Bluefire Renewables 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2008

OR

o            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________ to __________

Commission File No. 000-52361

BLUEFIRE ETHANOL FUELS, INC.

(Exact Name of Registrant in its Charter)

Nevada	20-4590982
(State or Other Jurisdiction of	(IRS Employer
Incorporation)	Identification No.)

31 MUSICK, IRVINE, CALIFORNIA 92618

(Address of Principal Executive Offices)(Zip Code)

(949) 588-3767

Registrant’s Telephone Number

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer   o                                                                                                                       Accelerated filer   o  

Non-accelerated filer    o   (Do not check if a smaller reporting company)                                     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  o    No x

As of August 12, 2008, there were 28,061,553 shares outstanding of the registrant’s common stock.

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	CONSOLIDATED BALANCE SHEETS	1
	CONSOLIDATED STATEMENTS OF OPERATIONS	2
	CONSOLIDATED STATEMENTS OF CASH FLOWS	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits	13

BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT-STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2008			December 31, 2007
ASSETS	(unaudited)			(audited)
Current assets:
Cash and cash equivalents	$	8,394,428		$	13,031,939
Accounts receivable		-			49,000
Department of energy grant receivable		143,985			-
Prepaid expenses		284,232			16,542
Total current assets		8,822,645			13,097,481
Prepaid fees to related party		30,000			30,000
Property and equipment, net of accumulated   depreciation of $7,634 and $406, respectively		198,365			151,007
Total assets	$	9,051,010		$	13,278,488
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	554,157		$	382,679
Accrued liabilities		134,416			267,671
Total current liabilities		688,573			650,350
Commitments and contingencies (Note 5)		-			-
Stockholders’ equity:
Preferred stock, no par value, 1,000,000 shares    authorized; none issued and outstanding		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized; 28,061,553 and 28,061,553 shares issued; 28,051,652 and 28,061,553 shares outstanding, respectively		28,061			28,061
Additional paid-in capital		31,053,915			28,431,992
Deficit accumulated during the development stage		(22,685,070	)		(15,831,915	)
Treasury Stock at cost 9,901 shares at June 30, 2008		(34,469	)		-
Total liabilities and stockholders’ equity	$	9,051,010		$	13,278,488

See accompanying notes to consolidated financial statements

1

BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT-STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months ended June 30,			For the Three Months ended June 30,			For the Six Months ended June 30,			For the Six Months ended June 30,			From March 28, 2006 (inception) Through June 30,
	2008			2007			2008			2007			2008
Revenues:
Consulting fees	$	-		$	-		$	-		$	-		$	49,000
Department of energy grant		143,985			-			143,985			-			143,985
Total revenues		143,985			-			143,985			-			192,985
Operating expenses:
Project development		3,340,835			918,952			4,977,307			1,386,107			10,374,048
General and administrative		1,018,196			1,126,493			2,184,537			2,796,581			8,862,857
Total operating expenses		4,359,031			2,045,445			7,161,844			4,182,688			19,236,905
Operating loss		(4,215,046	)		(2,045,445	)		(7,017,859	)		(4,182,688	)		(19,043,920	)
Other income and (expense):
Other income		65,770			-			164,704			-			186,407
Financing related charge		-			-			-			(211,660	)		(211,660	)
Amortization of debt discount		-			-			-			-			(676,982	)
Interest expense		-			-			-			-			(56,097	)
Related party interest expense		-			(4,000	)		-			(12,000	)		(64,448	)
Loss on extinguishment of debt		-			-			-			-			(2,818,370	)
Net loss	$	(4,149,276	)	$	(2,049,445	)	$	(6,853,155	)	$	(4,406,348	)	$	(22,685,070	)
Basic and diluted loss per common share	$	(0.15	)	$	(0.10	)	$	(0.24	)	$	(0.21	)
Weighted average common shares outstanding, basic and diluted		28,052,847			21,511,998			28,057,200			21,474,388

See accompanying notes to consolidated financial statements

2

BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARY

 (A DEVELOPMENT-STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASHFLOWS

(Unaudited)

	For the Six Months ended June 30, 2008			For the Six Months ended June 30, 2007			From March 28, 2006 (inception) Through June 30, 2008
Cash flows from operating activities:
Net loss	$	(6,853,155	)	$	(4,406,348	)	$	(22,685,070	)
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
Common stock issued for interest on Convertible notes		-			-			55,585
Financing related charge		-			211,660			211,660
Share-based compensation		2,621,923			2,861,330			9,771,430
Depreciation		7,225			146			7,634
Changes in operating assets and liabilities:
Accounts receivable		49,000			-			-
Department of energy grant receivable		(143,985	)		-			(143,985	)
Prepaid fees to related party		-			-			(30,000	)
Prepaid expenses and other current assets		(267,690	)		(19,978	)		(284,233	)
Accounts payable		171,478			312,240			554,156
Accrued liabilities		(133,255	)		20,181			134,416
Accrued interest to related party		-			12,000			-
Net cash used in operating activities		(4,548,459	)		(1,008,769	)		(8,999,604	)
Cash flows from investing activities:
Acquisition of property and equipment		(54,583	)		(2,186	)		(205,999	)
Cash flows from financing activities:
Purchase of treasury stock		(34,469	)		-			(34,469	)
Cash received in acquisition of Sucre Agricultural Corp.		-			-			690,000
Proceeds from sale of stock through private placement		-			544,500			544,500
Proceeds from exercise of stock options		-			-			40,000
Proceeds from issuance of common stock		-			-			14,360,000
Proceeds from Convertible notes payable		-			-			2,500,000
Repayment of notes payable		-			-			(500,000	)
Proceeds from related party notes payable		-			617,000			116,000
Repayment of related party notes payable		-			(126,500	)		(116,000	)
Net cash provided (used) by financing activities		(34,469	)		1,035,000			17,600,031
Net decrease in cash and cash equivalents		(4,637,511	)		24,045			8,394,428
Cash and cash equivalents beginning of period		13,031,939			2,760			-
Cash and cash equivalents end of period	$	8,394,428		$	26,805		$	8,394,428

See accompanying notes to consolidated financial statements

3

BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARY (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED STATEMENT OF CASHFLOWS (Continued) (Unaudited)
	For the Six Months ended June 30, 2008		For the Six Months ended June 30, 2007		From March 28, 2006 (inception) Through June 30, 2008
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	-	$	11,600	$	56,375
Income taxes	$	800	$	-	$	1,600
Fair Value of warrants issued to placement agents	$	-	$	-	$	725,591
Supplemental information of non-cash investing and financing activites: 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

See accompanying notes to consolidated financial statements

4

BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT-STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - ORGANIZATION AND BUSINESS

BlueFire Ethanol, Inc. (“BlueFire”) was incorporated in the state of Nevada on March 28, 2006 (“Inception”). On June 27, 2006, BlueFire completed a reverse merger with Sucre Agricultural Corp., with the resulting holding company being named 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Managements’ Plans

The Company is a development-stage company which has incurred losses since inception. Management has funded operations primarily through proceeds received in connection with the reverse merger, loans from its majority shareholder, the private placement of the Company’s common stock in January 2007, the issuance of convertible notes with warrants in July and in August 2007 and from the sale of the Company’s common stock in December 2007. The Company may encounter difficulties in establishing these operations due to the time frame of developing, constructing and ultimately operating the planned bio-refinery projects.

As of June 30, 2008, the Company has working capital of approximately $8,134,000. In December 2007, the Company obtained net proceeds of approximately $14,500,000 from the issuance of its common stock.  The proceeds received are expected to be used in operations, and in funding plant design and development costs.  Management has estimated that cash operating expenses for the next twelve months will approximate roughly $2,400,000, excluding engineering costs related to the development of bio-refinery projects.  Although the cost of construction is not readily determinable, the Company estimates the equipment cost to be approximately $30 million for its first plant, with the final installation cost to be determined. The Company is currently in discussions with potential sources of financing for this facility but no definitive agreements are in place.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC").  Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting principles generally accepted in the Unites States of America have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included.  Such adjustments consist of normal recurring adjustments.  These interim financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2007.

The results of operations for the three and six months ended June 30, 2008 and 2007 are not necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Significant estimates include the fair value of options and warrants issued during the reporting period. Actual results could materially differ from those estimates.

5

Revenue Recognition

As discussed in Note 3, the Company received a federal grant from the United States Department of Energy, (“U.S. DOE”). The grant generally provides for payment in connection with related development and construction costs involving commercialization of our technologies. Revenues from the grant are recognized in the period during which the conditions under the grant have been met and the reimbursement is estimatible. Costs related to government grant revenues are not readily identifiable, and such costs are recorded in general and administrative expenses, and project development costs in the accompanying statements of operations.

Project Development

Project development costs are either expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, project development costs include the research and development expenses related to the Company’s future cellulose-to-ethanol production facilities.  During the three and six months ended June 30, 2008, the Company expensed all costs related to the facility development of approximately $2,531,000 and $3,492,000, respectively.

Fair Value of Financial Instruments

The financial instruments consist of cash, and accounts payable. The fair value of the financial instruments approximates the carrying value at June 30, 2008.

Loss per Common Share

The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. For the three months ended June 30, 2008 and 2007, the Company had approximately 3,287,000 and 1,990,000 options, respectively and 7,387,000 and 200,000 warrants, respectively, to purchase shares of common stock that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS 141(R)"), which replaces FAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is to be applied prospectively to business combinations.

NOTE 3 – DEVELOPMENT CONTRACT

Department of Energy Award 1

In February 2007, the Company was awarded a grant for up to $40 million from the U.S. DOE under the cellulosic ethanol grant program to develop a solid waste bio-refinery 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 U.S. DOE. This award is a 60%/40% cost share, whereby a specified multiplication factor is applied to approved costs and 40% of the calculated amount may be reimbursed by the U.S. DOE up to the total $40 million award announced in February 2007. The multiplication factor for the period ending June 30, 2008 was 206%.  During the three and six months ended June 30, 2008, the Company recorded approximately $143,000 related to the U.S.DOE contract (see Note 6) which is presented as Department of energy receivable on the accompanying balance sheet. During the three and six months ended June 30, 2008, the amount receivable under the contract was recorded as revenues on the accompanying statement of operations.

6

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Professional Services Agreement

On February 26, 2007, the Company entered into an agreement with an engineering firm, whereby the engineering firm was engaged to prepare a design basis for a pilot facility comprising a capacity of 2.5 to 9 million gallons per year as specified by the Company, incorporating cellulosic ethanol process technology and the Arkenol Technology. During the three and six months ended June 30, 2008, 2007 and for the period from March 28, 2006 (inception) to June 30, 2008, the Company has incurred costs of $311,000, $741,000, $309,000, $291,000 and $1,711,000, respectively, of which all were expensed under project development on the accompanying statement of operations. As of June 30, 2008, amounts included in accounts payable were approximately $264,000.

NOTE 5 -STOCKHOLDERS’ EQUITY

During the six months ended June 30, 2008 and 2007, and for the period from March 28, 2006 (Inception) to June 30, 2008, the Company amortized stock-based compensation, including consultants, of approximately $1,136,000, $814,000 and $3,700,000 to general and administrative expenses and $1,486,000, $472,000 and $3,776,000 to project development expenses, respectively. The Company expects to record estimated future compensation expense of approximately $1,190,000 during the year ending December 31, 2008.

In accordance with EITF 96-18, as of June 30, 2008, the options awarded to consultants under the 2006 and 2007 stock option grant were re-valued using the Black-Scholes option pricing model with the following weighted average assumptions: volatility of 129%, remaining expected life of 3.75 years, risk free interest rate of 3.34% and no dividends.

Treasury Stock

During the three months ended June 30, 2008, from time to time, the Company acquired 9,901 of its own shares of common stock in open market transactions at an approximate cost of $34,000.  The repurchases were made in compliance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors.

NOTE 6 – SUBSEQUENT EVENT

In July of 2008, the Company received its first reimbursement from the U.S. DOE of approximately $143,000 (see Note 3).

7

Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report.  Various statements have been made in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in BlueFire’s other reports filed with or furnished to the SEC and in other documents. In addition, from time to time, BlueFire through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. BlueFire undertakes no obligation to update or revise any forward-looking statements.

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 Techonology 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 170 tons of green waste material annually to produce roughly 3 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. We are currently in the detailed engineering and design phase. Although the cost of construction is not readily determinable, we estimate the equipment cost to be approximately $30 million for this first plant, with the final installation cost to be determined. We are currently in discussions with potential sources of financing for this facility but no definitive agreements are in place.

●   A biorefinery proposed for development and construction in conjunction with the U.S. DOE in Southern California which will process approximately 700 metric dry tons of green waste and wood waste annually currently being disposed of in landfills to produce between 17 to 18 million gallons of ethanol annually ("DOE Biorefinery"). Preliminary engineering and design is in progress and permitting for the DOE Biorefinery will commence once all required preliminary engineering design is completed. A definitive agreement is being finalized for the purchase and sale of the ethanol produced from the DOE Biorefinery. We have received an Award from the U.S. DOE of up to $40 million for our DOE Biorefinery, which will be our second biorefinery in Southern California.  On or around October 4, 2007, we finalized the award with the U.S. DOE for preconstruction activities, which we refer to as “Award 1” for a total approved budget of just under $10,000,000.  During the second quarter 2008 this approved budget was increased to approximately $16,000,000. This award is a 60%/40% cost share, whereby 40% of approved costs may be reimbursed by the U.S.DOE pursuant to the total $40 million amount awarded in February 2007.  The remainder of financing for this project is yet to be determined.

●   Several other opportunities are being evaluated by us in North America including discussions with various landfill owners to duplicate the proposed DOE Biorefinery project, although no definitive agreements have been reached.

BlueFire’s capital requirements strategy for its planned biorefineries are as follows:

●   Obtain additional operating capital from joint venture partnerships, debt financing or equity financing to fund our ongoing operations and the development of initial biorefineries in North America.

●   The Energy Policy Act of 2005 provides for grants and loan guarantee programs to incentivize the growth of the cellulosic ethanol market. These programs include a Cellulosic Biomass Ethanol and Municipal Solid Waste Guarantee Program under which the U.S. DOE could provide loan guarantees up to $250 million per qualified biorefinery. We have received approval of our pre-application and must now submit a formal application for a loan guarantee of up to $200 million to support the development of a 55 million gallon per year biorefinery in a location to be determined.

8

●   The Energy Policy Act of 2005 created a biorefinery Demonstration Project Program under which $384 million or another amount appropriated by Congress is available to fund up to three biorefinery demonstration projects. Ultimately the U.S.DOE was appropriated $385 million for the program and granted awards of various size to six companies of which we are one. In October, 2007, we signed the contract for Award 1 for pre-construction activities on our DOE Biorefinery (see above) and began to draw down on those funds during the third quarter 2008.

●   As available and as applicable to our business plans, applications for public funding will be submitted to leverage private capital raised by us.

RECENT DEVELOPMENTS IN BLUEFIRE’S BIOREFINERY ENGINEERING AND DEVELOPMENT

During the second quarter in 2008, BlueFire continued to develop the engineering package for  the Lancaster Biorefinery.  The Company finalized contract negotiations with two integral companies for the deployment of the technology.

In January 2008, BlueFire began negotiating with Brinderson, a detail design and construction firm based in Costa Mesa, California.  In April 2008, BlueFire executed definitive agreements with Brinderson for the detailed design and construction of the Lancaster Biorefinery.

In January 2008, BlueFire began negotiating with Roeslein Associates for the modular construction of key equipment for the Lancaster Biorefinery.  In April 2008 BlueFire executed definitive agreements with Roeslein Associates for the modular construction of key equipment for the Lancaster Biorefinery.

In January 2008, BlueFire completed vendor testing for the Decrystalyzer-Hydrolyzer-Filter Train with B&P Processing of Saginaw, Michigan. The testing allowed vendors building the equipment for the Lancaster Biorefinery to have hands-on experience with the technology and process conditions.  This experience helps assist the vendors in mitigating building and design risks if and when they arise.

In July 2008, BlueFire signed a teaming agreement with Amalgamated Research, Inc. (“ARI”) for the exclusive right to use its Simulated Moving Bed Chromatographic Separation (“SMB”) technology for the separation of concentrated sulfuric acid and simple sugars. By using ARI’s SMB, BlueFire recovers approximately 99% of the entrained sugars in the acid/sugar stream.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007

Project Development

For the second quarter in 2008, our project development costs were approximately $3,341,000 compared to project development costs of $919,000 for the same period during 2007.  Included in project development costs in the second quarter of 2008 and 2007, was approximately $810,000 and $229,000, respectively of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option awards.  The increase in project development costs is due to the increased activity in the design and engineering development of the biorefineries.

General and Administrative Expenses

General and Administrative Expenses were approximately $1,018,000 for the second quarter of 2008, compared to $1,126,000 for the same period in 2007.  Included in general and administrative expenses in the second quarter of 2008 and 2007, was approximately $491,000 and $411,000, respectively of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option award.  The decrease in general and administrative costs is mainly due to our employee’s time being utilized for direct project expenses.

Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007

Project Development

For the first six months in 2008, our project development costs were approximately $4,974,000, compared to project development costs of $1,386,000 for the same period during 2007.  Included in project development costs in the six months ended June 30, 2008 and 2007, was approximately $1,486,000 and $472,000, respectively, of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option awards.  The increase in project development costs is due to the increased activity in the design and engineering development of the biorefineries.

9

General and Administrative Expenses

General and Administrative Expenses were approximately $2,184,000 for the six months ended June 30, 2008, compared to $2,797,000 for the same period in 2007.  Included in general and administrative expenses in the six months ended June 30, 2008 and 2007, was approximately $1,136,000 and $814,000, respectively, of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option award.  The decrease in general and administrative costs is mainly due to our employee’s time being utilized for direct project expenses.

Interest Income

Interest income for the second quarter of 2008 was $65,770 related to funds invested.  We did not have interest income for the same period in 2007 as we had not completed our offering of common stock during such time period.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity consist of cash and cash equivalents. Historically, we have funded our operations through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders and outside investors. Our principal use of funds has been for the further development of our Biorefinery projects, for capital expenditures and general corporate expenses. As of June 30, 2008, we had cash and cash equivalents of approximately $8.4 million.

We plan to raise additional funds through joint venture partnerships, both project equity and debt financings or through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations.  Our consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Management believes that our Company’s cash will be sufficient to meet our working capital requirements for the next twelve month period, as well as be sufficient to prepare our Lancaster Biorefinery and DOE Biorefinery for construction, at which point further funding will be necessary. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations.

In addition, as our biorefinery projects develop to the point of construction, we anticipate significant purchases of long lead time item equipment for construction.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates are described below under the heading “Revenue Recognition.” We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 1, “Summary of Organization and Significant Accounting Policies” in the notes to our audited financial statements appearing elsewhere in this quarterly report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

CASH AND CASH EQUIVALENTS

For purpose of the statement of cash flows, we consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

REVENUE RECOGNITION

We are currently a developmental-stage company and have recognized minimal revenues to date. We will recognize revenues from 1) consulting services rendered to potential sub licensees for development and construction of cellulose to ethanol projects, 2) sales of ethanol from its production facilities when (a) persuasive evidence that an agreement exists; (b) the products have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured.

The Company received a federal grant from the U.S. DOE. The grant generally provides for payment in connection with related development and construction costs involving commercialization of our technologies.  Revenues from the grant are recognized in the period during which the conditions under the grant have been met and the reimbursement amount is estimatible. Costs related to government grant revenues are not readily identifiable, and such costs are recorded in general and administrative expenses, and project development costs in the accompanying statements of operations.

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PROJECT DEVELOPMENT

Project development costs are either expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, project development costs include the research and development expenses related to our future cellulose-to-ethanol production facilities. During the three months ended June 30, 2008, we expensed all costs related to the facility development.

INCOME TAXES

The Company accounts for income taxes in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” SFAS No. 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carry forwards.  We provide a valuation allowance to net deferred tax assets when it is deemed unlikely that we will recover such deferred tax assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments approximated their carrying values at June 30, 2008. The financial instruments consist of cash and accounts payable.

LOSS PER COMMON SHARE

The Company presents basic loss per common share (“EPS”) and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.  As of June 30, 2008, the Company had outstanding options and warrants to purchase an aggregate of 10,673,853 shares of common stock that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive.

CONCENTRATIONS OF CREDIT RISK

The Company regularly maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies.

SHARE-BASED PAYMENTS

In December 2004, the FASB issued a revision of SFAS 123 (“SFAS 123(R)”) that requires compensation costs related to share-based payment transactions to be recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be re-measured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS 123(R) replaces SFAS 123 and was effective as of the first interim period beginning after January 1, 2006. During the period ended December 31, 2006, the Company adopted the provisions of SFAS 123(R).  No options were outstanding prior to adoption.

UNCERTAIN TAX POSITIONS

In July 2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This pronouncement recommends a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in the Company’s tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for the Company beginning January 1, 2007. The Company is in the process of evaluating the impact, if any, the adoption of FIN 48 will have on its financial statements.

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RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement clarifies fair value as permitted under other accounting pronouncements but does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. The Company will be required to adopt SFAS No. 157 as of January 1, 2008 and is currently in the process of evaluating the impact, if any, the adoption of SFAS No. 157 will have on its financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS 141(R)"), which replaces FAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is to be applied prospectively to business combinations.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements.

Item 3.                      Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4.                      Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.   Our management, with the participation of our Chief Executive Officer, 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 Chief Executive and Chief Financial Officers 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 management, including our Chief Executive 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.

Management's Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations.  Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties.  Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control.  Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of June 30, 2008.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.  Based on this evaluation, our management, with the participation of the Chief Executive Officer, concluded that, as of June 30, 2008, our internal control over financial reporting was effective.

(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.

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PART II - OTHER INFORMATION

Item 1.                     Legal Proceedings

None.

Item 2.                     Unregistered Sales of Equity Securities and Use of Proceeds

RULE 10B-18 TRANSACTIONS

The following table provides information about purchases by BlueFire of shares of BlueFire’s common stock during this last quarter.  All repurchases were made in compliance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors.

A monthly summary of the repurchase activity for the quarter ending June 30, 2008 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES 1

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
4/1/08 – 4/30/08		9,901	$	3.48		0		0
5/1/08 – 5/31/08		0				0		0
6/1/08 – 6/30/08		0				0		0
Total		9,901	$	3.48		0		0

(1)  The Company implemented a stock repurchase program effective April 1, 2008 with the intent to repurchase BlueFire shares in accordance with SEC Rule 10b-18. During the quarter ended June 30, 2008, the Company repurchased a total of 9,901 shares at a cost of approximately $34,469.  Under the stock repurchase program, the Company is not obligated to repurchase any additional shares of common stock.

Item 3.                     Defaults Upon Senior Securities

None.

Item 4.                     Submission of Matters to a Vote of Security Holders

None.

Item 5.                     Other Information

None.

Item 6.                     Exhibits

Exhibit Number	Description of Document
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Arnold Klann.
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of Christopher Scott.
32.1	Certification Pursuant to 18 U.S.C. section 1350 of Arnold Klann.
32.2	Certification Pursuant to 18 U.S.C. section 1350 of Christopher Scott.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: August 13, 2008	BLUEFIRE ETHANOL FUELS, INC.
	/s/ Arnold Klann
	Arnold Klann
	Chief Executive Officer
	/s/ Christopher Scott
	Christopher Scott
	Chief Financial Officer and
	Principal Accounting Officer