U.S.
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT
under
the
SECURITIES
ACT OF
1933
BLUEFIRE
ETHANOL FUELS,
INC.
(Name
of
small business issuer in its charter)
|
Nevada
|
2860
|
20-4590982
|
| |
|
|
|
(State
or jurisdiction of incorporation or organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S.
Employer Identification
Number)
|
BlueFire
Ethanol Fuels,
Inc.
31
Musick
(949)
588-3767 (telephone
number)
(949)
588-3972 (facsimile
number)
(Address
and telephone number of principal executive offices and principal place of
business)
X-Clearing
Corp.
535
16th
Street, Suite
810
(303)
573-1000 (telephone
number)
(Name,
address and telephone number of agent for service)
Copies
to:
Robert
E. Lustrin,
Esq.
Craig
A. Sklar,
Esq.
Seward
&
Kissel
LLP
One
Battery Park
Plaza
(212)
574-1200 (telephone
number)
(212)
480-8421 (facsimile
number)
Approximate
date of proposed sale to public:
From
time
to time after the effective date of this Registration Statement.
If
any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933. x
If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, please check the following box and list
the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering. ¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering.
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box.
CALCULATIONOFREGISTRATIONFEE
|
Title
of Each Class
of
Securities
to be
Registered
|
|
Amount
to
be
Registered
|
|
|
Proposed
Maximum
Offering
Price
Per
Share
(1)
|
|
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
|
Amount
of
Registration
Fee
|
| |
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, $0.001 par value per share
|
|
|
6,724,039
|
|
|
$ |
3.18
|
|
|
$ |
21,382,444
|
|
$656.44
|
|
Common
Stock, $0.001 par value per share, issuable upon exercise
of outstanding warrants
|
|
|
6,764,472
|
|
|
$ |
3.18
|
|
|
$ |
21,511,020
|
|
$660.39
|
|
TTAL
|
|
|
13,488,511
|
|
|
$ |
3.18
|
|
|
$ |
42,893,464
|
|
$1,316.83
|
______________________
|
(1)
|
Estimated
solely for purposes of calculating the registration fee in accordance
with
Rule 457(c) under the Securities Act of 1933 based on the average
of the
high and low sale price of the common stock as reported on the
Over-the-Counter Bulletin Board on December 18,
2007.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE
INFORMATION IN THIS PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY
PROSPECTUS
BlueFire
Ethanol Fuels,
Inc.
13,488,511
Shares of Common
Stock
This
Prospectus relates to the resale by selling stockholders (the “Selling
Stockholders”) of 13,488,511 shares of our common stock $0.001 par value (the
“Common Stock”), including (i) 6,724,039 shares of our issued and outstanding
Common Stock and (ii) 6,764,472 shares of Common Stock issuable upon exercise
of
outstanding warrants.
We
are
not selling any shares of Common Stock in this offering and, as a result,
will
not receive any proceeds from this offering. All of the net proceeds from
the
sale of our Common Stock will go to the Selling Stockholders. We may, however,
receive proceeds in the event that some or all of the warrants held by the
Selling Stockholders are exercised for cash.
The
Selling Stockholders may sell Common Stock from time to time at prices
established on the Over-the-Counter Bulletin Board (the “OTCBB”) or as
negotiated in private transactions, or as otherwise described under the heading
“Plan of Distribution.” The Common Stock may be sold directly or through agents
or broker-dealers acting as agents on behalf of the Selling Stockholders.
The
Selling Stockholders may engage brokers, dealers or agents, who may receive
commissions or discounts from the Selling Stockholders. We will pay
substantially all the expenses incident to the registration of the shares;
however, we will not pay for sales commissions and other expenses applicable
to
the sale of the shares.
Our
Common Stock is currently listed on the OTCBB under the symbol “BFRE.OB.” On
December 18, 2007, the closing price of our Common Stock was $3.17 per
share.
An
investment in our Common Stock
involves significant risks. Investors should not buy our Common Stock unless
they can afford to lose their entire investment. See “Risk Factors” beginning on
page 5.
NEITHER
THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date of this Prospectus
is ,
2008
This
summary provides an overview of
certain information contained elsewhere in this Prospectus and does not contain
all of the information that you should consider or that may be important
to you.
Before making an investment decision, you should read the entire Prospectus
carefully, including the “Risk Factors” section, the financial statements and
the notes to the financial statements. In this Prospectus, the terms “BlueFire,”
“Company,” “we,” “us” and “our” refer to BlueFire Ethanol Fuels, Inc. and our
operating subsidiary.
Our
Company
We
are
BlueFire Ethanol Fuels, Inc., a Nevada corporation. Our goal is to develop,
own
and operate high-value carbohydrate-based transportation fuel plants, or
biorefineries, to produce ethanol, a viable alternative to fossil fuels,
and to
provide professional services to biorefineries worldwide. Our biorefineries
will
convert widely available, inexpensive, organic materials such as agricultural
residues, high-content biomass crops, wood residues and cellulose from municipal
solid wastes into ethanol. This versatility enables us to consider a wide
variety of feedstocks and locations in which to develop facilities to become
a
low cost producer of ethanol. We have licensed for use a patented process
from
Arkenol, Inc., a Nevada corporation (“Arkenol”), to produce ethanol from
cellulose (the “Arkenol Technology”). We are the exclusive North America
licensee of the Arkenol Technology. We may also utilize certain biorefinery
related rights, assets, work-product, intellectual property and other know-how
related to 19 ethanol project opportunities originally developed by ARK Energy,
Inc, a Nevada corporation, to accelerate our deployment of the Arkenol
Technology.
Company
History
We
are a
Nevada corporation that was initially organized as Atlanta Technology Group,
Inc., a Delaware corporation, on October 12, 1993. The Company was re-named
Docplus.net Corporation on December 31, 1998, and further re-named Sucre
Agricultural Corp. (“Sucre”) and re-domiciled as a Nevada corporation on March
6, 2006. Immediately prior to the Reverse Merger described below,
Sucre changed its name to BlueFire Ethanol Fuels, Inc.
On
June
27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with
BlueFire Ethanol, Inc. (“BlueFire Ethanol”). At the time of Reverse
Merger, the Company was a blank-check company and had no operations, revenues
or
liabilities. The only asset possessed by the Company was $690,000 in cash
which
continued to be owned by the Company at the time of the Reverse Merger. In
connection with the Reverse Merger, the Company issued BlueFire Ethanol
17,000,000 shares of common stock, approximately 85% of all of the outstanding
common stock of the Company, for all the issued and outstanding BlueFire
Ethanol
common stock. The Company stockholders retained 4,028,264 shares of Company
common stock. As a result of the Reverse Merger, BlueFire Ethanol
became our wholly-owned subsidiary. On June 21, 2006, prior to and in
anticipation of the Reverse Merger, Sucre sold 3,000,000 shares of common
stock
to two related investors in a private offering of shares pursuant to Rule
504
for proceeds of $1,000,000.
The
Company's shares of common stock began trading under the symbol “BFRE.PK” on the
Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began
trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007. On December
18, 2007 the closing price of our Common Stock was $3.17 per share.
Our
executive offices are located at 31 Musick, Irvine, California 92618 and
our
telephone number at such office is (949) 588-3767.
Recent
Developments
On
December 14, 2007, we consummated an agreement to issue up to 5,740,741 shares
of common stock and warrants to purchase 5,740,741 shares of common stock
for
net proceeds of $14,450,000 (the “December Private Placement”). The warrants
have an exercise price of $2.90 per share and expire five years from the
date of
issuance.
In
connection with the December Private Placement, we modified the conversion
price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per
share.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 and accrued interest of $33,333
into 700,922 shares of common stock.
On
December 17, 2007, we filed an S-8 with the SEC to register 10,000,000 shares
of
common stock under our Amended and Restated 2006 Incentive and Non-Statutory
Stock Option Plan.
The
Offering
|
Common
Stock Being Offered By
Selling Stockholders
|
|
13,488,511
shares of Common Stock. This includes (i) 6,724,039 shares of
our issued and outstanding Common Stock and (ii) 6,764,472
shares of Common Stock issuable upon exercise of outstanding
warrants.
|
| |
|
|
|
Initial
Offering
Price
|
|
The
initial offering price for shares of our Common Stock will be determined
by prevailing prices established on the OTCBB or as negotiated
in private
transactions, or as otherwise described in “Plan of
Distribution.”
|
| |
|
|
|
Terms
of the
Offering
|
|
The
Selling Stockholders will determine when and how they will sell
the Common
Stock offered in this prospectus.
|
| |
|
|
|
Termination
of the
Offering
|
|
The
offering will conclude upon the earliest of(i) such time as all of
the Common Stock has been sold pursuant to the registration statement,
(ii) two years or (iii) such time as all of the Common Stock
become eligible for resale without volume limitations pursuant
to Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”), or
any other rule of similar effect.
|
| |
|
|
|
Use
of
Proceeds
|
|
We
are not selling any shares of Common Stock in this offering and,
as a
result, will not receive any proceeds from this offering. We may,
however,
receive proceeds in the event that some or all of the warrants
held by the
Selling Stockholders are exercised for cash. The proceeds from
the
exercise of such warrants, if any, will be used for working capital
and
general corporate purposes.
|
| |
|
|
|
OTCBB
Trading
Symbol
|
|
“BFRE.OB”
|
| |
|
|
|
Risk
Factors
|
|
The
Common Stock offered hereby involves a high degree of risk and
should not
be purchased by investors who cannot afford the loss of their entire
investment. See “Risk Factors” beginning on page
5.
|
You
should read the summary financial data set forth below in conjunction with
“Management’s Discussion and Analysis of Financial Condition or Plan of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus. We derived the financial data as of the nine
months ended September 30, 2006 and 2007, and for the period from March 28, 2006
(Inception) to December 31, 2006, from our financial statements included
in this
report. The historical results are not necessarily indicative of the results
to
be expected for any future period.
|
STATEMENT
OF
OPERATIONS :
|
|
Nine
Months
Ended
September 30
|
|
|
Period
from
(Inception)
to
December
31
|
|
|
|
|
2007
|
|
|
2006(1)
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
6,120,900
|
|
|
|
466,516
|
|
|
|
1,549,197
|
|
|
Operating
loss
|
|
|
(6,120,900 |
) |
|
|
(466,516 |
) |
|
|
(1,549,197 |
) |
|
Net
Loss
|
|
$ |
(6,725,019 |
) |
|
$ |
(463,716 |
) |
|
$ |
(1,555,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
(0.31 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.08 |
) |
|
Weighted
average common shares outstanding basic and
diluted
|
|
$ |
21,512,081
|
|
|
|
19,057,447
|
|
|
|
19,711,225
|
|
|
BALANCE
SHEET:
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,354,215
|
|
|
$ |
2,760
|
|
|
Current
assets
|
|
$ |
1,388,694
|
|
|
$ |
32,760
|
|
|
Total
assets
|
|
$ |
1,617,282
|
|
|
$ |
32,760
|
|
|
Current
liabilities
|
|
$ |
1,446,446
|
|
|
$ |
184,741
|
|
|
Total
liabilities
|
|
$ |
1,553,295
|
|
|
$ |
184,741
|
|
|
Total
stockholders’ equity (deficit)
|
|
$ |
63,987
|
|
|
$ |
(151,981 |
) |
This
offering and an investment in our Common Stock involve a high degree of risk.
You should consider carefully the risks described below, which are the most
significant risks we face based on our business and the industry in which
we
operate, before you decide to buy our Common Stock. If any of the following
risks were to occur, our business, financial condition or results of operations
would likely suffer. In that event, the trading price of our Common Stock
could
decline, and you could lose all or part of your investment.
INDUSTRY
RISK
FACTORS
COMPETITION
FROM LARGE PRODUCERS OF PETROLEUM-BASED GASOLINE ADDITIVES AND
OTHER COMPETITIVE PRODUCTS MAY IMPACT OUR PROFITABILITY.
If
we
reach the production stage we will compete with producers of other gasoline
additives made from other raw materials having similar octane and oxygenate
values as ethanol. Most of our competitors, including oil and energy companies,
have significantly greater resources than we have to develop alternative
products and to influence legislation and public perception of ethanol.
These other companies also have significant resources to begin production
of ethanol should they choose to do so.
We
will
also compete with producers of other gasoline additives having
similar octane and oxygenate values as ethanol. An example of such other
additives is MTBE (methyl tertiary butyl ether). MTBE costs less to produce
than ethanol. Many major oil companies produce MTBE and because it
is petroleum-based, its use is strongly supported by major oil
companies. Alternative fuels, gasoline oxygenates and alternative ethanol
production methods are also continually under development. The major oil
companies have significantly greater resources than we have to market MTBE,
to develop alternative products, and to influence legislation and public
perception of MTBE and ethanol.
OUR
BUSINESS PROSPECTS WILL BE IMPACTED BY CORN SUPPLY.
Our
ethanol will be produced from cellulose; however, currently most ethanol
is produced from corn, which is affected by weather, governmental policy,
disease and other conditions. A significant increase in the availability of
corn and resulting reduction in the price of corn may decrease the price of
ethanol and harm our business.
IF
ETHANOL AND GASOLINE PRICES DROP SIGNIFICANTLY, WE WILL ALSO BE FORCED
TO REDUCE OUR PRICES, WHICH POTENTIALLY MAY LEAD TO FURTHER
LOSSES.
Prices
for ethanol products can vary significantly over time and decreases
in price levels could adversely affect our profitability and viability. The
price of ethanol has some relation to the price of gasoline. 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
ethanol tends to increase as the price of gasoline increases, and the price
of ethanol tends to decrease as the price of gasoline decreases. Any
lowering of gasoline prices will likely also lead to lower prices for
ethanol and adversely affect our operating results. We cannot assure you
that we will be able to sell our ethanol profitably, or at
all.
INCREASED
ETHANOL PRODUCTION FROM CELLULOSE IN THE UNITED STATES COULD INCREASE THE
DEMAND AND PRICE FOR 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.
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.
LAX
ENFORCEMENT OF ENVIRONMENTAL AND ENERGY POLICY REGULATIONS MAY
ADVERSELY AFFECT DEMAND FOR ETHANOL.
Our
success will depend in part on effective enforcement of
existing environmental and energy policy regulations. Many of our potential
customers are unlikely to switch from the use of conventional fuels unless
compliance with applicable regulatory requirements leads, directly or
indirectly, to the use of ethanol. Both additional regulation and
enforcement of such regulatory provisions are likely to be vigorously
opposed by the entities affected by such requirements. If existing
emissions-reducing standards are weakened, or if governments are not active
and effective in enforcing such standards, our business and results of
operations could be adversely affected. Even if the current trend toward
more stringent emissions standards continues, we will depend on the ability
of ethanol to satisfy these emissions standards more efficiently than other
alternative technologies. Certain standards imposed by regulatory programs
may limit or preclude the use of our products to comply with environmental
or energy requirements. Any decrease in the emission standards or the
failure to enforce existing emission standards and other regulations
could result in a reduced demand for ethanol. A significant decrease in the
demand for ethanol will reduce the price of ethanol, adversely affect our
profitability and decrease the value of your stock.
COSTS
OF
COMPLIANCE WITH BURDENSOME OR CHANGING ENVIRONMENTAL AND OPERATIONAL SAFETY
REGULATIONS COULD CAUSE OUR FOCUS TO BE DIVERTED AWAY FROM OUR BUSINESS AND
OUR RESULTS OF OPERATIONS TO SUFFER.
Ethanol
production involves the emission of various airborne pollutants, including
particulate matter, carbon monoxide, carbon dioxide, nitrous
oxide, volatile organic compounds and sulfur dioxide. The production
facilities that we will build will discharge water into the environment. As
a result, we are subject to complicated environmental regulations of the
EPA 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.
COMPANY
RISK
FACTORS
SINCE
INCEPTION, WE HAVE HAD LIMITED OPERATIONS AND HAVE INCURRED NET LOSSES OF
$8,280,516 AND WE NEED ADDITIONAL CAPITAL TO EXECUTE OUR BUSINESS
PLAN.
We
have
had limited operations and have incurred net losses of $8,280,516 for the
period
from March 28, 2006 (Inception) through September 30, 2007 and have not
generated any revenues from operations. We have yet to begin ethanol production
or construction of ethanol producing plants. Since the Reverse
Merger, we have been engaged in organizational activities, including developing
a strategic operating plan, entering into contracts, hiring personnel,
developing processing technology, and raising private capital. Our continued
existence is dependent upon our ability to obtain additional debt and/or
equity
financing. Management anticipates beginning construction of a plant within
the
next six months and expects to complete the project and to begin production
of
ethanol within the next 18 months. Although the cost of construction is
not
readily determinable, we estimate the cost to be approximately $30 million
for
our first plant. We recently raised $14.5 million of additional funds which
are
expected to be used for operations, additional research and development
activities and toward the construction of the Company’s initial ethanol plant.
We will require additional funds through project financings or through
future
sales of our common stock, until such time as our revenues are sufficient
to
meet our cost structure, and ultimately achieve profitable operations.
We expect
our current cash on hand to be sufficient for the next 12 month period.There
is
no assurance we will be successful in raising additional capital or achieving
profitable operations. Wherever possible, our board of directors (the “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 stockholders and may further dilute
common
stock book value, and that dilution may be material.
OUR
BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING TO CONSTRUCT AND OPERATE
OUR BIOREFINERY PROJECTS AND WE MAY NOT BE ABLE TO OBTAIN SUCH FUNDING WHICH
COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL
CONDITION.
Our
business plan depends on completion of up to 19 numerous
biorefinery projects. Although each facility will have specific funding
requirements, a proposed facility in Los Angeles County will require
approximately $30 million to fund. We will be relying on additional
financing and funding from such sources as The Energy Policy Act grants and
loan guarantee programs, Biorefinery Demonstration Project Program or The
California Energy Commission. We are currently in discussions with potential
sources of financing but no definitive agreements are in place. If we
cannot achieve the requisite financing or complete the projects as
anticipated, this could adversely affect our business, the results of our
operations, prospects and financial condition.
OUR
CELLULOSE-TO-ETHANOL TECHNOLOGIES ARE UNPROVEN ON A LARGE-SCALE
COMMERCIAL BASIS AND PERFORMANCE COULD FAIL TO MEET PROJECTIONS, WHICH
COULD RENDER US WORTHLESS.
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,
if that
is possible. Accordingly, we cannot assure you that these
technologies will perform successfully on a large-scale commercial basis
or at
all.
OUR
BUSINESS EMPLOYS LICENSED ARKENOL TECHNOLOGY WHICH MAY BE DIFFICULT
TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
We
currently license our technology from Arkenol. Arkenol owns 11 U.S. patents,
21
foreign patents, and has one foreign patent pending and may file more patent
applications in the future. Our success depends, in part, on our ability
to use
the Arkenol Technology, and for Arkenol to obtain patents, maintain trade
secrecy and not infringe the proprietary rights of third parties. We cannot
assure you that the patents of others will not have an adverse effect on
our
ability to conduct our business, that we will develop additional proprietary
technology that is patentable or that any patents issued to us or Arkenol
will
provide us with competitive advantages or will not be challenged by third
parties. Further, we cannot assure you that others will not independently
develop similar or superior technologies, duplicate elements of the Arkenol
Technology or design around it.
It
is
possible that we may need to acquire other licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. We cannot
assure you that any license would be made available to us on acceptable terms,
if at all, or that we would prevail in any such contest. In addition, we
could
incur substantial costs in defending ourselves in suits brought against us
for
alleged infringement of another party's patents in bringing patent infringement
suits against other parties based on our licensed patents.
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
DEPEND
ON ARKENOL TO PROVIDE OUR TECHNOLOGY LICENSE.
We
currently license our technology from Arkenol. The loss of this license
or
Arkenol’s failure to perform its obligations to us under the license agreement
could have a material adverse effect on our financial condition and results
of
our operations. Although we may have rights against Arkenol if it defaults
on
its obligations to us, you will have no recourse against Arkenol.
BECAUSE
ARKENOL IS A PRIVATELY HELD COMPANY, THERE
IS LITTLE
OR NO PUBLICLY AVAILABLE INFORMATION ABOUT IT AND WE MAY GET VERY LITTLE
ADVANCE
WARNING OF OPERATIONAL OR FINANCIAL PROBLEMS EXPERIENCED BY ARKENOL THAT
MAY
ADVERSELY AFFECT US.
The
ability of Arkenol to continue providing the technology license for our
benefit
will depend in part on its own financial strength. Circumstances beyond
our
control could impair Arkenol’s financial strength. Because Arkenol is privately
held it is unlikely that information about its financial strength would
become
public unless Arkenol began to default on its obligations. As a result,
there
may be little advance warning of problems affecting Arkenol, even though
these
problems could have a material adverse effect on us.
OUR
SUCCESS DEPENDS UPON ARNOLD KLANN, OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AND
JOHN CUZENS, OUR CHIEF TECHNOLOGY OFFICER AND SENIOR VICE
PRESIDENT.
We
believe that our success will depend to a significant extent upon the
efforts and abilities of (i) Arnold Klann, our Chairman and Chief Executive
Officer, due to his contacts in the ethanol and cellulose industries and
his overall insight into our business, and (ii) John Cuzens, our Chief
Technology Officer and Senior Vice President for his technical and engineering
expertise, including his familiarity with the Arkenol Technology. Our failure
to
retain Mr. Klann 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.
OUR
CHAIRMAN AND CHIEF EXECUTIVE OFFICER HAS AFFILIATIONS WITH ARKENOL THAT
COULD
CREATE CONFLICTS OF INTEREST DETRIMENTAL TO US.
We
currently license our technology from Arkenol. Our Chairman, Chief Executive
Officer and majority stockholder holds a 25.5% interest in Arkenol. These
relationships could create conflicts of interest between us and Arkenol.
There
can be no assurance that any conflicts of interest will be resolved in
a manner
beneficial to us.
FAILURE
TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE
WITH SECTION 404 OF THE SARBANES-OXLEY ACT 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 of publicly traded companies.
If
we
fail to comply in a timely manner with the requirements of Section 404 of
the
Sarbanes-Oxley Act regarding internal control over financial reporting or
to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information
and
have a negative effect on the trading price of our common stock.
Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning
with our annual report on Form 10-KSB for our fiscal period ending December
31,
2007, we will be required to prepare assessments regarding internal controls
over financial reporting and beginning with our annual report on Form 10-KSB
for
our fiscal period ending December 31, 2008, furnish a report by our management
on our internal control over financial reporting. We have begun 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.
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. 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.
RISK
FACTORS RELATING TO OUR COMMON
STOCK AND THIS OFFERING
THERE
IS
NO LIQUID MARKET FOR OUR COMMON STOCK.
Our
shares are traded on the OTCBB and the trading volume has historically been
very
low. An active trading market for our shares may not develop or be sustained.
We
cannot predict at this time how actively our shares will trade in the public
market or whether the price of our shares in the public market will reflect
our
actual financial performance.
OUR
COMMON STOCK PRICE HAS FLUCTUATED CONSIDERABLY AND STOCKHOLDERS MAY NOT BE
ABLE
TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SUCH SHARES WERE
PURCHASED.
The
market price of our common stock may fluctuate significantly. Between July
11, 2006, the day we began trading publicly as BFRE.PK, and December 18,
2007,
the high and low price for our common stock has been $7.90 and $1.30 per
share, respectively. Our share price has fluctuated in response to
various factors, including not yet beginning construction of our first plant,
needing additional time to organize engineering resources, issues relating
to
feedstock sources, trying to locate suitable plant locations, locating
distributors and finding funding sources.
OUR
COMMON STOCK MAY BE CONSIDERED “A PENNY STOCK” AND MAY BE DIFFICULT FOR
YOU TO SELL.
The
SEC
has adopted regulations which generally define “penny stock” to be
an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock has been for much of its
trading history since July 11, 2006, and may continue to be less than $5.00
per share, and therefore may be designated as a “penny stock” according to
SEC rules. This designation requires any broker or dealer selling these
securities to disclose certain information concerning the transaction,
obtain a written agreement from the purchaser and determine that the
purchaser is reasonably suitable to purchase the securities. These rules
may restrict the ability of brokers or dealers to sell our common stock and
may affect the ability of investors to sell their shares.
OUR
PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS
Arnold
Klann, our Chairman and Chief Executive Officer, controls approximately
49.5% of our current outstanding shares of voting common stock. He may be
able to exert significant control over our management and affairs requiring
stockholder approval, including approval of significant corporate
transactions. This concentration of ownership may expedite approvals of
company decisions, or have the effect of delaying or preventing a change in
control, adversely affect the market price of our common stock, or may not
be in the best interests of all our stockholders.
YOU
COULD
BE DILUTED FROM OUR FUTURE ISSUANCE OF CAPITAL STOCK AND DERIVATIVE
SECURITIES.
As
of
December 18, 2007, we had 28,061,553 shares of common
stock outstanding and no shares of preferred stock outstanding. We are
authorized to issue up to 100,000,000 shares of common stock and
1,000,000 shares of preferred stock. To the extent of such authorization,
our Board of Directors will have the ability, without seeking stockholder
approval, to issue additional shares of common stock or preferred stock in
the future for such consideration as the Board of Directors may consider
sufficient. The issuance of additional common stock or preferred stock in
the
future may reduce your proportionate ownership and voting power.
WE
HAVE
NOT AND DO NOT INTEND TO PAY ANY DIVIDENDS. AS A RESULT, YOU MAY ONLY BE
ABLE TO
OBTAIN A RETURN ON INVESTMENT IN OUR COMMON STOCK IF ITS VALUE
INCREASES.
We
have
not paid dividends in the past and do not plan to pay dividends in the near
future. We expect to retain earnings to finance and develop our business.
In
addition, the payment of future dividends will be directly dependent upon
our
earnings, our financial needs and other similarly unpredictable factors.
As a
result, the success of an investment in our common stock will depend upon
future
appreciation in its value. The price of our common stock may not appreciate
in
value or even maintain the price at which you purchased our
shares.
Included
in this prospectus are “forward-looking” statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot assure you that the
expectations reflected in these forward-looking statements will prove to
be
correct. Our actual results could differ materially from those anticipated
in
forward-looking statements as a result of certain factors, including matters
described in the section titled “Risk Factors.” Forward-looking statements
include those that use forward-looking terminology, such as the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should,” and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in these
forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and we cannot assure you that actual results
will be consistent with these forward-looking statements. Important factors
that
could cause our actual results, performance or achievements to differ from
these
forward-looking statements include the following:
|
|
·
|
the
availability and adequacy of our cash flow to meet our
requirements,
|
|
|
·
|
economic,
competitive, demographic, business and other conditions in our
local and
regional markets,
|
|
|
·
|
changes
or developments in laws, regulations or taxes in the ethanol or
energy
industries,
|
|
|
·
|
actions
taken or not taken by third-parties, including our suppliers and
competitors, as well as legislative, regulatory, judicial and other
governmental authorities,
|
|
|
·
|
competition
in the ethanol industry,
|
|
|
·
|
the
failure to obtain or loss of any license or
permit,
|
|
|
·
|
changes
in our business and growth strategy (including our plant building
strategy
and co-location strategy), capital improvements or development
plans,
|
|
|
·
|
the
availability of additional capital to support capital improvements
and
development, and
|
|
|
·
|
other
factors discussed under the section entitled “Risk Factors” or elsewhere
in this registration statement.
|
All
forward-looking statements attributable to us are expressly qualified in
their
entirety by these and other factors. We undertake no obligation to update
or
revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
We
will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. All of the net proceeds from the sale of our Common Stock will
go
to the Selling Stockholders as described below in the sections entitled “Selling
Stockholders” and “Plan of Distribution”.
A
portion
of the shares of Common Stock covered by this prospectus are issuable upon
exercise of warrants. We may receive proceeds in the event some or
all of the warrants held by the Selling Stockholders are exercised for
cash. Any proceeds received from the exercise of the warrants will be
used for working capital and general corporate purposes. There can be
no assurance that any of the Selling Stockholders will exercise their
warrants or that we will receive any proceeds therefrom. Warrant holders
often
choose not to exercise their warrants because the price of the Common Stock
does
not justify the exercise or the warrant expires by its terms.
DETERMINATION
OF
OFFERING PRICE
The
prices at which the shares of Common Stock covered by this prospectus may
actually be sold will be determined by the prevailing public market price
for
shares of Common Stock, by negotiations between the Selling Shareholders
and
buyers of our Common Stock in private transactions or as otherwise described
in
“Plan of Distribution.”
MARKET
FOR COMMON
EQUITY AND
RELATED
STOCKHOLDER
MATTERS
Market
Information
Our
shares of common stock began trading under the symbol “BFRE.PK” on the Pink
Sheets of the National Quotation Bureau on July 11, 2006 and later began
trading
on the OTCBB under the symbol “BFRE.OB” on June 19, 2007.
The
following table sets forth the high and low bid information for our common
stock
for each quarter since we completed the Reverse Merger and began trading
on July
11, 2006. The prices reflect inter-dealer quotations, do not include retail
mark-ups, markdowns or commissions and do not necessarily reflect actual
transactions.
QUARTERLY
COMMON STOCK PRICE RANGES
|
Quarter
ended
|
|
Low
Price
|
|
|
High
Price
|
|
| |
|
|
|
|
|
|
|
|
|
$ |
1.35
|
|
|
$ |
6.80
|
|
|
|
|
$ |
1.47
|
|
|
$ |
4.00
|
|
|
|
|
$ |
3.99
|
|
|
$ |
7.70
|
|
|
|
|
$ |
5.40
|
|
|
$ |
7.15
|
|
|
|
|
$ |
3.30
|
|
|
$ |
6.40
|
|
Holders
There
were approximately 2,500 holders of our common stock as of December 18,
2007.
Transfer
Agent and
Registrar
The
transfer agent and registrar for our common stock is X-Clearing
Corp.
Dividends
We
have
not paid any dividends on our common stock and intend to retain any future
earnings to fund the development and growth of our business. Therefore, we
do
not anticipate paying dividends on our common stock for the foreseeable future.
There are no restrictions on our present ability to pay dividends to
stockholders of our common stock, other than those prescribed by Nevada
law.
Equity
Compensation
Plan
In
order
to compensate our officers, directors, employees and/or consultants, our
Board
of Directors and stockholders adopted the 2006 Incentive and Non-Statutory
Stock
Option Plan (the “Plan”). The Plan has a total of 10,000,000 shares
reserved for issuance.
On
October 16, 2007, the Board of Directors reviewed the Plan. As such, it
determined that the Plan was to be used as a comprehensive equity incentive
program for which the Board of Directors serves as the plan administrator
and,
therefore, amended the Plan (the “Amended and Restated Plan”) to add the ability
to grant restricted stock awards.
Under
the
Amended and Restated Plan, an eligible person in the Company's service may
acquire a proprietary interest in the Company in the form of shares or an
option
to purchase shares of the Company’s common stock. The amendment includes certain
previously granted restricted stock awards as having been issued under the
Amended and Restated Plan.
As
of
December 18, 2007, we have issued the following stock options under the Amended
and Restated Plan:
Equity
Compensation Plan
Information
|
Plan
category
|
Number
of securities to be
issued upon exercise of
outstanding options, warrants
and rights and number
of shares of restricted
stock
|
Weighted
average exercise
price of outstanding
options, warrants
and rights (2)
|
Number
of securities remaining
available for future
issuance
|
| |
|
|
|
|
Equity
compensation plans approved by security holders under the Amended
and
Restated Plan
|
2,123,000
(1)
|
$2.00
|
7,877,000
|
|
Equity
compensation not pursuant to a plan
|
602,203
|
$3.88
|
|
|
Total
|
2,725,203
|
|
|
(1)
Of
this amount, 20,000 options have been exercised.
(2)
Excludes shares of restricted stock issued under the Plan.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION OR PLAN OF
OPERATIONS
You
should read the following discussion and analysis of our financial condition
and
plan of operations together with our financial statements and related notes
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties, and assumptions.
The actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but
not
limited to, those presented under “Risk Factors” on page 5 and elsewhere in this
prospectus.
PLAN
OF
OPERATION
We
plan
to raise additional funds through joint venture partnerships, project debt
financings or through future sales of our common stock, until such time as
our
revenues are sufficient to meet our cost structure, and ultimately achieve
profitable operations. There is no assurance that we will be successful in
raising additional capital or achieving profitable operations. Our consolidated
financial statements do not include any adjustments that might result from
the
outcome of these uncertainties. We will need financing within 12 months to
execute our business plan.
We
have
not developed our own proprietary technology but rather we are a licensee
of the
Arkenol Technology and therefore have benefited from Arkenol's research and
development efforts and cost expenditures.
Our
business will encompass development activities culminating in the construction
and long-term operation of ethanol production biorefineries. As such, we
are
currently in the development-stage of finding suitable locations and deploying
project opportunities for converting cellulose fractions of municipal solid
waste and other opportunistic feedstock into ethanol fuels.
For
the
next 12 months, our Plan of Operations is as follows:
|
|
·
|
Obtain
additional operating capital from joint venture partnerships, debt
financing or equity financing to fund our ongoing operations and
the
development of initial biorefineries in North
America.
|
|
|
·
|
The
Energy Policy Act of 2005 provides for grants and loan guarantee
programs
to incentivize the growth of the cellulosic ethanol market. These
programs
include a Cellulosic Biomass Ethanol and Municipal Solid Waste
Guarantee
Program under which the U.S. Department of Energy (“DOE”) could provide
loan guarantees up to $250 million per qualified project. We have
received
approval of its pre-application and must now submit a formal application
for a loan guarantee of up to $200 million to support the development
of a
55 million gallon per year project in California to be located
adjacent to
an existing biomass power plant.
|
|
|
·
|
The
Energy Policy Act of 2005 created a Biorefinery Demonstration Project
Program under which $384 million or another amount appropriated
by
Congress is available to fund up to three biorefinery demonstration
projects. Ultimately the DOE was appropriated $385 million for
the program
and granted awards of various size to six companies of which we
are one.
In October, 2007, we signed the contract for the first phase of
the grant
program referred to by the DOE as “Award 1” for pre-construction
activities on our El Sobrante
project.
|
|
|
·
|
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). In March 2007,
we received notice that we have been accepted as a recipient of
up to $1
million under this program for equipment testing and preliminary
engineering for use in our proposed project under this solicitation.
The
specifics of this award are to be determined, but we are planning
on
finalizing study procedures and contract terms within the first
quarter of
2008.
|
|
|
·
|
As
available and as applicable to our business plans, applications
for public
funding will be submitted to leverage private capital raised by
us.
|
Our
initial planned projects in North America are projected as follows:
|
|
·
|
A
facility that will process approximately 170 tons of green waste
material
to produce roughly 3 million gallons of ethanol annually. On November
9,
2007, we purchased the facility site which is located in Lancaster,
California. Permit applications were filed on June 24, 2007 to
allow for construction of the Lancaster facility. We are currently
in
preliminary engineering. Although the cost of construction is not
readily
determinable, we estimate the cost to be approximately $30 million
for
this first plant. We are currently in discussions with potential
sources
of financing for this facility but no definitive agreements are
in
place.
|
|
|
·
|
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 16.6 to 18 million gallons
of
ethanol annually. Preliminary engineering design is in progress
and
permitting for this facility will commence once all required preliminary
engineering design is completed. A definitive agreement is being
finalized
with Petro-Diamond for the purchase and sale of the ethanol produced
from
the facility. We have received an Award from the DOE of up to $40
million for the El Sobrante Facility. On or around October 7,
2007, we finalized Award 1 for a total approved budget of just
under
$10,000,000 with the DOE. This award is a 60%/40% cost share,
whereby 40% of approved costs may be reimbursed by the DOE pursuant
to the
total $40 million award amount in February 2007. The remainder
of financing for this project is yet to be
determined.
|
|
|
·
|
Several
other opportunities are being evaluated by us in North America
but no
definitive plans have been made. Discussions with various
landfill owners are underway to duplicate the proposed development
at the
El Sobrante landfill, although no definitive agreements have been
reached.
|
RECENT
DEVELOPMENTS
On
December 14, 2007, we consummated an agreement to issue up to 5,740,741
shares
of common stock and warrants to purchase 5,740,741 shares of common stock
for
net proceeds of $14,450,000 (the “December Private Placement”). The warrants
have an exercise price of $2.90 per share and expire five years from the
date of
issuance. The Company is currently assessing the impact of the transaction
on their consolidated financial statements.
In
connection with the December Private Placement, we modified the conversion
price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per
share. The Company is currently assessing the impact of the transaction on
their consolidated financial statements. The Company expects to record
additional interest expense related to the modifications.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 and accrued interest of
$33,333 into 700,922 shares of common stock.
On
December 17, 2007, we filed an S-8 with the SEC to register 10,000,000
shares of
common stock under our Amended and Restated 2006 Incentive and Non-Statutory
Stock Option Plan.
LIQUIDITY
AND CAPITAL RESOURCES
Historically,
we have funded our operations through financing activities consisting primarily
of private placements of debt and equity securities with existing shareholders
and outside investors. Our principal use of funds has been for the further
development of our Biorefinery Projects, for capital expenditures and general
corporate expenses.
During
the nine months ended September 30, 2007, proceeds of approximately $2,944,500
were received from the sale of securities in connection with various private
placements. Additional proceeds of $40,000 were received from the exercise
of
stock options. In addition, on December 14, 2007, we closed a private placement
equity offering and issued approximately 5,740,741 shares of common stock
and
warrants to purchase approximately 5,740,741 shares of common stock. The
net
proceeds received by us from this offering was approximately $14.45
million.
In
addition, as our Projects develop to the point of construction, we anticipate
significant purchases of long lead time item equipment for construction.
As of
December 18, 2007, we had cash and cash equivalents of approximately $15.5
million and a related party revolving line of credit with an outstanding
balance
of approximately $630,000 including accrued interest of approximately
$30,000
We
expect
to rely upon funds raised from this recent private placement, as well as
future
equity and debt offerings to implement our growth plan and meet our liquidity
needs going forward. Management believes that our Company’s cash will
be sufficient to meet our working capital requirements for the next twelve
month
period, as well as be sufficient to prepare our first two Projects for
construction, at which point further funding will be necessary. However,
we
cannot assure you that such financing will be available to us on favorable
terms, or at all. If, after utilizing the existing sources of capital available
to the Company, further capital needs are identified and the Company is
not
successful in obtaining the financing, it may be forced to curtail its
existing
or planned future operations.
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 prospectus. Although we believe that our estimates and assumptions
are
reasonable, they are based upon information presently available, and actual
results may differ significantly from these estimates.
REVENUE
RECOGNITION
We
are
currently a developmental-stage company and have recognized minimal revenues
to
date. We will recognize revenues from 1) consulting services rendered to
potential sub licensees for development and construction of cellulose to
ethanol
projects, 2) sales of ethanol from its production facilities when (a) persuasive
evidence that an agreement exists; (b) the products have been delivered;
(c) the
prices are fixed and determinable and not subject to refund or adjustment;
and
(d) collection of the amounts due is reasonably assured.
PROJECT
DEVELOPMENT
Project
development costs are either expensed or capitalized. The costs of materials
and
equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be classified as property and equipment and depreciated
over their estimated useful lives. To date, project development costs include
the research and development expenses related to our future cellulose-to-ethanol
production facilities. During the nine months ended September 30, 2007, we
expensed all costs related to the facility development.
SHARE-BASED
PAYMENTS
The
Company accounts for stock options issued to employees and consultants
under
SFAS No. 123(R), “Share-Based Payment”. Under SFAS 123(R), share-based
compensation cost to employees is measured at the grant date, based on
the
estimated fair value of the award, and is recognized as expense over the
employee's requisite service period. Share based compensation cost to
consultants is measured on a quarterly basis using the Black-Scholes option
model. The Company has no awards with market or performance
conditions.
The
Company measures compensation expense for its non-employee stock-based
compensation under the FASB Emerging Issues Task Force (“EITF”) Issue No. 96-18
“Accounting for Equity Instruments that are Issued to Other Than Employees
for
Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).
The fair value of the option issued or committed to be issued is used to
measure
the transaction, as this is more reliable than the fair value of the services
received. The fair value is measured at the value of the Company's common
stock
on the date that the commitment for performance by the counterparty has
been
reached or the counterparty's performance is complete. The fair value of
the
equity instrument is charged directly to stock-based compensation expense
and
credited to additional paid-in capital.
CONVERTIBLE
DEBT
Convertible
debt is accounted for under the guidelines established by APB Opinion No.
14
Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants
(APB14) under the direction of Emerging Issues Task Force (EITF) 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features
or
Contingently Adjustable Conversion Ratios, (EITF 98-5) EITF 00-27 Application
of
Issue No 98-5 to Certain Convertible Instruments (EITF 00-27) , and EITF
05-8 Income Tax Consequences of Issuing Convertible Debt with Beneficial
Conversion Features. The Company records a beneficial conversion feature
(“BCF”)
related to the issuance of convertible debt that have conversion features
at
fixed or adjustable rates that are in-the-money when issued and records the
fair value of warrants issued with those instruments. The BCF for the
convertible instruments is recognized and measured by allocating a portion
of
the proceeds to warrants and as a reduction to the carrying amount of the
convertible instrument equal to the intrinsic value of the conversion features,
both of which are credited to paid-in-capital. Under these guidelines,
the
Company allocates the value of the proceeds received from a convertible
debt
transaction between the conversion feature and any other detachable instruments
(such as warrants) on a relative fair value basis. The allocated fair value
is
recorded as a debt discount or premium and is amortized over the expected
term
of the convertible debt to interest expense.
OFF-BALANCE
SHEET ARRANGEMENTS
There
are
no off-balance sheet arrangements.
DESCRIPTION
OF PROPERTY
We
lease
approximately 6,425 square feet of furnished office space at 31 Musick, Irvine,
California 92618 from Jeong Yun Kim for $11,565 per month until April 30,
2008,
and then thereafter on a month-to-month basis.
On
November 9, 2007, we issued a check in the amount of $96,851, towards the
purchase of the Lancaster land totaling a purchase price of
$102,351.25. The 10 acre site is presently vacant and undisturbed except to
occasional use by off road vehicles. The site is flat and has no
distinguishing characteristics and is adjacent to a solid waste landfill
at a
site that minimizes visual access from outside the immediate
area.
COMPANY
HISTORY
Our
Company
We
are
BlueFire Ethanol Fuels, Inc., a Nevada corporation. Our goal is to develop,
own
and operate high-value carbohydrate-based transportation fuel plants, or
biorefineries, to produce ethanol, a viable alternative to fossil fuels,
and to
provide professional services to biorefineries worldwide. Our biorefineries
will
convert widely available, inexpensive, organic materials such as agricultural
residues, high-content biomass crops, wood residues and cellulose from municipal
solid wastes into ethanol. This versatility enables us to consider a wide
variety of feedstocks and locations in which to develop facilities to become
a
low cost producer of ethanol. We have licensed for use a patented process
from
Arkenol, Inc., a Nevada corporation (“Arkenol”), to produce ethanol from
cellulose (the “Arkenol Technology”). We are the exclusive North America
licensee of the Arkenol Technology. We may also utilize certain biorefinery
related rights, assets, work-product, intellectual property and other know-how
related to 19 ethanol project opportunities originally developed by ARK Energy,
Inc, a Nevada corporation, to accelerate our deployment of the Arkenol
Technology.
Company
History
We
are a
Nevada corporation that was initially organized as Atlanta Technology Group,
Inc., a Delaware corporation, on October 12, 1993. The Company was re-named
Docplus.net Corporation on December 31, 1998, and further re-named Sucre
Agricultural Corp. (“Sucre”) and re-domiciled as a Nevada corporation on March
6, 2006. Immediately prior to the Reverse Merger described below,
Sucre changed its name to BlueFire Ethanol Fuels, Inc.
On
June
27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with
BlueFire Ethanol, Inc. (“BlueFire Ethanol”). At the time of Reverse
Merger, the Company was a blank-check company and had no operations, revenues
or
liabilities. The only asset possessed by the Company was $690,000 in cash
which
continued to be owned by the Company at the time of the Reverse Merger. In
connection with the Reverse Merger, the Company issued BlueFire Ethanol
17,000,000 shares of common stock, approximately 85% of all of the outstanding
common stock of the Company, for all the issued and outstanding BlueFire
Ethanol
common stock. The Company stockholders retained 4,028,264 shares of Company
common stock. As a result of the Reverse Merger, BlueFire Ethanol
became our wholly-owned subsidiary. On June 21, 2006, prior to and in
anticipation of the Reverse Merger, Sucre sold 3,000,000 shares of common
stock
to two related investors in a private offering of shares pursuant to Rule
504
for proceeds of $1,000,000.
The
Company's shares of common stock began trading under the symbol “BFRE.PK” on the
Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began
trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007. On December
18, 2007, the closing price of our Common Stock was $3.17 per
share.
Our
executive offices are located at 31 Musick, Irvine, California 92618 and
our
telephone number at such office is (949) 588-3767.
OUR
BUSINESS
PRINCIPAL
PRODUCTS OR SERVICES AND THEIR MARKETS
Our
goal
is to develop, own and operate high-value carbohydrate-based transportation
fuel
plants, or biorefineries, to produce ethanol, a viable alternative to fossil
fuels, and to provide professional services to biorefineries worldwide. Our
biorefineries will convert widely available, inexpensive, organic materials
such
as agricultural residues, high-content biomass crops, wood residues and
cellulose from municipal solid wastes into ethanol. This versatility enables
us
to consider a wide variety of feedstocks and locations in which to develop
facilities to become a low cost producer of ethanol. We have licensed for
use a
patented process from Arkenol, Inc., a Nevada corporation (“Arkenol”) to produce
ethanol from cellulose (“Arkenol Technology”) for sale into the transportation
fuel market. We are the exclusive North America licensee of the Arkenol
Technology.
ARKENOL
TECHNOLOGY
The
production of chemicals by fermenting various sugars is a well-accepted science.
Its use ranges from producing beverage alcohol and fuel-ethanol to making
citric
acid and xantham gum for food uses. However, the high price of sugar and
the
relatively low cost of competing petroleum based fuel has kept the production
of
chemicals mainly confined to producing ethanol from corn sugar.
In
the
Arkenol Technology process, incoming biomass feedstocks are cleaned and ground
to reduce the particle size for the process equipment. The pretreated material
is then dried to a moisture content consistent with the acid concentration
requirements for breaking down the biomass, then hydrolyzed (degrading the
chemical bonds of the cellulose) to produce hexose and pentose (C5 and C6)
sugars at the high concentrations necessary for commercial fermentation.
The
insoluble materials left are separated by filtering and pressing into a cake
and
further processed into fuel for other beneficial uses. The remaining
acid-sugar solution is separated into its acid and sugar components. The
separated sulfuric acid is recirculated and reconcentrated to the level required
to breakdown the incoming biomass. The small quantity of acid left in the
sugar
solution is neutralized with lime to make hydrated gypsum which can be used
as
an agricultural soil conditioner. At this point the process has produced
a clean
stream of mixed sugars (both C6 and C5) for fermentation. In an
ethanol production plant, naturally-occurring yeast, which Arkenol has
specifically cultured by a proprietary method to ferment the mixed sugar
stream,
is mixed with nutrients and added to the sugar solution where it efficiently
converts both the C6 and C5 sugars to fermentation beer (an ethanol, yeast
and
water mixture) and carbon dioxide. The yeast culture is separated from the
fermentation beer by a centrifuge and returned to the fermentation tanks
for
reuse. Ethanol is separated from the now clear fermentation beer by conventional
distillation technology, dehydrated to 200 proof and denatured with unleaded
gasoline to produce the final fuel-grade ethanol product. The still bottoms,
containing principally water and unfermented sugar, is returned to the process
for economic water use and for further conversion of the sugars.
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
We
may
also utilize certain biorefinery related rights, assets, work-product,
intellectual property and other know-how related to 19 ethanol project
opportunities originally developed by ARK Energy, Inc, a Nevada corporation,
to
accelerate our deployment of the Arkenol Technology. The opportunities consist
of ARK Energy's previous relationships, analysis, site development, permitting
experience and market research on various potential project locations within
North America. ARK Energy has transferred these assets to us and we valued
these
business assets based on management’s best estimates as to its actual costs of
development. In the event that we successfully finance the construction of
a
project that utilizes any of the transferred assets from ARK Energy, we are
required to pay ARK Energy for the costs ARK Energy incurred in the development
of the assets pertaining to that particular project or location. We did not
incur the costs of a third party valuation but instead based our valuation
of
the assets acquired by (i) an arms length review of the value assigned by
ARK
Energy to the opportunities based on the actual costs it incurred in developing
the project opportunities, and (ii) anticipated financial benefits to
us.
PILOT
PLANTS
From
1994
to 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.
BIOREFINERY
PROJECTS
We
are
currently in the development stage of building biorefineries in North
America.
We
plan
to use the Arkenol Technology and utilize JGC's operations knowledge from
the
Izumi test pilot plant to assist in the design and engineering of our facilities
in North America. JGC will provide the preliminary design package for our
first
facility and work with our 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.
We
intend
to build a facility that will process approximately 170 tons of green waste
material to produce roughly 3 million gallons of ethanol annually. In connection
therewith, on November 9, 2007, we purchased the facility site which is located
in Lancaster, California. Permit applications were filed on June 24,
2007, to allow for construction of the Lancaster facility. We are currently
in
preliminary engineering. Although the cost of construction is not readily
determinable, we estimate the cost to be approximately $30 million for this
first plant. We are currently in discussions with potential sources of financing
for this facility but no definitive agreements are in place.
We
are
also considering a facility 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 16.6 to 18 million gallons of ethanol annually. Preliminary
engineering design is in progress and permitting for this facility will commence
once all required preliminary engineering design is completed. A definitive
agreement is being finalized with Petro-Diamond, Inc. (“PDI”) for the purchase
and sale of the ethanol produced from the facility. PDI is a significant
blender
of denatured ethanol into motor fuel in Southern California. We have received
an
Award from the DOE of up to $40 million for the El Sobrante Facility.
On or around October 4, 2007, we finalized Award 1 for a total approved budget
of just under $10,000,000 with the DOE. This award is a 60%/40% cost share,
whereby 40% of approve costs may be reimbursed by the DOE pursuant to the
total
$40 million award announced in February 2007. The remainder of financing
for
this project is yet to be determined.
We
are
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
We
will
utilize existing distribution channels to sell the ethanol that is produced
from
our plants. For example, we have entered into a Letter of Intent with PDI
whereby PDI would purchase the ethanol produced by us in our El Sobrante
biomass-to-ethanol conversion facility to be located in the El Sobrante landfill
upon its completion. Ethanol is currently blended year-round at PDI's terminal
facility located in Long Beach, California.
COMPETITIVE
BUSINESS CONDITIONS AND OUR 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 December 18, 2007 is produced at approximately 113 facilities,
ranging
in size from 300,000 to 110 million gallons per year, located predominately
in
the corn belt in the Midwest. According to the RFA, about 14% of the current
production is by the Archer-Daniels-Midland Company with over 1 billion gallons
annually and an additional 550 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 is the acquisition and choice of feedstock. The
use of
a non-commodity based non-food related biomass feedstock enables us to use
feedstock typically destined for disposal, i.e. wood waste, yard trimmings
and
general green waste. All ethanol producers regardless of production
technique will fall subject to market fluctuation in the end product,
ethanol.
Due
to
the feedstock variety that we are able to process, we are able to locate
production facilities in and around the markets where the ethanol will be
consumed We believe that this gives us a competitive advantage
against much larger traditional producers who must locate plants near their
feedstock, i.e., the corn belt in the Midwest and ship the ethanol to the
end
market.
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 America 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 currently 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) 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 EPA requirements for
reformulated gasoline, which is mandated in most urban areas.
Ethanol
is a clean, high-octane, high-performance automotive fuel commonly blended
in
gasoline to extend supplies and reduce emissions. In 2004, according to the
American Coalition for Ethanol, 3% of all United States gasoline was blended
with some percentage of ethanol. The most common blend is E10, which contains
10% ethanol and 90% gasoline. There is also growing federal government support
for E85, which is a blend of 85% ethanol and 15% gasoline.
Ethanol
is a renewable fuel produced by the fermentation of starches and sugars such
as
those found in grains and other crops. Ethanol contains 35% oxygen by weight
and, when combined with gasoline, it acts as an oxygenate, artificially
introducing oxygen into gasoline and raising oxygen concentration in the
combustion mixture with air. As a result, the gasoline burns more completely
and
releases less unburnt hydrocarbons, carbon monoxide and other harmful exhaust
emissions into the atmosphere. The use of ethanol as an automotive fuel is
commonly viewed as a way to reduce harmful automobile exhaust emissions.
Ethanol
can also be blended with regular unleaded gasoline as an octane booster to
provide a mid-grade octane product which is commonly distributed as a premium
unleaded gasoline.
Studies
published by the RFA 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 five (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 150 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 five 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.
SOURCES
AND AVAILABILITY OF RAW MATERIALS
The
U.S.
DOE and USDA in its April 2005 report “Biomass As Feedstock For a Bioenergy and
Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply”
found that about one billion tons of cellulosic materials from agricultural
and
forest residues are available to produce more than one-third of the current
U.S.
demand for transportation fuels.
DEPENDENCE
ON ONE OR A FEW MAJOR CUSTOMERS
Currently,
we have no dependence on one or a few major customers, although we have entered
into a non-binding letter of intent with PDI to be our sole purchaser of
ethanol
from our El Sobrante plant in Southern California. We are 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, we entered into a Technology License Agreement with Arkenol, for
use of
the Arkenol Technology. Arkenol holds the following patents in relation to
the
Arkenol Technology: 11 U.S. patents, 21 foreign patents, and one pending
foreign
patent. According to the terms of the agreement, we were granted an exclusive,
non-transferable, North American license to use and to sub-license the Arkenol
technology. The Arkenol Technology, converts cellulose and waste materials
into
ethanol and other high value chemicals. As consideration for the grant of
the
license, we are required to make a one time payment of $1,000,000 at first
project construction funding and for each plant make the following payments:
(1)
royalty payment of 3% of the gross sales price for sales by us or our
sublicensees of all products produced from the use of the Arkenol Technology
(2)
and a one time license fee of $40.00 per 1,000 gallons of production capacity
per plant. According to the terms of the agreement, we made a one time
exclusivity fee prepayment of $30,000 during the period ended December 31,
2006.
As of September 30, 2007, we have not become obligated to pay any of these
amounts. All sub-licenses issued by us will provide for payments of the license
fees and royalties due Arkenol.
NEED
FOR
ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
We
are
not subject to any government oversight for our current operations other
than
for corporate governance and taxes. However, the production facilities that
we
will be constructing will be subject to various federal, state and local
environmental laws and regulations, including those relating to the discharge
of
materials into the air, water and ground, the generation, storage, handling,
use, transportation and disposal of hazardous materials, and the health and
safety of our employees. In addition, some of these laws and regulations
will
require our facilities to operate under permits that are subject to renewal
or
modification. These laws, regulations and permits can often require expensive
pollution control equipment or operational changes to limit actual or potential
impacts to the environment. A violation of these laws and regulations or
permit
conditions can result in substantial fines, natural resource damages, criminal
sanctions, permit revocations and/or facility shutdowns.
EFFECT
OF
EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
Currently,
the federal government encourages the use of ethanol as a component in
oxygenated gasoline as a measure to protect the environment as a viable
renewable domestic fuel to reduce U.S. dependence on foreign oil.
The
ethanol industry is heavily dependent on several economic incentives to produce
ethanol, including federal ethanol supports. Ethanol sales have been favorably
affected by the Clean Air Act amendments of 1990, particularly the Federal
Oxygen Program which became effective November 1, 1992. The Federal Oxygen
Program requires the sale of oxygenated motor fuels during the winter months
in
certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol
use has increased due to a second Clean Air Act program, the Reformulated
Gasoline Program. This program became effective January 1, 1995, and requires
the sale of reformulated gasoline in nine major urban areas to reduce
pollutants, including those that contribute to ground level ozone, better
known
as smog. Increasingly stricter EPA regulations are expected to increase the
number of metropolitan areas deemed in non-compliance with Clean Air Standards,
which could increase the demand for ethanol.
On
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 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
to be replaced by a new volumetric ethanol excise tax credit discussed
below.
On
October 22, 2004, President Bush signed H.R. 4520, which contained the
Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended the federal excise
tax structure effective as of January 1, 2005. Currently, ethanol-blended
fuel
is taxed at a lower rate than regular gasoline (13.2 cents on a 10%
blend). Under VEETC, the existing ethanol excise tax exemption is
eliminated, thereby allowing the full federal excise tax of 18.4 cents per
gallon of gasoline to be collected on all gasoline and allocated to the highway
trust fund. This would add approximately $1.4 billion to the highway trust
fund
revenue annually. In place of the current exemption, the bill creates a new
volumetric ethanol excise tax credit of 5.1 cents per gallon of ethanol blended.
Refiners and gasoline blenders would apply for this credit on the same tax
form
as before only it would be a credit from general revenue, not the highway
trust
fund. Based on volume, the VEETC is expected to allow much greater refinery
flexibility in blending ethanol.
ESTIMATE
OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON RESEARCH
AND
DEVELOPMENT ACTIVITIES.
For
the
current 2007 fiscal year, as of September 30, 2007, we have spent roughly
$2,558,459 on project development costs.
To
date,
project development costs include the research and development expenses related
to our future cellulose-to-ethanol production facilities.
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 7
full time employees as of November 30, 2007 and 1 part time employee. None
of
our employees are subject to a collective bargaining agreement, and we believe
that our relationship with our employees is good.
REPORTS
TO SECURITY HOLDERS
We
are
subject to the reporting obligations of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”). These obligations include filing an annual report
under cover of Form 10-KSB, with audited financial statements, unaudited
quarterly reports on Form 10-QSB and the requisite proxy statements with
regard
to annual stockholder meetings. The public may read and copy any materials
the
Company files with the Securities and Exchange Commission (the “SEC”) at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
We
are
not a party to any material legal proceedings nor are we aware of any
circumstance that may reasonably lead a third party to initiate material
legal
proceedings against us.
Directors
and Executive
Officers
Our
officers and directors shall serve until our next annual stockholders' meeting.
Our directors and officers as of the date of this prospectus are as
follows:
|
|
|
|
|
Arnold
Klann
|
55
|
Chairman
and Chief Executive Officer
|
|
Necitas
Sumait
|
47
|
Senior
Vice President and Director
|
|
Christopher
Scott
|
33
|
Chief
Financial Officer and Senior Vice President
|
|
John
Cuzens
|
56
|
Chief
Technology Officer and Senior Vice President
|
|
Chris
Nichols
|
40
|
Director
|
|
Joseph
Emas
|
52
|
Director
|
|
Victor
Doolan
|
66
|
Director
|
Arnold
Klann – Chairman of the Board
and Chief Executive Officer
Mr.
Klann
has been our Chairman of the Board and Chief Executive Officer since our
inception in March 2006. Mr. Klann has been President of ARK Energy,
Inc. and Arkenol, Inc. from January 1989 to present. Mr. Klann has an
AA from Lakeland College in Electrical Engineering.
Necitas
Sumait – Senior Vice
President and Director
Mrs.
Sumait has been our Director and Senior Vice President since our inception
in
March 2006. Prior to this, Mrs. Sumait was Vice President of ARK Energy/Arkenol
from December 1992 to July 2006. Mrs. Sumait has a MBA in Technological
Management from Illinois Institute of Technology and a B.S. in Biology from
De
Paul University.
Christopher
Scott – Chief Financial
Officer
Mr.
Scott
has been our Chief Financial Officer since March 2007. Prior to this, from
2002
to March 2007, Mr. Scott was most recently the CFO/CCO and FinOp of Westcap
Securities, Inc, an NASD Member Broker/Dealer and Investment Bank headquartered
in Irvine, CA. Mr. Scott currently holds the Series 7, 63, 24, 4, 27, 55,
and
Series 53 NASD licenses. From 1997 to 2002, Mr. Scott was a General Securities
and Registered Options Principal at First Allied Securities Inc. Mr. Scott
earned his Bachelors Degree in Business Administration, with a concentration
in
Finance, from CSU, Fullerton.
John
Cuzens – Chief Technology
Officer and Senior Vice President
Mr.
Cuzens has been our Chief Technology Officer and Senior Vice President since
our
inception in March 2006. Mr. Cuzens was a Director from March 2006 until
his
resignation from the Board of Directors in July 2007. Prior to this,
he was Director of Projects Wahlco Inc. from 2004 to June 2006. He was employed
by Applied Utility Systems Inc from 2001 to 2004 and Hydrogen Burner Technology
form 1997-2001. He was with ARK Energy and Arkenol from 1991 to 1997 and
is the
co-inventor on seven of Arkenol's eight U.S. foundation patents for the
conversion of cellulosic materials into fermentable sugar products using
a
modified strong acid hydrolysis process. Mr. Cuzens has a B.S. Chemical
Engineering degree from the University of California at Berkeley.
Chris
Nichols -
Director
Mr.
Nichols has been our Director since our inception in March 2006. Mr.
Nichols is currently the Chairman of the Board and Chief Executive Officer
of
Advanced Growing Systems, Inc. Since 2003 Mr. Nichols was the Senior
Vice President of Westcap Securities' Private Client Group. Prior to
this, Mr. Nichols was a Registered Representative at Fisher Investments from
December 2002 to October 2003. He was a Registered Representative with
Interfirst Capital Corporation from 1997 to 2002. Mr. Nichols is a graduate
of
California State University in Fullerton with a B.A. degree in
Marketing.
Joseph
Emas -
Director
Mr.
Emas
is licensed to practice law in Florida, New Jersey and New York. Since 2001,
Mr.
Emas has been the senior partner of Joseph I. Emas, P.A. Mr. Emas specializes
in
securities regulation, corporate finance, mergers and acquisitions and corporate
law. Mr. Emas received his Honors BA at University of Toronto, Bachelor of
Administrative Studies, with distinction, at York University in Toronto,
his JD,
cum laude from Nova Southeastern Shepard Broad Law School and his LL.M. in
Securities Regulation at Georgetown University Law Center. Mr. Emas was an
Adjunct Professor of Law at Nova Southeastern Shepard Broad Law School. Mr.
Emas
received the William Smith Award, Pro Bono Advocate for Children in 2000
and the
2006 Child Advocacy Award in Florida and is the author of “Update of Juvenile
Jurisdiction Florida Practice in Juvenile Law.” Mr. Emas has been a member of
the Juvenile Court Rules Committee for the State of Florida from 1999 through
2006, and currently sits on the Florida Child Advocacy Committee. Mr. Emas
is a
director of several public companies which trade on both the OTC.BB and
Amex.
Victor
Doolan -
Director
Mr.
Doolan served for approximately three years as president of Volvo Cars North
America until his retirement in March 2005. Prior to joining Volvo, Mr. Doolan
served as the Executive Director of the Premier Automotive Group, the luxury
division of Ford Motor Company from July 1999 to June 2002. Mr. Doolan also
enjoyed a 23-year career with BMW, culminating with his service as President
of
BMW of North America from September 1993 to July 1999. Mr. Doolan has worked
in
the automotive industry for approximately 36 years. Mr. Doolan
currently serves on the Board of Directors for Sonic Automotive,
Inc.
Significant
Employee
William
Davis - VP Project
Management.
Mr.
Davis
is currently Vice President of Project Management for us. Prior to this he
was
Director of Power Plant Project Development for Diamond Energy from 2001
to
2006. Prior to this he was VP of Business Development for Oxbow
Power.
He
has
over 30 years in the energy business and was an energy advisor to the Governor
of California. He has been involved in domestic and international power project
development. Mr. Davis is a registered Architect in three states and graduated
from California State University at San Luis Obispo with a Bachelors of
Architecture and a Masters of Science in Architecture.
FAMILY
RELATIONSHIPS
There
are
no family relationships among our directors, executive officers, or persons
nominated or chosen by the Company to become directors or executive
officers.
INVOLVEMENT
IN CERTAIN LEGAL
PROCEEDINGS
For
the
past five years, no director or officer of the Company has been involved
in any
of the following: (1) any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the
time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (3) being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his or her involvement
in
any type of business, securities or banking activities; or (4) being found
by a
court of competent jurisdiction (in a civil action), the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities
or
commodities law, and the judgment has not been reversed, suspended, or
vacated.
AUDIT
COMMITTEE FINANCIAL
EXPERT
Our
Board
of Directors currently serves as its Audit Committee. Victor Doolan is the
Audit Committiee’s financial expert and he currently serves as the Company’s
Chairman for the Audit and Compensation Committees.
2006
SUMMARY
COMPENSATION TABLE
|
NAME
AND PRINCIPAL POSITION
|
|
YEAR
|
|
SALARY
($)
|
|
BONUS
($)
|
|
STOCK
AWARDS ($)
|
|
OPTIONS
AWARDS ($)
|
|
NON-EQUITY
INCENTIVE PLAN COMPENSATION ($)
|
|
CHANGE
IN PENSION VALUE AND NONQUALIFIED DEFERRED
COMPENSATION EARNINGS ($)
|
|
ALL
OTHER COMPENSATION ($)
|
|
TOTAL
($)
|
|
Arnold
Klann Director and President
|
|
2006
|
|
113,000
|
|
|
|
16,750
(1)
|
|
2,480,000
|
|
|
|
|
|
|
|
2,609,750
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait Director, Secretary and VP
|
|
2006
|
|
78,000
|
|
|
|
16,750
(1)
|
|
1,116,000
|
|
|
|
|
|
|
|
1,210,750
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens Director, Treasurer and VP
|
|
2006
|
|
75,000
|
|
|
|
16,750
(1)
|
|
1,116,000
|
|
|
|
|
|
|
|
1,207,750
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols Director
|
|
2006
|
|
2,500
|
|
|
|
16,750
(1)
|
|
|
|
|
|
|
|
73,000
(2)
|
|
92,250
|
(1)
Reflects value of 5,000 shares of restricted common stock received as
compensation as Director.
(2)
Reflects value of consideration received as compensation for consultant
services.
| |
NUMBER
OF NON-EQUITY INCENTIVE PLAN GRANT
|
ESTIMATED
FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS
APPROVAL
|
|
ESTIMATED
FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS UNITS
GRANTED
|
|
|
THRESHOLD
|
|
|
TARGET
|
|
|
MAXIMUM
|
|
|
THRESHOLD
|
|
|
TARGET
|
|
|
MAXIMUM
|
|
|
NAME
|
DATE
|
DATE
|
|
|
(# |
) |
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
(# |
) |
|
|
(# |
) |
|
|
(# |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
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 STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (#)
|
|
|
ALL
OTHER OPTION AWARDS: NUMBER OF SECURITIES UNDERLYING
OPTIONS(#)
|
|
|
EXERCISE
OR BASE PRICE OF OPTION AWARDS ($ / SH)
|
|
|
CLOSING
PRICE ON GRANT DATE ($ / SH)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
| |
|
OPTION
AWARDS
|
|
|
STOCK
AWARDS
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAME
|
|
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
EXERCISABLE
|
|
|
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
UNEXERCISABLE
|
|
|
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER
OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS
(#)
|
|
OPTION
EXERCISE
PRICE
($)
|
|
OPTION
EXPIRATION
DATE
|
|
|
NUMBER
OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#)
|
|
|
MARKET
VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($)
|
|
|
EQUITY
INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER
RIGHTS
HAVE NOT VESTED (#)
|
|
|
EQUITY
INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES,
UNITS OR
OTHER SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
83,333
|
|
|
|
916,667
|
|
|
|
2.00
|
|
12/14/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
37,500
|
|
|
|
412,500
|
|
|
|
2.00
|
|
12/14/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
37,500
|
|
|
|
412,500
|
|
|
|
2.00
|
|
12/14/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
OPTION EXERCISES AND STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
OPTION
AWARDS
|
|
|
STOCK
AWARDS
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
NUMBER
OF SHARES
|
|
|
VALUE
REALIZED
|
|
|
NUMBER
OF SHARES
|
|
|
VALUE
REALIZED
|
|
| |
|
ACQUIRED
ON EXERCISE
|
|
|
ON
EXERCISE
|
|
|
ACQUIRED
ON VESTING
|
|
|
ON
VESTING
|
|
|
NAME
|
|
|
(#)
|
|
|
($)
|
|
|
|
(#)
|
|
|
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
PENSION BENEFITS TABLE
|
NAME
|
|
PLAN
NAME
|
|
|
NUMBER
OF YEARS
CREDITED
SERVICE
(#)
|
|
|
PRESENT
VALUE
OF
ACCUMULATED
BENEFIT
($)
|
|
|
PAYMENTS
DURING LAST
FISCAL
YEAR
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
NONQUALIFIED DEFERRED COMPENSATION TABLE
|
NAME
|
|
EXECUTIVE
CONTRIBUTION
IN
LAST FISCAL YEAR
($)
|
|
|
REGISTRANT
CONTRIBUTIONS
IN LAST
FISCAL
YEAR
($)
|
|
|
AGGREGATE
EARNINGS
IN
LAST FISCAL YEAR
($)
|
|
|
AGGREGATE
WITHDRAWALS
/
DISTRIBUTIONS
($)
|
|
|
AGGREGATE
BALANCE AT
LAST
FISCAL YEAR-END
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
DIRECTOR COMPENSATION TABLE
|
NAME
|
|
FEES
EARNED OR
PAID
IN CASH
($)
|
|
|
STOCK
AWARDS
($)
|
|
|
OPTION
AWARDS
($)
|
|
|
NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
($)
|
|
|
CHANGE
IN
PENSION
VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)
|
|
|
ALL
OTHER
COMPENSATION
($)
|
|
|
TOTAL
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
16,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
16,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
16,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
2,500
|
|
|
|
16,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,000 |
(1) |
|
|
92,250
|
|
(1)
Reflects value of consideration received as compensation for consultant
services.
2006
ALL
OTHER COMPENSATION TABLE
|
NAME
|
|
YEAR
|
|
|
PERSONAL
BENEFITS
($)
|
|
|
PERQUISITES
AND
OTHER
TAX
REIMBURSEMENTS
($)
|
|
|
INSURANCE
PREMIUMS
($)
|
|
|
COMPANY
CONTRIBUTIONS
TO
RETIREMENT AND
401(K)
PLANS
($)
|
|
|
SEVERANCE
PAYMENTS/
ACCRUALS
($)
|
|
|
CHANGE
IN
CONTROL
PAYMENTS/
ACCRUALS
($)
|
|
|
TOTAL
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
PERQUISITES TABLE
|
NAME
|
|
YEAR
|
|
|
PERSONAL
USE OF
COMPANY
CAR/PARKING
|
|
|
FINANCIAL
PLANNING
LEGAL
FEES
|
|
|
CLUB
DUES
|
|
|
EXECUTIVE
RELOCATION
|
|
|
TOTAL
PERQUISITES AND
OTHER
PERSONAL BENEFITS
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Cuzens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris
Nichols
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
|
NAME
|
|
BENEFIT
|
|
|
BEFORE
CHANGE IN
CONTROL
TERMINATION
W/O
CAUSE OR FOR
GOOD
REASON
|
|
|
AFTER
CHANGE IN
CONTROL
TERMINATION
W/O
CAUSE OR
OR
GOOD REASON
|
|
|
VOLUNTARY
TERMINATION
|
|
|
DEATH
|
|
DISABILITY
|
|
CHANGE
IN
CONTROL
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold
Klann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Necitas
Sumait
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
comp. first 2 months, 50% of comp. next 4 months
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
Effective
March 16, 2007, in connection with Mr. Scott's appointment as the Company's
CFO,
the Company and Mr. Scott entered into an at-will letter Employment Agreement
(attached as Exhibit 10.7 hereto) containing the following material terms:
(i)
initial monthly salary of $7,500, to be raised to $10,000 on the earlier
of
April 30, 2007 or receipt by the Company of a qualified investment financing,
and (ii) standard employee benefits.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
March
1, 2006, we entered into a Technology License agreement with Arkenol, a company
in which our Chairman, Chief Executive Officer and majority stockholder Arnold
Klann, holds a 25.5% interest. Arkenol has its own management and board separate
and apart from us. According to the terms of the agreement, we were granted
an
exclusive, non-transferable, North American license to use and to sub-license
the Arkenol Technology (discussed above in “Description of Business”). As
consideration for the grant of the license, we are required to 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 3% of the gross sales
price
for sales by us or our sublicensees of all products produced from the use
of the
Arkenol Technology (2) and a one time license fee of $40.00 per 1,000 gallons
of
production capacity per plant. According to the terms of the agreement, we
made
a one time exclusivity fee prepayment of $30,000 during the period ended
December 31, 2006.
On
March
1, 2006, we entered into an Asset Transfer and Acquisition Agreement with
ARK
Energy, a company which is fifty percent (50%) owned by the Company's Chairman,
Chief Executive Officer and majority stockholder, Arnold Klann. ARK Energy
has
its own management and board separate and apart from us. 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, we have 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, whichever is earlier. We did not incur the
costs of a third party valuation but instead based our valuation of the assets
acquired by (1) an arms length review of the value assigned by ARK Energy
to the
opportunities based on the actual costs it incurred in developing the project
opportunities and (2) anticipated financial benefits to us.
In
December 2006, we entered into a Promissory Note with its Chairman, Chief
Executive Officer and majority stockholder, Arnold Klann, whereby Mr. Klann
loaned us $90,000 with a flat fee of 10% of the principal, or lower if required
by law, to be repaid upon our achieving certain investor financing milestones.
In addition, on January 5, 2007, we entered into a $25,000 promissory note
with
our Chairman, Chief Executive Officer and majority stockholder. Under the
terms
of the note, we are 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.
On
December 18, 2006, we 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 us.
The
consultant shall also provide us with capital market support through its
network
of portfolio managers, hedge funds, brokers, market-makers, institutions
and
other market support professionals and organizations. The consultant may
also
advise us from time to time, as requested by us, on potential development
and
business relationships that may benefit our financial market positioning.
The
consultant was compensated in the form of 20,000 shares of restricted common
stock.
On
February 13, 2007, we entered into a consulting agreement with a corporate
technology consulting company, E-Info Solutions, LLC, which entity is controlled
by our Chief Financial Officer, Christopher Scott. The consultant shall review,
comment, and implement as requested by us on any information technology rollout.
Under the terms of the agreement consultant received 12,500 restricted shares
of
our common stock at the signing of the agreement and 37,500 shares after
effectiveness of the agreement in equal parts on June 1, 2007, September
1,
2007, and December 1, 2007.
On
March
16, 2007, we obtained a 10% annual interest line of credit in the amount
of
$1,500,000 from our Chairman, Chief Executive Officer and majority stockholder,
Arnold Klann, to provide additional liquidity to us as needed. Under the
terms
of the note, we are to repay any principal balance and interest within 30
days
of receiving qualified investment financing of $5,000,000 or more.
On
July
10, 2007, we and Director Chris Nichols mutually terminated our consulting
agreement dated December 21, 2006. The material terms of this agreement were
payment of 20,000 shares of our restricted common stock for Mr. Nichols to
prepare, review and comment on various presentations, press releases, or
other
public relations documentation as requested by us, and provide us with capital
market support through its network of portfolio managers, hedge funds, brokers,
market- makers, institutions and other market support professionals and
organizations. Under the terms of the agreement, we had granted Mr. Nichols
a
non-exclusive right to deploy our licensed technology on a to be determined
future cellulosic ethanol project. The purpose of the termination of this
agreement is for Mr. Nichols to qualify as an independent member of our Board
of
Directors.
On
July
13, 2007, we issued several convertible notes aggregating a total of $500,000
with eight accredited investors, including $25,000 from our Chief Financial
Officer. Under the terms of the notes, we are required to repay any principal
balance and interest, at 10% per annum within 120 days of the note. The
convertible promissory note is convertible only upon default. The holders
also
received warrants to purchase common stock at $5.00 per share. The warrants
vest
immediately and expire in five years. The total warrants issued pursuant
to this
transaction were 200,000 on a pro-rata basis to investors. The convertible
promissory notes are only convertible into shares of our common stock in
the
event of a default. The conversion price is determined based on one third
of the
average of the last-trade prices of our common stock for the ten trading
days
preceding the default date. On November 7, 2007, we re-paid all of our 10%
convertible promissory notes dated July 13, 2007, to all our private investors,
totaling approximately $516,000, including interest of approximately
$16,000.
SECURITY
OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
As
of
December 18, 2007, our authorized capitalization was 101,000,000 shares of
capital stock, consisting of 100,000,000 shares of common stock, $0.001 par
value per share and 1,000,000 shares of preferred stock, no par value per
share.
As of December 18, 2007, there were 28,061,553 shares of our common stock
outstanding, all of which were fully paid, non-assessable and entitled to
vote.
Each share of our common stock entitles its holder to one vote on each matter
submitted to the stockholders.
The
following table sets forth, as of December 18, 2007, the number of shares
of our
common stock owned by (i) each person who is known by us to own of record
or beneficially five percent (5%) or more of our outstanding shares,
(ii) each of our directors, (iii) each of our executive officers and
(iv) all of our directors and executive officers as a group. Unless
otherwise indicated, each of the persons listed below has sole voting and
investment power with respect to the shares of our common stock beneficially
owned.
Executive
Officers, Directors, and
More than 5% Beneficial Owners
The
address of each owner who is an officer or director is c/o the Company at
31
Musick, Irvine California 92618.
|
Title
of Class
|
Name
of Beneficial
Owner(1)
|
|
Number
of
shares
|
|
|
Percent
of
Class(2)
|
|
|
Common
|
Arnold
Klann, Chairman and Chief Executive Officer
|
|
|
14,191,556
|
|
|
|
49.53 |
% |
|
Common
|
Necitas
Sumait, Senior Vice President and Director
|
|
|
1,472,875
|
|
|
|
5.20 |
% |
|
Common
|
John
Cuzens, Chief Technology Officer and Senior Vice President
|
|
|
1,470,375
|
|
|
|
5.19 |
% |
|
Common
|
Chris
Scott, Chief Financial Officer
|
|
|
98,980
|
|
|
|
*
|
|
|
Common
|
Chris
Nichols, Director
|
|
|
59,000
|
|
|
|
*
|
|
|
Common
|
Victor
Doolan, Director
|
|
|
5,000
|
|
|
|
*
|
|
|
Common
|
Joseph
Emas, Director
|
|
|
5,000
|
|
|
|
*
|
|
|
Common
|
Quercus
Trust
|
|
|
11,111,112
|
|
|
|
33.05 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
All
officers and directors as a group (7 persons)
|
|
|
17,302,786
|
|
|
|
60.51 |
% |
| |
All
officers, directors and 5% holders as a group (8 persons)
|
|
|
28,413,898
|
|
|
|
93.57 |
% |
|
(1)
|
Beneficial
ownership is
determined in accordance with Rule 13d-3(a) of the Exchange Act
and
generally includes voting or investment power with respect to
securities.
|
|
(2)
|
Figures
may not add up due to
rounding of percentages.
|
|
(3)
|
David
Gelbaum and Monica Chavez
Gelbaum are co-trustees of The Quercus Trust. Each
of David Gelbaum and Monica Chavez Gelbaum, acting alone, has
the power to
exercise voting and investment control over the shares of common
stock
owned by the Trust.
|
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 December
18,
2007, the Company has 28,061,553 shares of common stock outstanding, and
no
shares of preferred stock outstanding.
COMMON
STOCK
As
of
December 18, 2007, we had 28,061,553 shares of common stock
outstanding. Holders of our common stock are entitled to one vote for each
share
held of record on all matters submitted to a vote of the stockholders. Subject
to any preferential rights of holders of our preferred stock, holders of
common
stock are entitled to receive a pro rata share of distributions declared
by our
Board of Directors. Our common stock does not provide for preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking
fund provisions with respect to our common stock. All outstanding shares
of our
common stock are fully paid and non-assessable. To the extent that we issue
additional shares of our common stock in the future, the relative interests
of
the then existing stockholders may be diluted.
PREFERRED
STOCK
As
of December 18, 2007, we had no shares of preferred stock outstanding. We
may
issue preferred stock in one or more class or series pursuant to resolution
of
the Board of Directors. The Board of Directors may determine and alter the
rights, preferences, privileges, and restrictions granted to or imposed upon
any
wholly unissued series of preferred stock, and fix the number of shares and
the
designation of any series of preferred stock. The Board of Directors may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any wholly unissued class or series
subsequent to the issue of shares of that class or series. We have no present
plans to issue any shares of preferred stock.
WARRANTS
As
of
December 18, 2007, we had warrants to purchase an aggregate of 7,386,693
shares of our common stock outstanding. The exercise prices for the warrants
range from $2.70 per share to $5.45 per share, with a weighted average exercise
price of approximately per share of $3.02.
OPTIONS
As
of
December 18, 2007, we had options to purchase an aggregate of 1,970,000
shares of our common stock outstanding, with exercise prices of $2.00 per
share,
with a weighted average exercise price per share of $2.00.
REGISTRATION
RIGHTS
We
entered into a registration rights agreement with the investors in the December
Private Placement whereby we are required to file an initial registration
statement on Form SB-2 (or another applicable registration form) with the
SEC in
order to register the resale of the common stock and warrants to purchase
common
stock issued in the December Private Placement. The registration statement
is
required to be filed within 45 days from December 14, 2007. The registration
statement must then be declared effective no later than 150 calendar days
(May
12, 2008) from the initial filing date.
We
also
agreed to register the conversion shares and shares underlying the warrants
issued in connection with our previously issued Convertible Notes. The details
of the registration rights of the Convertible Notes can be found in our
September 30, 2007 10-QSB.
In
the
event we fail to file the initial registration statement within the 45 day
period or, in the event that we fail to have the registration statement declared
effective by the SEC by the dates described above, then we must pay certain
liquidated damages.
ANTI-TAKEOVER
PROVISIONS
Our
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
contain provisions that may make it more difficult for a third party to acquire
or may discourage acquisition bids for us. Our Board of Directors may, without
action of our stockholders, issue authorized but unissued common stock and
preferred stock. The issuance of additional shares to certain persons allied
with our management could have the effect of making it more difficult to
remove
our current management by diluting the stock ownership or voting rights of
persons seeking to cause such removal. The existence of unissued preferred
stock
may enable the Board of Directors, without further action by the stockholders,
to issue such stock to persons friendly to current management or to issue
such
stock with terms that could render more difficult or discourage an attempt
to
obtain control of us, thereby protecting the continuity of our management.
Our
shares of preferred stock could therefore be issued quickly with terms that
could delay, defer, or prevent a change in control of us, or make removal
of
management more difficult.
DISCLOSURE
OF
COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT
LIABILITIES
The
Company's Amended and Restated Bylaws provide for indemnification of directors
and officers against certain liabilities. Officers and directors of the Company
are indemnified generally for any threatened, pending or completed action,
suit
or proceeding, whether civil, criminal, administrative or investigative,
except
an action by or in the right of the corporation, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually
and
reasonably incurred by him in connection with the action, suit or proceeding
if
he acted in good faith and in a manner which he reasonably believed to be
in or
not opposed to the best interests of the corporation, and, with respect to
any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful.
(a)
a
director of the Corporation shall not be personally liable to the Corporation
or
to its shareholders for damages for breach of fiduciary duty as a director
of
the Corporation or to its shareholders for damages otherwise existing for
(i)
any breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) acts revolving
around any unlawful distribution or contribution; or (iv) any transaction
from
which the director directly or indirectly derived any improper personal benefit.
If Nevada Law is hereafter amended to eliminate or limit further liability
of a
director, then, in addition to the elimination and limitation of liability
provided by the foregoing, the liability of each director shall be eliminated
or
limited to the fullest extent permitted under the provisions of Nevada Law
as so
amended. Any repeal or modification of the indemnification provided in these
Articles shall not adversely affect any right or protection of a director
of the
Corporation under these Articles, as in effect immediately prior to such
repeal
or modification, with respect to any liability that would have accrued, but
for
this limitation of liability, prior to such repeal or modification.
(b)
the
Corporation shall indemnify, to the fullest extent permitted by applicable
law
in effect from time to time, any person, and the estate and personal
representative of any such person, against all liability and expense (including,
but not limited to attorney's fees) incurred by reason of the fact that he
is or
was a director or officer of the Corporation, he is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of, or in any similar managerial or fiduciary position
of,
another domestic or foreign corporation or other individual or entity of
an
employee benefit plan. The Corporation shall also indemnify any person who
is
serving or has served the Corporation as a director, officer, employee,
fiduciary, or agent and that person's estate and personal representative
to the
extent and in the manner provided in any bylaw, resolution of the shareholders
or directors, contract, or otherwise, so long as such provision is legally
permissible.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that
in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than
the payment by us of expenses incurred or paid by our directors, officers
or
controlling persons in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person
in
connection with any securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit
to
court of appropriate jurisdiction the question whether such indemnification
by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issues.
The
Selling Stockholders are offering a total of up to 13,488,511 shares of our
common stock. Certain of the Selling Stockholders may be deemed
“underwriters” within the meaning of the Securities Act in connection with the
sale of their Common Stock under this prospectus.
The
column “Shares Owned After the Offering” gives effect to the sale of all the
shares of Common Stock being offered by this prospectus. We agreed to register
for resale shares of Common Stock by the Selling Stockholders listed below.
The
Selling Stockholders may from time to time offer and sell any or all of their
shares that are registered under this prospectus. All expenses incurred with
respect to the registration of the Common Stock will be borne by us, but
we will
not be obligated to pay any underwriting fees, discounts, commissions or
other
expenses incurred by the Selling Stockholders in connection with the sale
of
such shares.
The
following table sets forth information with respect to the maximum number
of
shares of common stock beneficially owned by the Selling Stockholders named
below and as adjusted to give effect to the sale of the shares offered hereby.
The shares beneficially owned have been determined in accordance with rules
promulgated by the SEC, and the information is not necessarily indicative
of
beneficial ownership for any other purpose. The information in the table
below
is current as of the date of this prospectus. All information contained in
the
table below is based upon information provided to us by the Selling Stockholders
and we have not independently verified this information. The Selling
Stockholders are not making any representation that any shares covered by
the
prospectus will be offered for sale. The Selling Stockholders may from time
to
time offer and sell pursuant to this prospectus any or all of the Common
Stock
being registered.
The
Selling Stockholders may, from time to time, offer and sell any or all of
their
shares listed in this table. Because the Selling Stockholders are not obligated
to sell their shares, or they may also acquire publicly traded shares of
our
common stock, or they may not exercise warrants relating to certain shares
offered under this prospectus, we are unable to estimate how many shares
they
may beneficially own after this offering. For presentation of this table,
however, we have estimated the percentage of our common stock beneficially
owned
after the offering based on assumptions that the Selling Stockholders exercise
all warrants for shares included in this offering and sell all of the shares
being offered by this Prospectus.
| |
|
No.
of Shares included
in
|
|
|
Shares
Owned Prior To (1)(2)
and After The Offering
|
|
|
Selling
Stockholder
|
|
Prospectus
|
|
|
Number
|
|
|
Percentage
|
|
|
Quercus
Trust (3)
|
|
|
11,111,112
|
|
|
|
11,111,112
|
|
|
|
29.7 |
% |
|
Aurarian
Capital Partners II, L.P. (4)
|
|
|
1,147,670
|
|
|
|
1,147,670
|
|
|
|
3.1 |
% |
|
Aurarian
Offshore, Ltd. (5)
|
|
|
557,128
|
|
|
|
557,128
|
|
|
|
1.5 |
% |
|
James
G. Speirs (6)
|
|
|
148,148
|
|
|
|
148,148 |
* |
|
|
*
|
|
|
Charles
Schwab Custodian for the James G. Speirs SEP IRA (7)
|
|
|
222,222
|
|
|
|
222,222 |
* |
|
|
*
|
|
|
Merriman
Curhan Ford (8)
|
|
|
23,731
|
|
|
|
23,731 |
* |
|
|
*
|
|
|
Seaside
Capital II, LLC (9)
|
|
|
125,000
|
|
|
|
125,000 |
* |
|
|
*
|
|
|
James
Gavin Speirs Custodian for the Mackensey Speirs IRA (9)
|
|
|
8,000
|
|
|
|
8,000 |
* |
|
|
*
|
|
|
James
Gavin Speirs Custodian for the Megan Speirs IRA (9)
|
|
|
8,000
|
|
|
|
8,000 |
* |
|
|
*
|
|
|
Baxter
Capital Management, LLC (9)
|
|
|
12,500
|
|
|
|
12,500 |
* |
|
|
*
|
|
|
Herbert
C Pohlmann (9)
|
|
|
125,000
|
|
|
|
125,000 |
* |
|
|
*
|
|
__________________
* Indicates
less than 1%
(1) Beneficial
ownership is determined in accordance with Rule 13d-3(a) of the Exchange
Act and
generally includes voting or investment power with respect to
securities.
(2) The
number of shares and percentages prior to and after the offering are the
same.
(3)
Includes 5,555,556 shares of common stock and 5,555,556 warrants to purchase
common stock issued in a private placement in December 2007.
(4)
Includes 464,276 shares of common stock issued upon the conversion of a
convertible note, 673,200 shares issuable upon exercise of warrants to
purchase
common stock issued in connection with a senior secured convertible note
offering in August 2007, and 10,194 shares issued for interest payments
made in
stock thereon.
(5)
Includes 225,379 shares of common stock issued upon the conversion of a
convertible note, 326,800 shares issuable upon exercise of warrants to
purchase
common stock issued in connection with a senior secured convertible note
offering in August 2007, and 4,949 shares issued for interest payments
made in
stock thereon.
(6)
Includes 74,074 shares of common stock and 74,074 shares issuable upon
exercise
of warrants to purchase common stock issued in a private placement in December
2007.
(7)
Includes 111,111 shares of common stock and 111,111 shares issuable upon
exercise of warrants to purchase common stock issued in a private placement
in
December 2007.
(8)
23,731 shares issuable upon exercise of warrants to purchase common stock
issued
as compensation to Merriman Curhan Ford, an NASD Broker-Dealer pursuant
to a
senior secured convertible note offering in August 2007.
(9)
Represents shares issued in a private offering in January
2007.
This
prospectus relates to the resale of up to 13,488,511 shares (i) issued or
(ii)
to be issued upon the exercise of certain outstanding warrants, each held
by
certain Selling Stockholders.
The
Selling Stockholders and any of their respective pledges, donees, assignees
and
other successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility
on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. The Selling Stockholders may use any one or more
of
the following methods when selling shares:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
short
sales after this registration statement becomes
effective;
|
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
|
·
|
through
the writing of options on the
shares;
|
|
|
·
|
a
combination of any such methods of sale;
and
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The Selling Stockholders
will have the sole and absolute discretion not to accept any purchase offer
or
make any sale of shares if they deem the purchase price to be unsatisfactory
at
any particular time.
To
the
extent permitted by law, the Selling Stockholders may also engage in short
sales
against the box after this registration statement becomes effective, puts
and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
The
Selling Stockholders or their respective pledgees, donees, transferees or
other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves
or
their customers. Such broker-dealers may receive compensation in the form
of
discounts, concessions or commissions from the Selling Stockholders and/or
the
purchasers of shares for whom such broker-dealers may act as agents or to
whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers
and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a Selling Stockholder will attempt to
sell
shares of Common Stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price.
The
Selling Stockholders cannot assure that all or any of the shares offered
in this
prospectus will be issued to, or sold by, the Selling Stockholders. The Selling
Stockholders and any brokers, dealers or agents, upon effecting the sale
of any
of the shares offered in this prospectus, may be deemed to be “underwriters” as
that term is defined under the Securities Act or the Exchange Act, or the
rules
and regulations under such acts. In such event, any commissions received
by such
broker-dealers or agents and any profit on the resale of the shares purchased
by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
Discounts,
concessions, commissions and similar selling expenses, if any, attributable
to
the sale of shares will be borne by a Selling Stockholder. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities
are
imposed on that person under the Securities Act .
The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the shares of Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledgee or secured parties
may offer and sell the shares of Common Stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act amending
the
list of Selling Stockholders to include the pledgee, transferee or other
successors in interest as Selling Stockholders under this
prospectus.
The
Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of Common Stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3)
or
other applicable provision of the Securities Act amending the list of Selling
Stockholders to include the pledgee, transferee or other successors in interest
as Selling Stockholders under this prospectus.
We
are
required to pay all fees and expenses incident to the registration of the
shares
of Common Stock. Otherwise, all discounts, commissions or fees incurred in
connection with the sale of our Common Stock offered hereby will be paid
by the
selling stockholders.
Each
of
the Selling Stockholders acquired the securities offered hereby in the ordinary
course of business and have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of Common Stock, nor is
there
an underwriter or coordinating broker acting in connection with a proposed
sale
of shares of Common Stock by any Selling Stockholder. We will file a supplement
to this prospectus if a Selling Stockholder enters into a material arrangement
with a broker-dealer for sale of Common Stock being registered. If the Selling
Stockholders use this prospectus for any sale of the shares of Common Stock,
they will be subject to the prospectus delivery requirements of the Securities
Act.
The
anti-manipulation rules of Regulation M under the Exchange Act, may apply
to
sales of our Common Stock and activities of the Selling Stockholders. The
Selling Stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale.
CHANGES
IN AND
DISAGREEMENTS WITH ACCOUNTANTS
Effective
September 14, 2006, we engaged McKennon, Wilson & Morgan LLP as our new
independent accountants. There have been no disagreements on accounting and
financial disclosures with our accountants.
The
validity of the Common Stock offered by this prospectus has been passed upon
for
us by Scott D. Olson, Esq., Coto de Caza, California. Certain legal
matters with respect to this offering will be passed upon for the Company
by
Seward & Kissel LLP, New York, New York.
Our
financial statements included in this prospectus to the extent and for the
fiscal year ended December 31, 2006 (as indicated in their reports) have
been
audited by McKennon, Wilson & Morgan LLP, Irvine, CA, an independent
registered public accounting firm and are included herein in reliance upon
the
authority as experts in giving said reports.
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
for the shares of Common Stock in this offering. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedule that were filed with the registration statement. For further
information with respect to our Common Stock and us, we refer you to the
registration statement and the exhibits that were filed with the
registration statement. Statements contained in this prospectus about the
contents of any contract or any other document that is filed as an exhibit
to
the registration statement are not necessarily complete, and we refer you
to the
full text of the contract or other document filed as an exhibit to the
registration statement. A copy of the registration statement and the exhibits
that were filed with the registration statement may be inspected without
charge
at the public reference facilities maintained by the SEC, 100 F Street N.E.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon payment of the prescribed fee
or for
free at the SEC’s website, www.sec.gov. Information regarding the operation of
the Public Reference Room may be obtained by calling the SEC at 1(800)
SEC-0330. The SEC maintains a web site that contains reports, proxy and
information statements, and other information regarding registrants that
file
electronically with the SEC. The address of the site is http://www.sec.gov.
We
are subject to the information and periodic reporting requirements of the
Exchange Act and, in accordance with the requirements of the Exchange Act,
file
periodic reports, proxy statements, and other information with the SEC. These
periodic reports, proxy statements, and other information are available for
inspection and copying at the regional offices, public reference facilities
and
web site of the SEC referred to above.
BLUEFIRE
ETHANOL FUELS,INC.
(A
DEVELOPMENT STAGE
COMPANY)
(Formerly
SUCRE AGRICULTURAL
CORP.)
Index
to
Financial Statements:
|
Audited
Financial
Statements:
|
|
F-2
|
Report
of Independent Registered Public Accounting Firm
|
| |
|
|
F-3
|
|
| |
|
|
F-4
|
|
| |
|
|
F-5
|
|
| |
|
|
F-6
|
|
| |
|
|
F-7
|
Notes
to Financial Statements
|
|
Interim
Unaudited Financial
Statements:
|
|
F-19
|
|
| |
|
|
F-20
|
|
| |
|
|
F-20
|
|
| |
|
|
F-22
|
|
| |
|
|
F-23
|
Notes
to Interim Financial Statements
|
Report
of Independent
Registered Public Accounting Firm
Board
of
Directors
BlueFire
Ethanol Fuels, Inc. and Subsidiary
We
have
audited the accompanying consolidated balance sheet of BlueFire Ethanol Fuels,
Inc. (formerly Sucre Agricultural Corp.) and subsidiary, a development-stage
company, (the “Company”) as of December 31, 2006, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for
the period from March 28, 2006 (Inception) to December 31, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of BlueFire Ethanol Fuels,
Inc.
and subsidiary, as of December 31, 2006, and the results of their operations
and
their cash flows for the period from March 28, 2006 (Inception) to
December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
| /s/
McKennon Wilson & Morgan LLP |
| |
|
|
Irvine,
California
|
|
| |
|
|
|
|
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
BALANCE
SHEET
|
ASSETS
|
|
|
|
|
Current
assets-
|
|
$ |
2,760
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
Prepaid
fees to related party (Note 5)
|
|
|
30,000
|
|
|
Total
assets
|
|
$ |
32,760
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
| |
|
|
|
|
|
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 (Note 3)
|
|
|
|
|
| |
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
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; 21,125,764
shares
issued and outstanding
|
|
|
21,126
|
|
|
Additional
paid-in capital
|
|
|
1,382,390
|
|
|
Deficit
accumulated during the development stage
|
|
|
(1,555,497 |
) |
|
Total
stockholders' deficit
|
|
|
(151,981 |
) |
|
Total
liabilities and stockholders' deficit
|
|
$ |
32,760
|
|
See
accompanying notes to consolidated financial statements.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENT OF
OPERATIONS
|
Revenues
|
|
$ |
-
|
|
|
Operating
expenses:
|
|
|
|
|
|
Project
development
|
|
|
466,002
|
|
|
General
and administrative
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,549,197
|
|
| |
|
|
|
|
|
Operating
loss
|
|
|
(1,549,197 |
) |
| |
|
|
|
|
|
Other
income and (expense):
|
|
|
|
|
|
Other
income
|
|
|
2,800
|
|
|
Related
party interest expense
|
|
|
(9,100 |
) |
|
Net
loss
|
|
$ |
(1,555,497 |
) |
|
Basic
and diluted loss per common share
|
|
$ |
(0.08 |
) |
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENT OF
STOCKHOLDERS’ DEFICIT
|
|
| |
|
| |
|
| |
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Deficit
Accumulated During the
Development
|
|
|
|
|
|
Stockholders'
|
|
|
|
|
|
|
|
Capital
|
|
|
Stage
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
Issuance
of founder's share at $0.001 per share (Note
4)
|
|
|
17,000,000
|
|
|
|
17,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
17,000
|
|
|
Common
shares retained by Sucre Agricultural Corp. Stockholders (Note
4)
|
|
|
4,028,264
|
|
|
|
4,028
|
|
|
|
685,972
|
|
|
|
--
|
|
|
|
690,000
|
|
|
Costs
associated with the acquisition of Sucre Agricultural
Corp.
|
|
|
--
|
|
|
|
--
|
|
|
|
(3,550 |
) |
|
|
--
|
|
|
|
(3,550 |
) |
|
Common
shares issued for services in November 2006 at $2.99 per share
(Note 3)
|
|
|
37,500
|
|
|
|
38
|
|
|
|
111,962
|
|
|
|
--
|
|
|
|
112,000
|
|
|
Common
shares issued for services in November 2006 at $3.35 per share
(Note 3)
|
|
|
20,000
|
|
|
|
20
|
|
|
|
66,981
|
|
|
|
--
|
|
|
|
67,001
|
|
|
Common
shares issued for services in December 2006 at $3.65 per share
(Note
3)
|
|
|
20,000
|
|
|
|
20
|
|
|
|
72,980
|
|
|
|
--
|
|
|
|
73,000
|
|
|
Common
shares issued for services in December 2006 at $3.65 per share
(Note
3)
|
|
|
20,000
|
|
|
|
20
|
|
|
|
72,980
|
|
|
|
--
|
|
|
|
73,000
|
|
|
Estimated
value of common shares at $3.99 per share and warrants at $2.90
issuable
for services upon vesting in February 2007
|
|
|
--
|
|
|
|
--
|
|
|
|
160,000
|
|
|
|
--
|
|
|
|
160,000
|
|
|
Stock
based compensation related ot warrants (Note 3)
|
|
|
|
|
|
|
|
|
|
|
100,254
|
|
|
|
|
|
|
|
100,254
|
|
|
Stock
based compensation related to options (Note 4)
|
|
|
--
|
|
|
|
--
|
|
|
|
114,811
|
|
|
|
--
|
|
|
|
114,811
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,555,497 |
) |
|
|
(1,555,497 |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,555,497 |
) |
|
$ |
(151,981 |
) |
See
accompanying notes to consolidated financial statements.
|
BLUEFIRE
ETHANOL FUELS,
INC.
FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENT OF CASH
FLOWS
|
|
| |
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
loss
|
|
$ |
(1,555,497 |
) |
|
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
|
|
|
Stock
based compensation
|
|
|
700,066
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
Prepaid
fees to related party
|
|
|
(30,000 |
) |
|
Accounts
payable
|
|
|
66,949
|
|
|
Accrued
liabilities
|
|
|
17,692
|
|
|
Accrued
interest to related party
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(778,240 |
) |
| |
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Proceeds
from related party notes
|
|
|
91,000
|
|
|
Cash
received in acquisition of Sucre Agricultural Corp.
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
|
|
| |
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
2,760
|
|
|
Cash
and cash equivalents beginning of period
|
|
|
|
|
|
Cash
and cash equivalents end of period
|
|
$ |
|
|
| |
|
|
|
|
|
Supplemental
disclosures of cash flow information Cash paid during the period
for:
|
|
|
|
|
|
Interest
|
|
$ |
|
|
|
Income
taxes
|
|
$ |
|
|
See
accompanying notes to consolidated financial statements.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
1 - ORGANIZATION AND
BUSINESS
BlueFire
Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28,
2006 (“Inception”). BlueFire was established to deploy the commercially ready
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 4,028,264 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.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
MANAGEMENTS'
PLANS
The
Company is a development-stage company which has incurred losses since
inception. Management has funded operations primarily through proceeds received
in connection with the reverse merger, loans from its majority stockholder,
and
the private placement of the Company's common stock in January 2007. In order
for the Company's operations to continue, management will need to generate
revenues from their intended operations sufficient to meet the Company's
anticipated cost structure. The Company may encounter difficulties in
establishing these operations due to the time frame of developing, constructing
and ultimately operating the planned bio-refinery projects.
As
of
December 31, 2006, the Company has a working capital deficit of approximately
$151,981. Subsequent to year end, the Company raised approximately $557,000
through the sale of common stock. The funds are currently being used to fund
the
operations of the Company and are expected to last through March 2007.
Management has estimated that operating expenses for the period from April
2007
to December 2007 will approximate roughly $1,200,000, excluding engineering
costs related to the development of our bio-refinery projects. In February
2007,
the Company was awarded a grant for up to $40 million from the U.S. Department
of Energy's (“DOE”) cellulosic ethanol grant program to develop a solid waste
bio-refinery project at a landfill in Southern California. In March 2007,
the
Company was selected to receive $1,000,000 in funding from the California
Energy
Commission (“CEC”). Under the DOE and CEC programs, the Company may be
reimbursed for project specific costs including salaries, engineering,
development, etc.
In
addition in March 2007, the Company obtained a line of credit in the amount
of
$1,500,000 from its Chairman/Chief Executive Officer and majority stockholder
to
provide additional liquidity to the Company as needed. The Company is in
the
process of reviewing term sheets for proposed equity financings of up to
$5,000,000 to replace the line of credit provided by the Chief Executive
Officer. Management believes its plans will enable the Company to operate
in the
normal course of business until December 31, 2007.
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 before and after the acquisition in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141
“Business Combinations.” The assets and liabilities of Sucre were recorded at
estimated fair value on June 27, 2006, the date of the acquisition. No goodwill
was recorded in connection with the reverse acquisition since Sucre had no
business. The reverse acquisition resulted in a change in the reporting entity
of Sucre, for accounting and reporting purposes. Accordingly, the financial
statements herein reflect the operations of BlueFire from Inception and Sucre
from June 27, 2006, the date of acquisition, through December 31, 2006. The
4,028,264 shares retained by the stockholders of Sucre have been recorded
on the
date of acquisition of June 27, 2006.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
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 an original maturity of three months or less
to
be cash equivalents.
REVENUE
RECOGNITION
The
Company is currently a developmental-stage company. The Company will recognize
revenues from 1) consulting services rendered to potential sub licensees
for
development and construction of cellulose to ethanol projects, 2) sales of
ethanol from its production facilities when (a) persuasive evidence that
an
agreement exists; (b) the products have been delivered; (c) the prices are
fixed
and determinable and not subject to refund or adjustment; and (d) collection
of
the amounts due is reasonably assured.
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 Financial Accounting
Standards Board (“FASB”) Statement No. 109 “Accounting for Income Taxes.” SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal
to the expected future tax benefit/expense of temporary reporting differences
between book and tax accounting methods and any available operating loss
or tax
credit carry forwards.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
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.
The
related party note cannot be evaluated because this is not an arms-length
transaction.
LOSS
PER COMMON
SHARE
The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the
consolidated statement of operations. Basic loss per share is computed as
net
loss divided by the weighted average number of common shares outstanding
for the
period. Diluted EPS reflects the potential dilution that could occur from
common
shares issuable through stock options, warrants, and other convertible
securities. As of December 31, the Company had options and warrants to purchase
and aggregate of 2,190,000 shares of common stock that were excluded from
the
calculation of diluted loss per share as their effects would have been
anti-dilutive.
RISKS
AND
UNCERTAINTIES
The
Company's operations are subject to new innovations in product design and
function. Significant technical changes can have an adverse effect on product
lives. Design and development of new products are important elements to achieve
and maintain profitability in the Company's industry segment.
The
Company may be subject to federal, state and local environmental laws and
regulations. The Company does not anticipate expenditures to comply with
such
laws and does not believe that regulations will have a material impact on
the
Company's financial position, results of operations, or cash flows. 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.
SHARE-BASED
PAYMENTS
The
Company accounts for stock options issued to employees under SFAS No. 123(R),
“Share-Based Payment”. Under SFAS 123(R), share-based compensation cost is
measured at the grant date, based on the estimated fair value of the award,
and
is recognized as expense over the employee's requisite service period. The
Company has no awards with market or performance conditions.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
RECENT
ACCOUNTING
PRONOUNCEMENTS
In
July
2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”) which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. This pronouncement recommends
a recognition threshold and measurement process for recording in the financial
statements uncertain tax positions taken or expected to be taken in the
Company's tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosure requirements for uncertain tax positions. The accounting provisions
of FIN 48 will be effective for the Company beginning January 1, 2007. The
Company is in the process of evaluating the impact, if any, the adoption
of FIN
48 will have on its financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
157 defines fair value, establishes a framework for measuring fair value,
and
expands disclosures about fair value measurements. This statement clarifies
fair
value as permitted under other accounting pronouncements but does not require
any new fair value measurements. However, for some entities, the application
of
this statement will change current practice. The Company will be required
to
adopt SFAS No. 157 as of January 1, 2008 and is currently in the process
of
evaluating the impact, if any, the adoption of SFAS No. 157 will have on
its
financial statements.
NOTE
3 - COMMITMENTS AND
CONTINGENCIES
On
May 1,
2006, the Company began discussions with a certain consultant to negotiate
project and obtain 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 in which a commission was due. However,
the Company has made monthly payments in the amount of $7,500 to the consultant
since July 2006.
On
June
27, 2006, the Company entered into employment agreements with three (3) 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 (4) 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
they
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 near
the
date of grant. As of December 31 2006, the Company recorded the value of
the
common stock issued as general and administrative expenses in the accompanying
statement of operations as the common stock was issued to the individuals
without risk of forfeiture and future performance.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
On
November 21, 2006, the Company entered into an agreement with a consultant.
Under the terms of the agreement, the Company is to receive investor relations
and support services in exchange for the a monthly fee of $7,500, 150,000
shares
of common stock, warrants to purchase 200,000 shares of common stock at $5.00
per share, expiring in five years, and the reimbursement of certain travel
expenses. The common stock and warrants vest in equal amounts on November
21,
2006, February 1, 2007, April 1, 2007 and June 1, 2007. The Company accounts
for
the agreement under the provisions of Emerging Issues Task Force 96-18
“Accounting for Equity Instruments That Are Issued to Other Than Employees
for
Acquiring, or in Conjunction with Selling, Goods or Services.” Whereby the
Company values the common shares and warrants at each reporting period to
determine the amount to be recorded as an expense in the respective period.
As
the common shares and warrants vest, they are valued on reporting date and
an
adjustment will be recorded for the difference between the value already
recorded and the then current value.
On
November 21, 2006 (date of grant), the consultant immediately vested in 37,500
shares of common stock and warrants to purchase 50,000 shares of common stock.
The common shares were valued at $112,000 based upon the closing market price
of
the Company's common stock on the date of grant. The warrants were valued
on the
grant date at $100,254 based on the Black-Scholes option pricing model using
the
following assumptions: volatility of 88%, expected life of five years, risk
free
interest rate of 4.75% and no dividends. The value of the common stock and
warrants was recorded in general and administrative expense in the accompanying
statement of operations.
On
December 31, 2006, the fair value of the unvested common stock issuable under
the contract based on the closing market price of the Company's common stock
was
$3.99 per share. The Company recorded $80,000 of estimated compensation expense
related to the value of common shares that had yet to vest. As of December
31,
2006, the Company estimated the fair value of the unvested warrants issuable
under the contract was $2.90 per share. The warrants were valued on December
31,
2006 based on the Black-Scholes option pricing model using the following
assumptions: volatility of 98%, expected life of five years, risk free interest
rate of 4.82% and no dividends. The Company recorded $80,000 of estimated
compensation expense related to the value of warrants that had yet to
vest.
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
received 20,000 restricted shares of the Company's common stock. The value
of
for each individuals common stock was determined to be approximately $73,000
based on the closing market price of the Company's common stock on the date
of
the agreement and was expensed to general and administrative expenses on
the
accompanying statement of operations. The shares vested immediately, do not
require future performance and are not at risk for forfeiture.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
4 -STOCKHOLDERS'
DEFICIT
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 with a par value of $0.001 per share. At the time of
the
transaction, BlueFire did not have sufficient paid-in capital to reclass
the
additional par value of the common shares to common stock, thus the Company
expensed an additional $7,000. The amounts were recorded as general and
administrative expense on the accompanying statement of operations.
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 stockholders. At the time of the reverse
acquisition, Sucre had $690,000 in cash as reflected in the accompanying
statements of stockholders deficit.
STOCK
OPTION PLAN
On
December 14, 2006, the Company established an incentive and non-statutory
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 “Non-statutory Options” at the discretion of the Board of
Directors. The total number of shares of Stock which may be purchased through
exercise of Options granted under this Plan shall not exceed ten million
(10,000,000) shares, they become exercisable over a period of no longer than
five (5) years and no less than 20% of the shares covered thereby shall become
exercisable annually. As of December 31, 2006, 1,990,000 options have been
issued under the plan and thus 8,010,000 are still issuable.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
On
December 14, 2006, the Company granted options to purchase 1,990,000 shares
of
common stock to various employees and consultants having a $2.00 exercise
price.
The value of the options granted was determined to be approximately $4,900,000
based on the Black-Scholes option pricing model using the following assumptions:
volatility of 99%, expected life of five years, risk free interest rate of
4.73%, market price per share of $3.05, and no dividends. The Company is
currently expensing the value of the common stock over the vesting period
of two
years for the employees. For non-employees the Company is revaluing the fair
market value of the options at each reporting period. As of December 31,
2006,
the value per the Black-Scholes option pricing model was immaterially different
to the initial value calculated.
As
of
December 31, 2006, the Company amortized approximately $112,000 to general
and
administrative expense and $2,500 to project development expense. Related
to
these options, the Company will record future compensation expense of
approximately $2,500,000 and $2,300,000 during the year ending December 31,
2007 and December 31, 2008, respectively. 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
TECHNOLOGY
AGREEMENT WITH ARKENOL,
INC.
On
March
1, 2006, the Company entered into a Technology License agreement with Arkenol,
Inc. (“Arkenol”), which the Company's majority stockholder 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 3% 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.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
ASSET
TRANSFER AGREEMENT WITH ARK
ENERGY, INC.
On
March
1, 2006, the Company entered into an Asset Transfer and Acquisition Agreement
with ARK Energy, Inc. (“ARK Energy”), which is owned (50%) by the Company's CEO
and majority stockholder. 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.
RELATED
PARTY PROMISSORY
NOTE
In
addition, on December 12, 2006 the Company entered into a $90,000 promissory
note with the Company's Chairman, CEO and majority stockholder. Under the
terms
of the note, the Company is to repay any principal balance within 30 days
of
receiving a qualified investment financing and a mandatory 10% interest 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 was paid in full in January
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 of net operating loss carry forwards
of
approximately $346,000 and stock based compensation related to the issuance
of
common stock, options and warrants of approximately $177,000. Both items
are
considered long-term. For federal tax purposes these carry forwards expire
in 20
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
$523,000.
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.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
7 - SUBSEQUENT
EVENTS
ISSUANCE
OF COMMON STOCK RELATED TO
EMPLOYMENT AGREEMENTS
In
January 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 based on the
closing market of the Company's common stock on the date of the
agreement.
On
February 12, 2007, the Company entered into an employment agreement with
a key
employee, and simultaneously entered into a consulting agreement with an
entity
controlled by such employee; both agreements were effective March 16, 2007,
the
employee's start date. Under the terms of the consulting agreement, the employee
will receive a total of 50,000 shares of common stock vesting at the following
periods; 12,500 shares February 12, 2007, 12,500 shares on June 1, September
1,
and December 1, 2007. The value of the common stock due at contract signing
was
determined to be approximately $275,000 based on the closing market price
of the
Company's common stock on the date of the agreement and is being amortized
over
the vesting period.
PRIVATE
OFFERING
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. Costs associated
with
three of these offerings are included in the November 21, 2006 agreement
mentioned in Note 3. In addition, the Company paid $12,500 in cash and issued
6,250 shares of their common stock as a placement fee for one of the
subscription agreements.
RELATED
PARTY PROMISSORY NOTE AND
LINE OF CREDIT
On
January 5, 2007 the Company entered into a $25,000 promissory note with the
Company's Chairman, CEO and majority stockholder. Under the terms of the
note,
the Company is to repay any principal balance within 30 days of receiving
a
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.
In
addition in March 2007, the Company obtained a $1,500,000 line of credit
from
its Chairman/Chief Executive Officer and majority stockholder to provide
additional liquidity to the Company as needed. The line of credit incurs
interest at 10% per annum. The Company is to repay any principal balance
and
interest within 30 days of receiving qualified investment financing of
$5,000,000 or more.
BLUEFIRE
ETHANOL FUELS,
INC.
(FORMERLY
SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
OPTION
TO PURCHASE
LAND
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.
PROFESSIONAL
SERVICES
AGREEMENT
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 Note 5). 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.
DEPARTMENT
OF
ENERGY
In
February 2007, the Company was awarded a grant for up to $40 million from
the
U.S. Department of Energy's (“DOE”) cellulosic ethanol grant program to develop
a solid waste bio-refinery project at a landfill in Southern
California.
CALIFORNIA
ENERGY
COMMISSION
In
March
2007, the Company was selected to receive $1,000,000 in funding from the
California Energy Commission (“CEC”). Under the DOE and CEC programs, the
Company will be reimbursed for project specific costs including salaries,
engineering, development, etc.
NOTE
8 – UNAUDITED SIGNIFICANT
SUBSEQUENT EVENTS
SENIOR
SECURED CONVERTIBLE NOTES
PAYABLE
On
August
21, 2007, the Company issued senior secured convertible notes aggregating
a
total of $2,000,000 with two institutional accredited investors. Under
the terms
of the notes, the Company is to repay any principal balance and interest,
at 8%
per annum, due August 21, 2009. On a quarterly basis, the Company has the
option
to pay interest due in cash or in stock. The senior secured convertible
notes
are secured by substantially all of the Company's assets. The total warrants
issued pursuant to this transaction were 1,000,000 on a pro-rata basis
to
investors. These include class A warrants to purchase 500,000 shares of
common
stock at $5.48 per share and class B warrants to purchase an additional
500,000
shares of common stock at $6.32 per share. The warrants vest immediately
and
expire in three years. The convertible note holders have the option to
convert
the note into shares of the Company's common stock at $4.21 per share at
any
time prior to maturity. If, before maturity, the Company consummates a
Financing
of at least $10,000,000 then the principal and accrued but unpaid interest
of
the senior secured convertible notes shall be automatically converted into
shares of the Company's common stock at $4.21 per share.
The
fair
value of the warrants was approximately $3,500,000 as determined by the
Black-Scholes option pricing model using the following weighted-average
assumptions: volatility of 118%, risk-free interest rate of 4.05%, dividend
yield of 0% and a term of three years. The proceeds were allocated between
the
convertible note payable and the warrants issued to the convertible note
holders
based on their relative fair values and resulted in $728,571 being allocated
to
the senior secured convertible promissory notes and $1,279,429 allocated
to the
warrants. The resulting discount will be amortized over the life of the
notes.
In
accordance with EITF 98-05 “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, as
amended by EITF 00-27, the Company calculated the value of the beneficial
conversion feature to be approximately $3,500,000 of which approximately
$728,000 was allocated to the beneficial conversion feature resulting in
100%
discount to the convertible promissory notes. During the nine months ended
September 30, 2007, the Company amortized approximately $107,000 of the
discount
related to the warrants and beneficial conversion feature to interest
expense.
In
addition, the Company entered into a registration rights agreement with
the
holders of the senior secured convertible notes agreement whereby the Company
is
required to file an initial registration statement on Form SB-2 (or another
applicable registration form) with the Securities and Exchange Commission
in
order to register the resale of the maximum amount of common stock underlying
the secured convertible notes within 120 days of the Exchange Agreement
(December 19, 2007). The registration statement must then be declared effective
no later than 90 calendar days (March 18, 2008) from the initial filing
date.
In
the
event the Company fails to file a registration statement within the 120
day
period, the Company must pay the holder 3% of the face amount as liquidated
damages. In the event that the Company fails to have the registration statement
declared effective by the SEC by the dates described above, or fails to
maintain
on the registration statement the effectiveness of the registration statement
thereafter, then the Company must pay the Holders an amount equal to 2%
of the
aggregate purchase price paid by each Holder, for each month the registration
statement remains uncured. In addition, if the Company does not complete
a
qualified financing within 120 days of the Exchange Agreement (December
19,
2007), the Company must pay the holder an additional 1% of the face amount
as
liquidated damages. Liquidated damages cannot exceed 15% of the face amount
of
the senior secured convertible notes. No accrual has been made to the
accompanying financial statements as management does not believe that such
damages are probable of being incurred.
In
connection with the December Private Placement, we modified the conversion
price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per shares.
The
Company is currently assessing the impact of the transaction on their
consolidated financial statements and expects to record additional interest
expense related to the modifications.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 into 700,922 shares of common
stock,
including accrued interest of $33,333 which we will pay in common
stock
EQUITY
OFFERING
On
December 14, 2007, we consummated an agreement to issue up to 5,740,741
shares
of common stock and warrants to purchase 5,740,741 shares of common stock
for
net proceeds of $14,450,000 (the “December Private Placement”). The warrants
have an exercise price of $2.90 per share and expire five years from the
date of
issuance. The Company is currently assessing the impact of the transaction
on
their consolidated financial statements.
In
addition, the Company entered into a registration rights agreement with
the
investors whereby the Company is required to file an initial registration
statement on Form SB-2 (or another applicable registration form) with the
SEC in
order to register the resale of the above common stock and warrants to
purchase
common stock. The registration statement is required to be filed within
45 days
from December 14, 2007. The registration statement must then be declared
effective no later than 150 calendar days (May 12, 2008) from the initial
filing
date.
In
the
event the Company fails to file its initial registration statement within
the 45
day period or, in the event that the Company fails to have the registration
statement declared effective by the SEC by the dates described above, then
the
Company must pay the investors certain liquidated damages.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
BALANCE
SHEET
(UNAUDITED)
| |
|
|
|
| |
|
|
|
|
ASSETS
(Note 5)
|
|
|
|
| |
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
|
|
|
Prepaid
expenses
|
|
|
|
|
| |
|
|
|
|
|
Total
current assets
|
|
|
|
|
| |
|
|
|
|
|
Prepaid
fees to related party
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
Debt
issuance costs
|
|
|
|
|
| |
|
|
|
|
|
Total
assets
|
|
$ |
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
| |
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$ |
|
|
|
Accrued
liabilities
|
|
|
|
|
|
Accrued
interest
|
|
|
|
|
|
Accrued
interest to related parties
|
|
|
|
|
|
Related
party line of credit
|
|
|
|
|
|
Convertible
notes payable, net
|
|
|
|
|
| |
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
| |
|
|
|
|
|
Senior
secured convertible notes payable, net
|
|
|
|
|
| |
|
|
|
|
|
Total
liabilities
|
|
|
|
|
| |
|
|
|
|
|
Commitments
and contingencies (Note 3)
|
|
|
|
|
| |
|
|
|
|
|
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; 21,603,514
shares
issued and outstanding
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
Deficit
accumulated during the development stage
|
|
|
(8,280,516 |
) |
| |
|
|
|
|
|
Total
stockholders’ equity
|
|
|
|
|
| |
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
|
|
| |
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
(UNAUDITED)
| |
|
For
the
Nine
Months
Ended
|
|
|
From
(Inception)
Through
|
|
|
From
(Inception)
Through
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
development
|
|
|
2,558,459
|
|
|
|
211,756
|
|
|
|
3,024,461
|
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
6,120,900
|
|
|
|
466,516
|
|
|
|
7,670,097
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(6,120,900 |
) |
|
|
(466,516 |
) |
|
|
(7,670,097 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
288
|
|
|
|
2,800
|
|
|
|
3,088
|
|
|
Financing
related charge
|
|
|
(211,660 |
) |
|
|
-
|
|
|
|
(211,660 |
) |
|
Amortization
of debt discount
|
|
|
(338,505 |
) |
|
|
-
|
|
|
|
(338,505 |
) |
|
Interest
expense
|
|
|
(18,682 |
) |
|
|
-
|
|
|
|
(18,682 |
) |
|
Related
party interest expense
|
|
|
(35,560 |
) |
|
|
|
|
|
|
(44,660 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,725,019 |
) |
|
$ |
(463,716 |
) |
|
$ |
(8,280,516 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.31 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
Weighted
average common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT – STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS’ EQUITY
(UNAUDITED)
| |
|
|
|
|
Additional
Paid-in
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Stockholders’
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,125,764
|
|
|
$ |
21,126
|
|
|
$ |
1,382,390
|
|
|
$ |
(1,555,497 |
) |
|
$ |
(151,981 |
) |
|
January
2007, private offering at $2.00 per share to unrelated individuals,
including costs associated with private placement of 6,250 shares
and
$12,500 cash paid
|
|
|
284,750
|
|
|
|
285
|
|
|
|
755,875
|
|
|
|
-
|
|
|
|
756,160
|
|
|
Share
based compensation related to employment agreement in January 2007
$3.99
per share (Note 4)
|
|
|
10,000
|
|
|
|
10
|
|
|
|
39,890
|
|
|
|
-
|
|
|
|
39,900
|
|
|
Common
shares issued for services in February 2007 at$5.92 per share (Note
4)
|
|
|
37,500
|
|
|
|
38
|
|
|
|
138,837
|
|
|
|
-
|
|
|
|
138,875
|
|
|
Adjustment
to record remaining value of warrants at $4.70 per share issued
for services in February 2007 (Note 4)
|
|
|
-
|
|
|
|
-
|
|
|
|
158,118
|
|
|
|
-
|
|
|
|
158,118
|
|
|
Common
shares issued for services in March 2007 at $7.18 per share (Note
4)
|
|
|
37,500
|
|
|
|
37
|
|
|
|
269,213
|
|
|
|
-
|
|
|
|
269,250
|
|
|
Value
of warrants at $6.11 for services vested in March 2007 (Note
4)
|
|
|
-
|
|
|
|
-
|
|
|
|
305,307
|
|
|
|
-
|
|
|
|
305,307
|
|
|
Value
of warrants at $5.40 for services vested in June2007 (Note
4)
|
|
|
-
|
|
|
|
-
|
|
|
|
269,839
|
|
|
|
-
|
|
|
|
269,839
|
|
|
Common
shares issued for services in June 2007 at $6.25 per share (Note
4)
|
|
|
37,500
|
|
|
|
37
|
|
|
|
234,338
|
|
|
|
-
|
|
|
|
234,375
|
|
|
Share
based compensation related to employment agreement in February
2007 $5.52 per share (Note 4)
|
|
|
37,500
|
|
|
|
37
|
|
|
|
227,883
|
|
|
|
-
|
|
|
|
227,920
|
|
|
Common
Shares issued for services in August 2007 at $5.07 per
share
|
|
|
13,000
|
|
|
|
13
|
|
|
|
65,901
|
|
|
|
-
|
|
|
|
65,914
|
|
|
Share
based compensation related to options (Note 4)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,995,615
|
|
|
|
-
|
|
|
|
1,995,615
|
|
|
Value
of warrants in August, 2007 for services at $4.18
|
|
|
-
|
|
|
|
-
|
|
|
|
107,459
|
|
|
|
-
|
|
|
|
107,459
|
|
|
Relative
fair value of warrants associated with convertible note
agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
332,255
|
|
|
|
-
|
|
|
|
332,255
|
|
|
Share
issued under Stock option agreement at $2.00 per
share
|
|
|
20,000
|
|
|
|
20
|
|
|
|
39,980
|
|
|
|
-
|
|
|
|
40,000
|
|
|
Allocation
of warrant and beneficial conversion feature on senior secured
convertible
notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,725,019 |
) |
|
|
(6,725,019 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(8,280,516 |
) |
|
$ |
|
|
See
accompanying notes to consolidated financial statements.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT – STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
(UNAUDITED)
| |
|
Nine
Months
Ended
|
|
|
From
(Inception)
Through
|
|
|
From
(Inception)
Through
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,725,019 |
) |
|
$ |
(463,716 |
) |
|
$ |
(8,280,516 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders'
shares
|
|
|
-
|
|
|
|
17,000
|
|
|
|
17,000
|
|
|
Costs
associated with purchase of Sucre Agricultural Corp
|
|
|
-
|
|
|
|
(3,550 |
) |
|
|
(3,550 |
) |
|
Amortization
of debt discount
|
|
|
338,504
|
|
|
|
-
|
|
|
|
338,504
|
|
|
Discount
on sale of stock associated with private placement
|
|
|
211,660
|
|
|
|
-
|
|
|
|
211,660
|
|
|
Share-based
compensation
|
|
|
3,705,114
|
|
|
|
-
|
|
|
|
4,405,180
|
|
|
Depreciation
|
|
|
260
|
|
|
|
-
|
|
|
|
260
|
|
|
Changes
in operating assets and liabilities:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Prepaid
fees to related party
|
|
|
-
|
|
|
|
(30,000 |
) |
|
|
(30,000 |
) |
|
Prepaid
expenses and other current assets
|
|
|
(34,479 |
) |
|
|
-
|
|
|
|
(34,479 |
) |
|
Debt
placement costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Accounts
payable
|
|
|
267,023
|
|
|
|
63,940
|
|
|
|
333,970
|
|
|
Accrued
liabilities
|
|
|
86,762
|
|
|
|
21,000
|
|
|
|
104,456
|
|
|
Accrued
interest to related party
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(2,123,574 |
) |
|
|
(395,326 |
) |
|
|
(2,901,814 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(2,471 |
) |
|
|
|
|
|
|
(2,471 |
) |
| |
|
|
(2,471 |
) |
|
|
-
|
|
|
|
(2,471 |
) |
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received in acquisition of Sucre Agricultural Corp.
|
|
|
-
|
|
|
|
690,000
|
|
|
|
690,000
|
|
|
Proceeds
from sale of stock through private placement
|
|
|
544,500
|
|
|
|
-
|
|
|
|
544,500
|
|
|
Proceeds
from exercise of stock options
|
|
|
40,000
|
|
|
|
-
|
|
|
|
40,000
|
|
|
Net
proceeds from convertible notes payable
|
|
|
2,400,000
|
|
|
|
-
|
|
|
|
2,400,000
|
|
|
Proceeds
from related party notes
|
|
|
25,000
|
|
|
|
-
|
|
|
|
116,000
|
|
|
Proceeds
from related party line of credit
|
|
|
592,000
|
|
|
|
1,000
|
|
|
|
592,000
|
|
|
Repayment
of related party notes and line of credit
|
|
|
(124,000 |
) |
|
|
|
|
|
|
(124,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
1,351,455
|
|
|
|
295,674
|
|
|
|
1,354,215
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information Cash paid during the period
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income
taxes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See
accompanying notes to consolidated financial statements.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
1 - ORGANIZATION AND
BUSINESS
BlueFire
Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28,
2006 (“Inception”). BlueFire was established to deploy the commercially ready
and patented process for the conversion of cellulosic waste materials to
ethanol
(“Arkenol Technology”) under a technology license agreement with Arkenol, Inc.
(“Arkenol”). BlueFire's use of the Arkenol Technology positions it as a
cellulose-to-ethanol company with demonstrated production of ethanol from
urban
trash (post-sorted “MSW”), rice and wheat straws, wood waste and other
agricultural residues. The Company's goal is to develop and operate high-value
carbohydrate-based transportation fuel production facilities in North America,
and to provide professional services to such facilities worldwide. These
“biorefineries” will convert widely available, inexpensive, organic materials
such as agricultural residues, high-content biomass crops, wood residues,
and
cellulose from MSW into ethanol.
On
June
27, 2006, BlueFire completed a reverse acquisition of Sucre Agricultural
Corp.
(“Sucre”), a Delaware corporation. At the time of acquisition, Sucre had no
operations, revenues or liabilities. The only asset possessed by Sucre was
$690,000 in cash which was included in the acquisition. Sucre was considered
a
blank-check company prior to the acquisition. In connection with the acquisition
Sucre issued BlueFire 17,000,000 shares of common stock, approximately 85%
of
the outstanding common stock of Sucre, for all the issued and outstanding
BlueFire common stock. The Sucre stockholders retained 4,028,264 shares of
Sucre
common stock.
NOTE
2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Managements'
Plans
The
Company is a development-stage company which has incurred losses since
inception. Management has funded operations primarily through proceeds received
in connection with the reverse merger, loans from its majority stockholder,
the
private placement of the Company's common stock in January 2007, and the
issuance of convertible notes with warrants in July and in August 2007. In
order
for the Company's operations to continue, management will need to generate
revenues from their intended operations sufficient to meet the Company's
anticipated cost structure. The Company may encounter difficulties in
establishing these operations due to the time frame of developing, constructing
and ultimately operating the planned bio-refinery projects.
As
of
September 30, 2007, the Company has a working capital deficit of approximately
$57,752. In July and August 2007, the Company obtained $500,000 and $2,000,000
respectively, through the issuance of convertible promissory notes with
warrants. In addition, the Company raised gross proceeds in December 2007
of
$14,500,000 through the sale of common stock. The proceeds received are
expected to be used in operations, and in funding plant design and development
costs. Management has estimated that operating expenses for the period
from
October 2007 to December 2007 will approximate roughly $400,000, excluding
engineering costs related to the development of bio-refinery projects.
Although
the cost of construction is not readily determinable, the Company estimates
the
cost to be approximately $30 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.
In
February 2007, the Company was awarded a grant for up to $40 million from
the
U.S. Department of Energy's (“DOE”) cellulosic ethanol grant program to develop
a solid waste bio-refinery project at a landfill in Southern California,
see
Note 7 for additional information. In March 2007, the Company was selected
to
receive a grant of approximately $1,000,000 in funding from the California
Energy Commission (“CEC”). Under the DOE and CEC programs, the Company may be
reimbursed for project specific costs including salaries, engineering,
development, etc. However, the final provisions of the contracts have not
been
determined.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
The
Company is in the process of reviewing terms for proposed financings to replace
the line of credit provided by the Chief Executive Officer, repay the
convertible promissory notes, and to fund the construction of their first
plant
in Lancaster, California. Management believes its plans will enable the Company
to operate in the normal course of business until March 31, 2008.
BASIS
OF
PRESENTATION
The
accompanying unaudited interim financial statements have been prepared by
the
Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission. Certain information and disclosures normally included
in the annual financial statements prepared in accordance with the accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of
management, all adjustments and disclosures necessary for a fair presentation
of
these financial statements have been included. Such adjustments consist of
normal recurring adjustments. These interim financials statements should
be read
in conjunction with the audited financial statements of the Company for the
period ended December 31, 2006.
The
results of operations for the nine-months ended September 30, 2007, are not
necessarily indicative of the results that may be expected for the full
year.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from
those
estimates.
REVENUE
RECOGNITION
The
Company is currently a developmental-stage company. The Company will recognize
revenues from 1) consulting services rendered to potential sub licensees
for
development and construction of cellulose to ethanol projects, 2) sales of
ethanol from its production facilities when (a) persuasive evidence that
an
agreement exists; (b) the products have been delivered; (c) the prices are
fixed
and determinable and not subject to refund or adjustment; and (d) collection
of
the amounts due is reasonably assured.
PROJECT
DEVELOPMENT
Project
development costs are either expensed or capitalized. The costs of materials
and
equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be classified as property and equipment and depreciated
over their estimated useful lives. To date, project development costs include
the research and development expenses related to the Company's future
cellulose-to-ethanol production facilities. During the nine months ended
September 30, 2007, the Company expensed all costs related to the facility
development.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
INCOME
TAXES
The
Company accounts for income taxes in accordance with Financial Accounting
Standards Board (“FASB”) Statement No. 109 “Accounting for Income Taxes.” SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal
to the expected future tax benefit/expense of temporary reporting differences
between book and tax accounting methods and any available operating loss
or tax
credit carry forwards.
FAIR
VALUE OF FINANCIAL
INSTRUMENTS
The
financial instruments consist of cash, cash equivalents and accounts payable.
The related party note and line of credit cannot be evaluated because this
is
not an arms-length transaction.
LOSS
PER COMMON
SHARE
The
Company presents basic loss per share (“EPS”) and diluted EPS on the face of the
consolidated statement of operations. Basic loss per share is computed as
net
loss divided by the weighted average number of common shares outstanding
for the
period. Diluted EPS reflects the potential dilution that could occur from
common
shares issuable through stock options, warrants, and other convertible
securities. As of September 30, 2007, the Company had 1,970,000 options,
1,423,731 warrants and 475,060 conversion shares from senior secured convertible
notes to purchase an aggregate of 3,868,791 shares of common stock that were
excluded from the calculation of diluted loss per share as their effects
would
have been anti-dilutive. There were no dilutive securities outstanding as
of
September 30, 2006.
CONCENTRATIONS
OF CREDIT
RISK
The
Company, at times, maintains cash balances at certain financial institutions
in
excess of amounts insured by federal agencies.
DEBT
ISSUANCE
COSTS
Debt
issuance costs represent costs incurred related to the Company's senior secured
convertible note payable. These costs are being amortized over the term of
the
note using the effective interest method.
SHARE-BASED
PAYMENTS
The
Company accounts for stock options issued to employees and consultants under
SFAS No. 123(R), “Share-Based Payment”. Under SFAS 123(R), share-based
compensation cost to employees is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the
employee's requisite service period. Share based compensation cost to
consultants is measured on a quarterly basis using the Black-Scholes option
model. The Company has no awards with market or performance
conditions.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
The
Company measures compensation expense for its non-employee stock-based
compensation under the FASB Emerging Issues Task Force (“EITF”) Issue No. 96-18
“Accounting for Equity Instruments that are Issued to Other Than Employees
for
Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).
The fair value of the option issued or committed to be issued is used to
measure
the transaction, as this is more reliable than the fair value of the services
received. The fair value is measured at the value of the Company's common
stock
on the date that the commitment for performance by the counterparty has been
reached or the counterparty's performance is complete. The fair value of
the
equity instrument is charged directly to stock-based compensation expense
and
credited to additional paid-in capital.
NOTE
3 - COMMITMENTS AND
CONTINGENCIES
On
July
7, 2007, the Company entered into an agreement with two Directors to serve
on
the Company's Board of Directors. Under the terms of the agreement the
individuals will receive annual compensation in the amount of $5,000 and
a
one-time grant of 5,000 shares of the Company's common stock. The common
shares
vest immediately. In addition, the Company renewed three of its existing
Directors appointment, issued 1,000 shares to each and paid $5,000 to the
one
outside member. Pursuant to the Board of Director agreements, the Company's
“in-house” Board of Directors members (CEO and Vice-President) waived their
annual cash compensation of $5,000. The value of the common stock granted
was
determined to be approximately $66,000 based on the fair market value of
the
Company's common stock of $5.07 on the date of the grant. As of September
30,
2007, the Company expensed all of the costs approximating $81,000 to general
and
administrative expenses.
OPTION
TO PURCHASE
LAND
On
February 9, 2007, the Company paid a onetime 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 August 21, 2007, the Company made an additional
deposit of $1,500 to open escrow. Subsequent to September 30, 2007, the Company
exercised the option to purchase the land, see Note 7.
PROFESSIONAL
SERVICES
AGREEMENTS
On
February 26, 2007, the Company entered into an agreement with an engineering
firm, whereby the engineering firm will prepare a design basis for a facility
comprising a capacity of 2.5 to 9 million gallons per year as specified by
the
Company, incorporating cellulosic ethanol process technology and the Arkenol
Technology. As of September 30, 2007, the Company has incurred total costs
of
approximately $613,000 of which all were expensed to project development
costs
in the statement of operations.
NOTE
4 -STOCKHOLDERS'
EQUITY
STOCK
OPTION PLAN
On
December 14, 2006, the Company's Board of Directors and stockholders approved
the Company's 2006 Incentive and Non-statutory Stock Option Plan authorizing
the
issuance of options to purchase 10,000,000 shares of the Company's common
stock.
See Note 7 for discussion of subsequent event related to the modification
of the
Company's 2006 Incentive and Non-statutory Stock Option Plan. In addition
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 Company accounts for the stock options to consultants under the provisions
of EITF 96-18. Transactions involving the plan are summarized as
follows:
|
Option
Shares:
|
|
|
|
| |
|
|
|
|
|
|
|
1,990,000
|
|
|
Exercised
during the period
|
|
|
(20,000 |
) |
|
|
|
|
1,970,000
|
|
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
During
the nine months ended September 30, 2007, the Company amortized stock based
compensation, including consultants, of approximately $1,119,000 to general
and
administrative expenses and $876,000 to project development expenses. Related
to
these options, the Company will record future employee compensation expense
of
approximately $570,000 and $2,300,000 during the years ending December 31,
2007
and December 31, 2008, respectively.
In
accordance with EITF 96-18, as of September 30, 2007, the options awarded
to
consultants we re-valued using the Black-Scholes option pricing model with
the
following assumptions: volatility of 120%, expected life of four years, risk
free interest rate of 3.97% and no dividends.
Private
Offering
On
January 5, 2007, the Company completed a private offering of its stock, and
entered into subscription agreements with four accredited investors. In this
offering, the Company sold an aggregate of 278,500 shares of the Company's
common stock at a price of $2.00 per share for total proceeds of $557,000.
The
shares of common stock were offered and sold to the investors in private
placement transactions made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933. In addition, the
Company paid $12,500 in cash and issued 6,250 shares of their common stock
as a
finder's fee. The common stock was sold at a significant discount to the
quoted
market price of the Company's common stock. Thus, the Company calculated
the
excess discount associated with the sale of their stock at approximate $0.76
per
share. The Company expensed approximately $211,000 to the accompanying statement
of operations during the nine months ended September 30, 2007.
ISSUANCE
OF COMMON STOCK RELATED TO
EMPLOYMENT AGREEMENTS
In
January 2007, the Company issued 10,000 shares of common stock to an employee
in
connection with an employment agreement. The shares were valued on the initial
date of employment at $40,000 based on the closing market of the Company's
common stock on that date. The Company expensed the value of the common stock
within project development on the accompanying statement of operations during
the nine months ended September 30, 2007.
On
February 12, 2007, the Company entered into an employment agreement with
a key
employee, and simultaneously entered into a consulting agreement with an
entity
controlled by such employee; both agreements were effective March 16, 2007.
Under the terms of the consulting agreement, the consulting entity received
50,000 restricted shares of the Company's common stock. The common stock
was
valued at approximately $276,000 based on the closing market price of the
Company's common stock on the date of the agreement. The shares vest in equal
quarterly installments on February 12, 2007, June 1, September 1, and December
1, 2007. The Company is amortizing the fair value of the common stock over
the
vesting period. During the nine months ended September 30, 2007, the Company
recorded approximately $24,000 in project development and $204,000 within
general and administrative expenses as compensation expense on the accompanying
statement of operations.
PRIVATE
PLACEMENT
AGREEMENTS
During
the nine months ending September 30, 2007, the Company has entered into various
placement agent agreements, whereby payments are only ultimately due if capital
is raised. The debt issuance fees discussed below were paid in connection
with
one of these agreements. As of September 30, 2007, no amounts are due under
the
agreements.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
INVESTOR
RELATIONS
AGREEMENT
On
November 21, 2006, the Company entered into an agreement with a consultant.
Under the terms of the agreement, the Company is to receive investor relations
and support services in exchange for a monthly fee of $7,500, 150,000 shares
of
common stock, warrants to purchase 200,000 shares of common stock at $5.00
per
share, expiring in five years, and the reimbursement of certain travel
expenses.
The common stock and warrants vested in equal amounts on November 21, 2006,
February 1, 2007, April 1, 2007 and June 1, 2007. The Company accounts
for the
agreement under the provisions of EITF 96-18. The Company revalued the
shares on
June 1, 2007, vesting date, and recorded an additional adjustment of $234,375.
On June 1, 2007 the warrants were also revalued at $5.40 per share based
on the
Black-Scholes option pricing method using the following assumptions: volatility
of 129%, expected life of four and a half years, risk free interest rate
of
4.97% and no dividends. During the nine months ended September 30, 2007,
total
compensation expense related to the common stock and warrants was $504,214
and
$1,375,957 respectively, which is recorded within operating expenses on
the
accompanying consolidated statement of operations.
NOTE
5 -CONVERTIBLE NOTES
PAYABLE
CONVERTIBLE
NOTES
PAYABLE
On
July
13, 2007, the Company issued several convertible notes aggregating a total
of
$500,000 with seven accredited investors including $25,000 from the Company's
Chief Financial Officer. Under the terms of the notes, the Company is to
repay
any principal balance and interest, at 10% per annum within 120 days of
the
note. The holders also receive warrants to purchase common stock at $5.00
per
share. The warrants vest immediately and expire in five years. The total
warrants issued pursuant to this transaction were 200,000 on a pro-rata
basis to
investors. The convertible promissory notes are only convertible into shares
of
the Company's common stock in the event of a default. The conversion price
is
determined based on one third of the average of the last-trade prices of
the
Company's common stock for the ten trading days preceding the default date.
Subsequent to September 30, 2007, the Company repaid the convertible promissory
notes, see Note 7.
The
fair
value of the warrants was $990,367 as determined by the Black-Scholes option
pricing model using the following weighted-average
assumptions: volatility of 113%, risk-free interest rate of 4.94%,
dividend yield of 0%, and a term of five years.
The
proceeds were allocated between the convertible notes payable and the warrants
issued to the convertible note holders based on their relative fair values
and
resulted in $167,745 being allocated to the convertible notes and $332,255
allocated to the warrants. The amount allocated to the warrants resulted
in a
discount to the convertible notes. The Company is amortizing the discount
over
the term of the convertible notes. During the nine months ended September
30,
2007, the Company amortized approximately $220,000 of the discount to interest
expense.
In
accordance with EITF 98-05 “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”,
the Company calculated the value of the beneficial conversion feature to
be
approximately $332,000 of which $167,744 was allocated to the convertible
notes.
However, since the convertible notes are only convertible upon a contingent
event, the value will not be recorded until such event is triggered. Subsequent
to September 30, 2007, all principal and accrued interest was returned to
the
investors, see Note 7.
SENIOR
SECURED CONVERTIBLE NOTES
PAYABLE
On
August
21, 2007, the Company issued senior secured convertible notes aggregating
a
total of $2,000,000 with two institutional accredited investors. Under the
terms
of the notes, the Company is to repay any principal balance and interest,
at 8%
per annum, due August 21, 2009. On a quarterly basis, the Company has the
option
to pay interest due in cash or in stock. The senior secured convertible notes
are secured by substantially all of the Company's assets. The total warrants
issued pursuant to this transaction were 1,000,000 on a pro-rata basis to
investors. These include class A warrants to purchase 500,000 shares of common
stock at $5.48 per share and class B warrants to purchase an additional 500,000
shares of common stock at $6.32 per share. The warrants vest immediately
and
expire in three years. The convertible note holders have the option to convert
the note into shares of the Company's common stock at $4.21 per share at
any
time prior to maturity. If, before maturity, the Company consummates a Financing
of at least $10,000,000 then the principal and accrued but unpaid interest
of
the senior secured convertible notes shall be automatically converted into
shares of the Company's common stock at $4.21 per share.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
The
fair
value of the warrants was approximately $3,500,000 as determined by the
Black-Scholes option pricing model using the following weighted-average
assumptions: volatility of 118%, risk-free interest rate of 4.05%, dividend
yield of 0% and a term of three years. The proceeds were allocated between
the
convertible note payable and the warrants issued to the convertible note
holders
based on their relative fair values and resulted in $728,571 being allocated
to
the senior secured convertible promissory notes and $1,279,429 allocated
to the
warrants. The resulting discount will be amortized over the life of the
notes.
In
accordance with EITF 98-05 “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, as
amended by EITF 00-27, the Company calculated the value of the beneficial
conversion feature to be approximately $3,500,000 of which approximately
$728,000 was allocated to the beneficial conversion feature resulting in
100%
discount to the convertible promissory notes. During the nine months ended
September 30, 2007, the Company amortized approximately $107,000 of the discount
related to the warrants and beneficial conversion feature to interest
expense.
In
addition, the Company entered into a registration rights agreement with the
holders of the senior secured convertible notes agreement whereby the Company
is
required to file an initial registration statement on Form SB-2 (or another
applicable registration form) with the Securities and Exchange Commission
in
order to register the resale of the maximum amount of common stock underlying
the secured convertible notes within 120 days of the Exchange Agreement
(December 19, 2007). The registration statement must then be declared effective
no later than 90 calendar days (March 18, 2008) from the initial filing
date.
In
the
event the Company fails to file a registration statement within the 120 day
period, the Company must pay the holder 3% of the face amount as liquidated
damages. In the event that the Company fails to have the registration statement
declared effective by the SEC by the dates described above, or fails to maintain
on the registration statement the effectiveness of the registration statement
thereafter, then the Company must pay the Holders an amount equal to 2% of
the
aggregate purchase price paid by each Holder, for each month the registration
statement remains uncured. In addition, if the Company does not complete
a
qualified financing within 120 days of the Exchange Agreement (December 19,
2007), the Company must pay the holder an additional 1% of the face amount
as
liquidated damages. Liquidated damages cannot exceed 15% of the face amount
of
the senior secured convertible notes. No accrual has been made to the
accompanying financial statements as management does not believe that such
damages are probable of being incurred. See Note 7 for discussion of subsequent
events.
DEBT
ISSUANCE
COSTS
Debt
issuance fees and expenses of approximately $207,000 have been incurred in
connection with the senior secured convertible note. These fees consist of
a
cash payment of $100,000 and the issuance of warrants to purchase 23,731
shares
of common stock. The warrants have an exercise price of $5.45, vest immediately
and expire in five years. The warrants were valued at approximately $107,000
as
determined by the Black-Scholes option pricing model using the following
weighted-average assumptions: volatility of 118%, risk-free interest rate
of
4.05%, dividend yield of 0% and a term of five years. These costs are being
deferred and amortized over the term of the note. During the nine months
ended
September 30, 2007, the Company amortized approximately $11,000 of the debt
issuance costs to interest expense.
BLUEFIRE
ETHANOL FUELS, INC. AND
SUBSIDIARY
(A
DEVELOPMENT-STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
6 -RELATED PARTY
TRANSACTION
RELATED
PARTY LINE OF
CREDIT
In
March
2007, the Company obtained a line of credit in the amount of $1,500,000 from
its
Chairman/Chief Executive Officer and majority stockholder to provide additional
liquidity to the Company as needed. Under the terms of the note, the Company
is
to repay any principal balance and interest, at 10% per annum, within 30
days of
receiving qualified investment financing of $5,000,000 or more. As of September
30, 2007, the balance of the outstanding line of credit was $617,000 which
included accrued interest of approximately $25,000. In addition, as of September
30, 2007 $907,000 was available on the line of credit.
NOTE
7 -SUBSEQUENT
EVENTS
AMENDED
AND RESTATED 2006 INCENTIVE
AND NON-STATUTORY STOCK OPTION PLAN
On
October 16, 2007, the Board of Directors reviewed the Corporation's 2006
Incentive and Non-statutory Stock Option Plan. As such, it determined that
the
plan was to be used as a comprehensive equity incentive program for which
the
Board of Directors serves as the plan administrator; and therefore added
the
ability to grant restricted stock awards under the Plan.
Under
the
Amended and Restated Plan, an eligible person in the Corporation's service
may
acquire a proprietary interest in the Corporation in the form of shares or
an
option to purchase shares of the Corporation's common stock. The amendment
includes certain previously granted restricted stock awards as having been
issued under the Amended and Restated Plan.
PAYMENT
OF CONVERTIBLE PROMISSORY
NOTE
On
November 7, 2007, the Company re-paid all of its 10% convertible promissory
notes issued July 13, 2007 to all its private investors totaling approximately
$516,000, including interest of approximately $16,000.
EXERCISE
OF LAND
OPTION
On
November 9, 2007, the Company issued a check in the amount of $96,851, towards
the purchase of the Lancaster land totaling a purchase price of approximately
$103,000.
DEPARTMENT
OF ENERGY AWARD
1
On
or
around October 4, 2007, the Company finalized Award 1 for a total approved
budget of just under $10 million with the DOE. This award is a 60%/40% cost
share, whereby 40% of approve costs may be reimbursed by the Department of
Energy pursuant to the total $40 million award announced in February
2007.
EQUITY
OFFERING
On
December 14, 2007, we consummated an agreement to issue up to 5,740,741 shares
of common stock and warrants to purchase 5,740,741 shares of common stock
for
net proceeds of $14,450,000 (the “December Private Placement”). The warrants
have an exercise price of $2.90 per share and expire five years from the
date of
issuance. The Company is currently assessing the impact of the transaction
on
their consolidated financial statements.
In
addition, the Company entered into a registration rights agreement with
the
investors whereby the Company is required to file an initial registration
statement on Form SB-2 (or another applicable registration form) with the
SEC in
order to register the resale of the above common stock and warrants to
purchase
common stock. The registration statement is required to be filed within
45 days
from December 14, 2007. The registration statement must then be declared
effective no later than 150 calendar days (May 12, 2008) from the initial
filing
date.
In
the
event the Company fails to file its initial registration statement within
the 45
day period or, in the event that the Company fails to have the registration
statement declared effective by the SEC by the dates described above, then
the
Company must pay the investors certain liquidated damages.
MODIFICATION
AND CONVERSION OF SENIOR
SECURED CONVERTIBLE NOTES PAYABLE
In
connection with the December Private Placement, we modified the conversion
price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per
share. The Company is currently assessing the impact of the transaction on
their consolidated financial statements. The Company expects to record
additional interest expense related to the modifications.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 and accrued interest of $33,333
into
700,922 shares of common stock.
BlueFire
Ethanol Fuels,
Inc.
13,488,511
Shares
__________________________
PROSPECTUS
__________________________
PART
II
INFORMATION
NOT REQUIRED IN
PROSPECTUS
Item
24. Indemnification of Directors
and Officers.
The
Company's Amended and Restated Bylaws provide for indemnification of directors
and officers against certain liabilities. Officers and directors of the Company
are indemnified generally for any threatened, pending or completed action,
suit
or proceeding, whether civil, criminal, administrative or investigative,
except
an action by or in the right of the corporation, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually
and
reasonably incurred by him in connection with the action, suit or proceeding
if
he acted in good faith and in a manner which he reasonably believed to be
in or
not opposed to the best interests of the corporation, and, with respect to
any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful.
(a)
a
director of the Corporation shall not be personally liable to the Corporation
or
to its shareholders for damages for breach of fiduciary duty as a director
of
the Corporation or to its shareholders for damages otherwise existing for
(i)
any breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) acts revolving
around any unlawful distribution or contribution; or (iv) any transaction
from
which the director directly or indirectly derived any improper personal benefit.
If Nevada Law is hereafter amended to eliminate or limit further liability
of a
director, then, in addition to the elimination and limitation of liability
provided by the foregoing, the liability of each director shall be eliminated
or
limited to the fullest extent permitted under the provisions of Nevada Law
as so
amended. Any repeal or modification of the indemnification provided in these
Articles shall not adversely affect any right or protection of a director
of the
Corporation under these Articles, as in effect immediately prior to such
repeal
or modification, with respect to any liability that would have accrued, but
for
this limitation of liability, prior to such repeal or modification.
(b)
the
Corporation shall indemnify, to the fullest extent permitted by applicable
law
in effect from time to time, any person, and the estate and personal
representative of any such person, against all liability and expense (including,
but not limited to attorney's fees) incurred by reason of the fact that he
is or
was a director or officer of the Corporation, he is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of, or in any similar managerial or fiduciary position
of,
another domestic or foreign corporation or other individual or entity of
an
employee benefit plan. The Corporation shall also indemnify any person who
is
serving or has served the Corporation as a director, officer, employee,
fiduciary, or agent and that person's estate and personal representative
to the
extent and in the manner provided in any bylaw, resolution of the shareholders
or directors, contract, or otherwise, so long as such provision is legally
permissible.
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to our directors, officers, and controlling persons pursuant
to
the foregoing provisions, or otherwise, we have been advised that in the
opinion
of the SEC such indemnification is against public policy as expressed in
the
Securities Act and is therefore unenforceable.
Item
25. Other Expenses of Issuance
and Distribution.
The
estimated expenses payable by us in connection with the registration of the
shares is as follows:
|
SEC
Registration
|
|
$ |
|
|
|
Accounting
Fees and Expenses
|
|
$ |
|
|
|
Legal
Fees and Expenses
|
|
$ |
|
|
|
Printing
Costs
|
|
$ |
|
|
|
Miscellaneous
Expenses
|
|
$ |
|
|
| |
|
|
|
|
|
Total
|
|
$ |
|
|
Item
26. Recent Sales of Unregistered
Securities.
In
March
2006, upon incorporation, we issued 10,000 shares of $1.00 par value common
stock to various individuals. In connection with the Reverse Merger, these
individuals received an aggregate of 17,000,000 shares of our restricted
common
stock.
Prior
to
the Reverse Merger, Sucre entered into an agreement with two related investors
for the sale of 3,000,000 free trading shares of the Sucre’s common stock for
gross proceeds of $1,000,000. The previous management of Sucre erroneously
issued 4,000,000 shares of the Sucre’s common stock to the investors. To date,
the excess shares of 1,000,000 have not been returned to the transfer agent.
We
have demanded the return of the 1,000,000 and are actively pursuing every
possible channel to get the shares returned. Since we cannot predict the
ultimate outcome, the 1,000,000 shares have been accounted for as outstanding
and included in the common shares retained by Sucre’s stockholders. These
securities were issued exempt from registration pursuant to Rule 504 of
Regulation D of the Securities Act of 1933 as amended.
Convertible
Notes
Payable
On
July
13, 2007, we issued several convertible notes aggregating a total of $500,000
with seven accredited investors, including $25,000 from our Chief Financial
Officer. Under the terms of the notes, we are required to repay any principal
balance and interest, at 10% per annum within 120 days of the note. The
convertible promissory note is convertible only upon default. The holders
also
received warrants to purchase common stock at $5.00 per share. The warrants
vest
immediately and expire in five years. The total warrants issued pursuant
to this
transaction were 200,000 on a pro-rata basis to investors. The convertible
promissory notes are only convertible into shares of our common stock in
the
event of a default. The conversion price is determined based on one third
of the
average of the last-trade prices of our common stock for the ten trading
days
preceding the default date. On November 7, 2007, we re-paid all of our 10%
convertible promissory notes dated July 13, 2007, to all our private investors,
totaling approximately $516,000, including interest of approximately $16,000.
This private offering was completed as an offering exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
Senior
Secured Convertible Notes
Payable
On
August
21, 2007, we issued senior secured convertible notes (the “Convertible Notes”)
aggregating a total of $2,000,000 with two institutional accredited investors.
Under the terms of the Convertible Notes, we are required to repay any principal
balance and interest, at 8% per annum, due August 21, 2009. On a quarterly
basis, we have the option to pay interest due in cash or in stock. The
Convertible Notes are secured by substantially all of our assets. The total
warrants issued pursuant to this transaction were 1,000,000 on a pro-rata
basis
to investors. These include class A warrants to purchase 500,000 common stock
at
$5.48 per share and class B warrants to purchase an additional 500,000 shares
of
common stock at $6.32 per share. The warrants vest immediately and expire
in
three years. The holders of the Convertible Notes have the option to convert
the
Convertible Notes into shares of our common stock at $4.21 per share at any
time
prior to maturity. If, before maturity, we consummate a financing of at least
$10,000,000, then the principal and accrued unpaid interest of the Convertible
Notes shall be automatically converted into shares of our common stock at
$4.21
per share. In addition, we entered into a registration rights agreement with
the
holders of the Convertible Notes whereby we are required to file an initial
registration statement on Form SB-2 or Form S-3 with the SEC in order to
register the resale of the maximum amount of common stock underlying the
Convertible Notes within 120 days of the agreement (December 19, 2007). The
registration statement must then be declared effective no later than 90 calendar
days (March 18, 2008), in the event of a full or no review by the SEC, days
from
the initial filing date.
In
the
event that we fail to file a registration statement within the 120 day period,
we must pay the holder 3% of the face amount as liquidated damages. In the
event
that we fail to have the registration statement declared effective by the
SEC by
the dates described above, or fail to maintain on the registration statement
the
effectiveness of the registration statement thereafter, then we must pay
the
holders an amount equal to 2% of the aggregate purchase price paid by each
holder, for each month the registration statement remains uncured. In addition,
if we do not complete a qualified financing within 120 days of the a (December
19, 2007), we must pay the holder an additional 1% of the face amount as
liquidated damages. Liquidated damages cannot exceed 15% of the face amount
of
the Convertible Notes. No accrual has been made to the accompanying financial
statements as management does not believe that such damages are probable
of
being incurred.
On
December 14, 2007, we consummated an agreement to issue up to 5,740,741 shares
of common stock and warrants to purchase 5,740,741 shares of common stock
for
net proceeds of $14,450,000 (the “December Private Placement”). The warrants
have an exercise price of $2.90 per share and expire five years from the
date of
issuance.
In
connection with the December Private Placement, we modified the conversion
price
of our previously issued 8% Senior Secured Convertible Promissory Notes
(“Convertible Notes”) from $4.21 to $2.90 per share. We also modified the
exercise price of the class “A” and class “B” warrants issued with the
Convertible Notes from $5.48 and $6.32, respectively to $2.90 per
share.
On
December 14, 2007, the holders of the Convertible Notes converted their
outstanding principal balance of $2,000,000 and accrued interest of
$33,333 into 700,922 shares of common stock.
Equity
Offering
On
December 14, 2007, the Company consummated an agreement to issue up to 5,740,741
shares of common stock and warrants to purchase 5,740,741 shares of common
stock
for aggregate proceeds of $14,450,000. The warrants have an exercise price
of
$2.90 per share and expire five years from the date of issuance.
In
addition, the Company entered into a registration rights agreement with the
investors whereby the Company is required to file an initial registration
statement on Form SB-2 (or another applicable registration form) with the
SEC in
order to register the resale of the above common stock and warrants to purchase
common stock. The registration statement is required to be filed within 45
days
from December 14, 2007. The registration statement must then be declared
effective no later than 150 calendar days (May 12, 2008) from the initial
filing
date.
The
Company also agreed to register the conversion shares and shares underlying
the
warrants issued in connection with its previously Convertible Notes. The
details
of the registration rights of the Convertible Notes can be found in the
Company’s August 28, 2007 8-K.
In
the
event the Company fails to file its initial registration statement within
the 45
day period or, in the event that the Company fails to have the registration
statement declared effective by the SEC by the dates described above, then
the
Company must pay the investors certain liquidated damages.
Item
27.
Exhibits.
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Exhibit
No.
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Description
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2.1
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3.1
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3.2
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4.1
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Form
of Promissory Note.(2)
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4.2
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Form
of Subscription Agreement.(2)
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4.3
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4.4
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4.5
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4.6
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4.7
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4.8
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5.1
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Opinion
of Scott D. Olson, Esq. as to the validity of the common stock.
(8)
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10.1
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10.2
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10.3
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10.4
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10.5
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Form
of the Consulting Agreement. (2)
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10.6
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Amended
and Restated 2006 Incentive and Nonstatutory Stock Option Plan,
dated
December 13, 2006 (6)
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21.1
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23.1
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Consent
of McKennon Wilson & Morgan LLP (8)
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| 23.2 |
Consent
of Scott D. Olson, Esq. (included in opinion set forth in Exhibit
5.1
hereto). |
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| 24.1 |
Power
of Attorney (9) |
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99.1
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Audit
Committee Charter (2)
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99.2
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Compensation
Committee Charter (2)
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(8)
Filed
herewith.
(9)
Included on signature page of this Registration Statement.
Item
28.
Undertakings.
The
undersigned Registrant hereby undertakes:
1)
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a)
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that
which was registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the
SEC pursuant to ule 424(b) (Sec.230.424(b) of this chapter) if,
in the aggregate, the changes in volume and price represent no more than
a 20%
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
(c)
Include any additional or changed material information on the plan of
distribution.
2) That,
for the purpose of determining any liability under the Securities Act, each
such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
3) To
remove from registration by means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4)
For
determining liability of the undersigned under the Securities Act to any
purchaser in the initial distribution of the securities, the undersigned
undertakes that in a primary offering of securities of the undersigned pursuant
to this registration statement, regardless of the underwriting method used
to
sell the securities to the purchaser, if the securities are offered or sold
to
such purchaser by means of any of the following communications, the undersigned
will be a seller to the purchaser and will be considered to offer or sell
such
securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned relating to the offering
required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf
of the
undersigned or used or referred to by the undersigned;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned or its securities provided by
or on
behalf of the undersigned; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
to
the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons pursuant to
the
provisions described above in Item 24, or otherwise, we have been advised
that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event
that a claim for indemnification against such liabilities (other than the
payment by us of the expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with
the securities being registered, we will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act, BlueFire Ethanol
Fuels,
Inc., the Registrant, certifies that it has reasonable grounds to believe
that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, California, on December 19,
2007.
|
|
BLUEFIRE
ETHANOL FUELS,
INC.
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| |
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| |
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By:
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/s/
Arnold R. Klann
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| |
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Arnold
R. Klann,
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| |
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President
and Chief Executive Officer (Principal Executive
Officer)
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| |
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By:
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/s/Christopher
Scott
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Christopher
Scott
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Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
POWER
OF ATTORNEY
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Arnold R. Klann, Robert E. Lustrin, Craig
A.
Sklar and Joseph M. Lucosky his attorney-in-fact and agent, with full power
of
substitution and resubstitution, for him in any and all capacities, to sign
any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with exhibits thereto and other documents
in
connection therewith, with the SEC, granting unto said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each
and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent,
or his
substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act, this registration statement has
been
signed by the following persons in the capacities and on the dates
indicated.
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Signature
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Title
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Date
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/s/Arnold
R. Klann
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Director
and Chairman of the Board;
|
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Arnold
R. Klann
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President
and Chief Executive Officer
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/s/Necitas
Sumait
|
|
Director;
Secretary and Vice President
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Necitas
Sumait
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/s/Chris
Nichols
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Director
|
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Chris
Nichols
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/s/Joseph
I. Emas
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Director
|
|
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Joseph
I. Emas
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/s/Victor
H Doolan
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Director
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Victor
H Doolan
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II-6
