantages and economies of
scale.
Traditional
corn-based production techniques are mature and well entrenched in the
marketplace, and the entire industry's infrastructure is geared toward corn
as
the principal feedstock. However, in the area of biomass-to-ethanol production,
there are few companies and no commercial production infrastructure is built.
We
believe our long-term growth prospects in biomass-to-ethanol depend on our
ability to fund and build new bio-refineries. As we continue to advance our
biomass technology platform, we are likely to encounter competition for the
same
technologies from other companies that are also attempting to manufacture
ethanol from cellulosic biomass feedstocks.
Ethanol
production is also expanding internationally. Ethanol produced or processed
in
certain countries in Central American and the Caribbean region is eligible
for
tariff reduction or elimination upon importation to the United States under
a
program known as the Caribbean Basin Initiative. Large ethanol producers, such
as Cargill, have expressed interest in building dehydration plants in
participating Caribbean Basin countries, such as El Salvador, which would
convert ethanol into fuel-grade ethanol for shipment to the United States.
Ethanol imported from Caribbean Basin countries may be a less expensive
alternative to domestically produced ethanol and may affect our ability to
sell
our ethanol profitably.
5
Industry
Overview
On
August8, 2005, President Bush signed into law the Energy Policy Act of 2005. The
Energy Policy Act transformed ethanol from a gasoline additive under the 1990
Clean Air Act to a primary gasoline substitute, which we believe will serve
to
strengthen and expand the role of ethanol in the U.S. fuel economy. A highlight
of the Energy Policy Act is the creation of a 7.5 billion gallon renewable
fuel
standard (RFS) increasing use of renewable domestic fuels such as ethanol and
biodiesel. The newly approved RFS of the Energy Policy Act establishes that
a
percentage of the U.S. fuel supply will be provided by renewable, domestic
fuels
such as ethanol. In addition, the Energy Policy Act establishes a 30% tax credit
up to $30,000 for the cost of installing clean fuel refueling equipment, such
as
an E85 ethanol fuel pump.
Historically,
producers and blenders had a choice of fuel additives to increase the oxygen
content of fuels. MTBE (methyl tertiary butyl ether), a petroleum-based
additive, was the most popular additive, accounting for up to 75% of the fuel
oxygenate market. However, in the United States, ethanol is replacing MTBE
as a
common fuel additive. While both increase octane and reduce air pollution,
MTBE
is a presumed carcinogen which contaminates ground water. It has already been
banned in California, New York, Illinois and 16 other states. Major oil
companies have voluntarily abandoned MTBE and it is scheduled to be phased
out
under the Energy Policy Act. As MTBE is phased out, we expect demand for ethanol
as a fuel additive and fuel extender to rise. A blend of 5.5% or more of
ethanol, which does not contaminate ground water like MTBE, effectively complies
with U.S. Environmental Protection Agency requirements for reformulated
gasoline, which is mandated in most urban areas. We believe there are no
economically feasible substitutes for MTBE other than ethanol.
Ethanol
is a clean, high-octane, high-performance automotive fuel commonly blended
in
gasoline to extend supplies and reduce emissions. In 2004, according to the
American Coalition for Ethanol, 3% of all United States gasoline was blended
with some percentage of ethanol. The most common blend is E10, which contains
10% ethanol and 90% gasoline. There is also growing federal government support
for E85, which is a blend of 85% ethanol and 15% gasoline.
Ethanol
is a renewable fuel produced by the fermentation of starches and sugars such
as
those found in grains and other crops. Ethanol contains 35% oxygen by weight
and, when combined with gasoline, it acts as an oxygenate, artificially
introducing oxygen into gasoline and raising oxygen concentration in the
combustion mixture with air. As a result, the gasoline burns more completely
and
releases less unburnt hydrocarbons, carbon monoxide and other harmful exhaust
emissions into the atmosphere. The use of ethanol as an automotive fuel is
commonly viewed as a way to reduce harmful automobile exhaust emissions. Ethanol
can also be blended with regular unleaded gasoline as an octane booster to
provide a mid-grade octane product which is commonly distributed as a premium
unleaded gasoline.
Studies
published by the Renewable Fuel Association indicate that approximately 5.0
billion gallons of ethanol will be consumed this year in the United States
and
every automobile manufacturer approves and warrants the use of E10. Because
the
ethanol molecule contains oxygen, it allows an automobile engine to more
completely combust fuel, resulting in fewer emissions and improved performance.
Fuel ethanol has an octane value of 113 compared to 87 for regular unleaded
gasoline. Domestic ethanol consumption has tripled in the last eight years,
and
consumption increases in some foreign countries, such as Brazil, are even
greater in recent years. For instance, 40% of the automobiles in Brazil operate
on 100% ethanol, and others use a mixture of 22% ethanol and 78% gasoline.
The
European Union and Japan also encourage and mandate the increased use of
ethanol.
6
For
every
barrel of ethanol produced, the American Coalition for Ethanol estimates that
1.2 barrels of petroleum are displaced at the refinery level, and that since
1978, U.S. ethanol production has replaced over 14.0 billion gallons of imported
gasoline or crude oil. According to a Mississippi State University Department
of
Agricultural Economics Staff Report in August 2003, a 10% ethanol blend results
in a 25% to 30% reduction in carbon monoxide emissions by making combustion
more
complete. The same 10% blend lowers carbon dioxide emissions by 6% to
10%.
During
the last 20 years, ethanol production capacity in the United States has grown
from almost nothing to an estimated 3.7 billion gallons per year in 2004. In
the
United States, ethanol is primarily made from starch crops, principally from
the
starch fraction of corn. Consequently, the production plants are concentrated
in
the grain belt of the Midwest, principally in Illinois, Iowa, Minnesota,
Nebraska and South Dakota.
In
the
United States, there are two principal commercial applications for ethanol.
The
first is as a mandatory oxygenate additive to gasoline to comply with clean
air
regulations. The second is as a voluntary substitute for gasoline - this is
a
purely economic choice by gasoline retailers who can make higher margins on
selling ethanol-blended gasoline, provided ethanol is available in the local
market. The U.S. gasoline market is currently approximately 140 billion gallons
annually, so the potential market for ethanol (assuming only a 10% blend) is
14
billion gallons per year. Increasingly, motor manufacturers are producing
flexible fuel vehicles (particularly sports utility vehicle models) which can
run off ethanol blends of up to 85% (known as E85) in order to obtain exemptions
from fleet fuel economy quotas. There are now in excess of 5 million flexible
fuel vehicles on the road in the United States and automakers will produce
several millions per year, offering further potential for significant growth
in
ethanol demand.
Cellulose
to Ethanol Production
In
a
recent report, "Outlook For Biomass Ethanol Production Demand," the U.S. Energy
Information Administration found that advancements in production technology
of
ethanol from cellulose could reduce costs and result in production increases
of
40% to 160% by 2010. Biomass (cellulosic feedstocks) includes agricultural
waste, woody fibrous materials, forestry residues, waste paper, municipal solid
waste and most plant material. Like waste starches and sugars, they are often
available for relatively low cost, or are even free. However, cellulosic
feedstocks are more abundant, global and renewable in nature. These waste
streams, which would otherwise be abandoned, land-filled or incinerated, exist
in populated metropolitan areas where ethanol prices are higher.
In
addition to its lower raw material costs, biomass-to-ethanol production has
the
following advantages over corn-based production:
·
biomass
allows producers to avoid the pressure on margins created by rises
in corn
prices,
·
a
key limitation for ethanol is that there are currently no pipelines
available for the transportation of ethanol; this create a competitive
advantage for for biomass ethanol because it can be produced locally
with
a variety of waste products.
7
·
Biomass
allows for immediate proximity to urban ethanol markets reduces freight
costs and increases potential
margins.
·
biomass
generates an additional class of valuable co-products which are
not
derived from corn.
·
biomass
is more energy efficient than its corn
counterpart.
·
Biomass
ethanol provides significant reduction in greenhouse gas
emissions
compared to petroleum based
fuels
Sources
and availability of raw materials and the names of principal
suppliers
The
main
sources of raw cellulose fuel for the Company will be North American landfills.
Landfills are mainly owned by large waste disposal companies and by
municipalities.
Additionally,
the U.S. DOE and USDA in its April 2005 report Biomass
as Feedstock for a Bioenergy and Bioproducts Industry: The technical Feasibility
of a Billion-Ton Annual Supply
found
that about one billion tons of cellulosic materials from agricultural and forest
residues are available to produce more than one-third of the current U.S. demand
for transportation fuels. While BlueFire’s deployment begins with the use of
cellulosic materials already collected through an existing infrastructure and
available for minimum costs, the potential for using agricultural and forest
residues provide additional business opportunities for the Technology as issues
surrounding the collection, handling and supply of these feedstock are
resolved.
Dependence
on one or a few major customers
Currently,
the Company has no dependence on one or a few major customers, although it
has
entered into a letter of intent with Petro-Diamond, Inc. to be the Company’s
sole purchaser of ethanol from its first scheduled plant in Southern California.
See “Distribution
methods of the products or services.”
Patents,
trademarks, licenses, franchises, concessions, royalty agreements or labor
contracts
On
March1, 2006, the Company entered into a Technology License Agreement with Arkenol,
Inc. (“Arkenol”). For the Arkenol technology, Arkenol holds eleven U.S. patents,
twenty one foreign patents, and one pending foreign patent. According to the
terms of the agreement, the Company was granted an exclusive, non-transferable,
North American license to use and to sub-license the Arkenol technology. The
Arkenol Technology, converts cellulose and waste materials into ethanol and
other high value chemicals. As consideration for the grant of the license,
the
Company shall make a one time payment of $1,000,000 at first project
construction funding and for each plant make the following payments: (1) royalty
payment of 4% of the gross sales price for sales by the Company or its
sublicensees of all products produced from the use of the Arkenol Technology
(2)
and a one time license fee of $40.00 per 1,000 gallons of production capacity
per plant. According to the terms of the agreement, the Company made a one
time
exclusivity fee prepayment of $30,000 during the period ended August 31, 2006.
As of August 31, 2006, the Company had not incurred any liabilities related
to
the agreement. All sub-licenses issued by BlueFire will provide for payments
of
the license fees and royalties due Arkenol.
8
Need
for any government approval of principal products or services
BlueFire
Ethanol is not subject to any government oversight for its current operations
other than for corporate governance and taxes. However, the production
facilities that the Company will be constructing will be subject to various
federal, state and local environmental laws and regulations, including those
relating to the discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of hazardous
materials, and the health and safety of our employees. In addition, some of
these laws and regulations will require our facilities to operate under permits
that are subject to renewal or modification. These laws, regulations and permits
can often require expensive pollution control equipment or operational changes
to limit actual or potential impacts to the environment. A violation of these
laws and regulations or permit conditions can result in substantial fines,
natural resource damages, criminal sanctions, permit revocations and/or facility
shutdowns.
Effect
of existing or probable governmental regulations on the
business
Currently,
the federal government encourages the use of ethanol as a component in
oxygenated gasoline as a measure to protect the environment as a viable
renewable domestic fuel to reduce U.S. dependence on foreign oil.
The
ethanol industry is heavily dependent on several economic incentives to produce
ethanol, including federal ethanol supports. Ethanol sales have been favorably
affected by the Clean Air Act amendments of 1990, particularly the Federal
Oxygen Program which became effective November 1, 1992. The Federal Oxygen
Program requires the sale of oxygenated motor fuels during the winter months
in
certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol
use has increased due to a second Clean Air Act program, the Reformulated
Gasoline Program. This program became effective January 1, 1995, and requires
the sale of reformulated gasoline in nine major urban areas to reduce
pollutants, including those that contribute to ground level ozone, better known
as smog. Increasingly stricter EPA regulations are expected to increase the
number of metropolitan areas deemed in non-compliance with Clean Air Standards,
which could increase the demand for ethanol.
On
August8, 2005, President Bush signed the Energy Policy Act of 2005 (H.R. 6) into
law.
The comprehensive energy legislation includes a nationwide renewable fuels
standard (RFS) that will double the use of ethanol and biodiesel by
2012.
Under
the
RFS, a small percentage of our nation's fuel supply will be provided by
renewable, domestic fuels. The increased use of renewable fuels will expand
U.S.
fuel supplies while easing an overburdened refining industry. The Energy Policy
Act of 2005 established Renewable Fuel Standard (RFS) provisions that mandates
use of renewable fuels starting at 4 billion gallons in 2006 and increases
to
7.5 billion gallons in 2012. The Act also provides that, beginning in 2013,
a
minimum of 250 million gallons a year of cellulosic derived ethanol be included
in the RFS. Flexibility in meeting RFS is provided for refiners through a credit
trading program that allows refiners to use renewable fuels where and when
it is
most efficient and cost-effective for them to do so. The credit trading program
will result in lower costs to refiners and thus, consumers. RFS credits have
a
lifespan of 12 months. The credit trading program allows for every gallon of
cellulose-derived ethanol to be equal to 2.5 gallons of renewable fuel. The
reformulated gasoline (RFG) 2.0 wt percentage oxygenate standard under the
Clean
Air Act is eliminated 270 days after enactment. (Requirement was lifted by
U.S. EPA May 8, 2006).
9
The
Energy Policy Act also 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 that
could provide loan guarantees up to $250,000,000 per qualified project. The
U.S.
Department of Energy has issued a request for pre-applications under this
program with submittal due by December 31, 2006. The Company intends to file
a
response to the solicitation. The 2005 Energy Act also created a Biorefinery
Demonstration Project Program under which $100,000,000 is available to fund
up
to 3 biorefinery demonstration project. The Company submitted a proposal for
funding under this solicitation and has recently been notified that it has
been
selected to be part of the “short-list” for further review. The U.S. Department
of Energy expects to determine successful applicants for the biorefinery grant
program by early 2007. As available and as applicable to the business plans
of
the Company, applications for public funding will be submitted to leverage
private capital raised by the Company.
The
use
of ethanol as an oxygenate to blend with fuel to comply with federal mandates
also has been aided by federal tax policy. The Energy Tax Act of 1978 exempted
ethanol blended gasoline from the federal gas tax as a means of stimulating
the
development of a domestic ethanol industry and mitigating the country's
dependence on foreign oil. As amended, the federal tax exemption currently
allows the market price of ethanol to compete with the price of domestic
gasoline. The exemption for a 10% ethanol blend is the equivalent of providing
a
per gallon "equalization" payment that allows blenders to pay more for ethanol
than the wholesale price of gasoline and still retain profit margins equal
to
those received upon the sale of gasoline that is not blended with ethanol.
Under
current legislation, the federal gasoline tax exemption for a 10% ethanol blend
is 5.2 cents per gallon. This exemption was to gradually drop to 5.1 cents
per
gallon in 2005, however, as of January 1, 2005, this federal tax incentive
was
be replaced by a new volumetric ethanol excise tax credit discussed
below.
On
October 22, 2004, President Bush signed H.R. 4520, which contained the
Volumetric Ethanol Excise Tax Credit ("VEETC") and amended the federal excise
tax structure effective as of January 1, 2005. Currently, ethanol-blended fuel
is taxed at a lower rate than regular gasoline (13.2 cents on a 10% blend).
Under VEETC, the existing ethanol excise tax exemption is eliminated, thereby
allowing the full federal excise tax of 18.4 cents per gallon of gasoline to
be
collected on all gasoline and allocated to the highway trust fund. This would
add approximately $1.4 billion to the highway trust fund revenue annually.
In
place of the current exemption, the bill creates a new volumetric ethanol excise
tax credit of 5.1 cents per gallon of ethanol blended. Refiners and gasoline
blenders would apply for this credit on the same tax form as before only it
would be a credit from general revenue, not the highway trust fund. Based on
volume, the VEETC is expected to allow much greater refinery flexibility in
blending ethanol.
Estimate
of the amount spent during each of the last two fiscal years on research and
development activities
None.
The
Company has not developed its own proprietary technology but rather is a
licensee of the Arkenol Technology.
Costs
and effects of compliance with environmental laws (federal, state and
local)
We
will
be subject to extensive air, water and other environmental regulations and
we
will have to obtain a number of environmental permits to construct and operate
our plants, including, air pollution construction permits, a pollutant discharge
elimination system general permit, storm water discharge permits, a water
withdrawal permit, and an alcohol fuel producer's permit. In addition, we may
have to complete spill prevention control and countermeasures plans.
10
The
production facilities that we will build are subject to oversight activities
by
the federal, state, and local regulatory agencies. There is always a risk that
the federal agencies may enforce certain rules and regulations differently
than
state environmental administrators. State or federal rules are subject to
change, and any such changes could result in greater regulatory burdens on
plant
operations. We could also be subject to environmental or nuisance claims from
adjacent property owners or residents in the area arising from possible foul
smells or other air or water discharges from the plant.
Number
of total employees and number of full time employees
We
had
three (3) full time employees as of December 8, 2006 and no part time
employees.
Reports
to Security Holders
As
a
result of its filing of this Form 10-SB, the Company expects to become
subject to the reporting obligations of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”). These obligations include filing an annual report
under cover of Form 10-KSB, with audited financial statements, unaudited
quarterly reports on Form 10-QSB and the requisite proxy statements with
regard to annual shareholder meetings. The public may read and copy any
materials the Company files with the Securities and Exchange Commission (the
“Commission”) at the Commission’s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on the operation
of
the Public Reference Room by calling the Commission at 1-800-SEC-0030. The
Commission maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
Management’s
Discussion and Plan of Operation
The
following discussion of our Plan of Operation should be read in conjunction
with
the financial statements and related notes to the financial statements included
elsewhere in this registration statement. This discussion contains
forward-looking statements that relate to future events or our future financial
performance. These statements involve known and unknown risks, uncertainties
and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels
of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks and other factors include, among others,
those listed under “Forward-Looking Statements” and “Risk Factors” and those
included elsewhere in this registration statement.
Plan
of operation
Management
plans to raise additional funds through project financings or through future
sales of their common stock, until such time as the Company’s revenues are
sufficient to meet its cost structure, and ultimately achieve profitable
operations. There is no assurance that the Company will be successful in raising
additional capital or achieving profitable operations. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of these uncertainties. The Company s will need financing within 12
months to continue its operations.
The
Company has not developed its own proprietary technology but rather is a
licensee of the Arkenol Technology and therefore has benefited from Arkenol’s
research and development efforts and cost expenditures. Any additional research
and development related to BlueFire’s licensed technology will be the
responsibility of Arkenol.
11
BlueFire’s
business will encompass development activities leading to the construction
and
long-term operation of production facilities. BlueFire is currently in the
development-stage of deploying project opportunities for converting cellulose
fractions of municipal solid waste and other opportunistic feedstock into
ethanol fuels. The Company entered into an Asset Transfer and Acquisition
Agreement with ARK Energy, Inc. (“ARK Energy”). Based upon the terms of the
agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on 19 project opportunities, that
management estimates is worth approximately $16,000,000, which may be used
by
BlueFire to accelerate its deployment of the Arkenol technology. In
consideration, the Company has agreed to pay a performance bonus of up to
$16,000,000 when certain milestones are met. These milestones include
transferee’s project implementation which would be demonstrated by start of the
construction of a facility or completion of financial closing whichever is
earlier. The payment is based on ARK Energy’s cost to develop 19 sites which are
currently at different stages of development. As of August 31, 2006, the Company
had not incurred any liabilities related to the agreement.
The
Company anticipates beginning construction of a plant within the next six (6)
months and expects to complete the project and to begin production of ethanol
within the next 24 months. Although the cost of construction is not readily
determinable, the Company estimates the cost to be approximately $20 million
for
the first plant. Management plans to raise additional funds through project
financings or through future sales of their common stock to purchase the capital
equipment for the plant.
BlueFire
is in discussions with potential candidates and plans to retain a Chief
Financial Officer as soon as possible. Other positions will be filled as need
arises and funding is available. Currently, the Company anticipates hiring
three
to four personnel in the next 12 months.
Off-balance
sheet arrangements
There
are
no off-balance sheet arrangements.
Risk
Factors
This
registration statement contains forward-looking statements that involve risks
and uncertainties. These statements can be identified by the use of
forward-looking terminology such as “believes,”“expects,”“intends,”“plans,”“may,”“will,”“should,” or “anticipation” or the negative thereof or other
variations thereon or comparable terminology. Actual results could differ
materially from those discussed in the forward-looking statements as a result
of
certain factors, including those set forth below and elsewhere in this
Registration Statement. The following risk factors should be considered
carefully in addition to the other information in this Registration Statement,
before purchasing any of the Company’s securities.
Risks
Related to Our Business and Industry
The
Company has had limited operations and revenue and has incurred
losses.
The
Company has had limited operations and has incurred net losses of $343,000
for
the period from March 28, 2006 (Inception) through August 31, 2006,. The Company
has yet to begin ethanol production or construction of ethanol producing plants.
Since the reverse acquisition, we have been engaged in organizational
activities, including developing a strategic operating plan, entering into
contracts, hiring personnel, developing processing technology, and raising
private capital. Accordingly, we have limited relevant operating history upon
which an evaluation of our performance and prospects can be made. We are subject
to all of the business risks associated with a new enterprise, including, but
not limited to, risks of unforeseen capital requirements, failure of market
acceptance, failure to establish business relationships and competitive
disadvantages as against larger and more established companies.
12
The
Company received a going concern paragraph in the report from its
auditors.
In
their
report dated November 9, 2006, the Company’s auditors indicated there was
substantial doubt about the Company’s ability to continue as a going concern.
Accordingly, unless the we raise additional working capital, construction
financing and/or revenues grow to support our business plan, we may be unable
to
remain in business.
The
Company will require additional capital.
We
will
need additional funds to continue its operations, to build ethanol production
plants, and to distribute and market ethanol. We cannot guarantee that it will
have access to these required funds in the future, or that such funds will
be
available on acceptable terms and conditions. If we are unable to raise
additional funds, it will be unable to market its products and may be unable
to
remain in business. If we are successful in raising funds, we may be required
to
issue additional equity securities which will dilute the ownership of its
current shareholders.
Our
cellulose-to-ethanol technologies are unproven on a large-scale commercial
basis
and performance could fail to meet projections, which could have a detrimental
effect on the long-term capital appreciation of our
stock.
While
production of ethanol from corn, sugars and starches is a mature technology,
newer technologies for production of ethanol from cellulose biomass have not
been built at large commercial scales.. The technologies being pursued by us
for
ethanol production from biomass have not been demonstrated at commercial scale.
All of the tests conducted to date by us with respect to our technologies have
been performed on limited quantities of feedstocks, and we cannot assure you
that the same or similar results could be obtained at competitive costs on
a
large-scale commercial basis. We have never utilized these technologies under
the conditions or in the volumes that will be required to be profitable and
cannot predict all of the difficulties that may arise. It is possible that
the
technologies, when used, may require further research, development, design
and
testing prior to larger-scale commercialization. Accordingly, we cannot assure
you that these technologies will perform successfully on a large-scale
commercial basis or that they will be profitable to us.
Our
business employs licensed Arkenol Technology which may be difficult to protect
and may infringe on the intellectual property rights of third
parties.
We
currently license our technology from Arkenol. Arkenol owns eleven U.S. patents,
twenty-one foreign patents, and has one foreign patent pending and may file
more
patent applications in the future. Our success depends, in part, on our ability
to use the Arkenol Technology, and for Arkenol to obtain patents, maintain
trade
secrecy and not infringe the proprietary rights of third parties. We cannot
assure you that the patents of others will not have an adverse effect on our
ability to conduct our business, that we will develop additional proprietary
technology that is patentable or that any patents issued to us or Arkenol will
provide us with competitive advantages or will not be challenged by third
parties. Further, we cannot assure you that others will not independently
develop similar or superior technologies, duplicate elements of the Arkenol
Technology or design around it.
13
It
is
possible that we may need to acquire other licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. We cannot
assure you that any license would be made available to us on acceptable terms,
if at all, or that we would prevail in any such contest. In addition, we could
incur substantial costs in defending ourselves in suits brought against us
for
alleged infringement of another party's patents in bringing patent infringement
suits against other parties based on our licensed patents.
In
addition to licensed patent protection, we also rely on trade secrets,
proprietary know-how and technology that we seek to protect, in part, by
confidentiality agreements with our prospective joint venture partners,
employees and consultants. We cannot assure you that these agreements will
not
be breached, that we will have adequate remedies for any breach, or that our
trade secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
We
are dependent upon Arnie Klann, our Chairman and President, and John Cuzens,
our
VP Engineering, who we need to succeed.
We
believe that our continued success will depend to a significant extent upon
the
efforts and abilities of (i) Arnie Klann, our Chairman and President, due to
his
contacts in the ethanol and cellulose industries and his overall insight into
our business direction, and (ii) John Cuzens, our VP Engineering for his
comprehension of the Arkenol Technology. Our failure to retain Mr. Klann or
Mr.
Cuzens, or to attract and retain additional qualified personnel, could adversely
affect our operations. We do not currently carry key-man life insurance on
any
of our officers. See "Management."
Because
we are smaller and currently have fewer financial resources than many larger
ethanol producers, we may not be able to successfully compete in the very
competitive ethanol industry.
There
is
significant competition among ethanol producers. Our business faces competition
from larger corn ethanol plants, , and from other proposed plants using
cellulose. Our ethanol plants will be in direct competition with other ethanol
producers, many of which have greater resources than we currently have. While,
BlueFire’s competitive position will come from our projected lower production
costs because we are using cheaper feedstock and lower transportation costs
because our production facilities will be located closer to the urban markets
for ethanol, the large ethanol producers are capable of producing a
significantly greater amount of ethanol than we can and expect to produce
initially.
Competition
from large producers of petroleum-based gasoline additives and other competitive
products may impact our profitability.
Our
proposed ethanol plants will also compete with producers of other gasoline
additives made from other raw materials having similar octane and oxygenate
values as ethanol. The major oil companies have significantly greater resources
than we have to develop alternative products and to influence legislation and
public perception of ethanol. These other companies also have significant
resources to begin production of ethanol should they choose to do so. Ethanol
is
sold into the gasoline blending market where it competes with other oxygenates
and octane components and with gasoline itself. Therefore, ethanol's price
is
significantly affected by its value to refiners in these markets. Ethanol prices
are highly correlated with the price of gasoline and gasoline blending
components. The price of corn has very little to do with the price of ethanol.
That is why low corn prices do not always indicate low ethanol prices and high
corn prices do not always indicate high ethanol prices. Ethanol prices are
determined by the supply and demand for ethanol in specific markets.
14
Our
profits are impacted by corn supply.
Our
ethanol will be produced from cellulose, however currently most ethanol is
produced from corn, which is affected by weather, governmental policy, disease
and other conditions. A significant increase in the availability of corn and
resulting reduction in the price of corn may decrease the price of ethanol
and
harm our business.
If
ethanol and gasoline prices drop significantly, we will also be forced to reduce
our prices, which potentially may lead to further
losses.
Prices
for ethanol products can vary significantly over time and decreases in price
levels could adversely affect our profitability and viability. The price of
ethanol has some relation to the price of gasoline. The price of ethanol tends
to increase as the price of gasoline increases, and the price of ethanol tends
to decrease as the price of gasoline decreases. Any lowering of gasoline prices
will likely also lead to lower prices for ethanol and adversely affect our
operating results. We cannot assure you that we will be able to sell our ethanol
profitably, or at all.
Increased
ethanol production from cellulose in the United States could increase the demand
for feedstocks and the resulting price of feedstocks, reducing our
profitability.
New
ethanol plants that utilize cellulose as their feedstock may be under
construction or in the planning stages throughout the United States. This
increased ethanol production could increase cellulose demand and prices,
resulting in higher production costs and lower profits.
Price
increases or interruptions in needed energy supplies could cause loss of
customers and impair our profitability.
Ethanol
production requires a constant and consistent supply of energy. If there is
any
interruption in our supply of energy for whatever reason, such as availability,
delivery or mechanical problems, we may be required to halt production. If
we
halt production for any extended period of time, it will have a material adverse
effect on our business. Natural gas and electricity prices have historically
fluctuated significantly. We purchase significant amounts of these resources
as
part of our ethanol production. Increases in the price of natural gas or
electricity would harm our business and financial results by increasing our
energy costs.
Risks
Related to Government Regulation and Subsidization
Federal
regulations concerning tax incentives could expire or change, which could cause
an erosion of the current competitive strength of the ethanol
industry.
Congress
currently provides certain federal tax credits for ethanol producers and
marketers. The current ethanol industry and our business initially depend on
continuation of these credits. The credits have supported a market for ethanol
that might disappear without the credits. The credits are scheduled to expire
December 31, 2010. These credits may not continue beyond their scheduled
expiration date or, if they continue, the incentives may not be at the same
level. The revocation or amendment of any one or more of these tax incentives
could adversely affect the future use of ethanol in a material way, and we
cannot assure investors that any of these tax incentives will be continued.
The
elimination or reduction of federal tax incentives to the ethanol industry
could
have a material adverse impact on the industry as a whole. If BlueFire is
successful in meeting its target production costs, our business could continue
to compete in the market in the event the existing tax incentives are
eliminated. If the federal ethanol tax incentives are eliminated or sharply
curtailed, we believe that a decreased production from corn could
result.
15
Lax
enforcement of environmental and energy policy regulations may adversely affect
demand for ethanol
Our
success will depend in part on effective enforcement of existing environmental
and energy policy regulations. Many of our potential customers are unlikely
to
switch from the use of conventional fuels unless compliance with applicable
regulatory requirements leads, directly or indirectly, to the use of ethanol.
Both additional regulation and enforcement of such regulatory provisions are
likely to be vigorously opposed by the entities affected by such requirements.
If existing emissions-reducing standards are weakened, or if governments are not
active and effective in enforcing such standards, our business and results
of
operations could be adversely affected. Even if the current trend toward more
stringent emissions standards continues, we will depend on the ability of
ethanol to satisfy these emissions standards more efficiently than other
alternative technologies. Certain standards imposed by regulatory programs
may
limit or preclude the use of our products to comply with environmental or energy
requirements. Any decrease in the emission standards or the failure to enforce
existing emission standards and other regulations could result in a reduced
demand for ethanol. A significant decrease in the demand for ethanol will reduce
the price of ethanol, adversely affect our profitability and decrease the value
of your stock.
Costs
of compliance with burdensome or changing environmental and operational safety
regulations could cause our focus to be diverted away from our business and
our
results of operations to suffer
Ethanol
production involves the emission of various airborne pollutants, including
particulate matter, carbon monoxide, carbon dioxide, nitrous oxide, volatile
organic compounds and sulfur dioxide. The production facilities that we will
build will discharge water into the environment. As a result, we are subject
to
complicated environmental regulations of the U.S. Environmental Protection
Agency and regulations and permitting requirements of the states where our
plants are to be located. These regulations are subject to change and such
changes may require additional capital expenditures or increased operating
costs. Consequently, considerable resources may be required to comply with
future environmental regulations. In addition, our ethanol plants could be
subject to environmental nuisance or related claims by employees, property
owners or residents near the ethanol plants arising from air or water
discharges. Ethanol production has been known to produce an odor to which
surrounding residents could object. Environmental and public nuisance claims,
or
tort claims based on emissions, or increased environmental compliance costs
could significantly increase our operating costs.
Our
proposed new ethanol plants will also be subject to federal and state laws
regarding occupational safety
Risks
of
substantial compliance costs and liabilities are inherent in ethanol production.
We may be subject to costs and liabilities related to worker safety and job
related injuries, some of which may be significant. Possible future
developments, including stricter safety laws for workers and other individuals,
regulations and enforcement policies and claims for personal or property damages
resulting from operation of the ethanol plants could reduce the amount of cash
that would otherwise be available to further enhance our business.
16
Risks
Related to Our Common Stock
Our
common stock price has fluctuated considerably and stockholders may not be
able
to resell their shares at or above the price at which such shares were
purchased
The
market price of our common stock may fluctuate significantly (since July 11,2006, the day we began trading publicly as BFRE and December 8, 2006, the high
and low bid price for our common stock has been $1.30 and $7.25 per share,
respectively) in response to factors, including not yet beginning construction
of first plant and therefore operational results, due to needing time to
organize engineering resources, feedstock sources, locating suitable plant
locations, locating distributors and finding funding sources.
The
stock market in general has experienced extreme price and volume
fluctuations
The
market prices of securities of fuel-related companies have experienced
fluctuations that often have been unrelated or disproportionate to the operating
results of these companies. Continued market fluctuations could result in
extreme volatility in the price of our common stock, which could cause a decline
in the value of our common stock. Price volatility might be worse if the trading
volume of our common stock is low.
Because
we became public by means of a reverse acquisition with a public shell company,,
we may not be able to attract the attention of major brokerage firms for
research and support
Additional
risks may exist since we became public through a "reverse acquisition."
Securities analysts of major brokerage firms may not provide us with coverage
since there is no incentive to brokerage firms to recommend the purchase of
our
common stock. We cannot assure you that brokerage firms will want to conduct
any
secondary offerings on our behalf in the future.
Our
common stock may be considered "a penny stock" and may be difficult for you
to
sell
The
SEC
has adopted regulations which generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock has been for much of its trading history since July11, 2006, and may continue to be less than $5.00 per share, and therefore may
be
designated as a "penny stock" according to SEC rules. This designation requires
any broker or dealer selling these securities to disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and
determine that the purchaser is reasonably suitable to purchase the securities.
These rules may restrict the ability of brokers or dealers to sell our common
stock and may affect the ability of investors to sell their shares. In addition,
since our common stock is currently traded on the NASD's OTC Pink Sheets,
investors may find it difficult to obtain accurate quotations of our common
stock and may experience a lack of buyers to purchase such stock or a lack
of
market makers to support the stock price.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect
on
our business and operating results
17
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. If we cannot provide reliable financial reports
or
prevent fraud, our operating results could be harmed. Commencing December 15,2007, we will be required to document and test our internal control procedures
in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act
of
2002, which requires annual management assessments of the effectiveness of
our
internal controls over financial reporting and a report by our independent
registered public accounting firm addressing these assessments. In connection
with the audit by our independent accountants of our financial statements for
the five month period ended August 31, 2006, they notified us and our board
of
directors that they had identified significant deficiencies that they considered
material weaknesses in our internal controls. The material weaknesses related
to
the financial reporting process and segregation of duties. Although we intend
to
augment our internal controls procedures and expand our accounting staff, there
is no guarantee that this effort will be adequate.
During
the course of our testing, we may identify deficiencies which we may not be
able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act
for
compliance with the requirements of Section 404. In addition, if we fail to
maintain the adequacy of our internal accounting controls, as such standards
are
modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. Failure to
achieve and maintain an effective internal control environment could cause
us to
face regulatory action and also cause investors to lose confidence in our
reported financial information, either of which could have an adverse effect
on
our stock price.
Our
principal stockholder has significant voting power and may take actions that
may
not be in the best interest of all other stockholders
Our
Chairman and President controls approximately 64.6% of our currently outstanding
shares of common stock. He may be able to exert significant control over our
management and affairs requiring stockholder approval, including approval of
significant corporate transactions. This concentration of ownership may expedite
approvals of company decisions, or have the effect of delaying or preventing
a
change in control, adversely affect the market price of our common stock, or
be
in the best interests of all our stockholders.
Investors
should not anticipate receiving cash dividends on our common
stock
We
have
never declared or paid any cash dividends or distributions on our capital stock.
We currently intend to retain our future earnings to support operations and
to
finance expansion and therefore we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
You
could be diluted from the issuance of additional common
stock.
Presently,
we have 21,028,279 shares of common stock outstanding and no shares of preferred
stock outstanding. We are authorized to issue up to 100,000,000 shares of common
stock and 1,000,000 shares of preferred stock. To the extent of such
authorization, our board of directors will have the ability, without seeking
shareholder approval, to issue additional shares of common stock or preferred
stock in the future for such consideration as the board may consider sufficient.
The issuance of additional common stock or preferred stock in the future may
reduce your proportionate ownership and voting power.
18
ITEM
3: DESCRIPTION OF PROPERTY
The
Company leases from FR Systems, LLC on a month-to-month basis, approximately
1950 square feet of furnished office space at 31 Musick, Irvine, California92618, for $3,500 per month.
ITEM
4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth the current common stock ownership of (i) each
person known by the Company to be the beneficial owner of five percent or more
of the Company’s common stock based upon 21,028,279 shares outstanding as of
November 17, 2006, (ii) each director of the Company individually and
(iii) all officers and directors of the Company as a group. Each
person has sole voting and investment power with respect to the shares of common
stock shown, and all ownership is of record and beneficial. No stock options
have been issued. The address of each owner who is an officer or director is
in
care of the Company at 31 Musick, Irvine California 92618.
Title
of
Class
Name
of Beneficial Owner
Number
of
shares
Percent
of
Class
Common
Arnold
Klann, President, CEO and Director
13,597,500
64.6%
Common
Necitas
Sumait, Secretary, VP and Director
1,205,000
5.7%
Common
John
Cuzens, Treasurer, VP and Director
1,205,000
5.7%
Common
Chris
Nichols, Director
75,000
*
All
officers and directors as a group (4 persons)
16,082,500
76.4%
*Less
than 1%.
ITEM
5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The
officers and directors of the Company, their ages and present positions held
in
the Company are as follows:
Name
Age
Position
Officer
and
Director
Since
Arnold
Klann
-55
President,
CEO and Director
June
2006
Necitas
Sumait
-46
Secretary,
VP and Director
June
2006
John
Cuzens
-55
Treasurer,
VP and Director
June
2006
Chris
Nichols
40-
Director
June
2006
The
Company’s directors serve in such capacity until the first annual meeting of the
Company’s shareholders and until their successors have been elected and
qualified. The Company’s officers serve at the discretion of the Company’s Board
of Directors, until their death, or until they resign or have been removed
from
office.
There
are
no agreements or understandings for any director or officer to resign at the
request of another person and none of the directors or officers is acting on
behalf of or will act at the direction of any other person. The activities
of
each director and officer are material to the operation of the Company. No
other
person’s activities are material to the operation of the Company.
19
Arnold
R. Klann - Chairman of the Board / President / Chief Executive
Officer
Mr.
Klann
has been BlueFire’s Chairman of the Board, and President/Chief Executive Officer
since its inception in March 2006. Prior to this, he founded and was President
of ARK Energy, Inc. and Arkenol, Inc. from January 1989 to present. Mr. Klann
has an AA from Lakeland College in Electrical Engineering.
John
E. Cuzens - Chief Technology Officer / Senior Vice President / Treasurer /
Director
Mr.
Cuzen
has been BlueFire’s Director, CTO and Senior VP since its inception in March
2006. Prior to this, he was Director of Projects Wahlco Inc. . He was with
ARK
Energy and Arkenol for six years and is the co-inventor on seven of Arkenol's
eight U.S. foundation patents for the conversion of cellulosic materials into
fermentable sugar products using a modified strong acid hydrolysis process.
Mr.
Cuzens has a B.S. Chemical Engineering degree from the University of California
at Berkeley.
Necitas
Sumait - Senior Vice President / Secretary / Director
Mrs.
Sumait has been BlueFire’s Director and Senior VP since its inception in March
2006. Prior to this, Mrs. Sumait was Vice President of ARK Energy/Arkenol from
December 1992 to July 2006. Mrs. Sumait has a MBA in Technological Management
from Illinois Institute of Technology and a B.S. in Biology from De Paul
University.
Chris
Nichols - Director
Mr.
Nichols is currently the Chairman and President/CEO of Advanced Growing Systems,
Inc. Prior to this role he headed Westcap Securities’ Private Client Group as
the Senior Vice President in charge of sales and marketing from 2003 to 2006.
Mr. Nichols is a graduate of California State University in Fullerton with
a
B.A. degree in Marketing.
Key
Consultants
William
Davis - VP Project Management.
Mr.
Davis
is currently Vice President of Project Management for BlueFire. Prior to this
he
was Director of Project Development for Diamond Energy from 2001 to
2006.
Kent
A. Larsen - VP Project Finance.
Mr.
Larsen is currently Vice President of of Project Finance for BlueFire. Prior
to
this, Mr. Larsen has been a Vice President of ARK Energy, Inc. and has, for
the
last thirteen years, provided financial advisory services to and has
successfully arranged multi-sourced and comprehensive project and structured
financings on behalf of many of the major US and international independent
power
producers for power projects totaling more than US $5 billion in financing
and
over 7,000 MW. Mr. Larsen has been a co-founder and senior finance officer
of
three independent power companies, corporate treasurer of two US based, global
engineering and construction companies, and a senior banking officer and
managing director for project and international finance at two of the world's
largest financial institutions. He holds an MBA-Finance from UCLA Graduate
School of Business, and BS degrees in Civil Engineering and Mathematics from
the
University of Washington.
The
Company has also entered into consulting agreements with accounting, legal,
marketing and investor relations firms. These agreements are fee based and
do
not include issuance of any stocks. However, the Company may enter into future
agreements that may include issuance of restricted stock.
20
There
are
no family relationships among our directors and executive officers. No
director or executive officer has been a director or executive officer of any
business which has filed a bankruptcy petition or had a bankruptcy petition
filed against it during the past five years. No director or executive officer
has been convicted of a criminal offense or is the subject of a pending criminal
proceeding during the past five years. No director or executive officer has
been
the subject of any order, judgment or decree of any court permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities during the past five
years. No director or officer has been found by a court to have violated a
federal or state securities or commodities law during the past five
years.
None
of
our directors or executive officers or their respective immediate family members
or affiliates are indebted to us.
ITEM
6: EXECUTIVE COMPENSATION
The
following table sets forth the total compensation earned by or paid to our
executive officers and directors for the period from the date of organization
of
Bluefire - March 28, 2006 - until November 30, 2006.
SUMMARY
COMPENSATION TABLE
Long
Term Compensation
Annual
Compensation
Awards
Payouts
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Name
and Principle Position
Year
Salary
($)
Bonus
($)
Other
Annual
Compensation
($)
Restricted
Stock
Award(s)
($)
Securities
Underlying
Options/SARs
(#)
LTIP
Payouts
($)
All
Other
Compensation
($)
Arnie
Klann
Director
and President
2006
94,167
0
0
0
0
0
0
Necitas
Sumait
Director,
Secretary and VP
2006
65,000
0
0
0
0
0
0
John
Cuzens
Director,
Treasurer and VP
2006
62,000
0
0
0
0
0
0
Chris
Nichols
Director
2006
2,500
0
0
0
0
0
On
June27, 2006, the Company entered into form employment agreements with its three
executive officers. The employment agreements are for a period of three years,
with prescribed percentage increases beginning in 2007 and can be cancelled
upon
a written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual amount due under the
employment agreements is approximately $520,000.
21
In
addition, on June 27, 2006, the Company entered into a Directors agreement
with
four individuals to join the Company’s board of directors. Under the terms of
the agreement the non-employee Director (Chris Nichols) will receive annual
compensation in the amount of $5,000 and all Directors receive a one time grant
of 5,000 shares of the Company’s common stock. The common shares vest over the
period of one year. The value of the common stock granted was determined to
be
approximately $67,000 based on the estimated fair market value of the Company’s
common stock over a reasonable period of time.
ITEM
7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On
March1, 2006, the Company entered into a Technology License agreement with Arkenol,
Inc. (“Arkenol”), which the Company’s majority shareholder and other family
members hold an interest in. Arkenol has its own management and board separate
and apart from the Company. According to the terms of the agreement, the Company
was granted an exclusive, non-transferable, North American license to use and
to
sub-license the Arkenol technology. The Arkenol Technology, converts cellulose
and waste materials into Ethanol and other high value chemicals. As
consideration for the grant of the license, the Company shall make a one time
payment of $1,000,000 at first project construction funding and for each plant
make the following payments: (1) royalty payment of 4% of the gross sales price
for sales by the Company or its sublicensees of all products produced from
the
use of the Arkenol Technology (2) and a one time license fee of $40.00 per
1,000
gallons of production capacity per plant. According to the terms of the
agreement, the Company made a one time exclusivity fee prepayment of $30,000
during the period ended August 31, 2006.
On
March1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement
with ARK Energy, Inc. (“ARK Energy”), which is owned (50%) by the Company’s
majority shareholder. ARK Energy, Inc. has its own management and board separate
and apart from the Company. Based upon the terms of the agreement, ARK Energy
transferred certain rights, assets, work-product, intellectual property and
other know-how on project opportunities that may be used to deploy the Arkenol
technology (as described in the above paragraph). In consideration, the Company
has agreed to pay a performance bonus of up to $16,000,000 when certain
milestones are met. These milestones include transferee’s project implementation
which would be demonstrated by start of the construction of a facility or
completion of financial closing which ever is earlier. The payment is based
on
ARK Energy’s cost to develop 19 sites which are currently at different stages of
research.
ITEM
8: DESCRIPTION OF SECURITIES
The
Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock, and 1,000,000 shares of no par value preferred stock. Currently, the
Company has 21,028,279 shares of common stock outstanding.
22
Common
Stock
Presently,
the holders of our common stock are entitled to one vote for each share held
of
record on all matters submitted to a vote of our shareholders, including the
election of directors. Our common shareholders do not have cumulative voting
rights. Subject to preferences that may be applicable to any outstanding series
of our preferred stock which may be designated in the future, holders of our
common stock are entitled to receive ratably such dividends, if any, as may
be
declared by our Board of Directors out of legally available funds. In the event
of the liquidation, dissolution, or winding up of the Company, the holders
of
our common stock will be entitled to share ratably in the net assets legally
available for distribution to our shareholders after the payment of all our
debts and other liabilities, subject to the prior rights of any series of our
preferred stock then outstanding. The holders of our common stock have no
preemptive or conversion rights or other subscription rights and there are
no
redemption or sinking fund provisions applicable to our common
stock.
The
issuance of additional shares to certain persons allied with our management
could have the effect of making it more difficult to remove our current
management by diluting the stock ownership or voting rights of persons seeking
to cause such removal. In addition, an issuance of additional shares by us
could
have an effect on the potential realizable value of a shareholder's
investment.
Preferred
Stock
Our
board
of directors has the authority to issue up to 1,000,000 shares of preferred
stock, no par value per share, in one or more series and to fix the rights,
preferences, privileges, qualifications, limitations, and restrictions thereof,
and the number of shares constituting any series or the designation of such
series without shareholder approval. The existence of unissued preferred stock
may enable the board of directors, without further action by the stockholders,
to issue such stock to persons friendly to current management or to issue such
stock with terms that could render more difficult or discourage an attempt
to
obtain control of the Company, thereby protecting the continuity of the
Company’s management. Our shares of preferred stock could therefore be issued
quickly with terms that could delay, defer, or prevent a change in control
of
the Company, or make removal of management more difficult. No shares of
preferred stock are outstanding.
PART II
ITEM
1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Market
Information
The
Company’s common stock has traded on the Pink Sheets of the National Quotation
Bureau under the symbol BFRE since July 11, 2006. The following table sets
forth
the high and low sale prices for the Company’s common stock for the periods
indicated. The prices below reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent actual
transactions.
A
total
of 21,028,279 shares of the Company’s common stock are currently outstanding
held by approximately 731 shareholders of record.
Dividends
The
Company has not paid any dividends since its inception. The Company currently
intends to retain any earnings for use in its business, and therefore does
not
anticipate paying dividends in the foreseeable future.
ITEM
2. LEGAL PROCEEDINGS
The
Company is not a party to any litigation and, to its knowledge, no action,
suit
or proceeding has been threatened against the Company. There are no material
proceedings to which any director, officer or affiliate of the Company or
security holder is a party adverse to the Company or has a material interest
adverse to the Company.
ITEM
3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There
have been no disagreements on accounting and financial disclosures nor any
change in accountants from the inception of the Company through the date of
this
Registration Statement.
Prior
to
the reverse acquisition, Sucre entered into an agreement with two related
investors for the sale of 3,000,000 free trading shares of the Sucre’s common
stock for gross proceeds of $1,000,000. The previous management of Sucre
erroneously issued 4,000,000 shares of the Sucre’s common stock to the
investors. To date, the excess shares of 1,000,000 have not been returned to
the
transfer agent. The Company has demanded the return of the 1,000,000 and is
actively pursuing every possible channel to get the shares returned. Since
the
Company cannot predict the ultimate outcome, the 1,000,000 shares have been
accounted for as outstanding and included in the common shares retained by
Sucre’s shareholders. These securities were issued exempt from registration
pursuant to Rule 504 of Regulation D of the Securities Act of 1933 as
amended.
ITEM
5. INDEMNIFICATION
OF OFFICERS AND DIRECTORS
The
Company’s Articles of Incorporation provide for indemnification of the Company’s
officers, directors and controlling persons to the full extent provided by
Nevada law. Further, the Articles of Incorporation provide that no director
or
officer is personally liable to the Company or its shareholders for monetary
damages for any breach of fiduciary duty by such person as a director or
officer. Notwithstanding the foregoing sentence, a director or officer is liable
to the extent provided by Nevada law, (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or
(ii) for the payment of dividends in violation of Section 78.300 of
the Nevada Revised Statutes.
24
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
We
have
audited the accompanying consolidated balance sheet of BlueFire Ethanol Fuels,
Inc. (formerly Sucre Agricultural Corp.) and subsidiary, BlueFire Ethanol,
Inc.,
a development-stage company, (the “Company”) as of August 31, 2006, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for the period from March 28, 2006 (Inception) to August 31, 2006. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
The
Company is not required to have, nor were we engaged to perform, an audit of
its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of BlueFire Ethanol Fuels,
Inc.
and subsidiary, BlueFire Ethanol, Inc., as of August 31, 2006, and the results
of their operations and their cash flows for the period from March 28, 2006
(Inception) to August 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 of the
consolidated financial statements, the Company is a development-stage company
and has incurred losses from operations and used cash flows in operations.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans regarding these matters are also described in
Note 2 of the consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
F-2
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.) AND
SUBSIDIARY
Adjustments
to reconcile net loss to net cash
used in operating activities:
Costs
associated with acquisition of Sucre Agricultural Corp.
(3,550
)
Founders’
shares issued for compensation
17,000
Changes
in operating assets and liabilities:
Long
term prepaid
(30,000
)
Accounts
payable
63,963
Accrued
liabilities
31,000
Net
cash used in operating activities
(264,587
)
Cash
flows from financing activities-
Cash
received in acquisition of Sucre Agricultural Corp.
690,000
Net
increase in cash and cash equivalents
425,413
Cash
and cash equivalents beginning of period
-
Cash
and cash equivalents end of period
$
425,413
Supplemental
disclosures of cash flow information
Cash
paid during the period for:
Interest
$
-
Income
taxes
$
-
See
accompanying notes to consolidated financial
statements
F-6
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND BUSINESS
BlueFire
Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28,2006 (“Inception”). BlueFire was established to deploy the commercially ready,
patented, and proven process for the profitable conversion of cellulosic waste
materials to ethanol (“Arkenol Process Technology”) under a technology license
agreement with Arkenol, Inc. (“Arkenol”). BlueFire's use of the Arkenol Process
Technology positions it as the only cellulose-to-ethanol company worldwide
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 worldwide. These "biorefineries" will convert widely
available, inexpensive, organic materials such as agricultural residues,
high-content biomass crops, wood residues, and cellulose from MSW into ethanol.
BlueFire’s
business will encompass development activities leading to the construction
and
long-term operation of production facilities. BlueFire
is currently in the development-stage of deploying project opportunities for
converting cellulose fractions of municipal solid waste and other opportunistic
feedstock into ethanol fuels. The Company entered into an Asset Transfer and
Acquisition Agreement with ARK Energy, Inc. (“ARK Energy”). Based upon the terms
of the agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on 19 project opportunities, that
management estimates is worth approximately $16,000,000, which may be used
by
BlueFire to accelerate its deployment of the Arkenol technology.
On
June27, 2006, BlueFire completed a reverse acquisition of Sucre Agricultural Corp
(“Sucre”), a Delaware corporation. At the time of acquisition, Sucre had no
operations, revenues or liabilities. The only asset possessed by Sucre was
$690,000 in cash which was included in the acquisition. Sucre was considered
a
blank-check company prior to the acquisition. In connection with the acquisition
Sucre issued BlueFire 17,000,000 shares of common stock, approximately 85%
of
the outstanding common stock of Sucre, for all the issued and outstanding
BlueFire common stock. The Sucre stockholders retained 4,028,279 shares of
Sucre
common stock. BlueFire and Sucre will be collectively referred herein to as
the
“Company”. Immediately prior to the acquisition, Sucre changed its name to
BlueFire Ethanol Fuels, Inc.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Change in Reporting Entity
The
acquisition of Sucre Agricultural Corp. by BlueFire Ethanol, Inc., as discussed
in Note 1, was accounted for as a reverse acquisition, whereby the assets and
liabilities of BlueFire are reported at their historical cost since the entities
are under common control immediately after the acquisition in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business
Combinations” . The assets and liabilities of Sucre, which were not significant,
were recorded at fair value on June 27, 2006, the date of the acquisition.
No
goodwill was recorded in connection with the reverse acquisition since Sucre
had
no business. The reverse acquisition resulted in a change in the reporting
entity of Sucre, for accounting and reporting purposes. Accordingly, the
financial statements herein reflect the operations of BlueFire from Inception
and Sucre from June 27, 2006, the date of acquisition, through August 31, 2006.
The 4,028,279 shares retained by the stockholders of Sucre have been recorded
on
the date of acquisition of June 27, 2006.
F-7
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Going
Concern Considerations
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. The Company is currently a
development-stage enterprise. The Company's continued existence is dependent
upon the Company's ability to obtain additional debt and/or equity financing.
The Company has incurred losses since Inception and, the Company has not
generated any revenues from its products. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The Company
anticipates beginning construction of a plant within the next 6 months and
expects to complete the project and to begin production of ethanol within the
next 24 months. Although the cost of construction is not readily determinable,
the Company estimates the cost to be approximately $20 million per plant.
Management plans to raise additional funds through project financings or through
future sales of their common stock, until such time as the Company’s revenues
are sufficient to meet its cost structure, and ultimately achieve profitable
operations. There is no assurance that the Company will be successful in raising
additional capital or achieving profitable operations. The consolidated
financial statements do not include any adjustments that might result from
the
outcome of these uncertainties.
Principles
of Consolidation
The
consolidated financial statements include the accounts of BlueFire Ethanol
Fuels, Inc., and its wholly-owned subsidiary BlueFire Ethanol, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Cash
and Cash Equivalents
For
purpose of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents.
Revenue
Recognition
The
Company is currently a developmental-stage company and has recognized minimal
revenues to date. The Company will recognize revenues from 1) consulting
services rendered to potential sub-licensees for development and construction
of
cellulose to ethanol projects, 2) sales of ethanol from its production
facilities when (a) persuasive evidence that an agreement exists; (b) the
products have been delivered; (c) the prices are fixed and determinable and
not
subject to refund or adjustment; and (d) collection of the amounts due is
reasonably assured.
F-8
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Project
Development
Project
development costs are expensed as incurred. 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
development, engineering, and marketing expenses related to the Company’s
cellulose fractions of municipal solid waste into ethanol fuels.
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.
Fair
Value of Financial Instruments
The
fair
value of financial instruments approximated their carrying values at August31,2006. The financial instruments consist of cash and accounts
payable.
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. During the period ended August 31, 2006, there were no dilutive
instruments outstanding.
Risks
and Uncertainties
The
Company’s operations are subject to new innovations in product design and
function. Significant technical changes can have an adverse effect on product
lives. Design and development of new products are important elements to achieve
and maintain profitability in the Company’s industry segment.
The
Company may be subject to federal, state and local environmental laws and
regulations. The Company does not anticipate expenditures to comply with such
laws and does not believe that regulations will have a material impact on the
Company’s financial position, results of operations, or liquidity. The Company
believes that its operations comply, in all material respects, with applicable
federal, state, and local environmental laws and regulations
F-9
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations
of Credit Risk
The
Company, at times, maintains cash balances at certain financial institutions
in
excess of amounts insured by federal agencies.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
revises SFAS No. 123. SFAS No. 123(R) is effective July 1, 2005 for all calendar
year-end companies and requires companies to expense the fair value of employee
stock options and other forms of stock-based compensation. This expense will
be
recognized over the period during which an employee is required to provide
services in exchange for the award. Currently, the Company does not have any
outstanding stock options, and as such the Company does not expect the guidance
under SFAS No. 123(R) to have a material impact on the consolidated financial
statements.
NOTE
3 - COMMITMENTS AND CONTINGENCIES
On
May 1,2006, the Company began discussions with a certain consultant to negotiate
project and operating financing for the Company. As of August 31, 2006, the
Company had not finalized the consulting agreement and the consultant did not
have any capital funding arrangements. However, the Company has made monthly
payments in the amount of $7,500 to Consultant since July of 2006.
On
June27, 2006, the Company entered into employment agreements with three key
employees. The employment agreements are for a period of three years, with
prescribed percentage increases beginning in 2007 and can be cancelled upon
a
written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual payments under the
employment agreements are approximately $520,000.
In
addition, on June 27, 2006, the Company entered into an agreement with four
individuals to join the Company’s board of directors. Under the terms of the
agreement the individuals will receive annual compensation in the amount of
$5,000 and a one time grant of 5,000 shares of the Company’s common stock. The
common shares vest over the period of one year. The value of the common stock
granted was determined to be approximately $67,000 based on the estimated fair
market value of the Company’s common stock over a reasonable period of time. The
Company is currently expensing the value of the common stock over the vesting
period. As of August 31, 2006, the Company amortized $11,000 to general and
administrative expenses and included in accrued liabilities as the shares had
not been issued.
NOTE
4 -STOCKHOLDERS’ EQUITY
Founder
Shares
In
March
2006, upon incorporation BlueFire issued 10,000 shares of $1.00 par value common
stock to various individuals. The shares were recorded at their par value of
$10,000 and expensed. In connection with the reverse acquisition, as discussed
in Note 2, these individuals received an aggregate of 17,000,000 shares of
Sucre’s common stock in exchange for their 10,000 shares of BlueFire. At the
time of the transaction BlueFire did not have sufficient paid-in capital to
reclass the additional par value of the common shares to common stock, thus
the
Company expensed an additional $7,000. The amounts were recorded as general
and
administrative expense on the accompanying statement of operations.
F-10
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition
Costs
In
connection with the acquisition of Sucre, the Company incurred legal costs
of
$3,550. The costs have been treated as a reduction of additional paid-in
capital.
Financings
Prior to Reverse Acquisition
Prior
to
the reverse acquisition, Sucre entered into an agreement with an investor for
the sale of 3,000,000 shares of the Sucre’s common stock for gross proceeds of
$1,000,000. The previous management of Sucre erroneously issued 4,000,000 shares
of Sucre’s common stock to the investor. To date, the excess shares of 1,000,000
have not been returned to the transfer agent. The Company has demanded the
return of the 1,000,000 and is actively pursuing every possible channel to
get
the shares returned. Since the Company cannot predict the ultimate outcome,
the
1,000,000 shares have been accounted for as outstanding and included in the
common shares retained by Sucre shareholders.
NOTE
5 -RELATED PARTY TRANSACTIONS
On
March1, 2006, the Company entered into a Technology License agreement with Arkenol,
Inc. (“Arkenol”), which the Company’s majority shareholder and other family
members hold an interest in. Arkenol has its own management and board separate
and apart from the Company. According to the terms of the agreement, the Company
was granted an exclusive, non-transferable, North American license to use and
to
sub-license the Arkenol technology. The Arkenol Technology, converts cellulose
and waste materials into Ethanol and other high value chemicals. As
consideration for the grant of the license, the Company shall make a one time
payment of $1,000,000 at first project construction funding and for each plant
make the following payments: (1) royalty payment of 4% of the gross sales price
for sales by the Company or its sublicensees of all products produced from
the
use of the Arkenol Technology (2) and a one time license fee of $40.00 per
1,000
gallons of production capacity per plant. According to the terms of the
agreement, the Company made a one time exclusivity fee prepayment of $30,000
during the period ended August 31, 2006. As of August 31, 2006, the amount
has
been reflected as a long term prepaid asset as the Company does not expect
to
incur any liabilities under this agreement prior to one year from the balance
sheet date. As of August 31, 2006, the Company had not incurred any liabilities
related to the agreement.
On
March1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement
with ARK Energy, Inc. (“ARK Energy”), which is owned (50%) by the Company’s
majority shareholder. ARK Energy, Inc. has its own management and board separate
and apart from the Company. Based upon the terms of the agreement, ARK Energy
transferred certain rights, assets, work-product, intellectual property and
other know-how on project opportunities that may be used to deploy the Arkenol
technology (as described in the above paragraph). In consideration, the Company
has agreed to pay a performance bonus of up to $16,000,000 when certain
milestones are met. These milestones include transferee’s project implementation
which would be demonstrated by start of the construction of a facility or
completion of financial closing which ever is earlier. The payment is based
on
ARK Energy’s cost to acquire and develop 19 sites which are currently at
different stages of research. As of August 31, 2006, the Company had not
incurred any liabilities related to the agreement.
F-11
BLUEFIRE
ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 - INCOME TAXES
Income
tax reporting primarily relates to the business of the parent company Sucre
which experienced a change in ownership on June 27, 2006. A change in ownership
requires management to compute the annual limitation under Section 382 of the
Internal Revenue Code. The amount of benefits the Company may receive from
the
operating loss carry forwards for income tax purposes is further dependent,
in
part, upon the tax laws in effect, the future earnings of the Company, and
other
future events, the effects of which cannot be determined.
The
Company’s deferred tax assets consist solely of net operating loss carry
forwards of approximately $107,000. For federal tax purposes these carry
forwards expire in twenty years beginning in 2026 and for the State of
California purposes they expire in five years beginning in 2011. A full
valuation allowance has been placed on 100% of the Company’s deferred tax assets
as it cannot be determined if the assets will be ultimately used. During the
period from Inception to August 31, 2006, the Company’s valuation allowance
increased by approximately $107,000.
In
addition, the Company expects that Sucre is not current in their federal and
state income tax filings. The Company has not determined how delinquent the
filings are. However, the effect of non filing is not expected to be significant
as Sucre has not had active operations for a significant period of time.
In
accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the
undersigned, thereunto duly authorized on December 8, 2006.
By:
/s/
Arnold Klann
President,
CEO and Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this registration
statement has been signed by the following persons in the capacities indicated
on December 8, 2006.
Signature
Title
/s/
Arnie Klann
Arnie
Klann, President, CEO and Chairman
(Principal
Executive Officer)
/s/
John Cuzens
John
Cuzens, Treasurer, VP and Director
(Principal
Financial Officer)
/s/
Necitas Sumait
Necitas
Sumait, Secretary, VP and Director
/s/
Chris Nichols
Chris
Nichols, Director
25
Dates Referenced Herein and Documents Incorporated by Reference
