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EX-31.2 - EXHIBIT 31.2 - Bluefire Renewables, Inc.ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Bluefire Renewables, Inc.ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Bluefire Renewables, Inc.ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Bluefire Renewables, Inc.ex31-1.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 000-52361
 
BLUEFIRE ETHANOL FUELS, INC.
(Name of Registrant as specified in its charter)
 
NEVADA
 
20-4590982
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
31 MUSICK, IRVINE, CALIFORNIA
 
92618
(Address of principal executive offices)
 
(Zip Code)
 
(949) 588-3767
(Issuer’s telephone number, including area code)
 
Securities registered under Section 12(b) of the Exchange Act:
 
Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, $.001 par value
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.  Yes o   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o   No x
 
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 last 90 days.  Yes x   No o
 
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 (§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). Yes o   No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 
 

 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer   o
Accelerated Filer     o
Non-Accelerated Filer     o
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 .
 
Issuers revenues for its most recent fiscal year was approximately $4,318,213.
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on March 28, 2010 based on a closing price of $0.36 was approximately $3,500,000.   As of March 26, 2010, the registrant had 28,296,965 shares of its common stock, par value $.001 per share, outstanding.
 
Documents Incorporated By Reference: None.

 
2

 

TABLE OF CONTENTS
 
PART I
 
     
ITEM 1.
Business
5
ITEM 1A.
Risk Factors
12
ITEM 1B.
Unresolved Staff Comments
17
ITEM 2.
Properties
17
ITEM 3.
Legal Proceedings
17
ITEM 4.
Submission Of Matters To a Vote Of Securities Holders
17
   
PART II
 
     
ITEM 5.
Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
18
ITEM 6.
Selected Financial Data
19
ITEM 7.
Management’s Discussion And Analysis Of Financial Condition And Results Of Operation
20
ITEM 7A
Quantitative And Qualitative Disclosures About Market Risk
24
ITEM 8.
Financial Statements
24
ITEM 9.
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
24
ITEM 9A.
Controls And Procedures (ITEM 9A(T))
24
ITEM 9B.
Other Information
25
     
PART III
   
     
ITEM 10.
Directors, Executive Officers And Corporate Governance
26
ITEM 11.
Executive Compensation
29
ITEM 12.
Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
35
ITEM 13.
Certain Relationships And Related Transactions, And Director Independence
38
ITEM 14.
Principal Accounting Fees And Services
39
     
PART IV
   
     
ITEM 15.
Exhibits, Financial Statements Schedules
40

SIGNATURES

CERTIFICATION PURSUANT TO SECTION 302 (A) OF THE SARBANES-OXLEY ACT OF 2002
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Included in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. Important factors that could cause our actual results, performance or achievements to differ from these forward-looking statements include the following:
 
 ·
the availability and adequacy of our cash flow to meet our requirements,
 
     
 ·
economic, competitive, demographic, business and other conditions in our local and regional markets,
 
     
 ·
changes or developments in laws, regulations or taxes in the ethanol or energy industries,
 
     
 ·
actions taken or not taken by third-parties, including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities,
 
     
 ·
competition in the ethanol industry,
 
   
 ·
the failure to obtain or loss of any license or permit,
     
 ·
success of the Arkenol Technology,
 
       
 ·
changes in our business and growth strategy (including our plant building strategy and co-location strategy), capital improvements or development plans,
   
     
 ·
the availability of additional capital to support capital improvements and development, and
 
       
 ·
other factors discussed under the section entitled “Risk Factors” or elsewhere in this registration statement.
   
 
All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

 
4

 

PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
As used in this annual report, “we”, “us”, “our”, “Bluefire”, “Company” or “our company” refers to Bluefire Ethanol Fuels, Inc.
 
COMPANY HISTORY
 
Our Company
 
We are BlueFire Ethanol Fuels, Inc., a Nevada corporation. Our goal is to develop, own and operate high-value carbohydrate-based transportation fuel plants, or biorefineries, to produce ethanol, a viable alternative to fossil fuels, and to provide professional services to biorefineries worldwide. Our biorefineries will convert widely available, inexpensive, organic materials such as agricultural residues, high-content biomass crops, wood residues and cellulose from municipal solid wastes into ethanol. This versatility enables us to consider a wide variety of feedstocks and locations in which to develop facilities to become a low cost producer of ethanol. We have licensed for use a patented process from Arkenol, Inc., a Nevada corporation (“Arkenol”), to produce ethanol from cellulose (the “Arkenol Technology”). We are the exclusive North America licensee of the Arkenol Technology. We may also utilize certain biorefinery related rights, assets, work-product, intellectual property and other know-how related to 19 ethanol project opportunities originally developed by ARK Energy, Inc, a Nevada corporation, to accelerate our deployment of the Arkenol Technology.
 
Company History
 
We are a Nevada corporation that was initially organized as Atlanta Technology Group, Inc., a Delaware corporation, on October 12, 1993. The Company was re-named Docplus.net Corporation on December 31, 1998, and further re-named Sucre Agricultural Corp. (“Sucre”) and re-domiciled as a Nevada corporation on March 6, 2006.  Finally, on May 24, 2006, in anticipation of the reverse merger by which it would acquire BlueFire Ethanol, Inc. (“BlueFire”), a privately held Nevada corporation organized on March 28, 2006, as described below, the Company was re-named to its current name BlueFire Ethanol Fuels, Inc.
 
On June 27, 2006, the Company completed a reverse merger (the “Reverse Merger”) with BlueFire Ethanol, Inc. (“BlueFire Ethanol”).  At the time of Reverse Merger, the Company was a blank-check company and had no operations, revenues or liabilities. The only asset possessed by the Company was $690,000 in cash which continued to be owned by the Company at the time of the Reverse Merger. In connection with the Reverse Merger, the Company issued BlueFire Ethanol 17,000,000 shares of common stock, approximately 85% of all of the outstanding common stock of the Company, for all the issued and outstanding BlueFire Ethanol common stock. The Company stockholders retained 4,028,264 shares of Company common stock.  As a result of the Reverse Merger, BlueFire Ethanol became our wholly-owned subsidiary.  On June 21, 2006, prior to and in anticipation of the Reverse Merger, Sucre sold 3,000,000 shares of common stock to two related investors in a private offering of shares pursuant to Rule 504 for proceeds of $1,000,000.
 
The Company’s shares of common stock began trading under the symbol “BFRE.PK” on the Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007. On March 26, 2010, the closing price of our Common Stock was $0.36 per share.
 
Our executive offices are located at 31 Musick, Irvine, California 92618 and our telephone number at such office is (949) 588-3767.
 
BUSINESS OF ISSUER
 
PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
 
Our goal is to develop, own and operate high-value carbohydrate-based transportation fuel plants, or biorefineries, to produce ethanol, a viable alternative to fossil fuels, and to provide professional services to biorefineries worldwide. Our biorefineries will convert widely available, inexpensive, organic materials such as agricultural residues, high-content biomass crops, wood residues and cellulose from municipal solid wastes into ethanol. This versatility enables us to consider a wide variety of feedstocks and locations in which to develop facilities to become a low cost producer of ethanol.

We have licensed for use the Arkenol Technology, a patented process from Arkenol to produce ethanol from cellulose for sale into the transportation fuel market. We are the exclusive North America licensee of the Arkenol Technology.
 
 
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ARKENOL TECHNOLOGY
 
The production of chemicals by fermenting various sugars is a well-accepted science. Its use ranges from producing beverage alcohol and fuel-ethanol to making citric acid and xantham gum for food uses. However, the high price of sugar and the relatively low cost of competing petroleum based fuel has kept the production of chemicals mainly confined to producing ethanol from corn sugar.
 
In the Arkenol Technology process, incoming biomass feedstocks are cleaned and ground to reduce the particle size for the process equipment. The pretreated material is then dried to a moisture content consistent with the acid concentration requirements for breaking down the biomass, then hydrolyzed (degrading the chemical bonds of the cellulose) to produce hexose and pentose (C5 and C6) sugars at the high concentrations necessary for commercial fermentation. The insoluble materials left are separated by filtering and pressing into a cake and further processed into fuel for other beneficial uses. The remaining acid-sugar solution is separated into its acid and sugar components. The separated sulfuric acid is recirculated and reconcentrated to the level required to breakdown the incoming biomass. The small quantity of acid left in the sugar solution is neutralized with lime to make hydrated gypsum which can be used as an agricultural soil conditioner. At this point the process has produced a clean stream of mixed sugars (both C6 and C5) for fermentation. In an ethanol production plant, naturally-occurring yeast, which Arkenol has specifically cultured by a proprietary method to ferment the mixed sugar stream, is mixed with nutrients and added to the sugar solution where it efficiently converts both the C6 and C5 sugars to fermentation beer (an ethanol, yeast and water mixture) and carbon dioxide. The yeast culture is separated from the fermentation beer by a centrifuge and returned to the fermentation tanks for reuse. Ethanol is separated from the now clear fermentation beer by conventional distillation technology, dehydrated to 200 proof and denatured with unleaded gasoline to produce the final fuel-grade ethanol product. The still bottoms, containing principally water and unfermented sugar, is returned to the process for economic water use and for further conversion of the sugars.
 
Simply put, the process separates the biomass into two main constituents: cellulose and hemicellulose (the main building blocks of plant life) and lignin (the “glue” that holds the building blocks together), converts the cellulose and hemicellulose to sugars, ferments them and purifies the fermentation liquids into ethanol and other end-products.
 
ARK ENERGY
 
BlueFire may also utilize certain biorefinery related rights, assets, work-product, intellectual property and other know-how related to nineteen (19) ethanol project opportunities originally developed by ARK Energy, Inc., a Nevada corporation to accelerate BlueFire’s deployment of the Arkenol Technology. The opportunities consist of ARK Energy’s previous relationships, analysis, site development, permitting experience and market research on various potential project locations within North America. ARK Energy has transferred these assets to us and we valued these business assets based on management’s best estimates as to its actual costs of development. In the event we successfully finance the construction of a project that utilizes any of the transferred assets from ARK Energy, we are required to pay ARK Energy for the costs ARK Energy incurred in the development of the assets pertaining to that particular project or location. We did not incur the costs of a third party valuation but based our valuation of the assets acquired by (i) an arms length review of the value assigned by ARK Energy to the opportunities are based on the actual costs it incurred in developing the project opportunities, and (ii) anticipated financial benefits to us.
 
PILOT PLANTS
 
From 1994-2000, a test pilot biorefinery plant was built and operated by Arkenol in Orange, California to test the effectiveness of the Arkenol Technology using several different types of raw materials containing cellulose. The types of materials tested included: rice straw, wheat straw, green waste, wood wastes, and municipal solid wastes. Various equipment for use in the process was also tested and process conditions were verified leading to the issuance of the certain patents in support of the Arkenol Technology.In 2002, using the results obtained from the Arkenol California test pilot plant, JGC Corporation, based in Japan, built and operated a bench scale facility followed by another test pilot biorefinery plant in Izumi, Japan. At the Izumi plant, Arkenol retained the rights to the Arkenol Technology while the operations of the facility were controlled by JGC Corporation.
 
BIOREFINERY PROJECTS
 
WE ARE CURRENTLY IN THE DEVELOPMENT STAGE OF BUILDING BIOREFINERIES IN NORTH AMERICA.
 
We plan to use the Arkenol Technology and utilize JGC’s operations knowledge from the Izumi test pilot plant to assist in the design and engineering of our facilities in North America. MECS and Briderson Engineering, Inc. (“Brinderson”) provided the preliminary design package for our first facility and Brinderson has completed the detailed engineering design of the plant. We feel this completed design should provide the blueprint for subsequent plant constructions.
 
We intend to build a facility that will process approximately 190 tons of green waste material per day to produce roughly 3.9 million gallons of ethanol annually. In connection therewith, on November 9, 2007, we purchased the facility site which is located in Lancaster, California.  Permit applications were filed on June 24, 2007, to allow for construction of the Lancaster facility. The Los Angeles County Planning Commission issued a Conditional Use Permit for the Lancaster Project in July of 2008. 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.
 
 
6

 
 
In 2009, BlueFire completed the engineering package for the Lancaster Biorefinery, and finalized the Front-End Loading (FEL) 3 stage of engineering for the Lancaster Biorefinery. 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
    * Material Balance
    * Energy Balance
    * Project Charter
 
FEL-2
    * Preliminary Equipment Design
    * Preliminary Layout
    * Preliminary Schedule
    * Preliminary Estimate
 
FEL-3
    * Purchase Ready Major Equipment Specifications
    * Definitive Estimate
    * Project Execution Plan
    * Preliminary 3D Model
    * Electrical Equipment List
    * Line List
    * Instrument Index

We estimate the total cost including contingencies to be in the range of approximately $100 million to $125 million for this first plant. This amount is significantly greater than our previous estimations communicated to the public. This is due in part to a combination of significant increases in materials costs on the world market from the last estimate till now, and the complexity of our first commercial deployment. At the end of 2008 and early 2009, prices for materials have declined, and we expect, that items like structural and specialty steel may continue to decline in price in 2010 with other materials of construction following suit. The cost approximations above do not reflect any decrease in raw materials or any savings in construction cost.

The uncertainties of the world credit markets have also caused a delay in the financing we needed to enable placement of equipment orders for the construction of our Lancaster Project and which would allow us to achieve a sustainable construction schedule after breaking ground. Hence, to insure a timely and continuous construction of the project, BlueFire's board of directors determined it is prudent to delay Lancaster's groundbreaking until all the necessary funds are in place. Project activities have advanced to a point that once credit is available, orders can be immediately placed and construction started. We remain optimistic in being able to raise the additional capital necessary once the new federal administration’s policies take hold and the capital markets normalize. We are currently in discussions with potential sources of financing for this facility, including opportunities for grants and loan guarantees, but no definitive agreements are in place.
 
We are also developing a facility for construction in a joint effort with the U.S. Department of Energy (“DOE”). This facility will be located in Fulton, Mississippi and will use approximately 700 metric dry tons of woody biomass, mill residue, and other cellulosic waste to produce approximately 19 million gallons of ethanol annually. Detailed engineering is in progress and we expect to have all necessary permits for this facility by the summer of 2010.  We have received an Award from the DOE of up to $40 million for the Facility. On or around October 4, 2007, we finalized Award 1 for a total approved budget of just under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40% of approve costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007. 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 December 31, 2009, BlueFire has been reimbursed approximately $5,374,000 from the DOE under this award.  On or around February 23, 2010, we announced that we submitted an application for a $250 million dollar loan guarantee for this planned biorefinery. The application, filed under the DOE Program DE-FOA-0000140, which provides federal loan guarantees for projects that employ innovative energy efficiency, renewable energy, and advanced transmission and distribution technologies, was submitted on February 15th, 2010 and serves as a phase one application in a two phase approval process. If approved, the loan guarantee will secure the financing for the remainder of the costs to construct the facility. We are in the detailed engineering phase for this project and expect to have all necessary permits for this facility by this summer, putting the Company on a path to commence construction by the end of 2010.
 
Between the two proposed facilities (Lancaster, CA and Fulton, MS) we expect them to create more than 1,000 construction/manufacturing jobs and, once in operation, more than 100 new operations and maintenance jobs.

The Company is simultaneously researching and considering other suitable locations for other similar biorefineries.
 
STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS AND SERVICES
 
On December 11, 2008 BlueFire announced a Professional Services Agreement (“PSA”) with Ubiex, Inc. a South Korean development company.  Under the PSA, BlueFire will provide the preliminary engineering design package and technical support for Ubiex, Inc.
 
 
7

 
 
DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES
 
We will utilize existing ethanol distribution channels to sell the ethanol that is produced from our plants. For example, we will enter into an agreement with an existing refiner or blender to purchase the ethanol and sell it into the Southern California, and Mississippi transportation fuels market. Ethanol is currently mandated at a blend level of 10% in California which represents a 1+ billion gallon per year market. We are also exploring the potential of onsite blending of E85 (85% Ethanol, 15% gasoline) and direct marketing to fueling stations. There are approximately 1,900 E85 fueling stations in the United States.
 
COMPETITIVE BUSINESS CONDITIONS AND THE REGISTRANT’S COMPETITIVE POSITION IN THE INDUSTRY AND METHODS OF COMPETITION
 
COMPETITION
 
Most of the ethanol supply in the United States is derived from corn according to the Renewable Fuels Association (“RFA”) website (HTTP://WWW.ETHANOLRFA.ORG/) and as of February 28, 2009 is produced at approximately 201 facilities, ranging in size from 300,000 to 130 million gallons per year, located predominately in the corn belt in the Midwest.
 
Traditional corn-based production techniques are mature and well entrenched in the marketplace, and the entire industry’s infrastructure is geared toward corn as the principal feedstock.
 
With the Arkenol Technology, the principle difference from traditional processes apart from production technique is the acquisition and choice of feedstock. The use of a non-commodity based non-food related biomass feedstock enables us to use feedstock typically destined for disposal, i.e. wood waste, yard trimmings and general green waste. All ethanol producers regardless of production technique will fall subject to market fluctuation in the end product, ethanol.
 
Due to the feedstock variety we are able to process, we are able to locate production facilities in and around the markets where the ethanol will be consumed thereby giving us a competitive advantage against much larger traditional producers who must locate plants near their feedstock, i.e. the corn belt in the Midwest and ship the ethanol to the end market.
 
However, in the area of biomass-to-ethanol production, there are few companies, and no commercial production infrastructure is built. As we continue to advance our biomass technology platform, we are likely to encounter competition for the same technologies from other companies that are also attempting to manufacture ethanol from cellulosic biomass feedstocks.
 
Ethanol production is also expanding internationally. Ethanol produced or processed in certain countries in Central American and the Caribbean region is eligible for tariff reduction or elimination upon importation to the United States under a program known as the Caribbean Basin Initiative. Large ethanol producers, such as Cargill, have expressed interest in building dehydration plants in participating Caribbean Basin countries, such as El Salvador, which would convert ethanol into fuel-grade ethanol for shipment to the United States. Ethanol imported from Caribbean Basin countries may be a less expensive alternative to domestically produced ethanol and may affect our ability to sell our ethanol profitably.
 
There are approximately 21 next-generation biofuel companies that have received grants from the DOE for development purposes.
 
INDUSTRY OVERVIEW
 
On December 19, 2007 President Bush signed into law the Energy Independence and Security Act of 2007 (Energy Act of 2007).  The Energy Act of 2007 provides for an increase in the supply of alternative fuel sources by setting a mandatory Renewable Fuel Standard (RFS) requiring fuel producers to use at least 36 billion gallons of biofuel by 2022, 16 billion gallon of which must come from cellulosic derived fuel.  Additionally, the Energy Act of 2007 called for reducing U.S. demand for oil by setting a national fuel economy standard of 35 miles per gallon by 2020 – which will increase fuel economy standards by 40 percent and save billions of gallons of fuel.

In June 2008 the Food, Conservation and Energy Act of 2008 (Farm Bill) was signed into law.  The 2008 Farm Bill also modified existing incentives, including ethanol tax credits and import duties and established a new integrated tax credit of $1.01/gallon for cellulosic biofuels. The Farm Bill also authorized new biofuels loan and grant programs, which will be subject to appropriations, likely starting with the FY2010 budget request.

On Feb. 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 at the urging of President Obama, who signed it into law four days later (“ARRA”). A direct response to the economic crisis, the Recovery Act has three immediate goals:

·  
Create new jobs and save existing ones
·  
Spur economic activity and invest in long-term growth
·  
Foster unprecedented levels of accountability and transparency in government spending
 
 
8

 

The Recovery Act intends to achieve those goals by:

·  
Providing $288 billion in tax cuts and benefits for millions of working families and businesses
·  
Increasing federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224 billion
·  
Making $275 billion available for federal contracts, grants and loans
·  
Requiring recipients of Recovery funds to report quarterly on how they are using the money.  All the data is posted on Recovery.gov  so the public can track the Recovery funds.

In addition to offering financial aid directly to local school districts, expanding the Child Tax Credit, and underwriting a process to computerize health records to reduce medical errors and save on health care costs, the Recovery Act is targeted at infrastructure development and enhancement. For instance, the Act plans investment in the domestic renewable energy industry and the weatherizing of 75 percent of federal buildings as well as more than one million private homes around the country.
   
Historically, producers and blenders had a choice of fuel additives to increase the oxygen content of fuels. MTBE (methyl tertiary butyl ether), a petroleum-based additive, was the most popular additive, accounting for up to 75% of the fuel oxygenate market. However, in the United States, ethanol is replacing MTBE as a common fuel additive. While both increase octane and reduce air pollution, MTBE is a presumed carcinogen which contaminates ground water. It has already been banned in California, New York, Illinois and 16 other states. Major oil companies have voluntarily abandoned MTBE and it is scheduled to be phased out under the Energy Policy Act. As MTBE is phased out, we expect demand for ethanol as a fuel additive and fuel extender to rise. A blend of 5.5% or more of ethanol, which does not contaminate ground water like MTBE, effectively complies with U.S. Environmental Protection Agency requirements for reformulated gasoline, which is mandated in most urban areas.
 
Ethanol is a clean, high-octane, high-performance automotive fuel commonly blended in gasoline to extend supplies and reduce emissions. In 2004, according to the American Coalition for Ethanol, 3% of all United States gasoline was blended with some percentage of ethanol. The most common blend is E10, which contains 10% ethanol and 90% gasoline. There is also growing federal government support for E85, which is a blend of 85% ethanol and 15% gasoline.
 
Ethanol is a renewable fuel produced by the fermentation of starches and sugars such as those found in grains and other crops. Ethanol contains 35% oxygen by weight and, when combined with gasoline, it acts as an oxygenate, artificially introducing oxygen into gasoline and raising oxygen concentration in the combustion mixture with air. As a result, the gasoline burns more completely and releases less unburnt hydrocarbons, carbon monoxide and other harmful exhaust emissions into the atmosphere. The use of ethanol as an automotive fuel is commonly viewed as a way to reduce harmful automobile exhaust emissions. Ethanol can also be blended with regular unleaded gasoline as an octane booster to provide a mid-grade octane product which is commonly distributed as a premium unleaded gasoline.
 
Studies published by the Renewable Fuel Association indicate that approximately 8.1 billion gallons of ethanol was consumed in 2008 in the United States and every automobile manufacturer approves and warrants the use of E10. Because the ethanol molecule contains oxygen, it allows an automobile engine to more completely combust fuel, resulting in fewer emissions and improved performance. Fuel ethanol has an octane value of 113 compared to 87 for regular unleaded gasoline. Domestic ethanol consumption has tripled in the last eight years, and consumption increases in some foreign countries, such as Brazil, are even greater in recent years. For instance, 40% of the automobiles in Brazil operate on 100% ethanol, and others use a mixture of 22% ethanol and 78% gasoline. The European Union and Japan also encourage and mandate the increased use of ethanol.
 
For every barrel of ethanol produced, the American Coalition for Ethanol estimates that 1.2 barrels of petroleum are displaced at the refinery level, and that since 1978, U.S. ethanol production has replaced over 14.0 billion gallons of imported gasoline or crude oil. According to a Mississippi State University Department of Agricultural Economics Staff Report in August 2003, a 10% ethanol blend results in a 25% to 30% reduction in carbon monoxide emissions by making combustion more complete. The same 10% blend lowers carbon dioxide emissions by 6% to 10%.
 
During the last 20 years, ethanol production capacity in the United States has grown from almost nothing to an estimated 7.6 billion gallons per year in 2008. In the United States, ethanol is primarily made from starch crops, principally from the starch fraction of corn. Consequently, the production plants are concentrated in the grain belt of the Midwest, principally in Illinois, Iowa, Minnesota, Nebraska and South Dakota.
 
In the United States, there are two principal commercial applications for ethanol. The first is as an oxygenate additive to gasoline to comply with clean air regulations. The second is as a voluntary substitute for gasoline - this is a purely economic choice by gasoline retailers who may make higher margins on selling ethanol-blended gasoline, provided ethanol is available in the local market. The U.S. gasoline market is currently approximately 170 billion gallons annually, so the potential market for ethanol (assuming only a 10% blend) is 17 billion gallons per year. Increasingly, motor manufacturers are producing flexible fuel vehicles (particularly sports utility vehicle models) which can run off ethanol blends of up to 85% (known as E85) in order to obtain exemptions from fleet fuel economy quotas. There are now in excess of 5 million flexible fuel vehicles on the road in the United States and automakers will produce several millions per year, offering further potential for significant growth in ethanol demand.
 
 
9

 
 
CELLULOSE TO ETHANOL PRODUCTION
 
In a 2002 report, “Outlook For Biomass Ethanol Production Demand,” the U.S. Energy Information Administration found that advancements in production technology of ethanol from cellulose could reduce costs and result in production increases of 40% to 160% by 2010. Biomass (cellulosic feedstocks) includes agricultural waste, woody fibrous materials, forestry residues, waste paper, municipal solid waste and most plant material. Like waste starches and sugars, they are often available for relatively low cost, or are even free. However, cellulosic feedstocks are more abundant, global and renewable in nature. These waste streams, which would otherwise be abandoned, land-filled or incinerated, exist in populated metropolitan areas where ethanol prices are higher.

SOURCES AND AVAILABILITY OF RAW MATERIALS
 
The U.S. DOE and USDA in its April 2005 report “BIOMASS AS FEEDSTOCK FOR A BIOENERGY AND BIOPRODUCTS INDUSTRY: THE TECHNICAL FEASIBILITY OF A BILLION-TON ANNUAL SUPPLY” found that about one billion tons of cellulosic materials from agricultural and forest residues are available to produce more than one-third of the current U.S. demand for transportation fuels.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
 
Currently, we have no dependence on one or a few major customers. We are negotiating definitive agreements but no definitive agreements have been signed as of yet. See “DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES.”
 
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR CONTRACTS
 
On March 1, 2006, we entered into a Technology License Agreement with Arkenol, for use of the Arkenol Technology. Arkenol holds the following patents in relation to the Arkenol Technology: 11 U.S. patents, 21 foreign patents, and one pending foreign patent. According to the terms of the agreement, we were granted an exclusive, non-transferable, North American license to use and to sub-license the Arkenol technology. The Arkenol Technology, converts cellulose and waste materials into ethanol and other high value chemicals. As consideration for the grant of the license, we are required to make a onetime payment of $1,000,000 at first project funding and for each plant make the following payments: (1) royalty payment of 3% of the gross sales price for sales by us or our sublicensees of all products produced from the use of the Arkenol Technology (2) and a onetime license fee of $40.00 per 1,000 gallons of production capacity per plant. According to the terms of the agreement, we made a onetime exclusivity fee prepayment of $30,000 during the period ended December 31, 2006. As of December 31, 2009, we have paid Arkenol in full for the license. All sub-licenses issued by us will provide for payments to Arkenol of any other license fees and royalties due.
 
NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
 
We are not subject to any government oversight for our current operations other than for corporate governance and taxes. However, the production facilities that we will be constructing will be subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees. In addition, some of these laws and regulations will require our facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns.
 
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
 
Currently, the federal government encourages the use of ethanol as a component in oxygenated gasoline. This is a measure to both protect the environment, and, to utilize biofuels as a viable renewable domestic fuel to reduce U.S. dependence on foreign oil.

The ethanol industry is heavily dependent on several economic incentives to produce ethanol, including federal ethanol supports. Ethanol sales have been favorably affected by the Clean Air Act amendments of 1990, particularly the Federal Oxygen Program which became effective November 1, 1992. The Federal Oxygen Program requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol use has increased due to a second Clean Air Act program, the Reformulated Gasoline Program. This program became effective January 1, 1995, and requires the sale of reformulated gasoline in nine major urban areas to reduce pollutants, including those that contribute to ground level ozone, better known as smog. Increasingly stricter EPA regulations are expected to increase the number of metropolitan areas deemed in non-compliance with Clean Air Standards, which could increase the demand for ethanol.

 
10

 
 
On October 22, 2004, President Bush signed H.R. 4520, which contained the Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended the federal excise tax structure effective as of January 1, 2005. Before this, ethanol-blended fuel was taxed at a lower rate than regular gasoline (13.2 cents on a 10% blend). Under VEETC, the existing ethanol excise tax exemption is eliminated, thereby allowing the full federal excise tax of 18.4 cents per gallon of gasoline to be collected on all gasoline and allocated to the highway trust fund. The bill created a new volumetric ethanol excise tax credit of 51 cents per gallon of ethanol blended. Refiners and gasoline blenders would apply for this credit on the same tax form as before only it would be a credit from general revenue, not the highway trust fund. Based on volume, the VEETC is expected to allow much greater refinery flexibility in blending ethanol. VEETC is scheduled to expire in 2013. The 2008 Farm Bill amended this credit: Starting the year after 7.5 billion gallons of ethanol are produced and/or imported in the United States, the value of the credit will be lowered to 45 cents per gallon—it is expected that the United States passed this mark in 2008, leading to a reduction in the credit starting in 2009.

The Energy Policy Act of 2005 established a renewable fuel standard (RFS) to increase in the supply of alternative sources for automotive fuels. The RFS was expanded by the Energy Independence and Security Act of 2007. The RFS requires the blending of renewable fuels (including ethanol and biodiesel) in transportation fuel. In 2008, fuel suppliers must blend 9.0 billion gallons of renewable fuel into gasoline; this requirement increases annually to 36 billion gallons in 2022. The expanded RFS also specifically mandates the use of “advanced biofuels”—fuels produced from non-corn feedstocks and with 50% lower lifecycle greenhouse gas emissions than petroleum fuel—starting in 2009. Of the 36 billion gallons required in 2022, at least 21 billion gallons must be advanced biofuel. There are also specific quotas for cellulosic biofuels and for biomass-based diesel fuel. On May 1, 2007, EPA issued a final rule on the RFS program detailing compliance standards for fuel suppliers, as well as a system to trade renewable fuel credits between suppliers.  EPA has not yet initiated a rulemaking on the lifecycle analysis methods necessary to categorize fuels as advanced biofuels. While this program is not a direct subsidy for the construction of biofuels plants, the market created by the renewable fuel standard is expected to stimulate growth of the biofuels industry.

The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) provides for, among other things, grants for demonstration scale Biorefineries, and loan guarantees for commercial scale Biorefineries that produce advanced Biofuels (i.e., any fuel that is not corn-based). Section 9003 includes a Loan Guarantee Program under which the U.S.D.A. could provide loan guarantees up to $250 million to fund development, construction, and retrofitting of commercial-scale refineries. Section 9003 also includes a grant program to assist in paying the costs of the development and construction of demonstration-scale biorefineries to demonstrate the commercial viability which can potentially fund up to 50% of project costs.

The ARRA, passed into law in February 2009 makes $275 billion available for federal contracts, grants, and loans, some of which is devoted to investment into the domestic renewable energy industry.

Some other noteworthy governmental actions regarding the production of biofuels are as follows:

Small Ethanol Producer Credit:
A tax credit valued at 10 cents per gallon of ethanol produced. The credit may be claimed on the first 15 million gallons of ethanol produced by a small producer in a given year. Qualified applicants are any ethanol producer with production capacity below 60 million gallons per year. This credit is scheduled to terminate on December 31, 2010, unless ortherwise extended by law.

Credit for Production of Cellulosic Biofuel:
An integrated tax credit whereby Producers of cellulosic biofuel can claim up to $1.01 per gallon tax credit. The credit for cellulosic ethanol varies with other ethanol credits such that the total combined value of all credits is $1.01 per gallon. As the VEETC and/or the Small Ethanol Producer Credits (outlined above) decrease, the per-gallon credit for cellulosic ethanol production increases by the same amount (ie the value of the credit is reduced by the amount of the VEETC and the Small Ethanol Producer Credit—currently, the value would be 40 cents per gallon). The credit applies to fuel produced after December 31, 2008. This credit is scheduled to terminate on December 31, 2012.

Special Depreciation Allowance for Cellulosic Biofuel Plant Property:
A taxpayer may take a depreciation deduction of 50% of the adjusted basis of a new cellulosic biofuel plant in the year it is put in service. Any portion of the cost financed through tax-exempt bonds is exempted from the depreciation allowance. Before amendment by P.L. 110-343, the accelerated depreciation applied only to cellulosic ethanol plants that break down cellulose through enzymatic processes—the amended provision applies to all cellulosic biofuel plants acquired after December 20, 2006, and placed in service before January 1, 2013. This accelerated depreciation allowance is scheduled to terminate on December 31, 2012.

ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON RESEARCH AND DEVELOPMENT ACTIVITIES
 
For the fiscal years ending December 31, 2008 and 2009, we spent roughly $10,535,278 and $1,307,185 on project development costs, respectively.
 
To date, project development costs include the research and development expenses related to our future cellulose-to-ethanol production facilities including site development, and engineering activities.
 
 
11

 
 
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE AND LOCAL)
 
We will be subject to extensive air, water and other environmental regulations and we will have to obtain a number of environmental permits to construct and operate our plants, including, air pollution construction permits, a pollutant discharge elimination system general permit, storm water discharge permits, a water withdrawal permit, and an alcohol fuel producer’s permit. In addition, we may have to complete spill prevention control and countermeasures plans.
 
The production facilities that we will build are subject to oversight activities by the federal, state, and local regulatory agencies. There is always a risk that the federal agencies may enforce certain rules and regulations differently than state environmental administrators. State or federal rules are subject to change, and any such changes could result in greater regulatory burdens on plant operations. We could also be subject to environmental or nuisance claims from adjacent property owners or residents in the area arising from possible foul smells or other air or water discharges from the plant.
 
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES
 
We had 9 full time employees as of December 31, 2009 and 2 part time employees. None of our employees are subject to a collective bargaining agreement, and we believe that our relationship with our employees is good.
 
WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
 
ITEM 1A. RISK FACTORS
 
This registration statement contains forward-looking statements that involve risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “plans,” “may,” “will,” “should,” or “anticipation” or the negative thereof or other variations thereon or comparable terminology. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Registration Statement. The following risk factors should be considered carefully in addition to the other information in this Registration Statement, before purchasing any of the Company’s securities.
 
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
 
We have had limited operations and have incurred net losses of $29,066,417 for the period from March 28, 2006 (Inception) through December 31, 2009, of which $14,256,080 was cash used in our operating activities. We have generated revenues from consulting of approximately $69,000 and approximately $5,374,000 in grant revenue from the DOE for total revenues of approximately $5,443,000, and no revenues from operations. We have yet to begin ethanol production or construction of ethanol producing plants. Since the Reverse Merger, we have been engaged in organizational activities, including developing a strategic operating plan, plant engineering and development activities, entering into contracts, hiring personnel, developing processing technology, and raising private capital. Our continued existence is dependent upon our ability to obtain additional debt and/or equity financing. We are uncertain given the economic landscape when to anticipate the beginning construction of a plant given the availability of capital. We estimate the total cost including contingencies to be in the range of approximately $100 million to $125 million for our first plant.  We plan to raise additional funds through project financings, grants and/or loan guarantees, or through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. There is no assurance we will be successful in raising additional capital or achieving profitable operations. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. These actions will result in dilution of the ownership interests of existing shareholders may further dilute common stock book value, and that dilution may be material.
 
OUR CELLULOSE-TO-ETHANOL TECHNOLOGIES ARE UNPROVEN ON A LARGE-SCALE COMMERCIAL BASIS AND PERFORMANCE COULD FAIL TO MEET PROJECTIONS, WHICH COULD HAVE A DETRIMENTAL EFFECT ON THE LONG-TERM CAPITAL APPRECIATION OF OUR STOCK.
 
While production of ethanol from corn, sugars and starches is a mature technology, newer technologies for production of ethanol from cellulose biomass have not been built at large commercial scales. The technologies being utilized by us for ethanol production from biomass have not been demonstrated on a commercial scale. All of the tests conducted to date by us with respect to the Arkenol Technology have been performed on limited quantities of feedstocks, and we cannot assure you that the same or similar results could be obtained at competitive costs on a large-scale commercial basis. We have never utilized these technologies under the conditions or in the volumes that will be required to be profitable and cannot predict all of the difficulties that may arise. It is possible that the technologies, when used, may require further research, development, design and testing prior to larger-scale commercialization. Accordingly, we cannot assure you that these technologies will perform successfully on a large-scale commercial basis or at all.
 
 
12

 
 
OUR BUSINESS EMPLOYS LICENSED ARKENOL TECHNOLOGY WHICH MAY BE DIFFICULT TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
 
We currently license our technology from Arkenol.  Arkenol owns 11 U.S. patents, 21 foreign patents, and has one foreign patent pending and may file more patent applications in the future. Our success depends, in part, on our ability to use the Arkenol Technology, and for Arkenol to obtain patents, maintain trade secrecy and not infringe the proprietary rights of third parties. We cannot assure you that the patents of others will not have an adverse effect on our ability to conduct our business, that we will develop additional proprietary technology that is patentable or that any patents issued to us or Arkenol will provide us with competitive advantages or will not be challenged by third parties. Further, we cannot assure you that others will not independently develop similar or superior technologies, duplicate elements of the Arkenol Technology or design around it.
 
It is possible that we may need to acquire other licenses to, or to contest the validity of, issued or pending patents or claims of third parties. We cannot assure you that any license would be made available to us on acceptable terms, if at all, or that we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s patents in bringing patent infringement suits against other parties based on our licensed patents.
 
In addition to licensed patent protection, we also rely on trade secrets, proprietary know-how and technology that we seek to protect, in part, by confidentiality agreements with our prospective joint venture partners, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.

 
13

 

OUR SUCCESS DEPENDS UPON ARNOLD KLANN, OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AND JOHN CUZENS, OUR CHIEF TECHNOLOGY OFFICER AND SENIOR VICE PRESIDENT.
 
We believe that our success will depend to a significant extent upon the efforts and abilities of (i) Arnold Klann, our Chairman and Chief Executive Officer, due to his contacts in the ethanol and cellulose industries and his overall insight into our business, and (ii) John Cuzens, our Chief Technology Officer and Senior Vice President for his technical and engineering expertise, including his familiarity with the Arkenol Technology. Our failure to retain Mr. Klann or Mr. Cuzens, or to attract and retain additional qualified personnel, could adversely affect our operations. We do not currently carry key-man life insurance on any of our officers. See Part III Item 9 for more details on Management.
 
COMPETITION FROM LARGE PRODUCERS OF PETROLEUM-BASED GASOLINE ADDITIVES AND OTHER COMPETITIVE PRODUCTS MAY IMPACT OUR PROFITABILITY.
 
Our proposed ethanol plants will also compete with producers of other gasoline additives made from other raw materials having similar octane and oxygenate values as ethanol. The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of ethanol. These other companies also have significant resources to begin production of ethanol should they choose to do so.
 
We will also compete with producers of other gasoline additives having similar octane and oxygenate values as ethanol. An example of such other additives is MTBE, a petrochemical derived from methanol. MTBE costs less to produce than ethanol. Many major oil companies produce MTBE and because it is petroleum-based, its use is strongly supported by major oil companies. Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies have significantly greater resources than we have to market MTBE, to develop alternative products, and to influence legislation and public perception of MTBE and ethanol.
 
OUR BUSINESS PROSPECTS WILL BE IMPACTED BY CORN SUPPLY.
 
Our ethanol will be produced from cellulose, however currently most ethanol is produced from corn, which is affected by weather, governmental policy, disease and other conditions. A significant increase in the availability of corn and resulting reduction in the price of corn may decrease the price of ethanol and harm our business.
 
IF ETHANOL AND GASOLINE PRICES DROP SIGNIFICANTLY, WE WILL ALSO BE FORCED TO REDUCE OUR PRICES, WHICH POTENTIALLY MAY LEAD TO FURTHER LOSSES.
 
Prices for ethanol products can vary significantly over time and decreases in price levels could adversely affect our profitability and viability. The price of ethanol has some relation to the price of gasoline. The price of ethanol tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect our operating results. We cannot assure you that we will be able to sell our ethanol profitably, or at all.
 
INCREASED ETHANOL PRODUCTION FROM CELLULOSE IN THE UNITED STATES COULD INCREASE THE DEMAND AND PRICE OF FEEDSTOCKS, REDUCING OUR PROFITABILITY.
 
New ethanol plants that utilize cellulose as their feedstock may be under construction or in the planning stages throughout the United States. This increased ethanol production could increase cellulose demand and prices, resulting in higher production costs and lower profits.
 
PRICE INCREASES OR INTERRUPTIONS IN NEEDED ENERGY SUPPLIES COULD CAUSE LOSS OF CUSTOMERS AND IMPAIR OUR PROFITABILITY.
 
Ethanol production requires a constant and consistent supply of energy. If there is any interruption in our supply of energy for whatever reason, such as availability, delivery or mechanical problems, we may be required to halt production. If we halt production for any extended period of time, it will have a material adverse effect on our business. Natural gas and electricity prices have historically fluctuated significantly. We purchase significant amounts of these resources as part of our ethanol production. Increases in the price of natural gas or electricity would harm our business and financial results by increasing our energy costs.
 
OUR BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING TO CONSTRUCT AND OPERATE OUR BIOREFINERY PROJECTS AND WE MAY NOT BE ABLE TO OBTAIN SUCH FUNDING WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
 
Our business plan depends on the completion of up to 19 numerous biorefinery projects. Although each facility will have specific funding requirements, our proposed facility in Lancaster, CA will require approximately $100-$125 million to fund, and our proposed DOE facility in Fulton, MS will require an additional $260 million in addition to the approximate $88 million in grant funding currently allocated to the project. We will be relying on additional financing, and funding from such sources as Federal and State grants and loan guarantee programs.  We are currently in discussions with potential sources of financing but no definitive agreements are in place. If we cannot achieve the requisite financing or complete the projects as anticipated, this could adversely affect our business, the results of our operations, prospects and financial condition.
 
 
14

 
 
WE RELY ON ACCESS TO FUNDING FROM THE UNITED STATES DEPARTMENT OF ENERGY. IF WE CANNOT ACCESS GOVERNMENT FUNDING WE MAY BE UNABLE TO FINANCE OUR PROJECTS AND/OR OUR OPERATIONS.
 
In 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. Although we finalized Award 1 with a total reimbursable amount of $6,425,564, and through December 31, 2009, we have an unreimbursed amount of approximately $1,100,000 available to us under the award, 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. 
 
RISKS RELATED TO GOVERNMENT REGULATION AND SUBSIDIZATION
 
FEDERAL REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE, WHICH COULD CAUSE AN EROSION OF THE CURRENT COMPETITIVE STRENGTH OF THE ETHANOL INDUSTRY.
 
Congress currently provides certain federal tax credits for ethanol producers and marketers. The current ethanol industry and our business initially depend on the continuation of these credits. The credits have supported a market for ethanol that might disappear without the credits. These credits may not continue beyond their scheduled expiration date or, if they continue, the incentives may not be at the same level. The revocation or amendment of any one or more of these tax incentives could adversely affect the future use of ethanol in a material way, and we cannot assure investors that any of these tax incentives will be continued. The elimination or reduction of federal tax incentives to the ethanol industry could have a material adverse impact on the industry as a whole.
 
LAX ENFORCEMENT OF ENVIRONMENTAL AND ENERGY POLICY REGULATIONS MAY ADVERSELY AFFECT DEMAND FOR ETHANOL
 
Our success will depend in part on effective enforcement of existing environmental and energy policy regulations. Many of our potential customers are unlikely to switch from the use of conventional fuels unless compliance with applicable regulatory requirements leads, directly or indirectly, to the use of ethanol. Both additional regulation and enforcement of such regulatory provisions are likely to be vigorously opposed by the entities affected by such requirements. If existing emissions-reducing standards are weakened, or if governments are not active and effective in enforcing such standards, our business and results of operations could be adversely affected. Even if the current trend toward more stringent emission standards continues, we will depend on the ability of ethanol to satisfy these emissions standards more efficiently than other alternative technologies. Certain standards imposed by regulatory programs may limit or preclude the use of our products to comply with environmental or energy requirements. Any decrease in the emission standards or the failure to enforce existing emission standards and other regulations could result in a reduced demand for ethanol. A significant decrease in the demand for ethanol will reduce the price of ethanol, adversely affect our profitability and decrease the value of your stock.
 
COSTS OF COMPLIANCE WITH BURDENSOME OR CHANGING ENVIRONMENTAL AND OPERATIONAL SAFETY REGULATIONS COULD CAUSE OUR FOCUS TO BE DIVERTED AWAY FROM OUR BUSINESS AND OUR RESULTS OF OPERATIONS TO SUFFER
 
Ethanol production involves the emission of various airborne pollutants, including particulate matter, carbon monoxide, carbon dioxide, nitrous oxide, volatile organic compounds and sulfur dioxide. The production facilities that we will build will discharge water into the environment. As a result, we are subject to complicated environmental regulations of the U.S. Environmental Protection Agency and regulations and permitting requirements of the states where our plants are to be located. These regulations are subject to change and such changes may require additional capital expenditures or increased operating costs. Consequently, considerable resources may be required to comply with future environmental regulations. In addition, our ethanol plants could be subject to environmental nuisance or related claims by employees, property owners or residents near the ethanol plants arising from air or water discharges. Ethanol production has been known to produce an odor to which surrounding residents could object. Environmental and public nuisance claims, or tort claims based on emissions, or increased environmental compliance costs could significantly increase our operating costs.
 
OUR PROPOSED NEW ETHANOL PLANTS WILL ALSO BE SUBJECT TO FEDERAL AND STATE LAWS REGARDING OCCUPATIONAL SAFETY
 
Risks of substantial compliance costs and liabilities are inherent in ethanol production. We may be subject to costs and liabilities related to worker safety and job related injuries, some of which may be significant. Possible future developments, including stricter safety laws for workers and other individuals, regulations and enforcement policies and claims for personal or property damages resulting from operation of the ethanol plants could reduce the amount of cash that would otherwise be available to further enhance our business.
 
RISKS RELATED TO OUR COMMON STOCK
 
THERE IS NO LIQUID MARKET FOR OUR COMMON STOCK.
 
Our shares are traded on the OTCBB and the trading volume has historically been very low. An active trading market for our shares may not develop or be sustained. We cannot predict at this time how actively our shares will trade in the public market or whether the price of our shares in the public market will reflect our actual financial performance.
 
 
15

 
 
OUR COMMON STOCK PRICE HAS FLUCTUATED CONSIDERABLY AND STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SUCH SHARES WERE PURCHASED
 
The market price of our common stock may fluctuate significantly.  From July 11, 2006, the day we began trading publicly as BFRE.PK, and December 31, 2009 traded as BFRE.OB, the high and low price for our common stock has been $7.90 and $0.51 per share, respectively.  Our share price has fluctuated in response to various factors, including not yet beginning construction of our first plant, needing additional time to organize engineering resources, issues relating to feedstock sources, trying to locate suitable plant locations, locating distributors and finding funding sources.
 
OUR COMMON STOCK MAY BE CONSIDERED “A PENNY STOCK” AND MAY BE DIFFICULT FOR YOU TO SELL
 
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been for much of its trading history since July 11, 2006, and may continue to be less than $5.00 per share, and therefore may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
 
COMPLIANCE AND CONTINUED MONITORING IN CONNECTION WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES
 
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might be harmed which would could have a significant impact on our stock price and our business. In addition, the ongoing maintenance of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.
 
 
16

 
 
OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS
 
The Company’s Chairman and President controls approximately 47.79% of its current outstanding shares of voting common stock. He may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may expedite approvals of company decisions, or have the effect of delaying or preventing a change in control, adversely affect the market price of our common stock, or be in the best interests of all our stockholders.
 
YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
 
As of February 28, 2010, we had 28,296,965 shares of common stock outstanding and no shares of preferred stock outstanding.  We are authorized to issue up to 100,000,000 shares of common stock and 1,000,000 shares of preferred stock. To the extent of such authorization, our Board of Directors will have the ability, without seeking stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration as the Board of Directors may consider sufficient. The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership and voting power.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.
 
ITEM 2.  DESCRIPTION OF PROPERTY
 
We lease approximately 6,425 square feet of furnished office space at 31 Musick, Irvine, California 92618 from Jeong Yun Kim for $11,691 per month on a month-to-month basis.
 
On November 9, 2007, we issued a check in the amount of $96,851, towards the purchase of the land for the Lancaster facility totaling a purchase price of $109,108. The approximately 10 acre site is presently vacant and undisturbed except to occasional use by off road vehicles.  The site is flat and has no distinguishing characteristics and is adjacent to a solid waste landfill at a site that minimizes visual access from outside the immediate area.
 
ITEM 3.  LEGAL PROCEEDINGS
 
We are currently not involved in any litigation that we believe could have a materially 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 company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
No matters were submitted to shareholders for the period ended December 31, 2009.

 
17

 

PART II
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
MARKET INFORMATION
 
Our shares of common stock began trading under the symbol “BFRE.PK” on the Pink Sheets of the National Quotation Bureau on July 11, 2006 and later began trading on the OTCBB under the symbol “BFRE.OB” on June 19, 2007.
 
The following table sets forth the high and low trade information for our common stock for each quarter since we completed the Reverse Merger and began trading on July 11, 2006. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
 
Quarter ended
 
Low Price
   
High Price
 
                 
March 31, 2007
 
$
3.99
   
$
7.70
 
June 30, 2007
 
$
5.40
   
$
7.15
 
September 30, 2007
 
$
3.30
   
$
6.40
 
December 31, 2007
 
$
3.15
   
$
5.01
 
March 31, 2008
 
$
3.00
   
$
4.15
 
June 30, 2008
 
$
3.05
   
$
4.40
 
September 30, 2008
 
$
2.05
   
$
4.15
 
December 31, 2008
 
$
0.55
   
$
2.15
 
March 31, 2009
 
$
0.51
   
$
1.00
 
June 30, 2009
 
$
0.55
   
$
1.60
 
September 30, 2009
 
$
0.80
   
$
1.20
 
December 31, 2009
 
$
0.85
   
$
1.25
 
 
HOLDERS OF OUR COMMON STOCK
 
As of March 26, 2010 a total of 28,296,965 shares of the Company’s common stock are currently outstanding held by approximately 2,750 shareholders of record.
 
DIVIDENDS
 
We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business.  Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future.  There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Nevada law.
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
2006 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN, AS AMENDED
 
In order to compensate our officers, directors, employees and/or consultants, on December 14, 2006 our Board of Directors approved and stockholders ratified by consent the 2006 Incentive and Non-Statutory Stock Option Plan (the “Plan”).  The Plan has a total of 10,000,000 shares reserved for issuance.
 
On October 16, 2007, the Board of Directors reviewed the Plan. As such, it determined that the Plan was to be used as a comprehensive equity incentive program for which the Board of Directors serves as the plan administrator and, therefore, amended the Plan (the “Amended and Restated Plan”) to add the ability to grant restricted stock awards.
 
Under the Amended and Restated Plan, an eligible person in the Company’s service may acquire a proprietary interest in the Company in the form of shares or an option to purchase shares of the Company’s common stock. The amendment includes certain previously granted restricted stock awards as having been issued under the Amended and Restated Plan.
 
 
18

 
 
As of December 31, 2009, we have issued the following stock options and grants under the Amended and Restated Plan:
 
Equity Compensation Plan Information
 
 
Plan category
 
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights and number of
shares of restricted stock
   
Weighted average exercise
price of outstanding options,
warrants and rights(2)
   
Number of securities
remaining available for
future issuance
 
                     
 
Equity compensation plans approved by security holders under the Amended and Restated Plan
 
3,555,571
(1)
 
$
2.48
   
6,424,429
 
 
Equity compensation not pursuant to a plan
 
802,203
(3)
 
$
3.80
       
 
Total
 
4,357,774
               
 
(1) Excluding 20,000 options that have been exercised.
(2) Excludes shares of restricted stock issued under the Plan.
(3) Includes a warrant to purchase 200,000 shares of its common stock at an exercise price of $5.00 per share to a certain consultant issued by the Company on November 9, 2006, for consulting services.
 
RULE 10B-18 TRANSACTIONS
 
The following table provides information about purchases by BlueFire of shares of BlueFire’s common stock during the year ended December 31, 2008. There were no repurchases during the year ended December 31, 2009.   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 year ended December 31, 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
 
7/1/08 – 7/31/08
   
7,525
   
$
3.60
     
0
     
0
 
8/1/08 – 8/31/08
   
3,000
   
$
  2.64
     
0
     
0
 
9/1/08 – 9/30/08
   
11,746
   
$
  2.73
     
0
     
0
 
Total
   
32,172
   
$
3.16
     
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 year ended December 31, 2008, the Company repurchased a total of 32,172 shares at a cost of approximately $101,581. The Company had not repurchased any shares in 2009. Under the stock repurchase program, the Company is not obligated to repurchase any additional shares of common stock.
 
ITEM 6.  SELECTED FINANCIAL DATA.

Not applicable.
 
 
19

 
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, PLAN OF OPERATION, AND RESULTS OF OPERATIONS
 
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REGISTRATION STATEMENT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REGISTRATION STATEMENT.
 
PLAN OF OPERATION
 
We plan to raise additional funds through joint venture partnerships, Federal or State grants or loan guarantees, project debt financings or through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. There is no assurance that we will be successful in raising additional capital or achieving profitable operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We will need financing within 12 months to execute our business plan.
 
We have not developed our own proprietary technology but rather we are a licensee of the Arkenol Technology and therefore have benefited from Arkenol’s research and development efforts and cost expenditures.
 
Our business will encompass development activities culminating in the construction and long-term operation of ethanol production biorefineries.  As such, we are currently in the development-stage of finding suitable locations and deploying project opportunities for converting cellulose fractions of municipal solid waste and other opportunistic feedstock into ethanol fuels.  We do not plan to significantly increase our number of employees over the next 12 months.
 
For the next 12 months, our Plan of Operations is 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.
 
·
The Energy Policy Act of 2005 (“EPAct 2005”) provides for grants and loan guarantee programs to incentivize the growth of the cellulosic ethanol market. These programs include a Cellulosic Biomass Ethanol and Municipal Solid Waste Guarantee Program under which the U.S. Department of Energy (“DOE”) could provide loan guarantees up to $250 million per qualified project.  BlueFire plans to pursue all available opportunities within EPAct 2005.
 
·
In June 2008 the Food, Conservation and Energy Act of 2008 (“Farm Bill”) was signed into law.  The 2008 Farm Bill also modified existing incentives, including ethanol tax credits and import duties and established a new tax credit for cellulosic biofuels. The Farm Bill also authorized new biofuels loan and grant programs, but these will be subject to appropriations, likely starting with the FY2010 budget request.  BlueFire plans to pursue all available opportunities within the Farm Bill.
   
·
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.
 
Our initial planned projects in North America are projected as follows:
 
·
We intend to build a facility that will process approximately 190 tons of green waste material per day to produce roughly 3.9 million gallons of ethanol annually. In connection therewith, on November 9, 2007, we purchased the facility site which is located in Lancaster, California.  Permit applications were filed on June 24, 2007, to allow for construction of the Lancaster facility.  On December 12, 2008 we were issued our Conditional Use Permit by the County of Los Angeles.  On February 12, 2009 we were issued our Authority to Construct permit by the Antelope Valley Air Quality Management District.
   
 ·
We are also developing a facility for construction in a joint effort with the DOE. This facility will be located in Fulton, Mississippi and will use approximately 700 metric dry tons of woody biomass, mill residue, and other cellulosic waste to produce approximately 19 million gallons of ethanol annually. Detailed engineering is in progress and we expect to have all necessary permits for this facility by the summer of 2010.  We have received an Award from the DOE of up to $40 million for the Facility. On or around October 4, 2007, we finalized Award 1 for a total approved budget of just under $10,000,000 with the DOE. This award is a 60%/40% cost share, whereby 40% of approve costs may be reimbursed by the DOE pursuant to the total $40 million award announced in February 2007. 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 December 31, 2009 BlueFire has been reimbursed approximately $5,374,151 from the DOE under this award.  On or around February 23, 2010 we announced that we submitted an application for a $250 million dollar loan guarantee for this planned biorefinery. The remainder of financing for this project is yet to be determined.
 
·
Several other opportunities are being evaluated by us in North America but no definitive plans have been made.  Discussions with various landfill owners are underway to duplicate our proposed facility throughout North America although no definitive agreements have been reached.
 
 
20

 
 
RECENT DEVELOPMENTS IN BLUEFIRE’S BIOREFINERY ENGINEERING AND DEVELOPMENT
 
In 2009, BlueFire completed the engineering package for the Lancaster Biorefinery, and finalized the Front-End Loading (FEL) 3 stage of engineering for the Lancaster Biorefinery. 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
    * Material Balance
    * Energy Balance
    * Project Charter
 
FEL-2
    * Preliminary Equipment Design
    * Preliminary Layout
    * Preliminary Schedule
    * Preliminary Estimate
 
FEL-3
    * Purchase Ready Major Equipment Specifications
    * Definitive Estimate
    * Project Execution Plan
    * Preliminary 3D Model
    * Electrical Equipment List
    * Line List
    * Instrument Index
 
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.

In July 2008, BlueFire was granted a conditional-use permit from the County of Los Angeles, Department of Regional Planning, to permit the construction of the Lancaster Biorefinery. However, a subsequent appeal of the county decision 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.

On October 15, 2009, BlueFire announced the strategic relocation of its second planned biorefinery (DOE Facility) to Fulton, Mississippi.

RESULTS OF OPERATIONS

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Revenue from Department of Energy Grant

Revenue in 2009 was approximately $4,318,000 and was primarily related to a federal grant from the United States Department of Energy, (“U.S. DOE”or “DOE”). The grant generally provides for reimbursement in connection with related development and construction costs involving commercialization of our technologies.

Project Development
 
In 2009, our project development costs were approximately $1,307,000 compared to project development costs of $10,535,000 for the same period during 2008.  Included in project development costs in 2009 and 2008, was approximately $522,000 and $4,901,000, respectively of expense incurred from various engineering firms for the design and development of the biorefineries.  Included in project development costs in 2009 and 2008, was approximately $0 and $2,078,000, respectively of non-cash share-based compensation expense, incurred in connection with our 2007 and 2006 Stock Option awards.  The decrease in project development costs is due to the decreased activity in the design and engineering development of the biorefineries with the plant design on Lancaster being substantially completed. 
 
General and Administrative Expenses

General and Administrative Expenses were approximately $2,220,000 in 2009, compared to $4,136,000 for the same period in 2008.  Included in general and administrative expenses in 2009 and 2008, was approximately $233,000 and $1,691,000, 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 a decrease in share based compensation.

 
21

 
 
Interest Income

Interest income was approximately $8,000 in 2009, compared to approximately $225,000 in 2008, related to funds invested.  The decrease in interest income from the same period in 2008 is mainly due to the fact that our investment account balance was depleted as we used the funds in operations, and that our rate of return on the account decreased dramatically as it was tied to short-term interest rates.
 
Related Party License Fee

In 2008 the Company incurred the remaining cost of the Arkenol technology license fee of $970,000.  This is a one time fee, which was paid in full on March 11, 2009.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Historically, we have funded our operations through financing activities consisting primarily of private placements of debt and equity securities with existing shareholders and outside investors. Our principal use of funds has been for the further development of our Biorefinery Projects, for capital expenditures and general corporate expenses.
 
During the twelve months ended December 31, 2009, there were no proceeds received from the sale of company securities. There were no additional proceeds received from the exercise of stock options.

During the twelve months ended December 31, 2009, we received no proceeds from the sale of securities in connection with private placements. There were also no proceeds received from the exercise of stock options. 

In addition, as our Projects develop to the point of construction, we anticipate significant purchases of long lead time item equipment for construction. As of December 31, 2009, we had cash and cash equivalents of approximately $2,845,000.
 
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. As of March 26, 2010, there were no amounts outstanding and the line of credit was deemed cancelled as the Company did not anticipate utilizing funds from the line of credit.
 
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 site which have a direct attributable benefit to the DOE Biorefinery.

We expect to rely upon funds raised from private placements, as well as future equity and debt offerings, current and future grant opportunities, as well as the $3,800,000 received from the DOE in October 2009, to implement our growth plan and meet our liquidity needs going forward.  Management believes that our Company’s cash will be sufficient to meet our working capital requirements for the next twelve month period, but will not be sufficient to move forward beyond the development stage of either of our first two Projects, at which point further funding will be necessary. However, we cannot assure you that such financing will be available to us on favorable terms, or at all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and we are not successful in obtaining the financing, we may be forced to curtail our existing or planned future operations.
 
CRITICAL ACCOUNTING POLICIES
 
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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 are described below under the heading “Revenue Recognition.” We also have other key accounting estimates and policies, but we believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 1, “Summary of Organization and Significant Accounting Policies” in the notes to our audited financial statements appearing elsewhere in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.
 
 
22

 
 
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 our 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 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 estimatable. The Company determined that the payment received from the U.S. Department of Energy should be accounted for as revenues.  This determination was based on the fact the Company views the obtaining of future grants as an ongoing function of its intended operations.  In addition, costs related to government grant revenues are not readily identifiable, and such costs are recorded in general and administrative expenses and project development costs and thus could not be offset.
 
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 which were charged to expense.  During the 12 months ended December 31, 2009 and December 31, 2008, we expensed all costs related to the facility development.
 
INCOME TAXES
 
The Company accounts for income taxes in accordance with Accounting Standards Codification ("ASC") No. 740 "Accounting for Income Taxes" (formerly 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 December 31, 2009 and December 31, 2008. The financial instruments consist of cash, accounts receivable, prepaids, accounts payable, and warrant liability. We have warrants which are considered derivatives which must be reported as a liability because of the exercise price adjustment provisions within the agreements.  These 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. Expected volatility is based primarily on historical volatility and is computed using weekly pricing observations for recent periods that correspond to the expected life of the warrants.  We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants. 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. Changes in our stock price will have a direct impact on the value of the warrant liability. An increase in stock price generally will cause an increase in the warrant liability under our valuation method.
 
CONCENTRATIONS OF CREDIT RISK
 
The Company, at times, maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. In order to mitigate this risk, the Company holds its short-term capital in an account with one of the largest brokerage institutions, Merrill Lynch, which has obtained private insurance coverage to provide additional protection for amounts in excess of SIPC limits (up to $1.9 million for cash).
 
SHARE-BASED PAYMENT
 
In December 2004, the FASB issued a revision of ASC 718 formerly 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. ASC 718 formerly 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.
 
 
23

 
 
OFF-BALANCE SHEET ARRANGEMENTS
 
There are no off-balance sheet arrangements.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in any hedging activities

ITEM 8. FINANCIAL STATEMENTS
 
Our consolidated financial statements are contained in pages F-1 through F-23 which appear at the end of this annual report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last day of the fiscal period covered by this report, December 31, 2009. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

Our principal executive officer and our principal financial officer, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management is required to base its assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework, such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in Internal Control-Integrated Framework, is known as the COSO Report. Our principal executive officer and our principal financial officer, have chosen the COSO framework on which to base its assessment. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our principal executive officer and our principal financial officer’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report on Form 10-K.

 
24

 
 
There were no changes in our internal control over financial reporting that occurred during the last quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal year ended December 31, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION

None.

 
25

 

PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE;

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at December 31, 2009. There is no familial relationship between or among the nominees, directors or executive officers of the Company.
 
NAME
 
AGE
 
POSITION
 
OFFICER AND/OR DIRECTOR SINCE
             
Arnold Klann
 
58
 
President, CEO and Director
 
June 2006
Necitas Sumait
 
49
 
Secretary, SVP and Director
 
June 2006
Christopher Scott
 
35
 
Chief Financial Officer
 
March 2007
John Cuzens
 
58
 
SVP, Chief Technology Officer
 
June 2006
Chris Nichols
 
43
 
Director
 
June 2006
Victor Doolan
 
69
 
Director
 
July 2007
 
The Company’s Directors serve in such capacity until the first annual meeting of the Company’s shareholders and until their successors have been elected and qualified. The Company’s officers serve at the discretion of the Company’s Board of Directors, until their death, or until they resign or have been removed from office.
 
There are no agreements or understandings for any director or officer to resign at the request of another person and none of the directors or officers is acting on behalf of or will act at the direction of any other person. The activities of each director and officer are material to the operation of the Company. No other person’s activities are material to the operation of the Company.

On December 22, 2009, the Company Board of Directors accepted the resignation of Joseph I. Emas, which had been submitted on December 21, 2009. Mr. Emas served on the Audit Committee, Compensation Committee and as Chairman of the Nominating Committee.  Mr. Emas resignation was not a result of any disagreements relating to the Company’s operations, policies or practices.
 
Arnold R. Klann – Chairman of the Board and Chief Executive Officer
 
Mr. Klann has been our Chairman of the Board and Chief Executive Officer since our inception in March 2006. Mr. Klann has been President of ARK Energy, Inc. and Arkenol, Inc. from January 1989 to present. Mr. Klann has an AA from Lakeland College in Electrical Engineering.
 
Necitas Sumait – Senior Vice President and Director
 
Mrs. Sumait has been our Director and Senior Vice President since our inception in March 2006. Prior to this, Mrs. Sumait was Vice President of ARK Energy/Arkenol from December 1992 to July 2006. Mrs. Sumait has a MBA in Technological Management from Illinois Institute of Technology and a B.S. in Biology from De Paul University.
 
Christopher Scott - Chief Financial Officer
 
Mr. Scott has been our Chief Financial Officer since March 2007. Prior to this, from 2002 to March 2007, Mr. Scott was most recently the CFO/CCO and FinOp of Westcap Securities, Inc, an NASD Member Broker/Dealer and Investment Bank headquartered in Irvine, CA. Mr. Scott currently holds the Series 7, 63, 24, and Series 27 NASD licenses. From 1997 to 2002, Mr. Scott was a General Securities and Registered Options Principal at First Allied Securities Inc. Mr. Scott earned his Bachelor’s Degree in Business Administration, with a concentration in Finance, from CSU, Fullerton.
 
John Cuzens - Chief Technology Officer and Senior Vice President
 
Mr. Cuzens has been our Chief Technology Officer and Senior Vice President since our inception in March 2006. Mr. Cuzens was a Director from March 2006 until his resignation from the Board of Directors in July 2007.  Prior to this, he was Director of Projects Wahlco Inc. from 2004 to June 2006. He was employed by Applied Utility Systems Inc from 2001 to 2004 and Hydrogen Burner Technology form 1997-2001. He was with ARK Energy and Arkenol from 1991 to 1997 and is the co-inventor on seven of Arkenol’s eight U.S. foundation patents for the conversion of cellulosic materials into fermentable sugar products using a modified strong acid hydrolysis process. Mr. Cuzens has a B.S. Chemical Engineering degree from the University of California at Berkeley.

 
26

 

Chris Nichols – Director (Chairman, Compensation Committee)
 
Mr. Nichols has been our Director since our inception in March 2006.  Mr. Nichols is currently the Chairman of the Board and Chief Executive Officer of Advanced Growing Systems, Inc. Since 2003 Mr. Nichols was the Senior Vice President of Westcap Securities’ Private Client Group. Prior to this, Mr. Nichols was a Registered Representative at Fisher Investments from December 2002 to October 2003. He was a Registered Representative with Interfirst Capital Corporation from 1997 to 2002. Mr. Nichols is a graduate of California State University in Fullerton with a B.A. degree in Marketing.
 
Victor Doolan – Director (Chairman, Audit Committee)
 
Mr. Doolan served for approximately three years as president of Volvo Cars North America until his retirement in March 2005. Prior to joining Volvo, Mr. Doolan served as the Executive Director of the Premier Automotive Group, the luxury division of Ford Motor Company from July 1999 to June 2002. Mr. Doolan also enjoyed a 23-year career with BMW, culminating with his service as President of BMW of North America from September 1993 to July 1999. Mr. Doolan has worked in the automotive industry for approximately 36 years.  Mr. Doolan currently serves on the Board of Directors for Sonic Automotive, Inc.
 
Significant Employee
 
William Davis - VP Project Management.
 
Mr. Davis is currently Vice President of Project Management for us. Prior to this he was Director of Power Plant Project Development for Diamond Energy from 2001 to 2006. Prior to this he was VP of Business Development for Oxbow Power. He has over 30 years in the energy business and was an energy advisor to the Governor of California. He has been involved in domestic and international power project development. Mr. Davis is a registered Architect in three states and graduated from California State University at San Luis Obispo with a Bachelors of Architecture and a Masters of Science in Architecture.
 
FAMILY RELATIONSHIPS
 
There are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.
 
SUBSEQUENT EXECUTIVE RELATIONSHIPS
 
There are no family relationships among our directors and executive officers. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past five years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past five years.
 
None of our directors or executive officers or their respective immediate family members or affiliates are indebted to us.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
Each of our Audit Committee, Compensation Committee and Nomination Committee are composed of a majority of independent board members and are also chaired by an independent board member. 

 
27

 

Audit Committee
Victor Doolan, Chairman
Christopher Nichols

Compensation Committee
Christopher Nichols, Chairman
Victor Doolan

Nomination Committee
No current Chairman
Christopher Nichols
Victor Dolan
 
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
 
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the following reports required to be filed with respect to transactions in our Common Stock during the fiscal year ended December 31, 2009 were untimely:

Arnold Klann, the Chairman and CEO of the Company failed to timely file Form 4s for a number of gifts to charity in an aggregate amount of 290,000 shares of our Common Stock for the period ending December 31, 2009. The price on these transactions was $1.00 per share, representing the closing price of our Common Stock on December 31, 2009. Mr. Klann reported these transactions on a Form 4 filed on January 28, 2010.
 
CODE OF ETHICS
 
The Company has adopted a Code of Ethics that applies to the Registrant's directors, officers and key employees.
 
BOARD NOMINATION PROCEDURE
 
There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors since the Company provided disclosure on such process on its proxy statement on Form DEF 14 A, as amended, filed on May 22, 2009 with the SEC.

 
28

 
 
ITEM 11. EXECUTIVE COMPENSATION
 
2009/2008 SUMMARY COMPENSATION TABLE YEAR
 
NAME AND PRINCIPAL 
POSITION
YEAR
 
SALARY
($)
 
BONUS
($)
 
STOCK
AWARDS
(2)
   
OPTIONS
AWARDS ($) (2)
 
NON-
EQUITY
INCENTIVE PLAN
COMPENSATION
($)
 
CHANGE
IN PENSION
VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)
 
ALL OTHER
COMPENSATION
 ($)
 
TOTAL
($)
 
                                       
Arnold Klann
2009
  226,000   -   5,250 (1)   -               231,250  
    Director and
    President
2008
  226,000   -   24,600 (1)    -               250,600  
Necitas Sumait
2009
  180,000   -   5,250 (1)                   185,250  
    Director, Secretary
    and VP
2008
  176,500   -   24,600 (1)                    201,100  
John Cuzens
2009
  180,000   -   -     -               180,000  
    Treasurer and VP
2008
  175,250   -   -     -               175,250  
Christopher Scott
2009
  155,833   -   -     -               155,833  
    Chief Financial
    Officer
2008
  163,750   -   -     -               163,750  
Chris Nichols
2009
  5,000       5,250 (1)                   10,250  
    Director
2008
  5,000       24,600 (1)                   29,600  
Joseph Emas
2009
  5,000       5,250 (1)                    10,250  
    Director
2008
  5,000       24,600 (1)                   29,600  
Victor Doolan
2009
  5,000       5,250 (1)                   10,250  
    Director
2008
  5,000       24,600 (1)                   29,600  
 
(1)  
Reflects value of shares of restricted common stock received as compensation as Director. See notes to consolidated financial statements for valuation.
 
(2)  
Valued based on the Black-Scholes valuation model at the date of grant, see note to the consolidated financial statements.
 
 
29

 

2009 GRANTS OF PLAN-BASED AWARDS TABLE
 
                       
ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY
INCENTIVE PLAN AWARDS
 
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS
Name
 
Grant Date
 
Approval Date
 
Number of Non-Equity Incentive Plan Units Granted (#)
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
 (#)
 
Target
 (#)
 
Maximum
 (#)
 
All Other Stock Awards: Number of Shares of Stock or Units (#)
 
All Other Option Awards: Number of Securities Underlying Options (#)
 
Exercise or Base Price of Option Awards ($ / SH)
 
Closing Price on Grant Date ($ / SH)
                                                     
Arnold Klann
 
None
                                               
Necitas Sumait
 
None
                                               
Christopher Scott
 
None
                                               
John Cuzens
 
None
                                               
Chris Nichols
 
None
                                               
Joseph Emas
 
None
                                               
Victor Doolan
 
None
                                               

 
30

 

2009 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

         
OPTION AWARDS
             
STOCK AWARDS
NAME
 
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
EXERCISABLE
   
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
UNEXERCISABLE
   
EQUITY
INCENTIVE
PLAN AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS
(#)
 
OPTION
EXERCISE
PRICE
($)
 
OPTION
EXPIRATION
DATE
 
NUMBER OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
(#)
 
MARKET
VALUE OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
($)
 
EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED
(#)
 
EQUITY INCENTIVE PLAN AWARDS:
MARKET OR
PAYOUT VALUE
OF UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED
($)
Arnold Klann
  1,000,000     -         2.00  
12/14/11
               
    28,409     -         3.52  
12/20/12
               
    125,000 (1)   125,000 (1)       3.20  
12/20/12
               
Necitas Sumait
  450,000     -         2.00  
12/14/11
               
    118,750 (1)   87,500 (1)       3.20  
12/20/12
               
John Cuzens
  450,000     -         2.00  
12/14/11
               
    118,750 (1)   87,500 (1)       3.20  
12/20/12
               
Christopher Scott
  118,750 (1)   87,500 (1)       3.20  
12/20/12
               
Chris Nichols
                                       
Joseph Emas
                                       
Victor Doolan
                                       

(1) 50% vested immediately upon grant in 2007, 25% vests on closing remainder of Lancaster Project Funding, 25% vests at the start of construction of Lancaster Project

 
31

 

2009 OPTION EXERCISES AND STOCK VESTED TABLE
 
  OPTION AWARDS STOCK AWARDS
         
 
Number of Shares
Acquired on Exercise
(#)
Value Realized
on Exercise
($)
Number of Shares
Acquired on Vesting
(#)
Value Realized
on Vesting
($)
         
Arnold Klann
       
Necitas Sumait
       
Christopher Scott
       
John Cuzens
       
Chris Nichols
       
Joseph Emas
       
Victor Doolan
       

 
2009 PENSION BENEFITS TABLE
 
NAME
PLAN NAME
NUMBER OF YEARS
CREDITED SERVICE
(#)
PRESENT VALUE OF
ACCUMULATED  BENEFIT
($)
PAYMENTS DURING
LAST FISCAL YEAR
 ($)
         
Arnold Klann
       
Necitas Sumait
       
Christopher Scott
       
John Cuzens
       
Chris Nichols
       
Joseph Emas
       
Victor Doolan
       
 

2009 NONQUALIFIED DEFERRED COMPENSATION TABLE
 
NAME
EXECUTIVE
CONTRIBUTION IN
LAST FISCAL YEAR
($)
REGISTRANT
CONTRIBUTIONS IN
LAST FISCAL YEARS
 ($)
AGGREGATE
EARNINGS IN LAST
FISCAL  YEAR
($)
AGGREGATE
WITHDRAWALS /
DISTRIBUTIONS
($)
AGGREGATE
BALANCE AT LAST
 FISCAL YEAR-END
($)
           
Arnold Klann
         
Necitas Sumait
         
Christopher Scott
         
John Cuzens
         
Chris Nichols
         
Joseph Emas
         
Victor Doolan
         

 
32

 

2009 DIRECTOR COMPENSATION TABLE
 
NAME
Year
FEES EARNED OR PAID IN CASH
($)
STOCK
AWARDS
OPTION
AWARDS
NON-EQUITY
INCENTIVE PLAN COMPENSATION
CHANGE IN
PENSION VALUE
AND
NONQUALIFIED DEFERRED COMPENSATION EARNINGS
ALL OTHER COMPENSATION
TOTAL
($)
($) (1)
($)
($)
($)
($)
                 
Necitas Sumait
2009
 
5,250
       
5,250
                 
Chris Nichols
2009
5,000
5,250
       
10,250
                 
Joseph Emas
2009
5,000
5,250
       
10,250
                 
Victor Doolan
2009
5,000
5,250
       
10,250
                 
Arnold Klann
2009
 
5,250
       
5,250
 
(1)  
Reflects value of shares of restricted common stock received as compensation as Director. See notes to consolidated financial statements for valuation.
 

2009 ALL OTHER COMPENSATION TABLE
 
NAME
YEAR
PERQUISITES AND OTHER PERSONAL BENEFITS
($)
TAX
REIMBURSEMENTS
($)
INSURANCE
PREMIUMS
($)
COMPANY CONTRIBUTIONS
TO RETIREMENT
AND 401(K) PLANS
($)
SEVERANCE PAYMENTS/
 ACCRUALS
($)
CHANGE IN
 CONTROL
 PAYMENTS/
 ACCRUALS
($)
TOTAL
($)
                 
Arnold Klann
               
Necitas Sumait
               
Christopher Scott
               
John Cuzens
               
Chris Nichols
               
Joseph Emas
               
Victor Doolan
               

 
33

 

2009 PERQUISITES TABLE

NAME
YEAR
PERSONAL USE OF
COMPANY
CAR/PARKING
FINANCIAL
PLANNING LEGAL
FEES
CLUB DUES
EXECUTIVE
RELOCATION
TOTAL PERQUISITES
 AND OTHER
PERSONAL BENEFITS
             
Arnold Klann
           
Necitas Sumait
           
Christopher Scott
           
John Cuzens
           
Chris Nichols
           
Joseph Emas
           
Victor Doolan
           

 
2009 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE

NAME
BENEFIT
BEFORE CHANGE
IN CONTROL
TERMINATION W/O
CAUSE OR FOR
GOOD REASON
AFTER CHANGE
IN CONTROL
TERMINATION W/O
CAUSE OR GOOD
REASON
VOLUNTARY
TERMINATION
DEATH
DISABILITY
CHANGE IN CONTROL
               
Arnold Klann
         
Full comp. first 2 months, 50% of comp. next 4 months
 
Necitas Sumait
         
Full comp. first 2 months, 50% of comp. next 4 months
 
Christopher Scott (1)
         
Full comp. first 2 months, 50% of comp. next 4 months
 
John Cuzens
         
Full comp. first 2 months, 50% of comp. next 4 months
 
Chris Nichols
         
N/A
 
Joseph Emas
         
N/A
 
Victor Doolan
         
N/A
 

(1) The disability benefit came into effect with the signing of Mr. Scott’s employment agreement on March 31, 2008.

 
34

 
 
EMPLOYMENT CONTRACTS
 
On June 27, 2006, the Company entered into employment agreements with three of its executive officers. The employment agreements are for a period of three years, which expired in 2009, with prescribed percentage increases beginning in 2007 and can be cancelled upon a written notice by either employee or employer (if certain employee acts of misconduct are committed). The total aggregate annual amount due under the employment agreements is approximately $520,000. These contracts have not been renewed. Each of the executive officers are currently working for the Company on a month to month basis.
 
In addition, on June 27, 2006, the Company entered into a Directors agreement with four individuals to join the Company’s board of directors. Under the terms of the agreement the non-employee Director (Chris Nichols) will receive annual compensation in the amount of $5,000 and all Directors receive a onetime grant of 5,000 shares of the Company’s common stock. The common shares vested immediately. The value of the common stock granted was determined to be approximately $67,000 based on the estimated fair market value of the Company’s common stock over a reasonable period of time. On July 9, 2007, the Company entered into a Directors agreement with two individuals (Victor Doolan, and Joseph Emas) to join the Company’s board of directors. Under the terms of the agreement these non-employee Directors will receive annual compensation in the amount of $5,000 and all Directors receive a one-time grant of 5,000 shares of the Company’s common stock. The common shares vest immediately. The value of the common stock granted was determined to be approximately $50,700 based on the estimated fair market value of the Company’s common stock over a reasonable period of time.
 
In connection with Christopher Scott’s appointment as the Company’s CFO on March 16, 2007, the Company and Mr. Scott entered into an at-will letter Employment Agreement containing the following material terms: (i) initial monthly salary of $7,500, to be raised to $10,000 on the earlier of April 30, 2007 or receipt by the Company of a qualified investment financing, and (ii) standard employee benefits; (iii) 50,000 shares of common stock issued throughout the year ended December 31, 2007 to a consulting Company beneficially owned by him. On March 31, 2008, the Board of Directors of the Company replaced Mr. Scott’s existing at-will Employment Agreement with a new employment agreement, effective February 1, 2008, and terminating on May 31, 2009, unless extended for additional periods by mutual agreement of both parties. The new agreement contained the following material terms: (i) initial annual salary of $170,000, paid monthly; and (ii) standard employee benefits; (iii) limited termination provisions; (iv) rights to Inventions provisions; and (v) confidentiality and non-compete provisions upon termination of employment. This employement agreement expired on May 31, 2009, and Mr. Scott currently serves the company on a part-time basis as CFO on a month to month basis.
 
On July 31, 2008, the Board of Directors approved the re-election of Victor Doolan, Joseph Emas, Christopher Nichols, Arnold Klann and Necitas Sumait. The Company also resolved to grant each Board Chair, and the Secretary each an additional 5,000 shares of stock. The value of the common stock granted at the time of the grant was determined to be approximately $123,000 based on the estimated fair market value of the Company’s common stock.

On July 23, 2009, the Board of Directors approved the re-election of Victor Doolan, Joseph Emas, Christopher Nichols, Arnold Klann and Necitas Sumait. The Company also resolved to grant each Board Chair, and the Secretary each an additional 5,000 shares of stock. The value of the common stock granted at the time of the grant was determined to be approximately $5,250 based on the estimated fair market value of the Company’s common stock.

On December 22, 2009, the Company Board of Directors accepted the resignation of Joseph I. Emas, which had been submitted on December 21, 2009. Mr. Emas served on the Audit Committee, Compensation Committee and as Chairman of the Nominating Committee.  Mr. Emas resignation was not a result of any disagreements relating to the Company’s operations, policies or practices.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
As of December 31, 2009, our authorized capitalization was 101,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, $0.001 par value per share and 1,000,000 shares of preferred stock, no par value. As of December 31, 2009, there were 28,296,965 shares of our common stock outstanding, all of which were fully paid, non-assessable and entitled to vote. Each share of our common stock entitles its holder to one vote on each matter submitted to the stockholders.
 
The following table sets forth, as of December 31, 2009, the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.
 
 
35

 
 
Title of Class
 
Name of Beneficial Owner (1)
 
Number of
shares
 
Percent of
Class (2)
Common
 
Arnold Klann, Chairman and Chief Executive Officer
   
14,073,909
(4)
   
47.79
%
Common
 
Necitas Sumait, Senior Vice President and Director
   
1,786,750
(5)
   
6.19
%
Common
 
John Cuzens, Chief Technology Officer and Senior Vice President
   
1,752,250
(6)
   
6.07
%
Common
 
Chris Scott, Chief Financial Officer
   
128,750
(7)
   
*
 
Common
 
Chris Nichols, Director
   
10,000
     
*
 
Common
 
Victor Doolan, Director
   
17,000
     
*
 
Common
 
Joseph Emas, Director
   
11,000
     
*
 
Common
 
Quercus Trust (3)
   
8,611,211
(8)
   
25.44
%
                     
   
All officers and directors as a group (7 persons)
   
17,779,659
     
57.88
%
   
All officers, directors and 5% holders as a group (8 persons)
   
26,390,870
     
72.76
%

(1)
Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act and generally includes voting or investment power with respect to securities.
(2)
Figures may not add up due to rounding of percentages.
(3)
David Gelbaum and Monica Chavez Gelbaum are co-trustees of The Quercus Trust.  Each of David Gelbaum and Monica Chavez Gelbaum, acting alone, has the power to exercise voting and investment control over the shares of common stock owned by the Trust.
(4)
Includes options to purchase 1,153,409 shares of common stock vested at December 31, 2009.
(5)
Includes options to purchase 568,750 shares of common stock vested at December 31, 2009.
(6)
Includes options to purchase 568,750 shares of common stock vested at December 31, 2009.
(7)
Includes options and warrants to purchase 128,750 shares of common stock vested at December 31, 2009.
(8)
Includes a warrant to purchase 5,555,556 shares of common stock.

SHARE ISSUANCES/CONSULTING AGREEMENTS
 
On January 1, 2007, the Company entered into an employment agreement with a former consultant to be Vice President of Project Management. Pursuant to the terms of this agreement, the consultant was issued 10,000 shares of the Company’s restricted common stock.
 
On Feb 13, 2007, the Company entered into a consulting agreement with a corporate technology consultant. The consultant shall review, comment, and implement as requested by the Company on any Information Technology rollout. Under the terms of the agreement consultant will receive 12,500 restricted shares of the Company’s common stock at the signing of the agreement, 12,500 shares on June 1, 2007, 12,500 shares on September 1, 2007, and 12,500 shares on December 1, 2007.
 
In addition, on July 7, 2007, the Company entered into a Directors agreement with two individuals to join the Company’s board of directors. Under the terms of the agreement these non-employee Directors will receive annual compensation in the amount of $5,000 and all Directors receive a one time grant of 5,000 shares of the Company’s common stock. The common shares vest immediately. The value of the common stock granted was determined to be approximately $66,000 based on the fair market value of the Company’s common stock of $5.07 on the date of the grant. As of September 30, 2007, the Company expensed all of the costs approximating $81,000 to general and administrative expenses.

On August 27, 2009, the Company entered into a 6-month Consulting Agreement with Mirador Consulting, Inc. Pursuant to the Agreement, the Company will receive services in connection with mergers and acquisitions, corporate finance, corporate finance relations, introductions to other financial relations companies and other financial services.  As consideration for these services, the Company will make monthly cash payments of $3,000 and has issued, or will issue, 200,000 shares of the Company’s common stock in exchange for $200. The Company valued the shares at $0.80 based upon the closing price of the Company’s common stock on the date of the agreement. Under the terms of the agreement, the shares did not have any future performance requirement nor were they cancellable, thus the Company expensed the entire value on the date of the agreement and recorded to general and administrative expense. Under the terms of the agreement the Company was to issue 100,000 shares on the date of agreement and November 15, 2009. As of December 31, 2009, the Company has yet to issue the remaining 100,000 shares due to the pending negotiation of a new agreement. In addition, the Company granted the consultant a warrant to purchase 100,000 shares of common stock at an exercise price of $3.00 per share. The warrant vested immediately, expire in one year and were valued at approximately $9,000.
 
 
36

 
 
STOCK OPTION ISSUANCES UNDER AMENDED 2006 PLAN
 
On December 20, 2007 the Company’s Board of Directors granted the following stock options to employees and outside consultants as compensation:
 
DATE ISSUED:
OPTIONEE NAME
NUMBER OF OPTIONS
TYPE
PRICE
EXPIRATON DATE
December 20, 2007
December 20, 2007
Arnold Klann, Officer and Director
28,409
250,000
ISO (1)
NSO (2)
$3.52
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
December 20, 2007
Necitas Sumait, Officer and Director
31,250
175,000
ISO (1)
NSO (2)
$3.20
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
December 20, 2007
John Cuzens, Officer
31,250
175,000
ISO (1)
NSO (2)
$3.20
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
December 20, 2007
Chris Scott, Officer
31,250
175,000
ISO (1)
NSO (2)
$3.20
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
December 20, 2007
Bill Davis, Employee
31,250
175,000
ISO (1)
NSO (2)
$3.20
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
December 20, 2007
Rigel Stone, Employee
31,250
150,000
ISO (1)
NSO (2)
$3.20
$3.20
December 20, 2012
December 20, 2012
December 20, 2007
Barbi Rios, Employee
5,000
ISO (1)
$3.20
December 20, 2012
December 20, 2007
Scott Olson, Outside Consultant
10,000
NSO (3)
$3.20
December 20, 2012
December 20, 2007
Aleshia Knickerbocker, Employee
 2,500
NSO (3)
$3.20
December 20, 2012
December 20, 2007
 Bill Orr, Outside Consultant
 10,000
NSO (3)
$3.20
December 20, 2012
December 20, 2007
Elsa Ebro, Outside Consultant
 5,000
NSO (3)
$3.20
December 20, 2012
Totals
 
 1,317,159
     
 
 (1)
These Incentive Stock Options (“ISO”) vested immediately
 (2) 
These Non-Qualified Stock Options (“NSO”) vest as follows:
a.           50% vested immediately
b.           25% vest on BlueFire closing remainder of funding for Lancaster Project
c.           25% vest at start of construction of Lancaster Project
 (3)   
These NSO’s vested monthly over 12 months (1/12th monthly vesting)
 
 Changes in Control
 
We are not aware of any arrangements that may result in a change in control of the Company.
 
DESCRIPTION OF SECURITIES
 
General
 
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001, and 1,000,000 shares of preferred stock, no par value (none of which are issued and outstanding).
 
Common Stock
 
The shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or warrants, will be fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves cannot elect any Directors. Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.
 
Voting Rights

Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

Dividends

Subject to preferences that may be applicable to any then-outstanding shares of Preferred Stock, if any, and any other restrictions, holders of Common Stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s board of directors out of legally available funds. The Company and its predecessors have not declared any dividends in the past. Further, the Company does not presently contemplate that there will be any future payment of any dividends on Common Stock.
 
 
37

 
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
On February 24, 2009, the Company entered into a Revolving Line of Credit (the “Line of Credit”) with Arkenol, a related party. The Line of Credit is for a maximum principal amount of five hundred seventy thousand ($570,000) dollars with an annual interest rate of six (6%) percent compounded annually and paid quarterly.  The Company may from time to time in its sole discretion draw down up to the maximum five hundred seventy thousand ($570,000) dollars. The Company has promised to pay in full 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 amount of at least two million ($2,000,000) dollars.  The financing must provide for at least one million five hundred thousand ($1,500,000) dollars for general working capital and/or general corporate purposes.   The Lender at its option may require all outstanding sums due on the Line of Credit to become immediately due and payable as a condition precedent to any transaction effecting a change of control of the Company.  Any monies not paid within thirty (30) days of the due date will be subject to a late charge in the amount of ten (10%) of the entire remaining unpaid balance at the time of delinquency under the Line of Credit. The Company’s Chief Executive Officer, Chairman of the Board of Directors and majority stockholder Arnold Klann, holds a 25.5% interest in the Lender. As of March 26, 2010 , there were no amounts outstanding and the line of credit was deemed cancelled as the Company did not anticipate utilizing funds from the line of credit.
 
DIRECTOR INDEPENDENCE
 
The common stock of the Company trades on the OTCBB, an exchange which currently does not have director independence requirements. However, our internal corporate governance guidelines provide that a majority of the Board will be independent.  On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest.  Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy both the criteria for the Nasdaq and the American Stock Exchange.

 
38

 
 
As of December 31, 2009, the Board determined that the following directors are independent under these standards (i) Mr. Victor Doolan, and (ii) Mr. Christopher Nichols.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
a.  Audit Fees: Aggregate fees billed by dbbmckennon for professional services rendered for the audit of our annual financial statements and review of our financial statements included in Form 10-Q for the year ended December 31, 2009 were approximately $26,200.
 
Aggregate fees billed by McKennon, Wilson & Morgan LLP for professional services rendered for the audit of our annual financial statements and review of our financial statements included in Form 10-Q for the years ended December 31, 2009 and 2008 were approximately $27,800 and $57,000, respectively.
 
b. Audit-Related Fees: No fees were billed for assurance and related services reasonably related to the performance of the audit or review of our financial statements and not reported under “Audit Fees” above in the years ended December 31, 2009 and 2008.
 
c.  Tax Fees: Aggregate fees billed by McKennon, Wilson & Morgan LLP for tax services for the years ended December 31, 2009 and 2008 were approximately $3,500 and $8,000, respectively.
 
d. All Other Fees: Aggregate fees billed for professional services other than those described above were approximately $6,000 in the year ended December 31, 2009. These fees were primarily for review of the Company’s registration statement(s) and other minor due diligence projects.
 
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
 
The Company’s Audit Committee has policies and procedures that require the pre-approval by the Audit Committee of all fees paid to, and all services performed by, the Company’s independent accounting firms. At the beginning of each year, the Audit Committee approves the proposed services, including the nature, type and scope of services contemplated and the related fees, to be rendered by these firms during the year. In addition, Audit Committee pre-approval is also required for those engagements that may arise during the course of the year that are outside the scope of the initial services and fees pre-approved by the Audit Committee.
 
Pursuant to the Sarbanes-Oxley Act of 2002, the fees and services provided as noted above were authorized and approved by the Audit Committee in compliance with the pre-approval policies and procedures described herein.

 
39

 

ITEM 15. EXHIBITS
 
(a) The following documents are filed as a part of this Report.
 
EXHIBIT NO.
DESCRIPTION
   
14.1
Code of Ethics (1)
24.1
Power of Attorney (2)
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 USC, section 1350 of Arnold Klann
32.2
Certification pursuant to 18 USC, section 1350 of Christopher Scott
99.1 
Audit Committee Charter (3)
99.2
Compensation Committee Charter (3)

(1) Incorporated by reference to the Company’s Form 10-KSB, as filed with the SEC on February 29, 2008.
(2) Incorporated by reference to the Company’s Form SB-2, as filed with the SEC on December 20, 2007.
(3) Incorporated by reference to the Company’s Form 10-SB/A, as filed with the SEC on February 28, 2007.

 
40

 
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
BLUEFIRE ETHANOL FUELS, INC.
 
       
Dated:   March 29, 2010
By:
/s/ Arnold R. Klann
 
   
President and Chief Executive Officer
 
   
(Principal Executive Officer)
 
       
 
       
 
By:
/s/ Christopher Scott
 
   
Christopher Scott
 
   
Chief Financial Officer 
 
   
(Principal Financial officer and Principal Accounting Officer)
 
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
         
         
/s/ Arnold R. Klann
 
Director and Chairman of the Board;
 
March 29, 2010
Arnold R. Klann
 
President and Chief Executive Officer
   
         
/s/ Necitas Sumait
 
Director, Secretary and Vice President
 
March 29, 2010
Necitas Sumait
       
         
/s/ Chris Nichols
 
Director
 
March 29, 2010
Chris Nichols
       
         
/s/ Victor H. Doolan
 
Director
 
March 29, 2010
Victor H. Doolan
       
         

 
41

 
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Report of Independent Registered Public Accounting Firms
F-1 and F-2
   
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008
F-3
   
Consolidated Statements of Operations for the years ended December 31, 2009, December 31, 2008 and for the period from March 28, 2006 (Inception) to December 31, 2009
F-4
   
Consolidated Statements of Stockholders’ Equity from March 28, 2006 (inception) to December 31, 2009
F-5 -F-8
   
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and December 31, 2008, and for the period from March 28, 2006 (Inception) to December 31, 2009
F-9 - F-10
   
Notes to Consolidated Financial Statements
F-11

 
 

 
 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of BlueFire Ethanol Fuels, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of BlueFire Ethanol Fuels, Inc. and subsidiaries, a development-stage company, (collectively the “Company”) as of December 31, 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended and for the period from March 28, 2006 (“Inception”) to December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BlueFire Ethanol Fuels, Inc. and subsidiaries, as of December 31, 2009, and the results of their operations and their cash flows for the year ended, and for the period from Inception to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ dbbmckennon

Newport Beach, California
March 29, 2010
 
 
F-1

 
 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of BlueFire Ethanol Fuels, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of BlueFire Ethanol Fuels, Inc. and subsidiaries, a development-stage company, (collectively the “Company”) as of December 31, 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BlueFire Ethanol Fuels, Inc. and subsidiaries, as of December 31, 2008, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ McKennon Wilson & Morgan LLP

Irvine, California
March 26, 2009
 
 
F-2

 
 
 BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
2009
   
December 31,
2008
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
 
$
2,844,711
   
$
2,999,599
 
Department of Energy grant receivable
   
207,380
     
692,014
 
Prepaid expenses
   
50,790
     
89,871
 
Total current assets
   
3,102,881
     
3,781,484
 
                 
Debt issuance costs
    150,000       -  
Property and equipment, net of accumulated
  depreciation of $44,130 and $20,761, respectively
   
 167,995
     
 186,112
 
                 
Total assets
 
$
3,420,876
   
$
3,967,596
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
 
$
335,547
   
$
711,884
 
License fee payable to related party
   
-
     
970,000
 
Accrued liabilities
   
245,394
     
173,618
 
Total current liabilities
   
580,941
     
1,855,502
 
                 
       Outstanding warrant liability
   
2,274,393
     
-
 
                 
Total liabilities
   
2,855,334
     
1,855,502
 
                 
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; 28,296,965 and 28,133,053  shares
               
issued and 28,264,793 and 28,100,881  outstanding, respectively
   
28,296
     
28,132
 
Additional paid-in capital
   
14,033,792
     
32,388,052
 
Treasury stock at cost, 32,172 shares
   
(101,581
)
   
(101,581
 
Deficit accumulated during the development stage
   
 (13,394,965
)
   
 (30,202,509
)
Total stockholders’ equity
   
565,542
     
2,112,094
 
                 
Total liabilities and stockholders’ equity
 
$
3,420,876
   
$
3,967,596
 
 
See accompanying notes to consolidated financial statements
 
 
F-3

 
 
 BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
For the year
ended
   
For the year
ended
   
From
March 28, 2006
(inception)
Through
 
   
December 31,
2009
   
December 31,
2008
   
December 31,
2009
 
Revenues:
                 
Consulting fees
 
$
19,570
   
$
-
   
$
68,570
 
Department of  Energy grant
   
4,298,643
     
1,075,508
     
5,374,151
 
                         
Total revenues
   
4,318,213
     
1,075,508
     
5,442,721
 
                         
Operating expenses:
                       
Project development, including stock based compensation
     of $0, $2,078,356, and $4,468,490, respectively
   
1,307,185
     
10,535,278
     
17,239,202
 
General and administrative, including stock based compensation
     of $232,292, $1,690,921, and $6,097,332 respectively
   
2,220,073
     
4,136,235
     
13,034,630
 
Related party license fee
   
-
     
1,000,000
     
1,000,000
 
Total operating expenses
   
3,527,258
     
15,671,513
     
31,273,832
 
                         
Operating income (loss)
   
790,955
     
(14,596,005
)
   
(25,831,111
)
                         
Other income and (expense):
                       
Other income
   
8,059
     
225,411
     
255,173
 
Financing related charge
   
-
     
-
     
(211,660
)
Amortization of debt discount
   
-
     
-
     
(676,982
)
Interest expense
   
-
     
-
     
(56,097
)
Related party interest expense
   
(518
)
   
-
     
(64,966
)
Loss on extinguishment of debt
   
-
     
-
     
(2,818,370
)
Gain from change in fair value of warrant liability
   
567,461
     
-
     
567,461
 
Loss on the retirement of warrants
   
(146,718)
             
(146,718)
 
Total other income and (expense)
   
428,284
     
225,411
     
(3,152,159)
 
                         
Income (loss) before income taxes
   
1,219,239
     
(14,370,594)
     
(28,983,270)
 
Provision for income taxes
   
83,147
     
-
     
83,147
 
                         
Net income (loss)
 
$
1,136,092
   
$
(14,370,594
)
 
$
(29,066,417
)
                         
Basic and diluted income (loss) per common share
 
$
0.04
   
$
(0.51
)
       
Weighted average common shares outstanding, basic and diluted
   
28,159,629
     
28,064,572
         
 
See accompanying notes to consolidated financial statements
 
 
F-4

 
 
 BLUEFIRE ETHANOL FUELS, INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
   
Common Stock
   
Additional
Paid-in
 
Deficit
Accumulated
During
Development
 
Stockholders'
Equity
   
Shares
   
Amount
   
Capital