Amendment to Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10SB12G/A Amendment to Registration of Securities of a 53 259K
Small-Business Issuer
2: EX-4.1 Instrument Defining the Rights of Security Holders 2 10K
3: EX-4.2 Instrument Defining the Rights of Security Holders 11 45K
4: EX-10.5 Material Contract 2 12K
5: EX-10.6 Material Contract 26 90K
6: EX-21.1 Subsidiaries of the Registrant 1 4K
7: EX-99.1 Miscellaneous Exhibit 6 26K
8: EX-99.2 Miscellaneous Exhibit 3 14K
10SB12G/A — Amendment to Registration of Securities of a Small-Business Issuer
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza, 100 F Street, N.E., Room 1580,
Washington, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
BLUEFIRE ETHANOL FUELS, INC.
(Exact name of registrant as specific in its charter)
NEVADA 20-4590982
(State of Incorporation) (I.R.S. Employer I.D. No.)
31 MUSICK
IRVINE, CALIFORNIA 92618
(Address of principal executive offices, including zip code)
(949) 588-3767
(Registrant's telephone number, including area code)
COPIES TO:
SCOTT D. OLSON, ESQ.
251 HIGH DRIVE
LAGUNA BEACH, CALIFORNIA 92651
(310) 985-1034
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)
This registration statement is being filed with the Securities and Exchange
Commission to cause the registrant to become a reporting issuer under the
Securities Exchange Act of 1934.
1
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 17
ITEM 3. DESCRIPTION OF PROPERTY 20
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 22
ITEM 6. EXECUTIVE COMPENSATION 24
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 34
ITEM 8. DESCRIPTION OF SECURITIES 35
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS 36
ITEM 2. LEGAL PROCEEDINGS 38
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 38
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES 38
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS 38
PART F/S
ITEM 1. FINANCIAL STATEMENTS F-1
PART III
ITEM 1. INDEX TO EXHIBITS 40
ITEM 2. DESCRIPTION OF EXHIBITS 40
SIGNATURES 40
EXHIBITS
2
PART I
EXPLANATORY NOTE
We are filing this General Form for Registration of Securities on Form 10-SB to
register our common stock, par value $.001, pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Once we have completed this registration, we will be subject to the requirements
of Regulation 13A under the Exchange Act, which will require us to file annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB, and current reports on
Form 8-K, and we will be required to comply with all other obligations of the
Exchange Act applicable to issuers filing registration statements pursuant to
Section 12(g).
In this registration statement references to "we," "us," "Company," and "our"
refer to BlueFire Ethanol Fuels, Inc.
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 adverse publicity, including but not limited to, the recent
adjustments in calculating mileage per gallon; and
3
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.
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 October 12, 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 June 27, 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 February
21, 2007 the closing price of the common stock was $ 5.00 per share.
BUSINESS OF ISSUER
PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
BlueFire has licensed for use a patented process from Arkenol, Inc., a Nevada
corporation ("Arkenol") which produces ethanol from cellulose ("Arkenol
Technology" - described below and see Item 7. Certain Relationships And Related
Transactions for discussion of relationship between the Company and Arkenol) for
sale into the transportation fuel market. The Company is the exclusive North
America licensee of the Arkenol Technology. BlueFire's goal is to develop, own
and operate high-value carbohydrate-based transportation fuel plants to provide
a viable alternative to fossil fuels, and to provide professional services to
such plants worldwide. 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 BlueFire to consider a wide variety of
feedstocks and locations in which to develop facilities to become a low cost
producer of ethanol.
4
ARKENOL TECHNOLOGY
The production of chemicals by fermenting various sugars is a well-accepted
science. Its use ranges from producing beverage alcohol and fuel-ethanol to
making citric acid and xantham gum for food uses. However, the high price of
sugar and the relatively low cost of competing petroleum based fuel has kept the
production of chemicals mainly confined to producing ethanol from corn sugar.
In the Arkenol Technology process, incoming biomass feedstocks are cleaned and
ground to reduce the particle size for the process equipment. The pretreated
material is then dried to a moisture content consistent with the acid
concentration requirements for breaking down the biomass, then hydrolyzed
(degrading the chemical bonds of the cellulose) to produce hexose and pentose
(C5 and C6) sugars at the high concentrations necessary for commercial
fermentation. The insoluble materials left are separated by filtering and
pressing into a cake and further processed into fuel for other beneficial uses.
The remaining acid-sugar solution is separated into its acid and sugar
components. The separated sulfuric acid is recirculated and reconcentrated to
the level required to breakdown the incoming biomass. The small quantity of acid
left in the sugar solution is neutralized with lime to make hydrated gypsum
which can be used as an agricultural soil conditioner. At this point the process
has produced a clean stream of mixed sugars (both C6 and C5) for fermentation.
In an ethanol production plant, naturally-occurring yeast, which Arkenol has
specifically cultured by a proprietary method to ferment the mixed sugar stream,
is mixed with nutrients and added to the sugar solution where it efficiently
converts both the C6 and C5 sugars to fermentation beer (an ethanol, yeast and
water mixture) and carbon dioxide. The yeast culture is separated from the
fermentation beer by a centrifuge and returned to the fermentation tanks for
reuse. Ethanol is separated from the now clear fermentation beer by conventional
distillation technology, dehydrated to 200 proof and denatured with unleaded
gasoline to produce the final fuel-grade ethanol product. The still bottoms,
containing principally water and unfermented sugar, is returned to the process
for economic water use and for further conversion of the sugars.
Simply put, the process separates the biomass into two main constituents:
cellulose and hemicellulose (the main building blocks of plant life) and lignin
(the "glue" that holds the building blocks together), converts the cellulose and
hemicellulose to sugars, ferments them and purifies the fermentation liquids
into ethanol and other end-products.
ARK ENERGY
BlueFire may also utilize certain biorefinery related rights, assets,
work-product, intellectual property and other know-how related to nineteen (19)
ethanol project opportunities originally developed by ARK Energy, Inc,, a Nevada
corporation ("ARK Energy" - see Item 7."Certain Relationships And Related
Transactions" for discussion of relationship between the Company and ARK Energy)
to accelerate BlueFire's deployment of the Arkenol Technology. The opportunities
consist of ARK Energy's previous relationships, analysis, site development,
permitting experience and market research on various potential project locations
within North America. ARK Energy has transferred these assets to BlueFire and
valued these business assets based on management best estimates as to its actual
costs of development. In the event BlueFire successfully finances the
construction of a project that utilizes any of the transferred assets from ARK
Energy, BlueFire shall pay ARK Energy for the costs ARK Energy incurred in the
development of the assets pertaining to that particular project or location. A
more detailed description of the nineteen (19) projects that the ARK Energy
assets pertain to (including plants in California, Florida, Texas, Hawaii,
Illinois, Minnesota, New Jersey and Pennsylvania as well as Canada) is shown on
Table 1 of the Asset Transfer and Acquisition Agreement, which is attached
hereto as Exhibit 10.4. Management did not incur the costs of a third party
valuation but based its valuation of the assets acquired by (i) an arms length
review of the value assigned by ARK Energy to the opportunities is based on the
actual costs it incurred in developing the project opportunities, and (ii)
anticipated financial benefits to the Company.
5
PILOT PLANTS
From 1994-2000, a test pilot biorefinery plant was built and operated by Arkenol
in Orange, California to test the effectiveness of the Arkenol Technology using
several different types of raw materials containing cellulose. The types of
materials tested included: rice straw, wheat straw, green waste, wood wastes,
and municipal solid wastes. Various equipment for use in the process was also
tested and process conditions were verified leading to the issuance of the
certain patents in support of the Arkenol Technology.
In 2002, using the results obtained from the Arkenol California test pilot plant
and also based in the Arkenol Technology, JGC Corporation, based in Japan, built
and operated a bench scale facility followed by another test pilot biorefinery
plant in Izumi, Japan. At the Izumi plant Arkenol retained the rights to the
Arkenol Technology while the operations of the facility were controlled by JGC
Corporation.
BLUEFIRE PROJECTS
BlueFire is currently in the development stage of building biorefineries in
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North America.
--------------
BlueFire plans to use the Arkenol Technology and utilize JGC's operations
knowledge from the Izumi test pilot plant to assist in the design and
engineering of BlueFire facilities in North America. JGC will provide the
preliminary design package for BlueFire's first facility and work with the
Company's selected U.S. engineering company MECS (formerly Monsanto) to complete
the detailed engineering design of the plant. This completed design should
provide the blueprint for subsequent plant constructions.
The Company has proposed an initial facility for development and construction at
the El Sobrante Landfill located in Corona, California. Once completed this
facility is projected to use approximately 700 metric dry tons of green waste
and wood waste currently disposed in the landfill to produce about 18 million
gallons of ethanol annually. Preliminary engineering design is in progress and
permitting for this facility will commence once all required preliminary
engineering design is completed. .The Company is seeking financing for the
commencement of this project.
The Company is simultaneously researching and considering other suitable
locations for other similar biorefineries.
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 the ethanol 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 according
to the Renewable Fuels Association ("RFA") website (http://www.ethanolrfa.org/)
and as of Feb 12, 2007 is produced at approximately 113 facilities, ranging in
size from 300,000 to 110 million gallons per year, located predominately in the
6
corn belt in the Midwest. According to the RFA, about 20% of the current
production is by the Archer-Daniels-Midland Company with over 1 Billion gallons
annually and an additional 250 million gallons of capacity being
constructed/expanded currently. Traditional corn-based production techniques are
mature and well entrenched in the marketplace, and the entire industry's
infrastructure is geared toward corn as the principal feedstock.
With the Arkenol Technology the principle difference from traditional processes
apart from production technique (covered in "Arkenol Technology" section herein)
is the acquisition and choice of feedstock. The use of a non-commodity based
non-food related biomass feedstock enables BlueFire to use feedstock typically
destined for disposal, i.e. wood waste, yard trimmings and general green waste.
All ethanol producers regardless of production technique will fall subject to
market fluctuation in the end product, ethanol.
Due to the feedstock variety BlueFire is able to process, BlueFire is able to
locate production facilities in and around the markets where the ethanol will be
consumed thereby giving BlueFire a competitive advantage against much larger
traditional producers who must locate plants near their feedstock, i.e. the corn
belt in the Midwest and ship the ethanol to the end market.
However, in the area of biomass-to-ethanol production, there are few companies
and no commercial production infrastructure is built. As we continue to advance
our biomass technology platform, we are likely to encounter competition for the
same technologies from other companies that are also attempting to manufacture
ethanol from cellulosic biomass feedstocks.
Ethanol production is also expanding internationally. Ethanol produced or
processed in certain countries in Central American and the Caribbean region is
eligible for tariff reduction or elimination upon importation to the United
States under a program known as the Caribbean Basin Initiative. Large ethanol
producers, such as Cargill, have expressed interest in building dehydration
plants in participating Caribbean Basin countries, such as El Salvador, which
would convert ethanol into fuel-grade ethanol for shipment to the United States.
Ethanol imported from Caribbean Basin countries may be a less expensive
alternative to domestically produced ethanol and may affect our ability to sell
our ethanol profitably.
Industry Overview
-----------------
On August 8, 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.
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.
7
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.
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 5 billion gallons per year in 2006. In
the United States, ethanol is primarily made from starch crops, principally from
the starch fraction of corn. Consequently, the production plants are
concentrated in the grain belt of the Midwest, principally in Illinois, Iowa,
Minnesota, Nebraska and South Dakota.
In the United States, there are two principal commercial applications for
ethanol. The first is as an oxygenate additive to gasoline to comply with clean
air regulations. The second is as a voluntary substitute for gasoline - this is
a purely economic choice by gasoline retailers who may make higher margins on
selling ethanol-blended gasoline, provided ethanol is available in the local
market. The U.S. gasoline market is currently approximately 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.
8
SOURCES AND AVAILABILITY OF RAW MATERIALS
The U.S. DOE and USDA in its April 2005 report BIOMASS AS FEEDSTOCK FOR A
BIOENERGY AND BIOPRODUCTS INDUSTRY: THE TECHNICAL FEASIBILITY OF A BILLION-TON
ANNUAL SUPPLY found that about one billion tons of cellulosic materials from
agricultural and forest residues are available to produce more than one-third of
the current U.S. demand for transportation fuels.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
Currently, the Company has no dependence on one or a few major customers,
although it has entered into a non-binding letter of intent with Petro-Diamond,
Inc. to be Bluefire's sole purchaser of ethanol from its first scheduled plant
in Southern California. BlueFire is negotiating definitive agreements but no
definitive agreement has been signed with Petro-Diamond as of yet. See
"DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES."
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS
On March 1, 2006, Bluefire entered into a Technology License Agreement with
Arkenol, for use of the Arkenol Technology. Arkenol holds the following patents
in relation to the Arkenol Technology: eleven U.S. patents, twenty one foreign
patents, and one pending foreign patent. According to the terms of the
agreement, Bluefire 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, Bluefire 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 Bluefire 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, Bluefire made a one time exclusivity fee prepayment of
$30,000 during the period ended August 31, 2006. As of August 31, 2006, Bluefire
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.
NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The Company 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.
9
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 August 8, 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).
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.
10
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.
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 four (4) full time employees as of February 21, 2007 and no part time
employees. None of our employees are subject to a collective bargaining
agreement, and the Company believes that its relationship with its employees is
good.
REPORTS TO SECURITY HOLDERS
As a result of filing its Form 10-SB on December 13, 2006, the Company has
become subject to the reporting obligations of the Securities Exchange Act of
1934, as amended (the "Exchange Act") as of February 12, 2007. 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.
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 INCURRED NET LOSSES OF $1,162,739 AND OUR AUDITORS HAVE ISSUED A
GOING CONCERN OPINION.
11
The Company has had limited operations and has incurred net losses of $1,162,739
for the period from March 28, 2006 (Inception) through December 31, 2006
(unaudited) and has not generated any revenues from products. 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. 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. Our continued existence is dependent upon our ability to obtain
additional debt and/or equity financing. These factors raise substantial doubt
about our ability to continue as a going concern. Management 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, we
estimate the cost to be approximately $20 million per plant. Management plans to
raise additional funds through project financings or through future sales of our
common stock, until such time as our revenues are sufficient to meet its cost
structure, and ultimately achieve profitable operations. There is no assurance
we will be successful in raising additional capital or achieving profitable
operations. Wherever possible, our board of directors will attempt to use
non-cash consideration to satisfy obligations. In many instances, we believe
that the non-cash consideration will consist of restricted shares of our common
stock. These actions will result in dilution of the ownership interests of
existing shareholders may further dilute common stock book value, and that
dilution may be material.
OUR CELLULOSE-TO-ETHANOL TECHNOLOGIES ARE UNPROVEN ON A LARGE-SCALE COMMERCIAL
BASIS AND PERFORMANCE COULD FAIL TO MEET PROJECTIONS, WHICH COULD HAVE A
DETRIMENTAL EFFECT ON THE LONG-TERM CAPITAL APPRECIATION OF OUR STOCK.
While production of ethanol from corn, sugars and starches is a mature
technology, newer technologies for production of ethanol from cellulose biomass
have not been built at large commercial scales.. The technologies being pursued
by us for ethanol production from biomass have not been demonstrated on a
commercial scale. All of the tests conducted to date by us with respect to 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.
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.
12
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 ARNOLD 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) Arnold 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."
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.
We will also compete with producers of other gasoline additives having similar
octane and oxygenate values as ethanol. An example of such other additives is
MTBE, a petrochemical derived from methanol. MTBE costs less to produce than
ethanol. Many major oil companies produce MTBE and because it is
petroleum-based, its use is strongly supported by major oil companies.
Alternative fuels, gasoline oxygenates and alternative ethanol production
methods are also continually under development. The major oil companies have
significantly greater resources than we have to market MTBE, to develop
alternative products, and to influence legislation and public perception of MTBE
and ethanol.
OUR 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
13
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.
OUR BUSINESS PLANS REQUIRES ACHIEVING CERTAIN MILESTONES AND THE FAILURE TO
REACH SUCH MILESTONES WILL WHICH POTENTIALLY REDUCE OUR PROFITABILITY AND MAY
LEAD TO LOSSES.
Our business plan calls for the completion of up to 19 numerous biorefinery
projects. In order to achieve these milestones, such as the proposed facility in
Los Angeles County, we would need to have approximately $20 million to fund this
project. We will be relying on additional financing, funding from such sources
as The Energy Policy Act grants and loan guarantee programs, Biorefinery
Demonstration Project Program or The California Energy Commission. The Company
is currently in discussions with potential sources of financing but no
definitive agreements are in place. If we cannot achieve the requisite financing
or complete the projects as anticipated, this could adversely affect our
business, the results of our operations, prospects and financial condition.
RISKS RELATED TO GOVERNMENT REGULATION AND SUBSIDIZATION
FEDERAL REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE, WHICH
COULD CAUSE AN EROSION OF THE CURRENT COMPETITIVE STRENGTH OF THE ETHANOL
INDUSTRY.
Congress currently provides certain federal tax credits for ethanol producers
and marketers. The current ethanol industry and our business initially depend on
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.
LAX ENFORCEMENT OF ENVIRONMENTAL AND ENERGY POLICY REGULATIONS MAY ADVERSELY
AFFECT DEMAND FOR ETHANOL
14
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.
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 February 21, 2007, the high
and low bid price for our common stock has been $1.30 and $7.90 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.
15
OUR COMMON STOCK MAY BE CONSIDERED "A PENNY STOCK" AND MAY BE DIFFICULT FOR YOU
TO SELL
The SEC has adopted regulations which generally define "penny stock" to be an
equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock has been for much of its trading history since
July 11, 2006, and may continue to be less than $5.00 per share, and therefore
may be designated as a "penny stock" according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell our common stock and may affect the ability of investors to sell their
shares. In addition, since our common stock is currently traded OTC on the 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
It may be time consuming, difficult and costly for us to develop and implement
the additional internal controls, processes and reporting procedures required by
the Sarbanes-Oxley Act. We may need to hire additional financial reporting,
internal auditing and other finance staff in order to develop and implement
appropriate additional internal controls, processes and reporting procedures. If
we are unable to comply with these requirements of the Sarbanes-Oxley Act, we
may not be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires publicly traded companies to obtain.
If we fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 regarding internal control over financial
reporting or to remedy any material weaknesses in our internal controls that we
may identify, such failure could result in material misstatements in our
financial statements, cause investors to lose confidence in our reported
financial information and have a negative effect on the trading price of our
common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and current SEC
regulations, beginning with our annual report on Form 10-KSB for our fiscal
period ending June 30, 2008, we will be required to furnish a report by our
management on our internal control over financial reporting. We will soon begin
the process of documenting and testing our internal control procedures in order
to satisfy these requirements, which is likely to result in increased general
and administrative expenses and may shift management time and attention from
revenue-generating activities to compliance activities. While our management is
expending significant resources in an effort to complete this important project,
there can be no assurance that we will be able to achieve our objective on a
timely basis. There also can be no assurance that our auditors will be able to
issue an unqualified opinion on management's assessment of the effectiveness of
our internal control over financial reporting. Failure to achieve and maintain
an effective internal control environment or complete our Section 404
certifications could have a material adverse effect on our stock price.
In addition, in connection with our on-going assessment of the effectiveness of
our internal control over financial reporting, we may discover "material
weaknesses" in our internal controls as defined in standards established by the
Public Company Accounting Oversight Board, or the PCAOB. A material weakness is
a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. The
PCAOB defines "significant deficiency" as a deficiency that results in more than
a remote likelihood that a misstatement of the financial statements that is more
than inconsequential will not be prevented or detected.
In the event that a material weakness is identified, we will employ qualified
personnel and adopt and implement policies and procedures to address any
material weaknesses that we identify. However, the process of designing and
implementing effective internal controls is a continuous effort that requires us
to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system
of internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
16
Any failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act of 2002. Inadequate internal
controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.
OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT
MAY NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS
The Company's Chairman and President controls approximately 64.6% of its current
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.
YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As of January 8, 2007 the Company had 21,085,764 shares of common stock
outstanding and no shares of preferred stock outstanding. The Company is
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, the Company's
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.
ITEM 2. 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 joint venture partnerships,
project debt financings or through future sales of the Company's 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 will need financing within 12 months to continue its operations.
17
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.
The Company's business will encompass development activities culminating in the
construction and long-term operation of ethanol production biorefineries, as
such, Bluefire is currently in the development-stage of finding suitable
locations and deploying project opportunities for converting cellulose fractions
of municipal solid waste and other opportunistic feedstock into ethanol fuels.
For the next 12 months, the Company's Plan of Operations is as follows:
o Obtain additional operating capital from joint venture
partnerships, debt financing or equity financing to fund
ongoing Company operations and the development of initial
biorefineries in North America.
o The Energy Policy Act provides for grants and loan guarantee
programs to incentivize the growth of the cellulosic ethanol
market. These programs include a Cellulosic Biomass Ethanol
and Municipal Solid Waste Guarantee Program under which the
U.S. Department of Energy could provide loan guarantees up to
$250,000,000 per qualified project. The Company has filed a
pre- application for loan guarantees to support the
development of a 55 million gallon per year project in
California to be located adjacent to an existing biomass power
plant.
o The 2005 Energy Act created a Biorefinery Demonstration
Project Program under which $100,000,000 or another amount
appropriated by Congress is available to fund up to three (3)
biorefinery demonstration projects. The Company submitted a
proposal for funding under this solicitation for its projected
El Sobrante, California biorefinery. The U.S. Department of
Energy expects to determine successful applicants for the
biorefinery grant program by early 2007.
o The California Energy Commission has provided a competitive
grant solicitation with the intent of accelerating research,
development and demonstration of biofuel energy conversion
technologies and refineries using lignocellulosic biomass
(such as agricultural and forest residues, and urban waste),
food waste, beverages, waste grease, purpose-grown or energy
crops. This solicitation will help advance science,
technology, and market acceptance of ethanol in California
that will help reduce petroleum consumption and help meet the
Governor's Executive Order S-06-06, the Bioenergy Action Plan,
and AB 32 (Nunez & Pavley 2006). The Company has filed an
application to obtain funding for equipment testing and
preliminary engineering for use in its proposed project under
this solicitation. The CEC is expected to make a decision on
the successful applicants by early 2007.
o 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.
BlueFire's initial planned projects in North America are projected as
follows:
o A facility that will process approximately 100 tons of green
waste material to produce about 2.5 million gallons per year
of ethanol. The Company has an option to purchase a parcel
located in Los Angeles County the location of this facility. .
Permits will be filed to allow for construction once all the
necessary preliminary engineering information is available.
BlueFire is currently working on the preliminary engineering
design to allow for filing of permits in the next 30-45 days.
Although the cost of construction is not readily determinable,
the Company estimates the cost to be approximately $20 million
for this first plant. The Company is currently in discussions
with potential sources of financing for this facility but no
definitive agreements are in place.
18
o A facility proposed for development and construction at the El
Sobrante Landfill located in Corona, California. This facility
will use approximately 700 metric dry tons of green waste and
wood waste currently disposed in the landfill to produce about
18 million gallons of ethanol annually. Preliminary
engineering design is in progress and permitting for this
facility will commence once all required preliminary
engineering design is completed. A definitive agreement is
being finalized with Petro-Diamond for the purchase and sale
of the ethanol produced from the facility. An application for
funding of the El Sobrante Project has been submitted to the
Department of Energy. Status of the funding request has not
been received to date. Proposed terms and conditions for
financing from private sources have been received by BlueFire
but no definitive agreements have been reached.
o Several other opportunities are being evaluated by BlueFire in
North America but no definitive plans have been made. However,
the project proposed at the El Sobrante Landfill provides a
model that can be replicated at the over 3,000 landfills
located in North America (U.S. EPA website). Discussions with
various landfill owners are underway to duplicate the proposed
development at the El Sobrante landfill although no definitive
agreements have been reached.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions or
conditions.
The methods, estimates, and judgment we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements. The SEC has defined "critical accounting policies" as
those accounting policies that are most important to the portrayal of our
financial condition and results, and require us to make our most difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Based upon this definition, our most critical
estimates are described below under the heading "Revenue Recognition." We also
have other key accounting estimates and policies, but we believe that these
other policies either do not generally require us to make estimates and
judgments that are as difficult or as subjective, or it is less likely that they
would have a material impact on our reported results of operations for a given
period. For additional information see Note 1, "Summary of Organization and
Significant Accounting Policies" in the notes to our audited financial
statements appearing elsewhere in this report. Although we believe that our
estimates and assumptions are reasonable, they are based upon information
presently available, and actual results may differ significantly from these
estimates.
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, 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.
19
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
December 31, 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 December 31, 2006, there were no dilutive
instruments outstanding.
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
SHARE-BASED PAYMENT
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS 123(R)") that
requires compensation costs related to share-based payment transactions to be
recognized in the statement of operations. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the award. SFAS 123(R)
replaces SFAS 123 and is effective as of the first interim period beginning
after January 1, 2006. Based on the number of shares and awards outstanding as
of December 31, 2005 (and without giving effect to any awards which may be
granted in 2006), we do not expect the adoption of SFAS 123(R) to have a
material impact on the financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements.
ITEM 3: DESCRIPTION OF PROPERTY
Bluefire leases from FR Systems, LLC on a month-to-month basis, approximately
1950 square feet of furnished office space at 31 Musick, Irvine, California
92618, for $3,500 per month.
20
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 21,085,764 shares outstanding as of
February 27, 2007, (ii) each director of the Company individually and (iii) all
officers and directors of the Company as a group. In computing the number of
shares beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable, as appropriate, or will become exercisable within 60 days
of the reporting date are deemed outstanding, even if they have not actually
been exercised. Those shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Unless
otherwise indicated, 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. The address of each owner who is an officer or director is in care
of the Company at 31 Musick, Irvine California 92618.
[Enlarge/Download Table]
TITLE OF NUMBER OF PERCENT OF
CLASS NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------------------------------------------------------------------------
Common Arnold Klann, President, CEO and Director 13,764,167 (1) 64.8%
Common Necitas Sumait, Secretary, VP and Director 1,280,000 (2) 6.0%
Common John Cuzens, Treasurer, VP and Director 1,280,000 (3) 6.0%
Common Chris Nichols, Director 75,000 *
All officers and directors as a group (4 persons) 16,324,167 76.8%
(1) Includes 166,667 shares issuable to Mr. Klann pursuant to options to
purchase shares of our common stock within 60 days of February 21, 2007.
(2) Includes 75,000 shares issuable to Mrs. Sumait pursuant to options to
purchase shares of our common stock within 60 days of February21, 2007.
(3) Includes 75,000 shares issuable to Mr. Cuzens pursuant to options to
purchase shares of our common stock within 60 days of February 21, 2007.
*Less than 1%.
SHARE ISSUANCES/CONSULTING AGREEMENTS
On December 18, 2006 the Company engaged two consultants on a non-exclusive
basis to prepare, review and comment on various presentations, press releases,
or other public relations documentation as requested by the Company. Consultants
shall also provide the Company with capital market support through its network
of portfolio managers, hedge funds, brokers, market-makers, institutions and
other market support professionals and organizations. Consultants may also
advise the Company from time to time, as requested by the Company, on potential
development and business relationships that may benefit the Company's financial
market positioning.. Consultants were compensated in the form of 20,000 shares
each of restricted stock. The Form of the Consulting Agreement attached hereto
as Exhibit 10.5.
On November 21, 2006, the Company entered into an agreement with a certain
consultant. Under the terms of the agreement the Company is to receive market
capitalization and support services in exchange for the a monthly fee of $7,500,
restricted stock totaling 150,000 shares, 200,000 warrants to buy stock at $5
for 5 years, and certain travel expenses.
On January 1, 2007, the Company entered into an employment agreement with a
former consultant to be Vice President of Project Management. Pursuant to the
terms of this agreement, the consultant was issued 10,000 shares of the
Company's restricted common stock.
21
On Feb 13, 2007, the Company entered into a consulting agreement with a
corporate technology consultant. The consultant shall review, comment, and
implement as requested by the Company on any Information Technology rollout.
Under the terms of the agreement consultant will receive 12,500 restricted
shares of the Company's common stock at the signing of the agreement, 12,500
shares on June 1, 2007, 12,500 shares on September 1, 2007, and 12,500 shares on
December 1, 2007.
STOCK OPTION ISSUANCES UNDER 2006 PLAN
--------------------------------------
On December 14, 2006 the Company's Board of Directors and stockholders adopted a
plan for the issuance of stock options to employees or others ("The 2006
Incentive and Nonstatutory Stock Option Plan," hereinafter referred to as the
"Plan"). Under the Plan, the Company has granted the following stock options to
employees and outside consultants as compensation:
[Enlarge/Download Table]
NUMBER OF EXERCISE
DATE ISSUED: OPTIONEE NAME OPTIONS PRICE EXPIRATON DATE
----------------------------------------------------------------------------------------------------
December 14, 2006 Arnold Klann, Officer and 1,000,000 $2.00 December 14, 2011
Director
December 14, 2006 Necitas Sumait, Officer 450,000 $2.00 December 14, 2011
and Director
December 14, 2006 John Cuzens, Officer and 450,000 $2.00 December 14, 2011
Director
December 14, 2006 Scott Olson, outside 40,000 $2.00 December 14, 2011
consultant
December 14, 2006 Kent Larsen, outside 20,000 $2.00 December 14, 2011
consultant ---------
December 14, 2006 Bill Davis, employee 20,000 $2.00 December 14, 2011
---------
December 14, 2006 Barbie Rios, outside 5,000 $2.00 December 14, 2011
consultant ---------
December 14, 2006 Elsa Ebro, outside 5,000 $2.00 December 14, 2011
consultant ---------
Totals 1,990,000
=========
A form of the Company's Stock Option Agreement is attached hereto as Exhibit
10.6.
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:
OFFICER AND
NAME AGE POSITION DIRECTOR SINCE
-------------------------- -------- -------------------------------------------
Arnold Klann 55 President, CEO and Director June 2006
Necitas Sumait 46 Secretary, SVP and Director June 2006
John Cuzens 55 Treasurer, SVP 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.
22
There are no agreements or understandings for any director or officer to resign
at the request of another person and none of the directors or officers is acting
on behalf of or will act at the direction of any other person. The activities of
each director and officer are material to the operation of the Company. No other
person's activities are material to the operation of the Company.
ARNOLD R. KLANN - CHAIRMAN OF THE BOARD / 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. Mr. Klann is 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. Cuzens 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.from 2004
to June 2006. He was employed by Applied Utility Systems Inc from 2001 to 2004
and Hydrogen Burner Technology form 1997-2001. He was with ARK Energy and
Arkenol from 1991 to 1997 and is the co-inventor on seven of Arkenol's eight
U.S. foundation patents for the conversion of cellulosic materials into
fermentable sugar products using a modified strong acid hydrolysis process. Mr.
Cuzens has a B.S. Chemical Engineering degree from the University of California
at Berkeley.
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. Since 2003 Mr. Nichols was the Senior Vice President of Westcap
Securities' Private Client Group where he was in charge of sales and marketing.
Prior to this, Mr. Nichols was a Registered Representative at Fisher Investments
from December 2002 to October 2003. He was a Registered Representative with
Interfirst Capital Corporation from 1997 to 2002. Mr. Nichols is a graduate of
California State University in Fullerton with a B.A. degree in Marketing.
WILLIAM DAVIS - VP PROJECT MANAGEMENT.
Mr. Davis is currently Vice President of Project Management for BlueFire. Prior
to this he was Director of Power Plant Project Development for Diamond Energy
from 2001 to 2006. Prior to this he was VP of Business Development for Oxbow
Power. He has over 30 years in the energy business and was an energy advisor to
the Governor of California. He has been involved in domestic and international
power project development. Mr. Davis is a registered Architect in three states
and graduated from California State University at San Luis Obispo with a
Bachelors of Architecture and a Masters of Science in Architecture.
KEY CONSULTANT
KENT A. LARSEN - VP PROJECT FINANCE.
Mr. Larsen is currently Vice President of Project Finance for BlueFire. From
2001 to 2006, Mr. Larsen was President of Power Partners International to
develop power plant projects. From 1998 to 2001 he was Managing Director for
Entergy Development Corporation and from 1994-1998 he was the Executive Managing
Director of International Power Partners, Ltd. From 1991 to 1994 Mr. Larsen was
Director of Project Finance for of ARK Energy. He holds an MBA-Finance from UCLA
Graduate School of Business, and BS degrees in Civil Engineering and Mathematics
from the University of Washington.
23
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.
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.
BOARD COMMITTEES
----------------
The Board of Directors of the Company has adopted charters for an Audit
Committee and Compensation Committee attached hereto as Exhibits 99.1 and 99.2
respectively, but, for the time being, the Board of Directors shall assume the
responsibilities of the Audit and Compensation Committees.
Director Compensation
On June 27, 2006 BlueFire Ethanol Fuels, Inc. issued 5,000 restricted shares to
each of the Directors of BlueFire Ethanol Fuels, Inc. All directors receive
reimbursement for out-of-pocket expenses in attending meetings of the Board of
Directors. From time to time the Company may engage certain members of the Board
of Directors to perform services on behalf of the Company and will compensate
such persons for such services.
ITEM 6: EXECUTIVE COMPENSATION
[Enlarge/Download Table]
2006
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------- ------------------------------------
Annual Compensation Awards Payouts
------------------- ---------- ---------------------------------------- ------------------------------------ ---------- ------------
(A) (b) (C) (d) (e) (f) (g) (h) (i)
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Restricted Securities LTIP All other
Name and Principle Other annual Stock Underlying Payouts Compensation
Position Year Salary ($) Bonus ($) compensation ($) Award(s) ($) Options/SARs (#) ($) ($)
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Arnie Klann 2006 113,000 - 16,750 (1) - - - -
Director and
President
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Necitas Sumait 2006 78,000 - 16,750 (1) - - - -
Director, Secretary
and VP
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
John Cuzens 2006 75,000 - 16,750 (1) - - - -
Director, Treasurer
and VP
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Chris Nichols 2006 2,500 - 16,750 (1) - - - 73,000 (2)
Director
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
(1) Reflects value of 5,000 shares of restricted common stock received as
compensation as Director.
(2) Reflects value of consideration received as compensation for consultant
services.
24
2006 GRANTS OF PLAN-BASED AWARDS TABLE
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER ESTIMATED FUTURE PAYOUTS UNDER
NON-EQUITY NON-EQUITY INCENTIVE PLAN AWARDS EQUITY INCENTIVE PLAN AWARDS
INCENTIVE PLAN -------------------------------- ------------------------------
GRANT APPROVAL UNITS GRANTED THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM
NAME DATE DATE (#) ($) ($) ($) (#) (#) (#)
---- ---- ---- --- --- --- --- --- --- ---
Arnie Klann 12/14/06 12/14/06
Necitas Sumait 12/14/06 12/14/06
John Cuzens 12/14/06 12/14/06
Chris Nichols
(continued below)
-----------------
ALL OTHER ALL OTHER
STOCK AWARDS: OPTION AWARDS: EXERCISE OR CLOSING
NUMBER OF NUMBER OF BASE PRICE PRICE ON
SHARES OF SECURITIES OF OPTION GRANT
STOCK OR UNDERLYING AWARDS DATE
UNITS (#) OPTIONS(#) ($ / SH) ($ / SH)
--------- ---------- -------- --------
Arnie Klann 1,000,000 $2.00 $3.05
Necitas Sumait 450,000 $2.00 $3.05
John Cuzens 450,000 $2.00 $3.05
Chris Nichols
_____________________
*
25
2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION AWARDS STOCK AWARDS
----------------------------------------------------------- ----------------------------------------------------
EQUITY
INCENTIVE
EQUITY EQUITY INCENTIVE PLAN AWARDS:
INCENTIVE PLAN AWARDS: MARKET OR
PLAN AWARDS: MARKET NUMBER OF PAYOUT VALUE
NUMBER OF NUMBER OF NUMBER OF NUMBER OF VALUE OF UNEARNED OF UNEARNED
SECURITIES SECURITIES SECURITIES SHARES OR SHARES OR SHARES, UNITS SHARES, UNITS
UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF OR OTHER OR OTHER
UNEXERCISED UNEXERCISED UNEXERCISED OPTION STOCK THAT STOCK THAT RIGHTS THAT RIGHTS THAT
OPTIONS OPTIONS UNEARNED EXERCISE OPTION HAVE NOT HAVE NOT HAVE NOT HAVE NOT
(#) (#) OPTIONS PRICE EXPIRATION VESTED VESTED VESTED VESTED
NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE (#) ($) (#) ($)
---- ----------- ------------- --- --- ---- --- --- --- ---
Arnie Klann 83,333 916,667 2.00 12/14/11
Necitas Sumait 37,500 412,500 2.00 12/14/11
John Cuzens 37,500 412,500 2.00 12/14/11
Chris Nichols
26
2006 OPTION EXERCISES AND STOCK VESTED TABLE
OPTION AWARDS STOCK AWARDS
--------------------------------------------- ----------------------------------------
NUMBER OF SHARES VALUE REALIZED ACQUIRED ON VESTING NUMBER OF SHARES
ACQUIRED ON EXERCISE ON EXERCISE ON VESTING VALUE REALIZED
NAME (#) ($) (#) ($)
---- --- --- --- ---
Arnie Klann
Necitas Sumait
John Cuzens
Chris Nichols
27
2006 PENSION BENEFITS TABLE
PRESENT VALUE
NUMBER OF YEARS OF ACCUMULATED PAYMENTS DURING LAST
CREDITED SERVICE BENEFIT FISCAL YEAR
NAME PLAN NAME (#) ($) ($)
---------- ----------------- ---------------------- ----------------- --------------------------
Arnie Klann
Necitas Sumait
John Cuzens
Chris Nichols
28
2006 NONQUALIFIED DEFERRED COMPENSATION TABLE
REGISTRANT AGGREGATE
EXECUTIVE CONTRIBUTION CONTRIBUTIONS IN LAST AGGREGATE EARNINGS WITHDRAWALS / AGGREGATE BALANCE AT
IN LAST FISCAL YEAR FISCAL YEAR IN LAST FISCAL YEAR DISTRIBUTIONS LAST FISCAL YEAR-END
NAME ($) ($) ($) ($) ($)
---- --- --- --- --- ---
Arnie Klann
Necitas Sumait
John Cuzens
Chris Nichols
29
2006 DIRECTOR COMPENSATION TABLE
CHANGE
IN PENSION
VALUE AND
NONQUALIFIED
NON-EQUITY DEFERRED
FEES EARNED OR INCENTIVE PLAN COMPENSATION ALL OTHER
PAID IN CASH STOCK AWARDS OPTION AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
---- --- --- --- --- --- --- ---
Arnie Klann 16,750 16,750
Necitas Sumait 16,750 16,750
John Cuzens 16,750 16,750
Chris Nichols 2,500 16,750 73,000 (1) 92,250
(1) Reflects value of consideration received as compensation for consultant services.
30
2006 ALL OTHER COMPENSATION TABLE
PERQUISITES COMPANY CHANGE
AND OTHER CONTRIBUTIONS SEVERANCE IN CONTROL
PERSONAL TAX INSURANCE TO RETIREMENT AND PAYMENTS/ PAYMENTS/
BENEFITS REIMBURSEMENTS PREMIUMS 401(K) PLANS ACCRUALS ACCRUALS
NAME YEAR ($) ($) ($) ($) ($) ($) TOTAL ($)
---- ---- --- --- --- --- --- --- ---------
Arnie Klann
Necitas Sumait
John Cuzens
Chris Nichols
31
2006 PERQUISITES TABLE
PERSONAL USE OF
COMPANY FINANCIAL PLANNING TOTAL PERQUISITES AND
NAME YEAR CAR/PARKING LEGAL FEES CLUB DUES EXECUTIVE RELOCATION OTTHER PERSONAL BENEFITS
---- ---- ----------- ---------- --------- -------------------- ------------------------
Arnie Klann
Necitas Sumait
John Cuzens
Chris Nichols
32
2006 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
BEFORE CHANGE IN AFTER CHANGE IN
CONTROL CONTROL
TERMINATION TERMINATION
W/O CAUSE OR FOR W/O CAUSE OR VOLUNTARY CHANGE IN
NAME BENEFIT GOOD REASON OR GOOD REASON TERMINATION DEATH DISABILITY CONTROL
---- ------- ----------- -------------- ----------- ----- ------------------ -------
Arnie Klann Full comp. first 2
months, 50% of
comp. next 4 months
Necitas Sumait Full comp. first 2
months, 50% of
comp. next 4 months
John Cuzens Full comp. first 2
months, 50% of
comp. next 4 months
Chris Nichols Full comp. first 2
months, 50% of
comp. next 4 months
---------
* List each applicable type of benefit in a separate row, e.g., severance pay,
bonus payment, stock option vesting acceleration, health care benefits
continuation, relocation benefits, outplacement services, financial planning
services or tax gross-ups.
33
On June 27, 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.
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 March 1, 2006, BueFire entered into a Technology License agreement with
Arkenol, a company in which the Company's Chairman, CEO and majority shareholder
Arnold Klann holds a 25% interest. Arkenol has its own management and board
separate and apart from the Company. According to the terms of the agreement,
Bluefire was granted an exclusive, non-transferable, North American license to
use and to sub-license the Arkenol Technology (discussed above in Business of
Issuer). As consideration for the grant of the license, Bluefire 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 Bluefire 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, Bluefire made a one time exclusivity fee prepayment of $30,000
during the period ended August 31, 2006.
On March 1, 2006, Bluefire entered into an Asset Transfer and Acquisition
Agreement with ARK Energy, a company which is fifty percent (50%) owned by the
Company's Chairman, CEO and majority shareholder, Arnold Klann. There are no
other common stockholders, officers or directors. ARK Energy has its own
management and board separate and apart from the Company. Based upon the terms
of the agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on project opportunities that may be
used to deploy the Arkenol Technology. In consideration, Bluefire has agreed to
pay a performance bonus of up to $16,000,000 when certain milestones are met.
These milestones include, but are not limited to, 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. Management
did not incur the costs of a third party valuation but based its valuation of
the assets acquired by (1) an arms length review of the value assigned by ARK
Energy to the opportunities is based on the actual costs it incurred in
developing the project opportunities and (ii) anticipated financial benefits to
the Company.
In December 2006, the Company entered into a Promissory Note with its Chairman,
CEO and majority shareholder Arnold Klann, whereby Mr. Klann loaned the Company
$90,000 with a flat fee of 10% of the principal, or lower if required by law, to
be repaid upon the Company achieving certain investor financing milestones. In
addition, on January 5, 2007 the Company entered into a $25,000 promissory note
with the Company's Chairman, CEO and majority shareholder. Under the terms of
the note, the Company is to repay any principal balance within 30 days of
receiving qualified investment financing and a maximum fee of $2,500. The
principal balance and all accrued interest were paid in full during the month of
January of 2007.
34
On December 18, 2006 the Company engaged Director Christopher Nichols as a
consultant on a non-exclusive basis to prepare, review and comment on various
presentations, press releases, or other public relations documentation as
requested by the Company. Consultant shall also provide the Company with capital
market support through its network of portfolio managers, hedge funds, brokers,
market-makers, institutions and other market support professionals and
organizations. Consultant may also advise the Company from time to time, as
requested by the Company, on potential development and business relationships
that may benefit the Company's financial market positioning. Consultant was
compensated in the form of 20,000 shares of restricted common stock.
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. As of February 26,
2007, the Company has 21,085,764 shares of common stock outstanding, and no
shares of preferred stock.
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 un-issued 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.
35
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.
--------------------------------------------------------
QUARTER ENDED LOW PRICE HIGH PRICE
--------------------------------------------------------
--------------------------------------------------------
September 30, 2006 $ 1.30 $ 7.25
--------------------------------------------------------
December 31, 2006 $ 1.40 $ 4.60
--------------------------------------------------------
2006 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
-------------------------------------------------
On December 14, 2006, the Board of Directors approved and a majority of the
Company's stockholders ratified by consent the Company's 2006 Incentive and
Nonstatutory Stock Option Plan ("Plan" - attached hereto as Exhibit 10.6).
Summary of the Plan
The Plan is intended to further the growth and financial success of the Company
by providing additional incentives to selected employees, directors, and
consultants to the Company and its subsidiary corporations, as those terms are
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code") (such subsidiary corporations hereinafter collectively
referred to as "Affiliates") so that such employees and consultants may acquire
or increase their proprietary interest in the Company. Stock options granted
under the Plan (hereinafter "Options") may be either "Incentive Stock Options,"
as defined in Section 422A of the Code and any regulations promulgated under
said Section, or "Nonstatutory Options" at the discretion of the Board of
Directors of the Company (the "Board") and as reflected in the respective
written stock option agreements granted pursuant hereto. The Plan reserves ten
million (10,000,000) shares of the Company's Common Stock.
Administration
The Plan shall be administered by the Board of Directors of the Company;
provided however, that the Board may delegate such administration to a committee
of not fewer than three (3) members (the "Committee"), at least two (2) of whom
are members of the Board and all of whom are disinterested administrators, as
contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended ("Rule 16b-3"); and provided further, that the foregoing
requirement for disinterested administrators shall not apply prior to the date
of the first registration of any of the securities of the Company under the
Securities Act of 1933, as amended.
Eligibility
The persons who shall be eligible to receive Options shall be employees,
directors, or consultants of the Company or any of its Affiliates ("Optionees").
The term consultant shall mean any person who is engaged by the Company to
render services and is compensated for such services, and any director of the
Company whether or not compensated for such services; provided that, if the
Company registers any of its securities pursuant to the Securities Act of 1933,
as amended (the "Act"), the term consultant shall thereafter not include
directors who are not compensated for their services or are paid only a director
fee by the Company.
The Plan authorizes the granting of both incentive stock options, as defined
under Section 422 of the Internal Revenue Code of 1986 ("ISO"), and
non-statutory stock options ("NQO") to purchase Common Stock. All employees of
the Company and its affiliates are eligible to participate in the Plan. The Plan
also authorizes the granting of NQO's to non-employee Directors and others
performing services to the Company.
36
Any Incentive Stock Option granted to a person who at the time the Option is
granted owns stock possessing more than ten percent (10%) of the total combined
voting power of value of all classes of stock of the Company, or of any
Affiliate, ("Ten Percent Holder") shall have an Option Price of no less than one
hundred ten percent (110%) of the fair market value of the common stock as of
the date of grant. Incentive Stock Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option price of
no less than one hundred percent (100%) of the fair market value of the common
stock as of the date of grant. Nonstatutory Options granted to a person who at
the time the Option is granted is not a Ten Percent Holder shall have an Option
Price determined by the Board as of the date of grant.
No option granted pursuant to the Plan is transferable otherwise than by will or
the laws of descent and distribution. If there is a stock split, stock dividend,
or other relevant change affecting the Company's shares, appropriate adjustments
would be made in the number of shares that could be issued in the future and in
the number of shares and price under all outstanding grants made before the
event. Future options may also cover such shares as may cease to be under option
by reason of total or partial expiration, termination or voluntary surrender of
an option.
The aggregate fair market value (determined at the time an option is granted) of
the Common Stock with respect to which ISO's are exercisable for the first time
by any person during any calendar year under the Plan shall not exceed $100,000.
Any Option granted to an Employee of the Company shall become exercisable over a
period of no longer than five (5) years, and no less than twenty percent (20%)
of the shares covered thereby shall become exercisable annually. No Option shall
be exercisable, in whole or in part, prior to one (1) year from the date it is
granted unless the Board shall specifically determine otherwise, as provided
herein. In no event shall any Option be exercisable after the expiration of five
(5) years from the date it is granted. Unless otherwise specified by the Board
or the Committee in the resolution authorizing such option, the date of grant of
an Option shall be deemed to be the date upon which the Board or the Committee
authorizes the granting of such Option.
FEDERAL INCOME TAX CONSEQUENCES
The holder of an ISO does not realize taxable income upon the grant or upon the
exercise of the option (although the option spread is an item of tax preference
income potentially subject to the alternative minimum tax). If the stock
acquired upon exercise of the options sold or otherwise disposed of within two
(2) years from the option grant date or within one year from the exercise date
then, in general, gain realized on the sale is treated as ordinary income to the
extent of the option spread at the exercise date, and the Company receives a
corresponding deduction. Any remaining gain is treated as capital gain. If the
stock is held for at least two (2) years from the grant date and one year from
the exercise date, then gain or loss realized upon the sale will be capital gain
or loss and the Company will not be entitled to a deduction. A special basis
adjustment applies to reduce the gain for alternative minimum tax purposes.
An optionee does not realize taxable income upon the grant of an NQO. In
general, the holder of a NQO realizes ordinary income in an amount equal to the
difference between the exercise price and the market value on the date of
exercise. The Company is entitled to an expense deduction at the same time and
in a corresponding amount.
HOLDERS
As of February 27, 2007 a total of 21,085,764 shares of the Company's common
stock are currently outstanding held by approximately 1,868 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.
37
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.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In March 2006, upon incorporation BlueFire issued 10,000 shares of $1.00 par
value common stock to various individuals. In connection with the reverse
acquisition, these individuals received an aggregate of 17,000,000 shares of the
Company's restricted common stock. No solicitation was made nor was any
underwriter involved in this issuance. The offer and sale of the securities
above were effected in reliance on the exemptions for sales of securities not
involving a public offering, as set forth in Rule 506 promulgated under the
Securities Act and in Section 4(2) and Section 4(6) of the Securities Act and/or
Rule 506 of Regulation D.
Prior to the reverse acquisition, Sucre entered into an agreement with two
related investors 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 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.
On January 5, 2007, we completed a private placement of 278,500 unregistered
shares of its common stock at a price of $2.00 per share to five accredited
investors in consideration for $557,000 in gross proceeds from this offering. No
solicitation was made nor was any underwriter involved in this issuance. The
offer and sale of the securities above were effected in reliance on the
exemptions for sales of securities not involving a public offering, as set forth
in Rule 506 promulgated under the Securities Act and in Section 4(2) and Section
4(6) of the Securities Act and/or Rule 506 of Regulation D. A form of the
subscription agreement is attached hereto as Exhibit 4.2.
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.
Under Nevada law, we may indemnify our directors or officers or other persons
who were, are or are threatened to be made a named defendant or respondent in a
proceeding because the person is or was our director, officer, employee or
agent, if we determine that the person:
o conducted himself or herself in good faith;
o reasonably believed, in the case of conduct in his or her
official capacity as our director or officer, that his or her
conduct was in our best interests, and, in all other cases,
that his or her conduct was at least not opposed to our best
interests; and
o in the case of any criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful.
38
These persons may be indemnified against expenses, including attorney fees,
judgments, fines, including excise taxes, and amounts paid in settlement,
actually and reasonably incurred, by the person in connection with the
proceeding. If the person is found liable to the corporation, no indemnification
shall be made unless the court in which the action was brought determines that
the person is fairly and reasonably entitled to indemnity in an amount that the
court will establish.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities is
asserted by one of our directors, officers, or controlling persons in connection
with the securities being registered, we will, unless in the opinion of our
legal counsel the matter has been settled by controlling precedent, submit the
question of whether such indemnification is against public policy to court of
appropriate jurisdiction. We will then be governed by the court's decision
Pursuant to our articles of incorporation, our board of directors may issue
additional shares of common or preferred stock. Any additional issuance of
common stock could have the effect of impeding or discouraging the acquisition
of control of us by means of a merger, tender offer, proxy contest or otherwise,
including a transaction in which our stockholders would receive a premium over
the market price for their shares, and thereby protects the continuity of our
management. Specifically, if in the due exercise of its fiduciary obligations,
the board of directors were to determine that a takeover proposal was not in our
best interest, shares could be issued by the board of directors without
stockholder approval in one or more transactions that might prevent or render
more difficult or costly the completion of the takeover by:
o diluting the voting or other rights of the proposed acquirer
or insurgent stockholder group;
o putting a substantial voting block in institutional or other
hands that might undertake to support the incumbent board of
directors; or
o effecting an acquisition that might complicate or preclude the
takeover.
39
PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 2006 F-2
Consolidated Statement of Operations from March 28, 2006
(Inception) to December 31, 2006 F-3
Consolidated Statements of Stockholders' Equity for the period
from March 28, 2006 (Inception) to December 31, 2006 F-4
Consolidated Statements of Cash Flows for the period March 28, 2006
(Inception) to December 31, 2006 F-5
Notes to Consolidated Financial Statements F-6
F-1
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
December 31,
2006
(unaudited)
------------
ASSETS
Current assets-
Cash and cash equivalents $ 2,760
Prepaid fees to related party (Note 5) 30,000
------------
Total assets $ 32,760
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,949
Accrued liabilities 17,692
Related party note and accrued interest 100,100
------------
Total liabilities 184,741
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 1,000,000
shares authorized; none issued and outstanding --
Common stock, $0.001 par value; 100,000,000
shares authorized; 21,125,779 shares
issued and outstanding 21,126
Additional paid-in capital 1,222,390
Deficit accumulated during the development-stage (1,395,497)
------------
Total stockholders' deficit (151,981)
------------
Total liabilities and stockholders' equity $ 32,760
============
See accompanying notes to consolidated financial statements
F-2
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
Period from
March 28, 2006
(Inception)
to
December 31,
(unaudited)
2006
---------------
Revenues $ --
Operating expenses:
Project development 678,256
General and administrative 710,941
---------------
Total operating expenses 1,389,197
Gross profit (1,389,197)
Other income and (expense):
Other income 2,800
Related party interest expense (9,100)
---------------
Operating loss before provision for income taxes (1,395,497)
Provision for income taxes --
---------------
Net loss $ (1,395,497)
===============
Basic and diluted loss per common shares: $ (0.07)
===============
Weighted average common shares outstanding,
basic and diluted: 19,711,225
===============
See accompanying notes to consolidated financial statements
F-3
[Enlarge/Download Table]
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------------- -------------- ----------------- ----------------- -----------------
Balances at March 28, 2006
(Inception) - $ - $ - $ - $ -
Issuance of founder's share
at $0.001 per share 17,000,000 17,000 - - 17,000
Common shares retained by
Sucre Agricultural Corp.
Shareholders 4,028,279 4,028 685,972 - 690,000
Costs associated with the
acquisition of Sucre
Agricultural Corp. - - (3,550) - (3,550)
Issuance of shares for
compensation 97,500 98 324,903 - 325,001
Stock based compensation
related to options and
warrants - - 215,065 - 215,065
Net loss - - - (1,395,497) (1,395,497)
------------- -------------- ----------------- ----------------- -----------------
Balances at December 31,
2006 (unaudited) 21,125,779 $ 21,126 $ 1,222,3905 $ (1,395,497) $ (151.981)
============= ============== ================= ================= =================
See accompanying notes to consolidated financial statements
F-4
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from
March 28,
2006
(Inception) to
December 31,
(unaudited)
2006
-------------
Cash flows from operating activities:
Net loss $ (1,395,497)
Adjustments to reconcile net loss to net
cash used in operating activities:
Costs associated with acquisition of Sucre Agricultural Corp. (3,550)
Founders' shares expense 17,000
Issuance of shares for compensation 325,001
Issuance of stock options and warrants for compensation 215,065
Long term prepaid (30,000)
Accounts payable 66,949
Accrued liabilities 17,692
Accrued interest to related party 9,100
-------------
Net cash used in operating activities (778,240)
-------------
Cash flows from investing activities-
Cash received in acquisition of Sucre Agricultural Corp. 690,000
-------------
Cash flows from financing activities-
Proceeds from related party notes 91,000
-------------
Net increase in cash and cash equivalents 2,760
Cash and cash equivalents beginning of period --
-------------
Cash and cash equivalents end of period $ 2,760
=============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ --
=============
Income taxes $ --
=============
See accompanying notes to consolidated financial statements
F-5
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BUSINESS
BlueFire Ethanol, Inc. ("BlueFire") was incorporated in the state of Nevada on
March 28, 2006 ("Inception"). BlueFire was established to deploy the
commercially ready and patented process for the conversion of cellulosic waste
materials to ethanol ("Arkenol Technology") under a technology license agreement
with Arkenol, Inc. ("Arkenol"). BlueFire's use of the Arkenol Technology
positions it as a cellulose-to-ethanol company with demonstrated production of
ethanol from urban trash (post-sorted "MSW"), rice and wheat straws, wood waste
and other agricultural residues. The Company's goal is to develop and operate
high-value carbohydrate-based transportation fuel production facilities in North
America, and to provide professional services to such facilities worldwide .
These "biorefineries" will convert widely available, inexpensive, organic
materials such as agricultural residues, high-content biomass crops, wood
residues, and cellulose from MSW into ethanol.
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 June 27, 2006, BlueFire completed a reverse acquisition of Sucre Agricultural
Corp. ("Sucre"), a Delaware corporation. At the time of acquisition, Sucre had
no operations, revenues or liabilities. The only asset possessed by Sucre was
$690,000 in cash which was included in the acquisition. Sucre was considered a
blank-check company prior to the acquisition. In connection with the acquisition
Sucre issued BlueFire 17,000,000 shares of common stock, approximately 85% of
the outstanding common stock of Sucre, for all the issued and outstanding
BlueFire common stock. The Sucre stockholders retained 4,028,279 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
COMPANY PREPARED FINANCIAL STATEMENT
The consolidated financial statements contained herein have been prepared by the
Company without audit or review by the Company's Independent Registered
Accounting Firm.
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
F-6
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
accordance with Statement of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations." The assets and liabilities of Sucre, which were not
significant, were recorded at fair value on June 27, 2006, the date of the
acquisition. No goodwill was recorded in connection with the reverse acquisition
since Sucre had no business. The reverse acquisition resulted in a change in the
reporting entity of Sucre, for accounting and reporting purposes. Accordingly,
the financial statements herein reflect the operations of BlueFire from
Inception and Sucre from June 27, 2006, the date of acquisition, through
December 31, 2006. The 4,028,279 shares retained by the stockholders of Sucre
have been recorded on the date of acquisition of June 27, 2006.
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.
F-7
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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
December 31, 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 December 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.
F-8
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company may be subject to federal, state and local environmental laws and
regulations. The Company does not anticipate expenditures to comply with such
laws and does not believe that regulations will have a material impact on the
Company's financial position, results of operations, or liquidity. The Company
believes that its operations comply, in all material respects, with applicable
federal, state, and local environmental laws and regulations
CONCENTRATIONS OF CREDIT RISK
The Company, 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 December 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 June 27, 2006, the Company entered into employment agreements with three key
employees. The employment agreements are for a period of three years, with
prescribed percentage increases beginning in 2007 and can be cancelled upon a
written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual amount due under the
employment agreements is approximately $520,000.
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
received a one time grant of 5,000 shares of the Company's common stock. 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 to general and administrative expenses as the shares had been
issued.
On November 21, 2006, the Company entered into an agreement with a certain
consultant. Under the terms of the agreement the Company is to receive market
capitalization and support services in exchange for the a monthly fee of $7,500,
restricted stock totaling 150,000 shares, 200,000 warrants to buy stock at $5
for 5 years, and certain travel expenses. The common shares and warrants vest
F-9
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the service period. As of December 31, 2006, the Company paid $7,500 and issued
37,500 shares. Based on the estimated fair market value of the Company's common
stock as of the date of the agreement the shares issued were valued at $112,000.
The Company valued the warrants at December 31, 2006 based on the Black-Scholes
model and expensed the vested portion of $100,254 to project development
expense.
On December 18, 2006, the Company entered into a consulting agreement with two
individuals. Each consultant shall support the strategic, financial and market
objectives of the Company. Under the terms of the agreement each consultants
will receive 20,000 restricted shares of the Company's common stock. The value
of the common stock was determined to be approximately $146,000 based on the
estimated fair market value of the Company's common stock on the date of the
agreement. The Company is currently expensing the value of the common stock to
general and administrative expenses and is including it in equity as the shares
were issued in January of 2007.
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. At the time of the transaction BlueFire did not
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.
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.
On December 14, 2006, the Company established an incentive and nonstatutory
stock option plan. The plan is intended to further the growth and financial
success of the Company by providing additional incentives to selected employees,
directors, and consultants. Stock options granted under the Plan may be either
"Incentive Stock Options," or "Nonstatutory Options" at the discretion of the
F-10
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Board of Directors. The total number of shares of Stock which may be purchased
through exercise of Options granted under this Plan shall not exceed ten million
(10,000,000) shares, they become exercisable over a period of no longer than
five (5) years and no less than 20% of the shares covered thereby shall become
exercisable annually. On December 14, 2006, the Company granted options to
purchase 1,990,000 shares of common stock to various employees and consultants
having a $2.00 exercise price. The value of the options granted was determined
to be approximately $4,900,000 based on the black scholes model which uses many
variables, such as the estimated fair market value of the Company's common
stock. The Company is currently expensing the value of the common stock over the
vesting period of two years. As of December 31, 2006, the Company amortized
approximately $112,000 to general and administrative expense, $2,500 to project
development and included the total of approximately $114,500 in additional
paid-in capital. As of December 31, 2006, none of the options were vested and
had an estimated remaining life of five years. In addition, the average fair
market value of the Company's common stock on the date of grant was $3.05.
NOTE 5 -RELATED PARTY TRANSACTIONS
On March 1, 2006, the Company entered into a Technology License agreement with
Arkenol, Inc. ("Arkenol"), which the Company's majority shareholder and other
family members hold an interest in. Arkenol has its own management and board
separate and apart from the Company. According to the terms of the agreement,
the Company was granted an exclusive, non-transferable, North American license
to use and to sub-license the Arkenol technology. The Arkenol Technology,
converts cellulose and waste materials into Ethanol and other high value
chemicals. As consideration for the grant of the license, the Company shall make
a one time payment of $1,000,000 at first project construction funding and for
each plant make the following payments: (1) royalty payment of 4% of the gross
sales price for sales by the Company or its sub licensees of all products
produced from the use of the Arkenol Technology (2) and a one time license fee
of $40.00 per 1,000 gallons of production capacity per plant. According to the
terms of the agreement, the Company made a one time exclusivity fee prepayment
of $30,000 during the period ended December 31, 2006. As of December 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 December 31, 2006, the Company had not incurred
any liabilities related to the agreement.
On March 1, 2006, the Company entered into an Asset Transfer and Acquisition
Agreement with ARK Energy, Inc. ("ARK Energy"), which is owned (50%) by the
Company's CEO and majority shareholder Arnold Klann. ARK Energy has its own
management and board separate and apart from the Company. Based upon the terms
of the agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on project opportunities that may be
used to deploy the Arkenol technology (as described in the above paragraph). In
consideration, the Company has agreed to pay a performance bonus of up to
$16,000,000 when certain milestones are met. These milestones include
transferee's project implementation which would be demonstrated by start of the
construction of a facility or completion of financial closing 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 development. As of December 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
(UNAUDITED)
In addition, on December 12, 2006 the Company entered into a $90,000 promissory
note with the Company's Chairman, CEO and majority shareholder. Under the terms
of the note, the Company is to repay any principal balance within 30 days of
receiving qualified investment financing and a maximum fee of $9,000. As of
December 31, 2006, the outstanding principal balance was $90,000 which is
included in related party notes and accrued interest of $9,000. The principal
balance and all accrued interest were paid in full in January of 2007.
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 $363,000. 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 December 31, 2006, the Company's valuation allowance
increased by approximately $363,000.
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.
NOTE 7 - SUBSEQUENT EVENTS
In January of 2007, the Company entered into an employment agreement with a key
employee. The employment agreement can be cancelled upon a written notice by
either employee or employer (if certain employee acts of misconduct are
committed). The total aggregate amount due over the next twelve months is
approximately $160,000 which includes compensation consisting of 10,000 shares
of the Company's common stock valued at approximately $40,000.
On January 5, 2007, the Company completed a private offering of its stock, and
entered into subscription agreements with four accredited investors. In this
offering, the Company sold an aggregate of 278,500 shares of the Company's
common stock at a price of $2.00 per share for total proceeds of $557,000. The
shares of common stock were offered and sold to the investors in private
placement transactions made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933.
In addition, on January 5, 2007 the Company entered into a $25,000 promissory
note with the Company's Chairman, CEO and majority shareholder. Under the terms
of the note, the Company is to repay any principal balance within 30 days of
receiving qualified investment financing and a maximum fee of $2,500. The
principal balance and all accrued interest were paid in full during the month of
January of 2007.
F-12
BLUEFIRE ETHANOL FUELS, INC. (FORMERLY SUCRE AGRICULTURAL CORP.)
AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with the November 21, 2006 agreement (see note 3), on January 29,
2007, the Company issued an additional 37,500 shares of their common stock as
compensation.
On February 12, 2007, the Company entered into an employment agreement with a
key employee, and simultaneously entered into a consulting agreement with an
entity controlled by such employee; both agreements will be effective March 16,
2007. Under the terms of the consulting, the consulting entity will receive
12,500 restricted shares of the Company's common stock on February 12, 2007, and
37,500 shares after effectiveness of the agreement in equal parts on June 1,
September 1, and December 1, 2007. The value of the common stock due at contract
signing was determined to be approximately $65,625 based on the estimated fair
market value of the Company's common stock on the date of the agreement. The
Company plans to expense the value of the common stock to general and
administrative expenses as issued.
On February 9, 2007, the Company paid a one time fee of $4,000 and signed a
six-month option agreement to purchase 95 acres of vacant land in Lancaster,
California for $95,000.
On February 15, 2007, the Company entered into a "professional services
agreement" with a client. The Company was retained to develop, build and operate
one or more facilities in the country of Sri Lanka to produce ethanol using the
"Arkenol Technology" (see related party note). The agreement shall begin upon
the earlier of the client requesting to commence activities, or two hundred
seventy days (270) from the date of the agreement. The agreement will terminate
on the earlier of (i) non payment of the $100,000 initial retainer, (ii), five
years from the date of the agreement, or (iii) the completion of the project.
F-13
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PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Stock Purchase Agreement and Plan of Reorganization dated May 31,
2006, filed December 13, 2006.(1)
3.1 Amended and Restated Articles of Incorporation dated July 2,
2006, filed December 13, 2006.(1)
3.2 Amended and Restated Bylaws dated May 27, 2006, filed December
13, 2006.(1)
4.1 Form of Promissory Note, filed herewith.
4.2 Form of Subscription Agreement, filed herewith.
10.1 Form Directors Agreement, filed December 13, 2006.(1)
10.2 Form Executive Employment Agreement, filed December 13, 2006.(1)
10.3 Arkenol Technology License Agreement, dated March 1, 2006, filed
December 13, 2006.(1)
10.4 ARK Energy Asset Transfer and Acquisition Agreement, dated March
1, 2006, filed December 13, 2006.(1)
10.5 Form of the Consulting Agreement, filed herewith.
10.6 Company's 2006 Incentive and Nonstatutory Stock Option Plan and
Form of Stock Option Agreement, filed herewith.
21.1 Subsidiaries, filed herewith.
99.1 Audit Committee Charter, filed herewith
99.2 Compensation Committee Charter, filed herewith
(1) Incorporated by reference to the Company's Form 10-SB, as filed with the SEC
on December 13, 2006.
SIGNATURES
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 February 26, 2007.
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 February 26, 2007.
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
------------------------------
40
Dates Referenced Herein and Documents Incorporated by Reference
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