UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2012
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-52361
BLUEFIRE RENEWABLES, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4590982 | |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
31 MUSICK
IRVINE, CA 92618
(Address of principal executive offices)
(949) 588-3767
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yesx No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
As of November 14, 2012, there were 33,063,557 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | 2 |
| Consolidated Balance Sheets | 2 | |
| Consolidated Statements of Operations | 3 | |
| Consolidated Statements of Cash Flows | 4 | |
| Notes to Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 21 |
| Item 4. | Controls and Procedures. | 21 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 22 |
| Item 1A. | Risk Factors. | 22 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 22 |
| Item 3. | Defaults Upon Senior Securities. | 22 |
| Item 4. | Mine Safety Disclosures | 22 |
| Item 5. | Other Information. | 22 |
| Item 6. | Exhibits. | 23 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2012 | December 31, 2011 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 65,271 | $ | 15,028 | ||||
| Department of Energy unbilled receivables | 20,116 | 207,570 | ||||||
| Prepaid expenses | 9,898 | 15,911 | ||||||
| Debt issuance costs | 107,532 | - | ||||||
| Total current assets | 202,817 | 238,509 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $99,500 and $88,205, respectively | 1,231,696 | 1,187,766 | ||||||
| Total assets | $ | 1,434,513 | $ | 1,426,275 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,081,391 | $ | 718,018 | ||||
| Accrued liabilities | 541,137 | 466,916 | ||||||
| Convertible notes payable | 284,319 | - | ||||||
| Line of credit, related party | 15,230 | 19,230 | ||||||
| Note payable to a related party, net of discount of $0 and $0, respectively | 200,000 | 200,000 | ||||||
| Department of Energy billings in excess of estimated earnings | 354,000 | 354,000 | ||||||
| Outstanding warrant liability - current | - | 831 | ||||||
| Derivative liability | 105,941 | - | ||||||
| Total current liabilities | 2,582,018 | 1,758,995 | ||||||
| Outstanding warrant liability | 33,155 | 34,095 | ||||||
| Total liabilities | 2,615,173 | 1,793,090 | ||||||
| Noncontrolling interest - redeemable | 849,756 | 852,531 | ||||||
| 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; 33,063,557 and 32,099,840 shares issued; and 33,031,385 and 32,067,668 outstanding, as of September 30, 2012 and December 31, 2011, respectively | 33,063 | 32,099 | ||||||
| Additional paid-in capital | 14,779,292 | 14,543,019 | ||||||
| Treasury stock at cost, 32,172 shares at September 30, 2012 and December 31, 2011 | (101,581 | ) | (101,581 | ) | ||||
| Deficit accumulated during the development stage | (16,741,190 | ) | (15,692,883 | ) | ||||
| Total stockholders’ deficit | (2,030,416 | ) | (1,219,346 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,434,513 | $ | 1,426,275 | ||||
See accompanying notes to consolidated financial statements
| 2 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months ended September 30, | For the Three Months ended September 30, | For the Nine Months ended September 30, | For the Nine Months ended September 30, | From March 28, 2006 (inception) Through September 30, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | ||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Consulting fees | $ | 22,000 | $ | - | $ | 113,900 | $ | 3,849 | $ | 257,515 | ||||||||||
| Department of energy grant revenues | 166,421 | 36,382 | 378,232 | 364,370 | 6,353,966 | |||||||||||||||
| Department of energy - unbilled grant revenues | - | 100,813 | - | 114,093 | 197,041 | |||||||||||||||
| Total revenues | 188,421 | 137,195 | 492,132 | 482,312 | 6,808,522 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Project development | 129,070 | 158,105 | 420,343 | 428,611 | 19,351,500 | |||||||||||||||
| General and administrative | 308,614 | 612,078 | 987,023 | 1,347,006 | 17,771,072 | |||||||||||||||
| Related party license fee | - | - | - | - | 1,000,000 | |||||||||||||||
| Total operating expenses | 437,684 | 770,183 | 1,407,366 | 1,775,617 | 38,122,572 | |||||||||||||||
| Operating loss | (249,263 | ) | (632,988 | ) | (915,234 | ) | (1,293,305 | ) | (31,314,050 | ) | ||||||||||
| Other income and (expense): | ||||||||||||||||||||
| Gain from change in fair value of warrant liability | 7,216 | 35,195 | 1,771 | 798,951 | 2,934,261 | |||||||||||||||
| Gain from change in fair value of derivative liability | 31,013 | - | 55,629 | - | 55,629 | |||||||||||||||
| Other income | - | - | - | - | 256,295 | |||||||||||||||
| Financing related charge | - | - | - | - | (211,660 | ) | ||||||||||||||
| Amortization of debt discount | (92,404 | ) | - | (182,657 | ) | - | (869,490 | ) | ||||||||||||
| Interest expense | - | - | - | - | (56,097 | ) | ||||||||||||||
| Related party interest expense | (1,322 | ) | (34,218 | ) | (2,412 | ) | (97,638 | ) | (171,780 | ) | ||||||||||
| Loss on extinguishment of debt | - | - | - | - | (2,818,370 | ) | ||||||||||||||
| Gain on settlement of accrued rent | - | - | - | - | 7,920 | |||||||||||||||
| Loss on the retirement of warrants | - | - | - | - | (146,718 | ) | ||||||||||||||
| Total other income or (expense) | (55,497 | ) | 977 | (127,669 | ) | 701,313 | (1,020,010 | ) | ||||||||||||
| Loss before income taxes | (304,760 | ) | (632,011 | ) | (1,042,903 | ) | (591,992 | ) | (32,334,060 | ) | ||||||||||
| Provision for income taxes | (7,354 | ) | - | (8,179 | ) | - | (91,326 | ) | ||||||||||||
| Net loss | $ | (312,114 | ) | $ | (632,011 | ) | $ | (1,051,082 | ) | $ | (591,992 | ) | $ | (32,425,386 | ) | |||||
| Loss attributable to noncontrolling interest | (233 | ) | - | (2,775 | ) | - | (12,744 | ) | ||||||||||||
| Loss attributable to controlling interest | $ | (311,881 | ) | $ | (632,011 | ) | $ | (1,048,307 | ) | $ | (591,992 | ) | $ | (32,412,642 | ) | |||||
| Basic and diluted loss per common share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 32,863,893 | 30,205,294 | 32,636,527 | 29,728,327 | ||||||||||||||||
See accompanying notes to consolidated financial statements
| 3 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | From March 28, 2006 (inception) Through September 30, | ||||||||||
| 2012 | 2011 | 2012 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (1,051,082 | ) | $ | (591,992 | ) | $ | (32,425,386 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Founders’ shares | - | - | 17,000 | |||||||||
| Costs associated with purchase of Sucre Agricultural Corp | - | - | (3,550 | ) | ||||||||
| Interest expense on beneficial conversion feature of convertible notes | - | - | 676,983 | |||||||||
| Loss on extinguishment of convertible debt | - | - | 2,718,370 | |||||||||
| Loss on retirement of warrants | - | - | 146,718 | |||||||||
| Gain from change in the fair value of warrant liability | (1,771 | ) | (798,951 | ) | (2,934,261 | ) | ||||||
| Change in fair value of derivative liability | (55,629 | ) | (55,629 | ) | ||||||||
| Common stock issued for interest on convertible notes | - | - | 55,585 | |||||||||
| Discount on sale of stock associated with private placement | - | - | 211,660 | |||||||||
| Accretion of discount on note payable to related party | - | 73,885 | 83,736 | |||||||||
| Loss from change in accounting estimate on DOE billings | - | - | 354,000 | |||||||||
| Debt issuance costs for rejected loan guarantees | - | 309,834 | 583,634 | |||||||||
| Gain on settlement of accrued rent | - | - | (7,920 | ) | ||||||||
| Share-based compensation | 92,236 | 46,782 | 11,644,703 | |||||||||
| Depreciation and amortization | 193,907 | 15,827 | 282,514 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Department of Energy unbilled receivable | 187,454 | (62,324 | ) | 42,183 | ||||||||
| Prepaid expenses and other current assets | 6,013 | 20,924 | (9,899 | ) | ||||||||
| Accounts payable | 363,374 | 116,864 | 1,084,817 | |||||||||
| Accrued liabilities | 74,221 | 145,486 | 520,508 | |||||||||
| Accrued interest, related party | - | 23,753 | - | |||||||||
| Net cash used in operating activities | (191,277 | ) | (699,912 | ) | (17,014,234 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of property and equipment | - | - | (217,636 | ) | ||||||||
| Construction in progress | (55,180 | ) | (130,976 | ) | (1,068,074 | ) | ||||||
| Net cash used in investing activities | (55,180 | ) | (130,976 | ) | (1,285,710 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Repurchases of common stock held in treasury | - | - | (101,581 | ) | ||||||||
| Cash received in acquisition of Sucre Agricultural Corp. | - | - | 690,000 | |||||||||
| Proceeds from sale of stock through private placement | - | - | 544,500 | |||||||||
| Proceeds from exercise of stock options | - | - | 40,000 | |||||||||
| Proceeds from issuance of common stock | 35,000 | 250,000 | 14,745,000 | |||||||||
| Proceeds from convertible notes payable | 363,500 | - | 2,863,500 | |||||||||
| Repayment of notes payable | - | - | (500,000 | ) | ||||||||
| Proceeds from related party notes payable | - | - | 335,230 | |||||||||
| Repayment of related party notes payable | (4,000 | ) | - | (120,000 | ) | |||||||
| Debt issuance costs | (97,800 | ) | - | (661,434 | ) | |||||||
| Retirement of Aurarian warrants | - | - | (220,000 | ) | ||||||||
| Proceeds from sale of LLC Unit | - | - | 750,000 | |||||||||
| Net cash provided by financing activities | 296,700 | 250,000 | 18,365,215 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 50,243 | (580,888 | ) | 65,271 | ||||||||
| Cash and cash equivalents beginning of period | 15,028 | 592,359 | - | |||||||||
| Cash and cash equivalents end of period | $ | 65,271 | $ | 11,471 | $ | 65,271 | ||||||
| Supplemental disclosures of cash flow information | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Interest | $ | - | $ | - | $ | 57,102 | ||||||
| Income taxes | $ | 8,179 | $ | - | $ | 27,100 | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||||||
| Conversion of senior secured convertible notes payable | $ | - | $ | - | $ | 2,000,000 | ||||||
| Interest converted to common stock | $ | - | $ | - | $ | 55,569 | ||||||
| Fair Value of warrants issued to placement agents | $ | - | $ | - | $ | 725,591 | ||||||
| Accounts payable, net of reimbursement, included in construction-in-progress | $ | - | $ | - | $ | 45,842 | ||||||
| Discount on related party note payable | $ | - | $ | - | $ | 83,736 | ||||||
| Accretion of redeemable noncontrolling interest | $ | - | $ | 112,500 | $ | 112,500 | ||||||
See accompanying notes to consolidated financial statements
| 4 |
BLUEFIRE RENEWABLES, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
BlueFire Renewables, Inc. (“BlueFire” or the “Company”) was incorporated in the State of Nevada on March 28, 2006 (“Inception”), under the name BlueFire Ethanol Fuels, Inc. 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 July 15, 2010, the board of directors of BlueFire, by unanimous written consent, approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada, changing the Company’s name from BlueFire Ethanol Fuels, Inc. to BlueFire Renewables, Inc. On July 20, 2010, the Certificate of Amendment was accepted by the Secretary of State of Nevada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management’s 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 a reverse merger, loans from its majority shareholder, the private placement of the Company's common stock in December 2007 for net proceeds of approximately $14,500,000, the issuance of convertible notes with warrants in July and August 2007, stock purchase agreements in 2010 and 2012, and Department of Energy reimbursements starting in 2009. The Company may encounter difficulties in establishing operations due to the time frame of developing, constructing and ultimately operating the planned bio-refinery projects.
As of September 30, 2012, the Company had negative working capital of approximately $2,379,000. Management has estimated that operating expenses for the next 12 months will be approximately $1,700,000, excluding engineering costs related to the development of bio-refinery projects. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Throughout the remainder of 2012, the Company intends to fund its operations with reimbursements under the Department of Energy contract, draw downs on the equity commitment the Company received from Lincoln Park Capital in January 2011, the TCA Global Credit Master Fund, LP in March 2012 (see Note 9), as well as seek additional funding in the form of equity or debt. As of November 14, 2012, the Company expects the current resources available to them will only be sufficient for a period of approximately one month unless significant additional financing is received. Management has determined that the general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital, we may consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.
Additionally, the Company’s Lancaster plant is currently shovel ready and only requires minimal capital to maintain until funding is obtained for the construction. The preparation for the construction of this plant was the primary capital use in 2009. In October 2010, BlueFire filed the necessary paperwork to extend this project’s permits for an additional year while we await potential financing. Currently, the Company's air permit for the Lancaster plant is inactive until such time as we pay the necessary fees to reinstate it. In 2012, as in 2011, the Company sees this project on hold until we receive the funding to construct the facility.
| 5 |
As of December 31, 2010, the Company completed the detailed engineering on our proposed Fulton Project, procured all necessary permits for construction of the plant, and began site clearing and preparation work, signaling the beginning of construction.
We estimate the total construction cost of the bio-refineries to be in the range of approximately $300 million for the Fulton Project and approximately $100 million to $125 million for the Lancaster Biorefinery. These cost approximations do not reflect any increase or decrease in raw materials or any savings in construction cost that might be realized by the weak world economic environment. The Company is currently in discussions with potential sources of financing for these facilities, but no definitive agreements are in place.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities Exchange Commission. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2011. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of BlueFire Renewables, Inc., and its wholly-owned subsidiaries, BlueFire Ethanol, Inc. and Sucre Source LLC. BlueFire Ethanol Lancaster, LLC, and BlueFire Fulton Renewable Energy LLC (excluding 1% interest sold) are wholly-owned subsidiaries of BlueFire Ethanol, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
Project Development
Project development costs include the research and development expenses related to the Company's future cellulose-to-ethanol production facilities. During the three and nine months ended September 30, 2012 and 2011, and for the period from March 28, 2006 (Inception) to September 30, 2012, research and development costs, net of stock-based compensation, included in Project Development expense were approximately $129,000, $158,000, $420,000, $429,000, and $14,883,000, respectively.
Fair Value of Financial Instruments
The Company follows the accounting guidance under ASC 820 “Fair Value Measurements and Disclosures.” Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
| 6 |
| · | Level 1. Observable inputs such as quoted prices in active markets; |
| · | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| · | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The Company did not have any level 1 financial instruments at September 30, 2012 or December 31, 2011.
As of September 30, 2012, the Company’s warrant liability and derivative liability are considered level 2 items (see Note 5).
As of September 30, 2012 and December 31, 2011 the Company’s redeemable noncontrolling interest is considered a level 3 item and changed during nine months ended September 30, 2012 as follows:
| Balance at December 31, 2011 | $ | 852,531 | ||
| Net loss attributable to noncontrolling interest | (2,775 | ) | ||
| Balance at September 30, 2012 | $ | 849,756 |
Income (loss) per Common Share
The Company presents basic income (loss) per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. As of September 30, 2012 and 2011, the Company had 1,229,659 and 3,287,159 options and 6,891,534 and 6,886,694 warrants, respectively, for which all of the exercise prices were in excess of the average closing price of the Company’s common stock during the corresponding period and thus no shares are considered dilutive under the treasury stock method of accounting and their effects would have been antidilutive due to the loss. As of September 30, 2012, the Company’s convertible note payable is convertible into approximately 2,502,000 shares of common stock, for which the effects would have been antidilutive due to the loss.
Derivative Financial Instruments
We do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of our financial instruments. However, under the provisions ASC 815 – “Derivatives and Hedging” certain financial instruments that have characteristics of a derivative, as defined by ASC 815, such as embedded conversion features on our convertible notes, that are potentially settled in the Company’s own common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement. Derivative financial instruments are initially recorded, and continuously carried, at fair value each reporting period.
The value of the embedded conversion feature is determined using the Black-Scholes option pricing model. All future changes in the fair value of the embedded conversion feature will be recognized currently in earnings until the note is converted or redeemed. Determining the fair value of derivative financial instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rate risk, credit risk, volatility and other factors. The use of different assumptions could have a material effect on the estimated fair value amounts.
| 7 |
Lines of Credit with Share Issuance
Shares issued to obtain a line of credit are recorded at fair value at contract inception. When shares are issued to obtain a line of credit rather than in connection with the issuance, the shares are accounted for as equity, at the measurement date in accordance with ASC 505-50 “Equity-Based Payments to Non-Employees.” The issuance of these shares is equivalent to the payment of a loan commitment or access fee, and, therefore, the offset is recorded akin to debt issuance costs. The deferred fee is amortized on a straight-line basis over the stated term of the line of credit, or other period as deemed appropriate.
Redeemable - Noncontrolling Interest
Redeemable interest held by third parties in subsidiaries owned or controlled by the Company is reported on the consolidated balance sheets outside permanent equity. All noncontrolling interest reported in the consolidated statements of operations reflects the respective interests in the income or loss after income taxes of the subsidiaries attributable to the other parties, the effect of which is removed from the net income or loss available to the Company. The Company accretes the redemption value of the redeemable noncontrolling interest over the redemption period.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – DEVELOPMENT CONTRACTS
Department of Energy Awards 1 and 2
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 biorefinery project at a landfill in Southern California. During October 2007, the Company finalized Award 1 for a total approved budget of just under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40% of approved costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007.
In October 2009, the Company received from the DOE a one-time reimbursement of approximately $3,841,000. This was primarily related to the Company amending its award to include costs previously incurred in connection with the development of the Lancaster site which have a direct attributable benefit to the Fulton Project.
In December 2009, as a result of the American Recovery and Reinvestment Act, the DOE increased the Award 2 to a total of $81 million for Phase II of its Fulton Project. This brings the DOE’s total award to the Fulton project to approximately $88 million. This is in addition to a renegotiated Phase I funding for development of the biorefinery of approximately $7 million out of the previously announced $10 million total. The Company is currently drawing down on funds for Phase II of its Fulton Project.
As of November 14, 2012, the Company has received reimbursements of approximately $10,149,000 under these awards.
Since 2009, our operations have been financed, to a large degree, through funding provided by the U.S Department of Energy. We rely on access to this funding as a source of liquidity for capital requirements not satisfied by the cash flow from our operations. If we are unable to access government funding, our ability to finance our projects and/or operations and implement our strategy and business plan will be severely hampered. Awards 1 and 2 consist of a total reimbursable amount of $87,560,000, and through November 14, 2012, we have an unreimbursed amount of approximately $77,411,000 available to us under the awards. We cannot guarantee that we will continue to receive grants, loan guarantees, or other funding for our projects from the U.S. Department of Energy.
In June 2011, it was determined that the Company had received an overpayment of approximately $354,000 from the cumulative reimbursements of the DOE grants under Award 1 for the period from inception of the award through December 31, 2010. The overpayment is a result of estimates made on the indirect rate during the reimbursement process over the course of the award.
| 8 |
Accordingly, although Management does not believe the DOE intends to demand payment for the overbill, and the Contracting Officer from the DOE has not indicated such will be done, the DOE does have the legal right to do so. Due to that right and the Company’s decision not to close the award as initially planned, the Company has determined that a liability should be included in the accompanying balance sheet as of September 30, 2012 and December 31, 2011 due to billing in excess of estimated earnings. Because this liability stemmed from normal recurring estimates made in government contracting, the change was accounted for as a change in accounting estimate. The cumulative effect was recorded during the last quarter of fiscal 2011.
Management decided the best course of action is to close out Award 1 due to the minimal amount of funds remaining under the award. This is expected to eliminate any over billing incurred during the life of the Award. BlueFire has filed all necessary paperwork with the DOE to close out Award 1 and is currently awaiting final approval of the close out.
NOTE 4 – CONVERTIBLE NOTE PAYABLE
On March 28, 2012 the Company entered into a $300,000 promissory note with a third party. See Note 9 for additional information.
On July 31, 2012, the Company borrowed $63,500, of which $50,500 in proceeds were received, under a short-term convertible note payable with a third party. Under the terms of the agreement, the note incurs interest at 8% per annum and is due on May 2, 2013. The note is convertible into common shares after six months, and the conversion price is calculated by multiplying 58% (42% discount to market) by the average of the lowest three closing bid prices during the 10 days prior to the conversion date. The Company may prepay the convertible debt prior to maturity at varying prepayment penalty rates specified under the agreement.
Since the conversion feature is only convertible after six months, there is no derivative liability at the note’s inception. However, the Company will account for the derivative liability upon the passage of time and the note becoming convertible if not extinguished, as defined above. Derivative accounting applies upon the conversion feature being available to the holder, as it is variable and does not have a floor as to the number of common shares in which could be converted.
In addition, the fees paid to the lender and legal to secure the convertible debt were accounted for as deferred financing costs and capitalized in the accompanying balance sheet. The deferred financing costs are being amortized over the term of the note. As of September 30, 2012, the Company amortized $2,868 with $10,132 in deferred financing costs remaining.
See Note 10 for additional convertible note payable borrowing subsequent to September 30, 2012.
NOTE 5 - OUTSTANDING WARRANT LIABILITY
August and December 2007 Warrants
As a result of adopting ASC 815 “Derivatives and Hedging” effective January 1, 2009, 6,962,963 of our then issued and outstanding common stock purchase warrants previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment. These warrants have an exercise price of $2.90 and included ratchet provisions; 5,962,563 warrants expire in December 2012 and 1,000,000 expired in August 2010. As such, effective January 1, 2009 we reclassified the fair value of these common stock purchase warrants, which have exercise price reset features, from equity to liability status as if these warrants were treated as a derivative liability since their date of issue in August 2007 and December 2007. On January 1, 2009, we reclassified from additional paid-in capital, as a cumulative effect adjustment, $15.7 million to beginning retained earnings and $2.9 million to a long-term warrant liability to recognize the fair value of such warrants on such date. The Company assesses the fair value of the warrants quarterly based on the Black-Scholes pricing model.
| 9 |
In connection with the 5,962,963 warrants to expire in December 2012, the Company recognized gains of approximately $0, $25,400, $1,000, $709,000, and $2,516,000, from the change in fair value of these warrants during the three and nine-months ended September 30, 2012 and 2011 and the period from Inception to September 30, 2012, respectively.
These common stock purchase warrants were initially issued in connection with two private offerings in August 2007 and December 2007. These common stock purchase warrants do not trade in an active securities market, and as such, we estimate the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions:
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Annual dividend yield | - | - | ||||||
| Expected life (years) | .25 | 1.0 | ||||||
| Risk-free interest rate | .17 | % | 0.12 | % | ||||
| Expected volatility | 72 | % | 95 | % | ||||
January 2011 Warrants
On January 19, 2011, in connection with the Lincoln Park Capital agreement (see Note 9) the Company issued 428,571 common stock warrants. The warrants contain a ratchet provision in which the exercise price will be adjusted based on future issuances of common stock, excluding certain excluded issuances; if issuances are at prices lower than the current exercise price. Because the warrants were issued in connection with an equity capital raise, the initial value offset additional paid-in capital. The Company estimated the fair value of the warrants using the Black-Scholes model on the September 30, 2012 and December 31, 2011 reporting dates using the following assumptions:
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Annual dividend yield | - | - | ||||||
| Expected life (years) of | 3.30 | 4.05 | ||||||
| Risk-free interest rate | 0.62 | % | 0.83 | % | ||||
| Expected volatility | 121 | % | 109 | % | ||||
In connection with the 428,571 warrants to expire in January 2016, the Company recognized gains of approximately $7,000, $9,800, $1,000, $90,000, and $92,000 from the change in fair value of these warrants during the three and nine-months ended September 30, 2012 and 2011 and the period from Inception to September 30, 2012, respectively.
The August and December 2007 and January 2011 common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.
Expected volatility is based primarily on historical volatility. Historical volatility was computed using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The Company believes this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants. The Company currently has no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates that correspond to the expected life of the warrants.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES
Fulton Project Lease
On July 20, 2010, the Company entered into a thirty year lease agreement with Itawamba County, Mississippi for the purpose of the development, construction, and operation of the Fulton Project. At the end of the primary 30 year lease term, the Company shall have the right for two additional thirty year terms. The current lease rate is computed based on a per acre rate per month that is approximately $10,300 per month. The lease stipulates the lease rate is to be reduced at the time of the construction start by a Property Cost Reduction Formula which can substantially reduce the monthly lease costs. The lease rate shall be adjusted every five years to the Consumer Price Index.
Rent expense under non-cancellable leases was approximately $30,900,$30,900, $92,700, $92,700, and $277,700, during the three and nine-months ended September 30, 2012 and 2011 and the period from March 28, 2006 (Inception) to September 30, 2012, respectively.
The Company is not current on lease payments due to Itawamba County. Accordingly, approximately $175,000 has been accrued in accounts payable in the accompanying consolidated balance sheet. The Company is in constant communication with Itawamba County officials, and we are working on alternative mechanisms for payment of the outstanding amounts due. The Company does not believe there is a significant risk that Itawamba County will void the lease for non-payment.
NOTE 7 - RELATED PARTY TRANSACTIONS
On December 15, 2010, the Company entered into a loan agreement (the “Loan Agreement”) by and between Arnold Klann, the Chief Executive Officer, Chairman of the board of directors and majority shareholder of the Company, as lender (the “CEO/Lender”), and the Company, as borrower. Pursuant to the Loan Agreement, the CEO/Lender agreed to advance to the Company a principal amount of Two Hundred Thousand United States Dollars ($200,000) (the “Loan”). The Loan Agreement requires the Company to (i) pay to the CEO/Lender a one-time amount equal to fifteen percent (15%) of the Loan (the “Fee Amount”) in cash or shares of the Company’s common stock at a value of $0.50 per share, at the CEO/Lender’s option; and (ii) issue the CEO/Lender warrants allowing the CEO/Lender to buy 500,000 common shares of the Company at an exercise price of $0.50 per common share, such warrants expire on December 15, 2013. The Company has promised to pay in full the outstanding principal balance of any and all amounts due under the Loan Agreement within thirty (30) days of the Company’s receipt of investment financing or a commitment from a third party to provide One Million United States Dollars ($1,000,000) to the Company or one of its subsidiaries (the “Due Date”), to be paid in cash.
The fair value of the warrants was $83,736 as determined by the Black-Scholes option pricing model using the following weighted-average assumptions: volatility of 112.6%, risk-free interest rate of 1.1%, dividend yield of 0%, and a term of three (3) years.
The proceeds were allocated to the warrants issued to the note holder based on their relative fair values which resulted in $83,736 allocated to the warrants. The amount allocated to the warrants resulted in a discount to the note. The Company amortized the discount over the estimated term of the Loan using the straight line method due to the short term nature of the Loan. The Company estimated the Loan would be paid back during the quarter ended September 30, 2011. During the three and nine-months ended September 30, 2012 and 2011, and for the period from Inception to September 30, 2012, the Company amortized the discount to interest expense of approximately $0, $26,700, $0, $73,900, and $83,736 respectively.
For the three and nine-months ended September 30, 2012 and 2011, and for the period from Inception to September 30, 2012, the Company recognized interest expense of approximately $0, $7,600, $0,$24,000, and $30,000, respectively related to the above note. No payments have been made on this note to date.
NOTE 8 - REDEEMABLE NONCONTROLLING INTEREST
On December 23, 2010, the Company sold a one percent (1%) membership interest in its operating subsidiary, BlueFire Fulton Renewable Energy, LLC (“BlueFire Fulton” or the “Fulton Project”), to an accredited investor for a purchase price of $750,000 (“Purchase Price”). The Company maintains a 99% ownership interest in the Fulton Project. In addition, the investor received a right to require the Company to redeem the 1% interest for $862,500, or any pro-rata amount thereon. The redemption is based upon future contingent events of obtaining financing for the construction of the Fulton Project. The third party equity interests in the consolidated joint ventures are reflected as redeemable noncontrolling interests in the Company’s consolidated financial statements outside of equity. The Company accreted the redeemable noncontrolling interest for the total redemption price of $862,500 through the estimated forecasted financial close, originally estimated to be the end of the third quarter of 2011. Net loss attributable to the redeemable noncontrolling interest for the three and nine-months ended September 30, 2012, and for the period from Inception to September 30, 2012 was $233, $2,775, and $12,744, respectively. Net loss attributable to the redeemable noncontrolling interest for the three and nine months ended September 30, 2011 was inconsequential to the financial statements taken as a whole and thus not presented on the consolidated statement of operations.
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For the three and nine-months ended September 30, 2012 and 2011, and for the period from Inception to September 30, 2012 the Company recognized the accretion of the redeemable noncontrolling interest of $0, $37,500, $0, $112,500, and $112,500, respectively which was charged to additional paid-in capital.
NOTE 9 - STOCKHOLDERS’ DEFICIT
Shares Issued for Services
During the nine months ended September 30, 2012, the Company issued 389,752 shares of common stock for legal services provided. In connection with this issuance the Company recorded approximately $83,000 in legal expense which is included in general and administrative expense. The Company valued the shares using the closing market price on the date of issuance.
During the nine months ended September 30, 2012, the Company issued 44,000 shares of common stock for board of director services provided. In connection with this issuance the Company recorded approximately $7,500 in expense which is included in general and administrative expense. The Company valued the shares using the closing market price on the date of issuance.
During the nine months ended September 30, 2012, the Company issued 13,889 shares of common stock for a consultant associated with the Company's USDA Loan Guarantee Application. In connection with this issuance the Company recorded approximately $2,100 in expense which is included in general and administrative expense. The Company valued the shares using the closing market price on the date of issuance.
Stock Purchase Agreement
On January 19, 2011, the Company signed a $10 million purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company. The Company also entered into a registration rights agreement with LPC whereby we agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the Purchase Agreement within ten days of the agreement. Although under the Purchase Agreement the registration statement was to be declared effective by March 31, 2011, LPC did not terminate the Purchase Agreement. The registration statement was declared effective on May 10, 2011, without any penalty.
After the SEC declared effective the registration statement related to the transaction, the Company has the right, in its sole discretion, over a 30-month period to sell shares of common stock to LPC in amounts from $35,000 and up to $500,000 per sale, depending on the Company’s stock price as set forth in the Purchase Agreement, up to the aggregate commitment of $10 million.
There are no upper limits to the price LPC may pay to purchase our common stock. The purchase price of the shares related to the $10 million funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, and the Company controls the timing and amount of any future sales, if any, of shares to LPC. LPC shall not have the right or the obligation to purchase any shares of our common stock on any business day that the price of our common stock is below $0.15. The Purchase Agreement contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions by, among and for the benefit of the parties. LPC has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. The Purchase Agreement may be terminated by us at any time at our discretion without any cost to us. Except for a limitation on variable priced financings, there are no financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the agreement.
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Upon signing the Purchase Agreement, BlueFire received $150,000 from LPC as an initial purchase under the $10 million commitment in exchange for 428,571 shares of our common stock and warrants to purchase 428,571 shares of our common stock at an exercise price of $0.55 per share. The warrants contain a ratchet provision in which the exercise price will be adjusted based on future issuances of common stock, excluding certain issuances; if issuances are at prices lower than the current exercise price (see Note 5). The warrants have an expiration date of January 2016.
Concurrently, in consideration for entering into the $10 million agreement, we issued to LPC 600,000 shares of our common stock as a commitment fee and shall issue up to 600,000 shares pro rata as LPC purchases up to the remaining $9.85 million.
During the three and nine-months ended September 30, 2012, and 2011, and for the period from March 28, 2006 (Inception) to September 30, 2012, the Company drew $0, $30,000, $35,000, $100,000, and $235,000, respectively, on the Purchase Agreement.
Equity Facility Agreement
On March 28, 2012, BlueFire finalized a committed equity facility (the “Equity Facility”) with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), whereby the parties entered into (i) a committed equity facility agreement (the “Equity Agreement”) and (ii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the Registration Statement (as defined below), TCA committed to purchase up to $2,000,000 of BlueFire’s common stock, par value $0.001 per share (the “Shares”), pursuant to Advances (as defined below), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Equity Agreement is equal to ninety-five percent (95%) of the lowest daily volume weighted average price of BlueFire’s common stock during the five (5) consecutive trading days after BlueFire delivers to TCA an Advance notice in writing requiring TCA to advance funds (an “Advance”) to BlueFire, subject to the terms of the Equity Agreement. The “Registrable Securities” include (i) the Shares; and (ii) any securities issued or issuable with respect to the Shares by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As further consideration for TCA entering into and structuring the Equity Facility, BlueFire paid to TCA a fee by issuing to TCA shares of BlueFire’s common stock that equal a dollar amount of $110,000 (the “Facility Fee Shares”). It is the intention of BlueFire and TCA that the value of the Facility Fee Shares shall equal $110,000. In the event the value of the Facility Fee Shares issued to TCA does not equal $110,000 after a nine month evaluation date, the Equity Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to BlueFire’s treasury) to adjust the number of Facility Fee Shares issued. BlueFire also entered into the Registration Rights Agreement with TCA. Pursuant to the terms of the Registration Rights Agreement, BlueFire was obligated to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities within 45 days of closing, which BlueFire filed on or around May 5, 2012. BlueFire must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC by a date that is no later than 90 days following closing.
In connection with the issuance of approximately 280,000 shares for the $110,000 facility fee as described above, the Company capitalized said amount within deferred financings costs in the accompanying balance sheet as of September 30, 2012, along with other costs incurred as part of the Equity Facility and the Convertible Note described below. Additional costs related to the Equity Facility and paid from the funds of the Convertible Note described below, were approximately $60,000. Aggregate costs of the Equity Facility were $170,000. Because these costs were to access the Equity Facility, earned by TCA regardless of the Company drawing on the Equity Facility, and not part of a funding, they are treated akin to debt costs. The deferred financings costs related to the Equity Facility will be amortized over one (1) year on a straight-line basis. The Company believes this accelerated amortization, which is less than the two year Equity Facility term, is appropriate based on substantial doubt about the Company’s ability to continue as a going concern. During the nine-months ended September 30, 2012, the Company amortized deferred financing costs and recorded as expense approximately $55,000 related to the share based facility fee.
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On March 28, 2012, BlueFire entered into a security agreement (the “Security Agreement”) with TCA, related to a $300,000 convertible promissory note issued by BlueFire in favor of TCA (the “Convertible Note”). The Security Agreement grants to TCA a continuing, first priority security interest in all of BlueFire’s assets, wheresoever located and whether now existing or hereafter arising or acquired. On March 28, 2012, BlueFire issued the Convertible Note in favor of TCA. The maturity date of the Convertible Note is March 28, 2013, and the Convertible Note bears interest at a rate of twelve percent (12%) per annum with a default rate of eighteen percent (18%) per annum. The Convertible Note is convertible into shares of BlueFire’s common stock at a price equal to ninety-five percent (95%) of the lowest daily volume weighted average price of BlueFire’s common stock during the five (5) trading days immediately prior to the date of conversion. The Convertible Note may be prepaid in whole or in part at BlueFire’s option without penalty. The proceeds received by the Company under the purchase agreement was used for general working capital purposes which include costs expected to be reimbursed under the DOE cost share program.
In connection with the Convertible Note, approximately $93,000 was withheld and immediately disbursed to cover costs of the Convertible Note and Equity Facility described above. The costs related to the Convertible Note were $24,800 which are capitalized as deferred financing costs in the accompanying balance sheet as of September 30, 2012; and will be amortized on a straight-line basis over the term of the Convertible Note. In addition, $7,500 was disbursed to cover legal fees. After said costs, the Company received approximately $207,000 in cash from the Convertible Note. During the nine-months ended September 30, 2012, the Company amortized deferred financing costs and recorded as expense approximately $42,000 related to the cash based financing costs.
This note contains an embedded conversion feature whereby the holder can convert the note at a discount to the fair value of the Company’s common stock price. Based on applicable guidance the embedded conversion feature is considered a derivative instrument and bifurcated. This liability is recorded on the face of the financial statements as “derivative liability”, and must be revalued each reporting period.
The Company discounted the note by the fair market value of the derivative liability upon inception of the note. This discount will be accreted back to the face value of the note over the note term.
Using the Black-Scholes pricing model, with the inputs listed below, we calculated the fair market value of the conversion feature to be approximately $162,000 at the note’s inception and $106,000 as of September 30, 2012. The Company revalued the conversion feature at September 30, 2012 in the same manner with the inputs listed below and recognized a gain on the change in fair value of the derivative liability on the accompanying consolidated statement of operations of approximately $56,000.
| September 30, 2012 | March 31, 2012 | |||||||
| Annual dividend yield | - | - | ||||||
| Expected life (years) | 0.50 | 0.99 | ||||||
| Risk-free interest rate | .17 | % | 0.19 | % | ||||
| Expected volatility | 72 | % | 119 | % | ||||
Note 10 - Subsequent Events
On October 11, 2012, the Company borrowed $37,500, of which $35,000 in proceeds were received, under a short-term convertible note payable with a third party. Under the terms of the agreement, the note incurs interest at 8% per annum and is due on July 15, 2013. The note is convertible into common shares after six months and the conversion price is calculated by multiplying 58% (42% discount to market) by the average of the lowest three closing bid prices during the 10 days prior to the conversion date. The Company may prepay the convertible debt prior to maturity at varying prepayment penalty rates specified under the agreement.
In addition, the fees paid to the lender and legal to secure the convertible debt will be accounted for as deferred financing costs and capitalized. The deferred financing costs will be amortized over the term of the note.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC contain or may contain forward-looking statements and information that are (collectively, the “Filings”) based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
PLAN OF OPERATION
Our primary business encompasses development activities culminating in the design, construction, ownership and long-term operation of cellulosic ethanol production biorefineries utilizing the licensed Arkenol Technology in North America. Our secondary business is providing support and operational services to Arkenol Technology based biorefineries worldwide. As such, we are currently in the development-stage of finding suitable locations and deploying project opportunities for converting cellulose fractions of municipal solid waste and other opportunistic feedstock into ethanol fuels.
Our initial planned biorefineries in North America are projected as follows:
| · | A biorefinery that will process approximately 190 tons of green waste material annually to produce roughly 3.9 million gallons of ethanol annually. On November 9, 2007, we purchased the facility site which is located in Lancaster, California for the BlueFire Ethanol Lancaster project (“Lancaster Biorefinery”). Permit applications were filed on June 24, 2007, to allow for construction of the Lancaster Biorefinery. On or around July 23, 2008, the Los Angeles Planning Commission approved the use permit for construction of the plant. However, a subsequent appeal of the county decision, which BlueFire overcame, combined with the waiting period under the California Environmental Quality Act, pushed the effective date of the now non-appealable permit approval to December 12, 2008. On February 12, 2009, we were issued our “Authority to Construct” permit by the Antelope Valley Air Quality Management District. In 2009 the Company submitted an application for a $58 million dollar loan guarantee for the Lancaster Biorefinery with the the DOE Program DE-FOA-0000140 (“DOE LGPO”), which provides federal loan guarantees for projects that employ innovative energy efficiency, renewable energy, and advanced transmission and distribution technologies. In 2010, the Company was informed that the loan guarantee for the planned biorefinery in Lancaster, California, was rejected by the DOE due to a lack of definitive contracts for feedstock and off-take at the time of submittal of the loan guarantee for the Lancaster Biorefinery, as well as the fact that the Company was also pursuing a much larger project in Fulton, Mississippi. In December 2011, BlueFire requested an extension to pay the project’s permits for an additional year while we awaited potential financing. The Company has since let certain, more costly permits expire and will pursue reinstating them once a development or financial partner is found. We have completed the detailed engineering and design on the project and are seeking funding in order to build the facility. We estimate the total cost including contingencies to be in the range of approximately $100 million to $125 million for the Lancaster Biorefinery. At the end of 2008 and throughout 2009, prices for materials declined, although we expect, that prices for items like structural and specialty steel may firm up in 2012 along with other materials of construction. The cost approximations above do not reflect any fluctuations in raw materials or construction costs since the original pricing estimates. Additionally, this project is considered shovel ready and only requires minimal capital to maintain until funding is obtained for its construction. The preparation for the construction of this plant was the primary capital uses in prior years. We are currently in discussions with potential sources of financing for this facility but no definitive agreements are in place. |
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| · | A biorefinery proposed for development and construction in conjunction with the DOE, previously located in Southern California, and now located in Fulton, Mississippi, which will process approximately 700 metric dry tons of woody biomass, mill residue, and other cellulosic waste to produce approximately 19 million gallons of ethanol annually (“Fulton Project”). In 2007, we received an Award from the DOE of up to $40 million for the Fulton Project. On or around October 4, 2007, we finalized Award 1 for a total approved budget of just under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40% of approved costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007. On December 4, 2009, the DOE announced that the award for this project has been increased to a maximum of $88 million under the American Recovery and Reinvestment Act of 2009 (“ARRA”) and the Energy Policy Act of 2005. As of September 30, 2012, BlueFire has been reimbursed approximately $9,900,000 from the DOE under this award. In 2010, BlueFire signed definitive agreements for the following three crucial contracts related to the Fulton Project: (a) feedstock supply with Cooper Marine, (b) off-take for the ethanol of the facility with Tenaska, and (c) the construction of the facility with MasTec. Also in 2010, BlueFire continued to develop the engineering package for the Fulton Project, and completed both the FEL-2 and FEL-3 stages of engineering readying the facility for construction. As of November 2010, the Fulton Project has all necessary permits for construction, and in that same month we began site clearing and preparation work, signaling the beginning of construction. In June 2011, BlueFire completed initial site preparation and the site is now ready for facility construction. In February 2010, we announced that we submitted an application for a $250 million dollar loan guarantee for the Fulton Project, under the DOE LGPO mentioned above. In February 2011, BlueFire received notice from the DOE LGPO staff that the Fulton Project’s application will not move forward until such time as the project has raised the remaining equity necessary for the completion of funding. In August 2010, BlueFire submitted an application for a $250 million loan guarantee with the USDA, which would represent substantially all of the funding shortfall on the project. In October 2011, BlueFire was notified by its lender (“Lender”) for the Company’s USDA loan guarantee application that the USDA sent the Lender notice that they are currently ineligible to participate in the USDA Biorefinery Assistance Program. The USDA has offered to meet with the Lender and the Company in order to provide further explanation as to its decision and to allow the Lender and the Company the opportunity to provide any new information and potential alternatives for the USDA’s consideration. The Company has been in discussion with the USDA but has since discontinued its pursuit of the Loan Guarantee because an alternative acceptable lender could not be secured. The Company is pursuing other financing options including other potential government programs. In October 2011, BlueFire signed a Memorandum of Understanding with China Huadian Engineering Co., a unit of China Huadian Corp., which is China’s fourth-largest utility, to buy a stake in the Fulton Project and may later also provide debt financing. BlueFire is currently in negotiations with China Huadian Corp, but no definitive agreements have been executed. |
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| · | Several other opportunities are being evaluated by us in North America, although no definitive agreements have been reached. |
| · | In November 2011, BlueFire created SucreSource LLC, a wholly owned subsidiary specifically tasked to partner with synergistic back end companies that need cellulosic sugars as a feedstock for their fermentation or chemical processes. SucreSource will utilize the Arkenol process to provide the front end technology to partner with these companies. SucreSource is cultivating relationships and will continue to develop them throughout 2012. |
| · | In February 2012, SucreSource received its first payment from the professional services agreement (PSA) with GS Caltex, a Korean oil and petrochemical company. BlueFire has completed both Phase 1 andPhase 2 of development for the cellulosic sugar production facility located at a GS Caltex facility in South Korea. Future work done will be completed and billed on an hourly basis. |
BlueFire’s capital requirement strategy for its planned biorefineries are as follows:
| · | Obtain additional operating capital from joint venture partnerships, Federal or State grants or loan guarantees, debt financing or equity financing to fund our ongoing operations and the development of initial biorefineries in North America. Although the Company is in discussions with potential financial and strategic sources of financing for their planned biorefineries no definitive agreements are in place. |
| · | Utilize proceeds from reimbursements under the DOE contract. |
| · | As available and as applicable to our business plans, applications for public funding will be submitted to leverage private capital raised by us. |
DEVELOPMENTS IN BLUEFIRE’S BIOREFINERY ENGINEERING AND DEVELOPMENT
In 2010, BlueFire continued to develop the engineering package for the Fulton Project, and completed the Front-End Loading (FEL) stages 2 and FEL-3 of engineering for the Fulton Project readying the facility for construction. FEL is the process for conceptual development of processing industry projects. This process is used in the petrochemical, refining, and pharmaceutical industries. Front-End Loading is also referred to as Front-End Engineering Design (FEED).
There are three stages in the FEL process:
| FEL-1 | FEL-2 | FEL-3 | ||
| * Material Balance | * Preliminary Equipment Design | * Purchase Ready Major Equipment Specifications | ||
| * Energy Balance | * Preliminary Layout | * Definitive Estimate | ||
| * Project Charter | * Preliminary Schedule | * Project Execution Plan | ||
| * Preliminary Estimate | * Preliminary 3D Model | |||
| * Electrical Equipment List | ||||
| * Line List | ||||
| * Instrument Index |
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As of November 2010, the Fulton Project has all necessary permits for construction, and in that same month we began site clearing and preparation work, signaling the beginning of construction. In February 2010, we announced that we submitted an application for a $250 million dollar loan guarantee for the Fulton Project, under the DOE LGPO, mentioned above. In February 2011, BlueFire received notice from the DOE LGPO staff that the Fulton Project’s application will not move forward until such time as the project has raised the remaining equity necessary for the completion of funding. In August 2010, BlueFire submitted an application for a $250 million loan guarantee with the U.S. Department of Agriculture (“USDA”) under Section 9003 of the 2008 Farm Bill, as defined below (“USDA LG”). In October 2011, BlueFire was notified by its lender (“Lender”) for the Company’s USDA loan guarantee application that the USDA sent the Lender notice that they are currently ineligible to participate in the USDA Biorefinery Assistance Program. The USDA has offered to meet with the Lender and the Company in order to provide further explanation as to its decision and to allow the Lender and the Company the opportunity to provide any new information and potential alternatives for the USDA’s consideration. The Company has been in discussion with the USDA but has since discontinued its pursuit of the Loan Guarantee because an alternative acceptable lender could not be secured. The Company is pursuing other financing options including other potential government programs. In October 2011, BlueFire signed a Memorandum of Understanding with China Huadian Engineering Co., a unit of China Huadian Corp., which is China’s fourth-largest utility, to buy a stake in the Fulton Project and may later also provide debt financing. BlueFire is currently in negotiations with China Huadian Corp, but no definitive agreements have yet been executed.
On September 27, 2010, the Company announced a contract with Cooper Marine & Timberlands to provide feedstock for the Company’s planned Fulton Project for a period of up to 15 years. Under the agreement, Cooper Marine & Timberlands ("CMT") will supply the project with all of the feedstock required to produce approximately 19-million gallons of ethanol per year from locally sourced cellulosic materials such as wood chips, forest residual chips, pre-commercial thinnings and urban wood waste such as construction waste, storm debris, land clearing; or manufactured wood waste from furniture manufacturing. Under the Agreement, CMT will pursue a least-cost strategy for feedstock supply made possible by the project site's proximity to feedstock sources and the flexibility of BlueFire's process to use a wide spectrum of cellulosic waste materials in pure or mixed forms. CMT, with several chip mills in operation in Mississippi and Alabama, is a member company of Cooper/T. Smith one of America's oldest and largest stevedoring and maritime related firms with operations on all three U.S. coasts and foreign operations in Central and South America.
On September 20, 2010, the Company announced an off-take agreement with Tenaska BioFuels, LLC (“TBF”) for the purchase and sale of all ethanol produced at the Company’s planned Fulton Project. Pricing of the 15-year contract follows a market-based formula structured to capture the premium allowed for cellulosic ethanol compared to corn-based ethanol giving the Company a credit worthy contract to support financing of the project. Despite the long-term nature of the contract, the Company is not precluded from the upside in the coming years as fuel prices rise. TBF, a marketing affiliate of Tenaska, provides procurement and marketing, supply chain management, physical delivery, and financial services to customers in the agriculture and energy markets, including the ethanol and biodiesel industries. In business since 1987, Tenaska is one of the largest independent power producers.
On July 15, 2010, the board of directors of BlueFire, by unanimous written consent, approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada, changing the Company’s name from BlueFire Ethanol Fuels, Inc. to BlueFire Renewables, Inc. Our Board of Directors and management believe that changing our name to BlueFire Renewables, Inc. more accurately reflects our primary business plan expanding the focus from just building cellulosic ethanol projects to include other advanced biofuels, biodiesel, and other drop-in biofuels as well as synthetic lubricants. On July 20, 2010, the Certificate of Amendment was accepted by the Secretary of State of Nevada.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011
Revenue
Revenue for the three months ended September 30, 2012 and 2011, were approximately $188,000 and $137,000, respectively, and was primarily related to a federal grant revenues from the DOE. The federal grant generally provides for reimbursement in connection with related development and construction costs involving commercialization of our technologies. The increase in revenue was due to allocation of employee time between construction costs and project costs, and an increase in the company’s indirect billing rate during 2012.
Unbilled Grant Revenues
Unbilled grant revenues for the three months ended September 30, 2012 and 2011, were approximately $0, and $101,000, respectively. Unbilled grant revenues are those costs that have been incurred during a period but not yet paid at period end, and are otherwise reimbursable under the terms of the DOE grant and will be paid in the normal course of business. The decrease in unbilled grant revenues is a result having limited cash resources to pay the related costs during 2012.
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Project Development
For the third quarter in 2012, our project development costs were approximately $129,000, compared to project development costs of $158,000 for the same period during 2010. The decrease in project development costs is mainly due to the decrease in operating activities due to limited capital resources available to us in the third quarter of 2012 versus the same period in 2011.
General and Administrative Expenses
General and administrative expenses were approximately $309,000 for the third quarter of 2012, compared to $612,000 for the same period in 2011. The decrease in general and administrative costs is mainly due to the absence of the write-off of $309,834 in debt issuance costs, which was present in the 2011 period stemming from the USDA’s rejection of the Company’s application for a loan guarantee.
Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011
Revenue
Revenue for the nine months ended September 30, 2012 and 2011, were approximately $492,000 and $482,000, respectively, and was primarily related to a federal grant from the DOE. The grant generally provides for reimbursement in connection with related development and construction costs involving commercialization of our technologies. The increase in revenue is due to the net effect of reduced operations in 2012 offset against an increased indirect billing rate used when applying for DOE reimbursements during 2012.
Unbilled Grant Revenues
Unbilled grant revenues for the nine months ended September 30, 2012 and 2011 were approximately $0 and $114,000, respectively. The decrease in unbilled grant revenues is a result of having limited cash resources to pay for reimbursable cost under DOE grant.
Project Development
For the nine months ended September 30, 2012, our project development costs were approximately $420,000, compared to project development costs of $429,000 for the same period during 2011. The decrease in project development costs is mainly due to decreased operations in 2012 compared to the same 2011 period. In addition, the 2011 period contained significant construction costs that were capitalized rather than expensed to project development. There was a substantial reduction in capitalized construction activities during the 2012 period.
General and Administrative Expenses
General and administrative expenses were approximately $987,000, for the nine months ended September 30, 2012, compared to $1,347,000 for the same period in 2011. The decrease in general and administrative costs is mainly due to the decreased operations during the 2012 period and the absence of $309,834 for write off of debt issuance costs which was present in the 2011 period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders and outside investors. In addition, we receive funds under the grant received from the DOE. Our principal use of funds has been for the further development of our Biorefinery Projects, for capital expenditures and general corporate expenses. As our Projects are developed to the point of construction, we anticipate significant purchases of long lead time item equipment for construction which will require a significant amount of capital. As of September 30, 2012, we had cash and cash equivalents of approximately $65,000. As of November 14, 2011, we had cash and cash equivalents of approximately $100,000.
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Historically, we have funded our operations though the following transactions:
In February 2009, the Company obtained a line of credit in the amount of $570,000 from Arkenol Inc, its technology licensor, to provide additional liquidity to the Company as needed. The line was ultimately paid back during 2009 and cancelled.
In October 2009, the Company received additional funds of approximately $3,800,000 from the DOE, due to the success in amending its DOE award to include costs previously incurred in connection with the development of the Lancaster Biorefinery which have a direct attributable benefit to the Fulton Project. The funds were used to fund operations for the remainder of 2009 and most of 2010.
On December 15, 2010, the Company entered into a $200,000 loan agreement (“Loan”) with Arnold Klann, the Chief Executive Officer (“CEO/Lender”). The Loan requires the Company to (i) pay to the CEO/Lender a one-time amount equal to fifteen percent (15%) of the Loan in cash or shares of the Company’s common stock at a value of $0.50 per share, at the CEO/Lender’s option; and (ii) issue the CEO/Lender warrants allowing the CEO/Lender to buy 500,000 common shares of the Company at an exercise price of $0.50 per common share, such warrants to expire on December 15, 2013. The Company has promised to pay in full the outstanding principal balance of any and all amounts due under the Loan Agreement within thirty (30) days of the Company’s receipt of investment financing or a commitment from a third party to provide One Million United States Dollars (US$1,000,000) to the Company or one of its subsidiaries. The proceeds from this loan are being used to fund operations.
On December 23, 2010, the Company sold a one percent (1%) membership interest in its operating subsidiary, BlueFire Fulton Renewable Energy, LLC (“BlueFire Fulton” or the “Fulton Project”), to an accredited investor for a purchase price of $750,000 (“Purchase Price”). The Company maintains a 99% ownership interest in BlueFire Fulton. In addition, the investor received a right to require the Company to redeem the 1% interest for $862,500, or any pro-rata amount thereon. The redemption is based upon future contingent events based upon obtaining financing for the construction of the Fulton Project.
On November 10, 2011, the Company obtained a line of credit in the amount of $40,000 from its Chairman/Chief Executive Officer and majority shareholder to provide additional liquidity to the Company as needed, at his sole discretion. Under the terms of the note, the Company is to repay any principal balance and interest, at 12% per annum, within 30 days of receiving qualified investment financing of $100,000 or more. As of November 14, 2012, the outstanding balance on the line of credit is approximately $15,200.
On January 19, 2011, the Company signed a $10 million purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), an Illinois limited liability company. The Company also entered into a registration rights agreement with LPC whereby we agreed to file a registration statement related to the transaction with the U.S. Securities & Exchange Commission (“SEC”) covering the shares that may be issued to LPC under the Purchase Agreement within ten days of the agreement. Although under the Purchase Agreement the registration statement was to be declared effective by March 31, 2011, and was subsequently declared effective on July 11, 2011, LPC has no intention at this time of terminating the Purchase Agreement.
After the SEC has declared effective the registration statement related to the transaction, we have the right, in our sole discretion, over a 30-month period to sell our shares of common stock to LPC in amounts up to $500,000 per sale, depending on certain conditions as set forth in the Purchase Agreement, up to the aggregate commitment of $10 million.
On March 28, 2012, the Company finalized a $2,000,000 Equity Facility with TCA. The Company also entered into a Registration Rights Agreement with TCA whereby we agreed to file a registration statement related to the transaction with the SEC covering the shares that may be issued to TCA under the Equity Facility within 45 days of closing. Although under the Registration Rights Agreement the registration statement was to be declared effective within 90 days following closing, it has yet to be declared effective. The Company is working with TCA to resolve this issue.
On March 28, 2012, the Company finalized a $300,000 secured convertible promissory note in favor of TCA (the “Convertible Note”). The maturity date of the Convertible Note is March 28, 2013, and the Convertible Note bears interest at a rate of twelve percent per annum with a default rate of eighteen percent per annum. The Convertible Note is convertible into shares of the Company’s common stock and may be prepaid in whole or in part at the Company’s option without penalty.
On July 31, 2012, the Company borrowed $63,500 under a short-term convertible note payable with a third party. Under the terms of the agreement, the note incurs interest at eight percent per annum and is due on May 2, 2013. The note is convertible into common shares at any time after six months. The Company may prepay the convertible debt, prior to maturity at varying prepayment penalty rates specified under the agreement.
Management has estimated that operating expenses for the next twelve months will be approximately $1,700,000, excluding engineering costs related to the development of bio-refinery projects. These matters raise substantial doubt about the Company’s ability to continue as a going concern. For the remainder of 2012, the Company intends to fund its operations with reimbursements under the Department of Energy contract, from the sale of Fulton Project equity ownership, from the sale of debt and equity instruments, our equity purchase agreement consummated with LPC in January 2011, and the TCA Global Credit Master Fund, LP in March 2012 (as discussed herein). The Company's ability to get reimbursed on the DOE contract is dependent on the availability of cash to pay for the related costs. As of November 14, 2012, the Company expects the current resources, as well as the resources available in the short term under the LPC Purchase Agreement, will only be sufficient for a period of approximately one month, depending upon certain funding conditions contained herein, unless significant additional financing is received. Management has determined that these general expenditures must be reduced and additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results.
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Changes in Cash Flows
During the nine months ended September 30, 2012 and 2011, we used cash of approximately $191,000 and $700,000 in operating activates. During the 2012 period we had a net loss of approximately $1,051,000, which was offset by non-cash charges of approximately $229,000 and operating assets and liabilities of approximately $631,000. During the 2011 period, we had a net loss of approximately $592,000, which included non-cash charges of approximately $353,000 for net gains in non-cash activity and approximately $245,000 in increases to operating assets and liabilities. The decrease in cash used in operating activities is a reflection of limited cash resources during the 2012 period.
During the nine months ended September 30, 2012, we invested approximately $55,000 net of DOE reimbursements in construction activities at our Fulton Project, compared with $131,000, net of DOE reimbursements in the similar period in 2011. This decrease was due to the decrease in engineering activities and increase in reimbursement rate during 2012 compared to 2011.
During the nine months ended September 30, 2012, we had positive cash flow from financing activities of $296,700 compared to $250,000 for the same period in 2011. During the nine months ended September 30, 2012 period, we received net proceeds from LPC of approximately $35,000 for shares of the Company’s common stock, as compared to $250,000 in the same period in 2011. The decrease was mainly due to the Company not drawing down on the LPC Agreement. We received gross proceeds from various convertible note transactions of approximately $363,500, and paid debt issuance costs of approximately $97,800, during the nine months ended September 30, 2012, as compared to $0 in the same period in 2011. This is due to the fact that in 2011, the Company did not receive financing from convertible notes.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates relate to the fair value of warrant liabilities. We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 2, “Summary of Significant Accounting Policies” in the notes to our reviewed financial statements appearing elsewhere in this quarterly report and our annual audited financial statements appearing on Form 10-K. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
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(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2011, filed with the SEC on April 16, 2012, as amended.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
See Note 4 for information related to Convertible Notes Payable. Other than the information presented in Note 4 there were no unregistered sales of the Company’s equity securities during the quarter ended September 30, 2012 that were not previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Creation of a Direct Financial Obligation of the Registrant
On November 10, 2011, the Company entered into a revolving credit facility with our Chief Executive Officer, Mr. Arnold Klann (“Mr. Klann”), for up to the maximum amount of forty thousand dollars ($40,000) at an interest rate of 12% per annum (the “Line of Credit”). Pursuant to the terms of the Line of Credit, the Company is required to pay Mr. Klann the outstanding principal balance of any amounts due under the Line of Credit within thirty (30) days of the Company’s receipt of investment financing in the aggregate amount of one hundred thousand dollars ($100,000) (the “Due Date”). The Company is allowed to repay any outstanding principal or accrued interest on the Line of Credit prior to the Due Date.
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Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | |
| 31.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | |
| 32.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BLUEFIRE RENEWABLES, INC. | |
| Dated: November 14, 2012 | /s/ Arnold Klann |
| Arnold Klann | |
| Chief Executive Officer | |
(Principal Executive Officer) (Principal Financial Officer) |
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