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BLUEFIRE ETHANOL FUELS INC - 10KSB - 20070402 - PART_III
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table and biographical summaries set forth information, including
principal occupation and business experience, about our directors and executive
officers at December 31, 2006. There is no familial relationship between or
among the nominees, directors or executive officers of the Company.
OFFICER AND
NAME AGE POSITION DIRECTOR SINCE
-------------------- ------- ------------------------------ ------------------
Arnold Klann 55 President, CEO and Director June 2006
Necitas Sumait 46 Secretary, SVP and Director June 2006
John Cuzens 55 Treasurer, SVP and Director June 2006
Chris Nichols 40 Director June 2006
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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.
ARNOLD R. KLANN - CHAIRMAN OF THE BOARD / PRESIDENT / CHIEF EXECUTIVE OFFICER
Mr. Klann has been BlueFire's Chairman of the Board, and President/Chief
Executive Officer since its inception in March 2006. Mr. Klann is President of
ARK Energy, Inc. and Arkenol, Inc. from January 1989 to present. Mr. Klann has
an AA from Lakeland College in Electrical Engineering.
JOHN E. CUZENS - CHIEF TECHNOLOGY OFFICER / SENIOR VICE PRESIDENT / TREASURER /
DIRECTOR
Mr. Cuzens has been BlueFire's Director, CTO and Senior VP since its inception
in March 2006. Prior to this, he was Director of Projects Wahlco Inc.from 2004
to June 2006. He was employed by Applied Utility Systems Inc from 2001 to 2004
and Hydrogen Burner Technology form 1997-2001. He was with ARK Energy and
Arkenol from 1991 to 1997 and is the co-inventor on seven of Arkenol's eight
U.S. foundation patents for the conversion of cellulosic materials into
fermentable sugar products using a modified strong acid hydrolysis process. Mr.
Cuzens has a B.S. Chemical Engineering degree from the University of California
at Berkeley.
NECITAS SUMAIT - SENIOR VICE PRESIDENT / SECRETARY / DIRECTOR
Mrs. Sumait has been BlueFire's Director and Senior VP since its inception in
March 2006. Prior to this, Mrs. Sumait was Vice President of ARK Energy/Arkenol
from December 1992 to July 2006. Mrs. Sumait has a MBA in Technological
Management from Illinois Institute of Technology and a B.S. in Biology from De
Paul University.
CHRIS NICHOLS - DIRECTOR
Mr. Nichols is currently the Chairman and President/CEO of Advanced Growing
Systems, Inc. Since 2003 Mr. Nichols was the Senior Vice President of Westcap
Securities' Private Client Group where he was in charge of sales and marketing.
Prior to this, Mr. Nichols was a Registered Representative at Fisher Investments
from December 2002 to October 2003. He was a Registered Representative with
Interfirst Capital Corporation from 1997 to 2002. Mr. Nichols is a graduate of
California State University in Fullerton with a B.A. degree in Marketing.
23
SIGNIFICANT EMPLOYEES AND CONSULTANTS
WILLIAM DAVIS - VP PROJECT MANAGEMENT.
Mr. Davis is currently Vice President of Project Management for BlueFire. Prior
to this he was Director of Power Plant Project Development for Diamond Energy
from 2001 to 2006. Prior to this he was VP of Business Development for Oxbow
Power. He has over 30 years in the energy business and was an energy advisor to
the Governor of California. He has been involved in domestic and international
power project development. Mr. Davis is a registered Architect in three states
and graduated from California State University at San Luis Obispo with a
Bachelors of Architecture and a Masters of Science in Architecture.
KEY CONSULTANT
KENT A. LARSEN - VP PROJECT FINANCE.
Mr. Larsen is currently Vice President of Project Finance for BlueFire. From
2001 to 2006, Mr. Larsen was President of Power Partners International to
develop power plant projects. From 1998 to 2001 he was Managing Director for
Entergy Development Corporation and from 1994-1998 he was the Executive Managing
Director of International Power Partners, Ltd. From 1991 to 1994 Mr. Larsen was
Director of Project Finance for of ARK Energy. He holds an MBA-Finance from UCLA
Graduate School of Business, and BS degrees in Civil Engineering and Mathematics
from the University of Washington.
The Company has also entered into consulting agreements with accounting, legal,
marketing and investor relations firms. These agreements are fee based and do
not include issuance of any stocks. However, the Company may enter into future
agreements that may include issuance of restricted stock.
SUBSEQUENT EXECUTIVE RELATIONSHIPS
On March 16, 2007, Christopher Scott was appointed by the Board as the Company's
Chief Financial Officer.
CHRISTOPHER SCOTT - CHIEF FINANCIAL OFFICER
Mr. Scott has been BlueFire's Chief Financial Officer since March 2007. Prior to
this, from 2002 to March 2007, Mr. Scott was most recently the CFO/CCO and FinOp
of Westcap Securities, Inc, an NASD Member Broker/Dealer and Investment Bank
headquartered in Irvine, CA. Mr. Scott currently holds the Series 7, 63, 24, 4,
27, 55, and Series 53 NASD licenses. From 1997 to 2002, Mr. Scott was a General
Securities and Registered Options Principal at First Allied Securities Inc. Mr.
Scott earned his Bachelors Degree in Business Administration, with a
concentration in Finance, from CSU, Fullerton.
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.
24
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has adopted charters for an Audit
Committee and Compensation Committee, but, for the time being, the Board of
Directors shall assume the responsibilities of the Audit and Compensation
Committees.
DIRECTOR COMPENSATION
On June 27, 2006 BlueFire Ethanol Fuels, Inc. issued 5,000 restricted shares to
each of the Directors of BlueFire Ethanol Fuels, Inc. All directors receive
reimbursement for out-of-pocket expenses in attending meetings of the Board of
Directors. From time to time the Company may engage certain members of the Board
of Directors to perform services on behalf of the Company and will compensate
such persons for such services.
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).
No persons were required to make such filings during the 2006 fiscal year.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the small business
issuer's directors, officers and key employees.
ITEM 10. EXECUTIVE COMPENSATION
2006
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------- ------------------------------------
Annual Compensation Awards Payouts
------------------- ---------- ---------------------------------------- ------------------------------------ ---------- ------------
(A) (b) (C) (d) (e) (f) (g) (h) (i)
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Restricted Securities LTIP All other
Name and Principle Other annual Stock Underlying Payouts Compensation
Position Year Salary ($) Bonus ($) compensation ($) Award(s) ($) Options/SARs (#) ($) ($)
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Arnold Klann 2006 113,000 - 16,750 (1) - - - -
Director and
President
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Necitas Sumait 2006 78,000 - 16,750 (1) - - - -
Director, Secretary
and VP
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
John Cuzens 2006 75,000 - 16,750 (1) - - - -
Director, Treasurer
and VP
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
Chris Nichols 2006 2,500 - 16,750 (1) - - - 73,000 (2)
Director
------------------- --------- ----------- ---------- ----------------- --------------- -------------------- ---------- ------------
(1) Reflects value of 5,000 shares of restricted common stock received as
compensation as Director.
(2) Reflects value of consideration received as compensation for consultant
services.
25
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2006 GRANTS OF PLAN-BASED AWARDS TABLE
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER ESTIMATED FUTURE PAYOUTS UNDER
NON-EQUITY NON-EQUITY INCENTIVE PLAN AWARDS EQUITY INCENTIVE PLAN AWARDS
INCENTIVE PLAN -------------------------------- ------------------------------
GRANT APPROVAL UNITS GRANTED THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM
NAME DATE DATE (#) ($) ($) ($) (#) (#) (#)
---- ---- ---- --- --- --- --- --- --- ---
Arnold Klann 12/14/06 12/14/06
Necitas Sumait 12/14/06 12/14/06
John Cuzens 12/14/06 12/14/06
Chris Nichols
(continued below)
-----------------
ALL OTHER ALL OTHER
STOCK AWARDS: OPTION AWARDS: EXERCISE OR CLOSING
NUMBER OF NUMBER OF BASE PRICE PRICE ON
SHARES OF SECURITIES OF OPTION GRANT
STOCK OR UNDERLYING AWARDS DATE
UNITS (#) OPTIONS(#) ($ / SH) ($ / SH)
--------- ---------- -------- --------
Arnold Klann 1,000,000 $2.00 $3.05
Necitas Sumait 450,000 $2.00 $3.05
John Cuzens 450,000 $2.00 $3.05
Chris Nichols
---------------------
*
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2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION AWARDS STOCK AWARDS
----------------------------------------------------------- ----------------------------------------------------
EQUITY
INCENTIVE
EQUITY EQUITY INCENTIVE PLAN AWARDS:
INCENTIVE PLAN AWARDS: MARKET OR
PLAN AWARDS: MARKET NUMBER OF PAYOUT VALUE
NUMBER OF NUMBER OF NUMBER OF NUMBER OF VALUE OF UNEARNED OF UNEARNED
SECURITIES SECURITIES SECURITIES SHARES OR SHARES OR SHARES, UNITS SHARES, UNITS
UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF OR OTHER OR OTHER
UNEXERCISED UNEXERCISED UNEXERCISED OPTION STOCK THAT STOCK THAT RIGHTS THAT RIGHTS THAT
OPTIONS OPTIONS UNEARNED EXERCISE OPTION HAVE NOT HAVE NOT HAVE NOT HAVE NOT
(#) (#) OPTIONS PRICE EXPIRATION VESTED VESTED VESTED VESTED
NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE (#) ($) (#) ($)
---- ----------- ------------- --- --- ---- --- --- --- ---
Arnold Klann 83,333 916,667 2.00 12/14/11
Necitas Sumait 37,500 412,500 2.00 12/14/11
John Cuzens 37,500 412,500 2.00 12/14/11
Chris Nichols
27
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2006 OPTION EXERCISES AND STOCK VESTED TABLE
OPTION AWARDS STOCK AWARDS
--------------------------------------------- ----------------------------------------
NUMBER OF SHARES VALUE REALIZED ACQUIRED ON VESTING NUMBER OF SHARES
ACQUIRED ON EXERCISE ON EXERCISE ON VESTING VALUE REALIZED
NAME (#) ($) (#) ($)
---- --- --- --- ---
Arnold Klann
Necitas Sumait
John Cuzens
Chris Nichols
28
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2006 PENSION BENEFITS TABLE
PRESENT VALUE
NUMBER OF YEARS OF ACCUMULATED PAYMENTS DURING LAST
CREDITED SERVICE BENEFIT FISCAL YEAR
NAME PLAN NAME (#) ($) ($)
---------- ----------------- ---------------------- ----------------- --------------------------
Arnold Klann
Necitas Sumait
John Cuzens
Chris Nichols
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2006 NONQUALIFIED DEFERRED COMPENSATION TABLE
REGISTRANT AGGREGATE
EXECUTIVE CONTRIBUTION CONTRIBUTIONS IN LAST AGGREGATE EARNINGS WITHDRAWALS / AGGREGATE BALANCE AT
IN LAST FISCAL YEAR FISCAL YEAR IN LAST FISCAL YEAR DISTRIBUTIONS LAST FISCAL YEAR-END
NAME ($) ($) ($) ($) ($)
---- --- --- --- --- ---
Arnold Klann
Necitas Sumait
John Cuzens
Chris Nichols
30
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2006 DIRECTOR COMPENSATION TABLE
CHANGE
IN PENSION
VALUE AND
NONQUALIFIED
NON-EQUITY DEFERRED
FEES EARNED OR INCENTIVE PLAN COMPENSATION ALL OTHER
PAID IN CASH STOCK AWARDS OPTION AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
---- --- --- --- --- --- --- ---
Arnold Klann 16,750 16,750
Necitas Sumait 16,750 16,750
John Cuzens 16,750 16,750
Chris Nichols 2,500 16,750 73,000 (1) 92,250
(1) Reflects value of consideration received as compensation for consultant services.
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2006 ALL OTHER COMPENSATION TABLE
PERQUISITES COMPANY CHANGE
AND OTHER CONTRIBUTIONS SEVERANCE IN CONTROL
PERSONAL TAX INSURANCE TO RETIREMENT AND PAYMENTS/ PAYMENTS/
BENEFITS REIMBURSEMENTS PREMIUMS 401(K) PLANS ACCRUALS ACCRUALS
NAME YEAR ($) ($) ($) ($) ($) ($) TOTAL ($)
---- ---- --- --- --- --- --- --- ---------
Arnold Klann
Necitas Sumait
John Cuzens
Chris Nichols
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2006 PERQUISITES TABLE
PERSONAL USE OF
COMPANY FINANCIAL PLANNING TOTAL PERQUISITES AND
NAME YEAR CAR/PARKING LEGAL FEES CLUB DUES EXECUTIVE RELOCATION OTHER PERSONAL BENEFITS
---- ---- ----------- ---------- --------- -------------------- ------------------------
Arnold Klann
Necitas Sumait
John Cuzens
Chris Nichols
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2006 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
BEFORE CHANGE IN AFTER CHANGE IN
CONTROL CONTROL
TERMINATION TERMINATION
W/O CAUSE OR FOR W/O CAUSE OR VOLUNTARY CHANGE IN
NAME BENEFIT GOOD REASON OR GOOD REASON TERMINATION DEATH DISABILITY CONTROL
---- ------- ----------- -------------- ----------- ----- ------------------ -------
Arnold Klann Full comp. first 2
months, 50% of
comp. next 4 months
Necitas Sumait Full comp. first 2
months, 50% of
comp. next 4 months
John Cuzens Full comp. first 2
months, 50% of
comp. next 4 months
Chris Nichols Full comp. first 2
months, 50% of
comp. next 4 months
------------
* List each applicable type of benefit in a separate row, e.g., severance pay,
bonus payment, stock option vesting acceleration, health care benefits
continuation, relocation benefits, outplacement services, financial planning
services or tax gross-ups.
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34
EMPLOYMENT CONTRACTS
On June 27, 2006, the Company entered into form employment agreements with its
three executive officers. The employment agreements are for a period of three
years, with prescribed percentage increases beginning in 2007 and can be
cancelled upon a written notice by either employee or employer (if certain
employee acts of misconduct are committed). The total aggregate annual amount
due under the employment agreements is approximately $520,000.
In addition, on June 27, 2006, the Company entered into a Directors agreement
with four individuals to join the Company's board of directors. Under the terms
of the agreement the non-employee Director (Chris Nichols) will receive annual
compensation in the amount of $5,000 and all Directors receive a one time grant
of 5,000 shares of the Company's common stock. The common shares vest over the
period of one year. The value of the common stock granted was determined to be
approximately $67,000 based on the estimated fair market value of the Company's
common stock over a reasonable period of time.
SUBSEQUENT MATERIAL EMPLOYMENT CONTRACT
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
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the current common stock ownership of (i) each
person known by the Company to be the beneficial owner of five percent or more
of the Company's common stock based upon 21,470,514 shares outstanding as of
March 23, 2007, (ii) each director of the Company individually and (iii) all
officers and directors of the Company as a group. In computing the number of
shares beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable, as appropriate, or will become exercisable within 60 days
of the reporting date are deemed outstanding, even if they have not actually
been exercised. Those shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Unless
otherwise indicated, each person has sole voting and investment power with
respect to the shares of common stock shown, and all ownership is of record and
beneficial. The address of each owner who is an officer or director is in care
of the Company at 31 Musick, Irvine, California 92618.
TITLE OF NUMBER OF PERCENT OF
CLASS NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------------------------------------------------------------------------
Common Arnold Klann, President, CEO and Director 13,805,833 (1) 63.7%
Common Necitas Sumait, Secretary, VP and Director 1,298,750 (2) 6.0%
Common John Cuzens, Treasurer, VP and Director 1,298,750 (3) 6.0%
Common Christopher Scott, CFO 43,980 (4) *
Common Chris Nichols, Director 70,000 *
All officers and directors as a group (5 persons) 16,517,313 75.6%
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(1) Includes 208,333 shares issuable to Mr. Klann pursuant to options to
purchase shares of our common stock within 60 days of March 30, 2007.
(2) Includes 93,750 shares issuable to Mrs. Sumait pursuant to options to
purchase shares of our common stock within 60 days of March 30, 2007.
(3) Includes 93,750 shares issuable to Mr. Cuzens pursuant to options to
purchase shares of our common stock within 60 days of March 30, 2007.
(4) 20,000 of these shares are held by E-Info Solutions LLC, an entity owned
50% by Mr. Scott and 50% by his spouse.
*Less than 1%.
SHARE ISSUANCES/CONSULTING AGREEMENTS
On December 18, 2006 the Company engaged two consultants on a non-exclusive
basis to prepare, review and comment on various presentations, press releases,
or other public relations documentation as requested by the Company. Consultants
shall also provide the Company with capital market support through its network
of portfolio managers, hedge funds, brokers, market-makers, institutions and
other market support professionals and organizations. Consultants may also
advise the Company from time to time, as requested by the Company, on potential
development and business relationships that may benefit the Company's financial
market positioning.. Consultants were compensated in the form of 20,000 shares
each of restricted stock.
On November 21, 2006, the Company entered into an agreement with a certain
consultant. Under the terms of the agreement the Company is to receive market
capitalization and support services in exchange for the a monthly fee of $7,500,
restricted stock totaling 150,000 shares, 200,000 warrants to buy stock at $5
for 5 years, and certain travel expenses.
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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.
STOCK OPTION ISSUANCES UNDER 2006 PLAN
On December 14, 2006 the Company's Board of Directors granted the following
stock options to employees and outside consultants as compensation:
NUMBER OF EXERCISE
DATE ISSUED: OPTIONEE NAME OPTIONS PRICE EXPIRATON DATE
--------------------------------------------------------------------------------------------------------------
December 14, 2006 Arnold Klann, Officer and Director 1,000,000 $2.00 December 14, 2011
December 14, 2006 Necitas Sumait, Officer and Director 450,000 $2.00 December 14, 2011
December 14, 2006 John Cuzens, Officer and Director 450,000 $2.00 December 14, 2011
December 14, 2006 Scott Olson, outside consultant 40,000 $2.00 December 14, 2011
December 14, 2006 Kent Larsen, outside consultant 20,000 $2.00 December 14, 2011
----------
December 14, 2006 Bill Davis, employee 20,000 $2.00 December 14, 2011
----------
December 14, 2006 Barbie Rios, outside consultant 5,000 $2.00 December 14, 2011
----------
December 14, 2006 Elsa Ebro, outside consultant 5,000 $2.00 December 14, 2011
----------
Totals 1,990,000
==========
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 1, 2006, BueFire entered into a Technology License agreement with
Arkenol, a company in which the Company's Chairman, CEO and majority shareholder
Arnold Klann holds a 25% interest. Arkenol has its own management and board
separate and apart from the Company. According to the terms of the agreement,
BlueFire was granted an exclusive, non-transferable, North American license to
use and to sub-license the Arkenol Technology (discussed above in Business of
Issuer). As consideration for the grant of the license, BlueFire shall make a
one time payment of $1,000,000 at first project construction funding and for
each plant make the following payments: (1) royalty payment of 4% of the gross
sales price for sales by BlueFire or its sublicensees of all products produced
from the use of the Arkenol Technology (2) and a one time license fee of $40.00
per 1,000 gallons of production capacity per plant. According to the terms of
the agreement, BlueFire made a one time exclusivity fee prepayment of $30,000
during the period ended August 31, 2006.
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On March 1, 2006, BlueFire entered into an Asset Transfer and Acquisition
Agreement with ARK Energy, a company which is fifty percent (50%) owned by the
Company's Chairman, CEO and majority shareholder, Arnold Klann. There are no
other common stockholders, officers or directors. ARK Energy has its own
management and board separate and apart from the Company. Based upon the terms
of the agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on project opportunities that may be
used to deploy the Arkenol Technology. In consideration, BlueFire has agreed to
pay a performance bonus of up to $16,000,000 when certain milestones are met.
These milestones include, but are not limited to, transferee's project
implementation which would be demonstrated by start of the construction of a
facility or completion of financial closing which ever is earlier. Management
did not incur the costs of a third party valuation but based its valuation of
the assets acquired by (1) an arms length review of the value assigned by ARK
Energy to the opportunities is based on the actual costs it incurred in
developing the project opportunities and (ii) anticipated financial benefits to
the Company.
In December 2006, the Company entered into a Promissory Note with its Chairman,
CEO and majority shareholder Arnold Klann, whereby Mr. Klann loaned the Company
$90,000 with a flat fee of 10% of the principal, or lower if required by law, to
be repaid upon the Company achieving certain investor financing milestones. In
addition, on January 5, 2007 the Company entered into a $25,000 promissory note
with the Company's Chairman, CEO and majority shareholder. Under the terms of
the note, the Company is to repay any principal balance within 30 days of
receiving qualified investment financing and a maximum fee of $2,500. The
principal balance and all accrued interest were paid in full during the month of
January of 2007.
On December 18, 2006 the Company engaged Director Christopher Nichols as a
consultant on a non-exclusive basis to prepare, review and comment on various
presentations, press releases, or other public relations documentation as
requested by the Company. Consultant shall also provide the Company with capital
market support through its network of portfolio managers, hedge funds, brokers,
market-makers, institutions and other market support professionals and
organizations. Consultant may also advise the Company from time to time, as
requested by the Company, on potential development and business relationships
that may benefit the Company's financial market positioning. Consultant was
compensated in the form of 20,000 shares of restricted common stock.
SUBSEQUENT RELATED PARTY TRANSACTION
On February 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 consulting entity will receive 12,500
restricted shares of the Company's common stock at the signing of the agreement
and 37,500 shares after effectiveness of the agreement in equal parts on June 1,
2007, September 1, 2007, and December 1, 2007.
On March 16, 2007, the Company obtained a 10% annual interest line of credit in
the amount of $1,500,000 from it's Chairman/Chief Executive Officer and majority
shareholder Arnold Klann to provide additional liquidity to the Company as
needed. Under the terms of the note, the Company is to repay any principle
balance and interest within 30 days of receiving qualified investment financing
of $5,000,000 or more.
38
ITEM 13. EXHIBITS
(a) The following documents are filed as a part of this Report.
EXHIBIT
NO. DESCRIPTION
2.1 Stock Purchase Agreement and Plan of Reorganization dated May 31,
2006, filed December 13, 2006.(1)
3.1 Amended and Restated Articles of Incorporation dated July 2, 2006,
filed December 13, 2006.(1)
3.2 Amended and Restated Bylaws dated May 27, 2006, filed December 13,
2006.(1)
4.1 Form of Promissory Note, filed February 28, 2007.(2)
4.2 Form of Subscription Agreement, filed February 28, 2007.(2)
4.3 Revolving Line of Credit dated March 16, 2007.(3)
10.1 Form Directors Agreement, filed December 13, 2006.(1)
10.2 Form Executive Employment Agreement, filed December 13, 2006.(1)
10.3 Arkenol Technology License Agreement, dated March 1, 2006, filed
December 13, 2006.(1)
10.4 ARK Energy Asset Transfer and Acquisition Agreement, dated March 1,
2006, filed December 13, 2006.(1)
10.5 Form of the Consulting Agreement, filed February 28, 2007.(2)
10.6 Company's 2006 Incentive and Nonstatutory Stock Option Plan and Form
of Stock Option Agreement, filed February 28, 2007.(2)
10.7 Chief Financial Officer Employment Agreement, effective March 16,
2007. (3)
21.1 Subsidiaries, filed herewith.
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Arnold Klann.
31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Christopher Scott.
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Arnold Klann.
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Christopher Scott.
99.1 Audit Committee Charter, filed February 28, 2007.(2)
99.2 Compensation Committee Charter, filed February 28, 2007.(2)
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(1) Incorporated by reference to the Company's Form 10-SB, as filed with the SEC
on December 13, 2006.
(2) Incorporated by reference to the Company's Form 10-SB/A, as filed with the
SEC on February 28, 2007.
(3) Incorporated by reference to the Company's Form 10-SB/A, as filed with the
SEC on March 26, 2007.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a. Audit Fees: Aggregate fees billed for professional services rendered for the
audit of our annual financial statements for the period ended August 31, 2006
and the period ended December 31, 2006 were approximately $15,000 and
$13,000, 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 period ended
December 31, 2006.
c. Tax Fees. Fees billed for tax services were approximately $0 in the period
ended December 31, 2006
d. All Other Fees: Aggregate fees billed for services other than those described
above were approximately $5,000 in the period ended December 31, 2006.
These fees were primarily for review of our Form 10-SB.
39
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.
DATED: March 31, 2007 BLUEFIRE ETHANOL FUELS, INC.
/s/ ARNOLD KLANN
----------------
ARNOLD KLANN
Chief Executive Officer
/s/ CHRISTOPHER SCOTT
---------------------
CHRISTOPHER SCOTT
Chief Financial Officer and
Principal Accounting Officer
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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 KLANN President, Chief Executive Officer, March 31, 2007
--------------------- and Director
ARNOLD KLANN
/s/ NECITAS SUMAIT Senior VP and Director March 31, 2007
---------------------
NECITAS SUMAIT
/s/ JOHN CUZENS Senior VP and Director March 31, 2007
---------------------
JOHN CUZENS
/s/ CHRIS NICHOLS Director March 31, 2007
---------------------
|
CHRIS NICHOLS
40
PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheet as of December 31, 2006 F-2
Consolidated Statement of Operations from March 28, 2006 (Inception)
to December 31, 2006 F-3
Consolidated Statements of Stockholders' Deficit for the period from
March 28, 2006 (Inception) to December 31, 2006 F-4
Consolidated Statements of Cash Flows for the period from March 28,
2006 (Inception) to December 31, 2006 F-5
Notes to Consolidated Financial Statements F-6
|
Report of Independent Registered Public Accounting Firm
Board of Directors
BlueFire Ethanol Fuels, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of BlueFire Ethanol
Fuels, Inc. (formerly Sucre Agricultural Corp.) and subsidiary, a
development-stage company, (the "Company") as of December 31, 2006, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the period from March 28, 2006 (Inception) to December 31, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BlueFire Ethanol
Fuels, Inc. and subsidiary, as of December 31, 2006, and the results of their
operations and their cash flows for the period from March 28, 2006 (Inception)
to December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
Irvine, California
March 21, 2007
/s/ McKennon Wilson & Morgan LLP
--------------------------------
|
F-1
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
BALANCE SHEET
December 31, 2006
ASSETS
Current assets-
Cash and cash equivalents $ 2,760
Prepaid fees to related party (Note 5) 30,000
----------------
Total assets $ 32,760
================
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 66,949
Accrued liabilities 17,692
Related party note and accrued interest 100,100
----------------
Total liabilities 184,741
----------------
Commitments and contingencies (Note 3)
Stockholders' deficit:
Preferred stock, no par value, 1,000,000
shares authorized; none issued and outstanding --
Common stock, $0.001 par value; 100,000,000
shares authorized; 21,125,764 shares
issued and outstanding 21,126
Additional paid-in capital 1,382,390
Deficit accumulated during the development stage (1,555,497)
----------------
Total stockholders' deficit (151,981)
----------------
Total liabilities and stockholders' deficit $ 32,760
================
|
See accompanying notes to consolidated financial statements
F-2
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 28, 2006 (INCEPTION) TO DECEMBER 31, 2006
Revenues $ --
Operating expenses:
Project development 466,002
General and administrative 1,083,195
------------
Total operating expenses 1,549,197
Operating loss (1,549,197)
Other income and (expense):
Other income 2,800
Related party interest expense (9,100)
------------
Net loss $ (1,555,497)
============
Basic and diluted loss per common share $ (0.08)
============
Weighted average common shares outstanding, basic and diluted 19,711,225
============
|
See accompanying notes to consolidated financial statements
F-3
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM MARCH 28, 2006 (INCEPTION) TO DECEMBER 31, 2006
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Stockholders'
Shares Amount Capital Stage Deficit
----------- ----------- ----------- ----------- -----------
Balances at March 28, 2006
(Inception) -- $ -- $ -- $ -- $ --
Issuance of founder's share at
$0.001 per share (Note 4) 17,000,000 17,000 -- -- 17,000
Common shares retained
by Sucre Agricultural
Corp. Shareholders (Note 4) 4,028,264 4,028 685,972 -- 690,000
Costs associated with the
acquisition of Sucre
Agricultural Corp. -- -- (3,550) -- (3,550)
Common shares issued
for services in November 2006
at $2.99 per share (Note 3) 37,500 38 111,962 -- 112,000
Common shares issued
for services in November 2006
at $3.35 per share (Note 3) 20,000 20 66,981 -- 67,001
Common shares issued
for services in December 2006
at $3.65 per share (Note 3) 20,000 20 72,980 -- 73,000
Common shares issued
for services in December 2006
at $3.65 per share (Note 3) 20,000 20 72,980 -- 73,000
Estimated value of common
shares at $3.99 per share and
warrants at $2.90 issuable for
services upon vesting in
February 2007 -- -- 160,000 -- 160,000
Stock based compensation
related to options (Note 4) -- -- 114,811 -- 114,811
Stock based compensation
related to warrants (Note 4) -- -- 100,254 -- 100,254
Net loss -- -- -- (1,555,497) (1,555,497)
----------- ----------- ----------- ----------- -----------
Balances at December 31, 2006 21,125,764 $ 21,126 $ 1,382,390 $(1,555,497) $ (151,981)
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-4
|
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 28, 2006 (INCEPTION) TO DECEMBER 31, 2006
Cash flows from operating activities:
Net loss $(1,555,497)
Adjustments to reconcile net loss to net
cash used in operating activities:
Costs associated with acquisition of Sucre Agricultural Corp. (3,550)
Founders' shares expense 17,000
Stock based compensation 700,066
Changes in operating assets and liabilities:
Prepaid fees to related party (30,000)
Accounts payable 66,949
Accrued liabilities 17,692
Accrued interest to related party 9,100
-----------
Net cash used in operating activities (778,240)
-----------
Cash flows from financing activities:
Proceeds from related party notes 91,000
Cash received in acquisition of Sucre Agricultural Corp. 690,000
-----------
Net cash provided by financing activities 781,000
-----------
Net increase in cash and cash equivalents 2,760
Cash and cash equivalents beginning of period --
-----------
Cash and cash equivalents end of period $ 2,760
===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ --
===========
Income taxes $ --
===========
See accompanying notes to consolidated financial statements
F-5
|
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
BlueFire Ethanol, Inc. ("BlueFire") was incorporated in the state of Nevada on
March 28, 2006 ("Inception"). BlueFire was established to deploy the
commercially ready and patented process for the conversion of cellulosic waste
materials to ethanol ("Arkenol Technology") under a technology license agreement
with Arkenol, Inc. ("Arkenol"). BlueFire's use of the Arkenol Technology
positions it as a cellulose-to-ethanol company with demonstrated production of
ethanol from urban trash (post-sorted "MSW"), rice and wheat straws, wood waste
and other agricultural residues. The Company's goal is to develop and operate
high-value carbohydrate-based transportation fuel production facilities in North
America, and to provide professional services to such facilities worldwide .
These "biorefineries" will convert widely available, inexpensive, organic
materials such as agricultural residues, high-content biomass crops, wood
residues, and cellulose from MSW into ethanol.
BlueFire's business will encompass development activities leading to the
construction and long-term operation of production facilities. BlueFire is
currently in the development stage of deploying project opportunities for
converting cellulose fractions of municipal solid waste and other opportunistic
feedstock into ethanol fuels. The Company entered into an Asset Transfer and
Acquisition Agreement with ARK Energy, Inc. ("ARK Energy"). Based upon the terms
of the agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on 19 project opportunities, that
management estimates is worth approximately $16,000,000, which may be used by
BlueFire to accelerate its deployment of the Arkenol technology.
On June 27, 2006, BlueFire completed a reverse acquisition of Sucre Agricultural
Corp. ("Sucre"), a Delaware corporation. At the time of acquisition, Sucre had
no operations, revenues or liabilities. The only asset possessed by Sucre was
$690,000 in cash which was included in the acquisition. Sucre was considered a
blank-check company prior to the acquisition. In connection with the acquisition
Sucre issued BlueFire 17,000,000 shares of common stock, approximately 85% of
the outstanding common stock of Sucre, for all the issued and outstanding
BlueFire common stock. The Sucre stockholders retained 4,028,264 shares of Sucre
common stock. BlueFire and Sucre will be collectively referred herein to as the
"Company". Immediately prior to the acquisition, Sucre changed its name to
BlueFire Ethanol Fuels, Inc.
F-6
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENTS' PLANS
The Company is a development-stage company which has incurred losses since
inception. Management has funded operations primarily through proceeds received
in connection with the reverse merger, loans from its majority shareholder, and
the private placement of the Company's common stock in January 2007. In order
for the Company's operations to continue, management will need to generate
revenues from their intended operations sufficient to meet the Company's
anticipated cost structure. The Company may encounter difficulties in
establishing these operations due to the time frame of developing, constructing
and ultimately operating the planned bio-refinery projects.
As of December 31, 2006, the Company has a working capital deficit of
approximately $151,981. Subsequent to year end, the Company raised approximately
$557,000 through the sale of common stock. The funds are currently being used to
fund the operations of the Company and are expected to last through March 2007.
Management has estimated that operating expenses for the period from April 2007
to December 2007 will approximate roughly $1,200,000, excluding engineering
costs related to the development of our bio-refinery projects. In February 2007,
the Company was awarded a grant for up to $40 million from the U.S. Department
of Energy's ("DOE") cellulosic ethanol grant program to develop a solid waste
bio-refinery project at a landfill in Southern California. In March 2007, the
Company was selected to receive $1,000,000 in funding from the California Energy
Commission ("CEC"). Under the DOE and CEC programs, the Company may be
reimbursed for project specific costs including salaries, engineering,
development, etc.
In addition in March 2007, the Company obtained a line of credit in the amount
of $1,500,000 from its Chairman/Chief Executive Officer and majority shareholder
to provide additional liquidity to the Company as needed. The Company is in the
process of reviewing term sheets for proposed equity financings of up to
$5,000,000 to replace the line of credit provided by the CEO. Management
believes its plans will enable the Company to operate in the normal course of
business until December 31, 2007.
BASIS OF PRESENTATION AND CHANGE IN REPORTING ENTITY
The acquisition of Sucre Agricultural Corp. by BlueFire Ethanol, Inc., as
discussed in Note 1, was accounted for as a reverse acquisition, whereby the
assets and liabilities of BlueFire are reported at their historical cost since
the entities are under common control immediately before and after the
acquisition in accordance with Statement of Financial Accounting Standards
("SFAS") No. 141 "Business Combinations." The assets and liabilities of Sucre
were recorded at estimated fair value on June 27, 2006, the date of the
acquisition. No goodwill was recorded in connection with the reverse acquisition
since Sucre had no business. The reverse acquisition resulted in a change in the
reporting entity of Sucre, for accounting and reporting purposes. Accordingly,
the financial statements herein reflect the operations of BlueFire from
Inception and Sucre from June 27, 2006, the date of acquisition, through
December 31, 2006. The 4,028,264 shares retained by the stockholders of Sucre
have been recorded on the date of acquisition of June 27, 2006.
F-7
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BlueFire Ethanol
Fuels, Inc., and its wholly-owned subsidiary BlueFire Ethanol, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
REVENUE RECOGNITION
The Company is currently a developmental-stage company. The Company will
recognize revenues from 1) consulting services rendered to potential sub
licensees for development and construction of cellulose to ethanol projects, 2)
sales of ethanol from its production facilities when (a) persuasive evidence
that an agreement exists; (b) the products have been delivered; (c) the prices
are fixed and determinable and not subject to refund or adjustment; and (d)
collection of the amounts due is reasonably assured.
PROJECT DEVELOPMENT
Project development costs are expensed as incurred. The costs of materials and
equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be classified as property and equipment and depreciated
over their estimated useful lives. To date, project development costs include
the development, engineering, and marketing expenses related to the Company's
cellulose fractions of municipal solid waste into ethanol fuels.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board ("FASB") Statement No. 109 "Accounting for Income Taxes." SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability equal
to the expected future tax benefit/expense of temporary reporting differences
between book and tax accounting methods and any available operating loss or tax
credit carry forwards.
F-8
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments approximated their carrying values at
December 31, 2006. The financial instruments consist of cash and accounts
payable. The related party note cannot be evaluated because this is not an
arms-length transaction.
LOSS PER COMMON SHARE
The Company presents basic loss per share ("EPS") and diluted EPS on the face of
the consolidated statement of operations. Basic loss per share is computed as
net loss divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, and other convertible
securities. As of December 31, the Company had options and warrants to purchase
and aggregate of 2,190,000 shares of common stock that were excluded from the
calculation of diluted loss per share as their effects would have been
anti-dilutive.
RISKS AND UNCERTAINTIES
The Company's operations are subject to new innovations in product design and
function. Significant technical changes can have an adverse effect on product
lives. Design and development of new products are important elements to achieve
and maintain profitability in the Company's industry segment.
The Company may be subject to federal, state and local environmental laws and
regulations. The Company does not anticipate expenditures to comply with such
laws and does not believe that regulations will have a material impact on the
Company's financial position, results of operations, or cash flows. The Company
believes that its operations comply, in all material respects, with applicable
federal, state, and local environmental laws and regulations
CONCENTRATIONS OF CREDIT RISK
The Company, at times, maintains cash balances at certain financial institutions
in excess of amounts insured by federal agencies.
SHARE-BASED PAYMENTS
The Company accounts for stock options issued to employees under SFAS No.
123(R), "Share-Based Payment". Under SFAS 123(R), share-based compensation cost
is measured at the grant date, based on the estimated fair value of the award,
and is recognized as expense over the employee's requisite service period. The
Company has no awards with market or performance conditions.
F-9
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the FASB issued FASB Interpretation No.48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48") which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, "Accounting for Income Taxes". This pronouncement
recommends a recognition threshold and measurement process for recording in the
financial statements uncertain tax positions taken or expected to be taken in
the Company's tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosure requirements for uncertain tax positions. The accounting provisions
of FIN 48 will be effective for the Company beginning January 1, 2007. The
Company is in the process of evaluating the impact, if any, the adoption of FIN
48 will have on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This statement clarifies fair
value as permitted under other accounting pronouncements but does not require
any new fair value measurements. However, for some entities, the application of
this statement will change current practice. The Company will be required to
adopt SFAS No. 157 as of January 1, 2008 and is currently in the process of
evaluating the impact, if any, the adoption of SFAS No. 157 will have on its
financial statements.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
On May 1, 2006, the Company began discussions with a certain consultant to
negotiate project and obtain financing for the Company. As of December 31, 2006,
the Company had not finalized the consulting agreement and the consultant did
not have any capital funding arrangements in which a commission was due.
However, the Company has made monthly payments in the amount of $7,500 to the
consultant since July 2006.
On June 27, 2006, the Company entered into employment agreements with three (3)
key employees. The employment agreements are for a period of three years, with
prescribed percentage increases beginning in 2007 and can be cancelled upon a
written notice by either employee or employer (if certain employee acts of
misconduct are committed). The total aggregate annual amount due under the
employment agreements is approximately $520,000.
On June 27, 2006, the Company entered into an agreement with four (4)
individuals to join the Company's board of directors. Under the terms of the
agreement, the individuals will receive annual compensation in the amount of
$5,000, and they received a one time grant of 5,000 shares of the Company's
common stock. The value of the common stock granted was determined to be
approximately $67,000 based on the estimated fair market value of the Company's
common stock near the date of grant. As of December 31 2006, the Company
recorded the value of the common stock issued as general and administrative
expenses in the accompanying statement of operations as the common stock was
issued to the individuals without risk of forfeiture and future performance.
F-10
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 21, 2006, the Company entered into an agreement with a consultant.
Under the terms of the agreement, the Company is to receive investor relations
and support services in exchange for the a monthly fee of $7,500, 150,000 shares
of common stock, warrants to purchase 200,000 shares of common stock at $5.00
per share, expiring in five years, and the reimbursement of certain travel
expenses. The common stock and warrants vest in equal amounts on November 21,
2006, February 1, 2007, April 1, 2007 and June 1, 2007. The Company accounts for
the agreement under the provisions of Emerging Issues Task Force 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." Whereby the
Company values the common shares and warrants at each reporting period to
determine the amount to be recorded as an expense in the respective period. As
the common shares and warrants vest, they are valued on reporting date and an
adjustment will be recorded for the difference between the value already
recorded and the then current value.
On November 21, 2006 (date of grant), the consultant immediately vested in
37,500 shares of common stock and warrants to purchase 50,000 shares of common
stock. The common shares were valued at $112,000 based upon the closing market
price of the Company's common stock on the date of grant. The warrants were
valued on the grant date at $100,254 based on the Black-Scholes option pricing
model using the following assumptions: volatility of 88%, expected life of five
years, risk free interest rate of 4.75% and no dividends. The value of the
common stock and warrants was recorded in general and administrative expense in
the accompanying statement of operations.
On December 31, 2006, the fair value of the unvested common stock issuable under
the contract based on the closing market price of the Company's common stock was
$3.99 per share. The Company recorded $80,000 of estimated compensation expense
related to the value of common shares that had yet to vest. As of December 31,
2006, the Company estimated the fair value of the unvested warrants issuable
under the contract was $2.90 per share. The warrants were valued on December 31,
2006 based on the Black-Scholes option pricing model using the following
assumptions: volatility of 98%, expected life of five years, risk free interest
rate of 4.82% and no dividends. The Company recorded $80,000 of estimated
compensation expense related to the value of warrants that had yet to vest.
On December 18, 2006, the Company entered into a consulting agreement with two
individuals. Each consultant shall support the strategic, financial and market
objectives of the Company. Under the terms of the agreement each consultants
received 20,000 restricted shares of the Company's common stock. The value of
for each individuals common stock was determined to be approximately $73,000
based on the closing market price of the Company's common stock on the date of
the agreement and was expensed to general and administrative expenses on the
accompanying statement of operations. The shares vested immediately, do not
require future performance and are not at risk for forfeiture.
F-11
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -STOCKHOLDERS' DEFICIT
FOUNDER SHARES
In March 2006, upon incorporation BlueFire issued 10,000 shares of $1.00 par
value common stock to various individuals. The shares were recorded at their par
value of $10,000 and expensed. In connection with the reverse acquisition, as
discussed in Note 2, these individuals received an aggregate of 17,000,000
shares of Sucre's common stock with a par value of $0.001 per share. At the time
of the transaction, BlueFire did not have sufficient paid-in capital to reclass
the additional par value of the common shares to common stock, thus the Company
expensed an additional $7,000. The amounts were recorded as general and
administrative expense on the accompanying statement of operations.
ACQUISITION COSTS
In connection with the acquisition of Sucre, the Company incurred legal costs of
$3,550. The costs have been treated as a reduction of additional paid-in
capital.
FINANCINGS PRIOR TO REVERSE ACQUISITION
Prior to the reverse acquisition, Sucre entered into an agreement with an
investor for the sale of 3,000,000 shares of the Sucre's common stock for gross
proceeds of $1,000,000. The previous management of Sucre erroneously issued
4,000,000 shares of Sucre's common stock to the investor. To date, the excess
shares of 1,000,000 have not been returned to the transfer agent. The Company
has demanded the return of the 1,000,000 and is actively pursuing every possible
channel to get the shares returned. Since the Company cannot predict the
ultimate outcome, the 1,000,000 shares have been accounted for as outstanding
and included in the common shares retained by Sucre shareholders. At the time of
the reverse acquisition, Sucre had $690,000 in cash as reflected in the
accompanying statements of stockholders deficit.
STOCK OPTION PLAN
On December 14, 2006, the Company established an incentive and nonstatutory
stock option plan. The plan is intended to further the growth and financial
success of the Company by providing additional incentives to selected employees,
directors, and consultants. Stock options granted under the Plan may be either
"Incentive Stock Options," or "Nonstatutory Options" at the discretion of the
Board of Directors. The total number of shares of Stock which may be purchased
through exercise of Options granted under this Plan shall not exceed ten million
(10,000,000) shares, they become exercisable over a period of no longer than
five (5) years and no less than 20% of the shares covered thereby shall become
exercisable annually. As of December 31, 2006, 1,990,000 options have been
issued under the plan and thus 8,010,000 are still issuable.
F-12
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 14, 2006, the Company granted options to purchase 1,990,000 shares
of common stock to various employees and consultants having a $2.00 exercise
price. The value of the options granted was determined to be approximately
$4,900,000 based on the Black-Scholes option pricing model using the following
assumptions: volatility of 99%, expected life of five years, risk free interest
rate of 4.73%, market price per share of $3.05, and no dividends. The Company is
currently expensing the value of the common stock over the vesting period of two
years for the employees. For non-employees the Company is revaluing the fair
market value of the options at each reporting period. As of December 31, 2006,
the value per the Black-Scholes option pricing model was immaterially different
to the initial value calculated.
As of December 31, 2006, the Company amortized approximately $112,000 to general
and administrative expense and $2,500 to project development expense. Related to
these options, the Company will record future compensation expense of
approximately $2,500,000 and $2,300,000 during the year ending December 31, 2007
and December 31, 2008, respectively. As of December 31, 2006, none of the
options were vested and had an estimated remaining life of five years. In
addition, the average fair market value of the Company's common stock on the
date of grant was $3.05.
NOTE 5 -RELATED PARTY TRANSACTIONS
TECHNOLOGY AGREEMENT WITH ARKENOL, INC.
On March 1, 2006, the Company entered into a Technology License agreement with
Arkenol, Inc. ("Arkenol"), which the Company's majority shareholder and other
family members hold an interest in. Arkenol has its own management and board
separate and apart from the Company. According to the terms of the agreement,
the Company was granted an exclusive, non-transferable, North American license
to use and to sub-license the Arkenol technology. The Arkenol Technology,
converts cellulose and waste materials into Ethanol and other high value
chemicals. As consideration for the grant of the license, the Company shall make
a one time payment of $1,000,000 at first project construction funding and for
each plant make the following payments: (1) royalty payment of 4% of the gross
sales price for sales by the Company or its sub licensees of all products
produced from the use of the Arkenol Technology (2) and a one time license fee
of $40.00 per 1,000 gallons of production capacity per plant. According to the
terms of the agreement, the Company made a one-time exclusivity fee prepayment
of $30,000 during the period ended December 31, 2006. As of December 31, 2006,
the amount has been reflected as a long-term prepaid asset as the Company does
not expect to incur any liabilities under this agreement prior to one year from
the balance sheet date. As of December 31, 2006, the Company had not incurred
any liabilities related to the agreement.
F-13
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASSET TRANSFER AGREEMENT WITH ARK ENERGY, INC.
On March 1, 2006, the Company entered into an Asset Transfer and Acquisition
Agreement with ARK Energy, Inc. ("ARK Energy"), which is owned (50%) by the
Company's CEO and majority shareholder. ARK Energy has its own management and
board separate and apart from the Company. Based upon the terms of the
agreement, ARK Energy transferred certain rights, assets, work-product,
intellectual property and other know-how on project opportunities that may be
used to deploy the Arkenol technology (as described in the above paragraph). In
consideration, the Company has agreed to pay a performance bonus of up to
$16,000,000 when certain milestones are met. These milestones include
transferee's project implementation which would be demonstrated by start of the
construction of a facility or completion of financial closing which ever is
earlier. The payment is based on ARK Energy's cost to acquire and develop 19
sites which are currently at different stages of development. As of December 31,
2006, the Company had not incurred any liabilities related to the agreement.
RELATED PARTY PROMISSORY NOTE
In addition, on December 12, 2006 the Company entered into a $90,000 promissory
note with the Company's Chairman, CEO and majority shareholder. Under the terms
of the note, the Company is to repay any principal balance within 30 days of
receiving a qualified investment financing and a mandatory 10% interest fee of
$9,000. As of December 31, 2006, the outstanding principal balance was $90,000
which is included in related party notes and accrued interest of $9,000. The
principal balance and all accrued interest was paid in full in January 2007.
NOTE 6 - INCOME TAXES
Income tax reporting primarily relates to the business of the parent company
Sucre which experienced a change in ownership on June 27, 2006. A change in
ownership requires management to compute the annual limitation under Section 382
of the Internal Revenue Code. The amount of benefits the Company may receive
from the operating loss carry forwards for income tax purposes is further
dependent, in part, upon the tax laws in effect, the future earnings of the
Company, and other future events, the effects of which cannot be determined.
The Company's deferred tax assets consist of net operating loss carry forwards
of approximately $346,000 and stock based compensation related to the issuance
of common stock, options and warrants of approximately $177,000. Both items are
considered long-term. For federal tax purposes these carry forwards expire in 20
years beginning in 2026 and for the State of California purposes they expire in
five years beginning in 2011. A full valuation allowance has been placed on 100%
of the Company's deferred tax assets as it cannot be determined if the assets
will be ultimately used. During the period from Inception to December 31, 2006,
the Company's valuation allowance increased by approximately $523,000.
In addition, the Company expects that Sucre is not current in their federal and
state income tax filings. The Company has not determined how delinquent the
filings are. However, the effect of non filing is not expected to be significant
as Sucre has not had active operations for a significant period of time.
F-14
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - SUBSEQUENT EVENTS
ISSUANCE OF COMMON STOCK RELATED TO EMPLOYMENT AGREEMENTS
In January 2007, the Company entered into an employment agreement with a key
employee. The employment agreement can be cancelled upon a written notice by
either employee or employer (if certain employee acts of misconduct are
committed). The total aggregate amount due over the next twelve months is
approximately $160,000 which includes compensation consisting of 10,000 shares
of the Company's common stock valued at approximately $40,000 based on the
closing market of the Company's common stock on the date of the agreement.
On February 12, 2007, the Company entered into an employment agreement with a
key employee, and simultaneously entered into a consulting agreement with an
entity controlled by such employee; both agreements were effective March 16,
2007, the employee's start date. Under the terms of the consulting agreement,
the employee will receive a total of 50,000 shares of common stock vesting at
the following periods; 12,500 shares February 12, 2007, 12,500 shares on June 1,
September 1, and December 1, 2007. The value of the common stock due at contract
signing was determined to be approximately $275,000 based on the closing market
price of the Company's common stock on the date of the agreement and is being
amortized over the vesting period.
PRIVATE OFFERING
On January 5, 2007, the Company completed a private offering of its stock, and
entered into subscription agreements with four accredited investors. In this
offering, the Company sold an aggregate of 278,500 shares of the Company's
common stock at a price of $2.00 per share for total proceeds of $557,000. The
shares of common stock were offered and sold to the investors in private
placement transactions made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933. Costs associated with
three of these offerings are included in the November 21, 2006 agreement
mentioned in Note 3. In addition, the Company paid $12,500 in cash and issued
6,250 shares of their common stock as a placement fee for one of the
subscription agreements.
RELATED PARTY PROMISSORY NOTE AND LINE OF CREDIT
On January 5, 2007 the Company entered into a $25,000 promissory note with the
Company's Chairman, CEO and majority shareholder. Under the terms of the note,
the Company is to repay any principal balance within 30 days of receiving a
qualified investment financing and a maximum fee of $2,500. The principal
balance and all accrued interest were paid in full during the month of January
of 2007.
In addition in March 2007, the Company obtained a $1,500,000 line of credit from
its Chairman/Chief Executive Officer and majority shareholder to provide
additional liquidity to the Company as needed. The line of credit incurs
interest at 10% per annum. The Company is to repay any principal balance and
interest within 30 days of receiving qualified investment financing of
$5,000,000 or more.
F-15
BLUEFIRE ETHANOL FUELS, INC.
(FORMERLY SUCRE AGRICULTURAL CORP.) AND SUBSIDIARY
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTION TO PURCHASE LAND
On February 9, 2007, the Company paid a one time fee of $4,000 and signed a
six-month option agreement to purchase 95 acres of vacant land in Lancaster,
California for $95,000.
PROFESSIONAL SERVICES AGREEMENT
On February 15, 2007, the Company entered into a "professional services
agreement" with a client. The Company was retained to develop, build and operate
one or more facilities in the country of Sri Lanka to produce ethanol using the
"Arkenol Technology" (see Note 5). The agreement shall begin upon the earlier of
the client requesting to commence activities, or two hundred seventy days (270)
from the date of the agreement. The agreement will terminate on the earlier of
(i) non payment of the $100,000 initial retainer, (ii), five years from the date
of the agreement, or (iii) the completion of the project.
DEPARTMENT OF ENERGY
In February 2007, the Company was awarded a grant for up to $40 million from the
U.S. Department of Energy's ("DOE") cellulosic ethanol grant program to develop
a solid waste bio-refinery project at a landfill in Southern California.
CALIFORNIA ENERGY COMMISSION
In March 2007, the Company was selected to receive $1,000,000 in funding from
the California Energy Commission ("CEC"). Under the DOE and CEC programs, the
Company will be reimbursed for project specific costs including salaries,
engineering, development, etc.
F-16
EXHIBIT 21.1
Subsidiaries of the Registrant
BlueFire Ethanol, Inc., a Nevada corporation
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Arnold Klann, Chief Executive Officer of the small business issuer, certify
that:
1. I have reviewed this annual report on Form 10-KSB of BlueFire Ethanol
Fuels, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; and
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
small business issuer's internal control over financial reporting.
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability
to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: March 30, 2007
/s/ Arnold Klann
----------------
Arnold Klann
CHIEF EXECUTIVE OFFICER
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Christopher Scott, Chief Financial Officer of the small business issuer,
certify that:
1. I have reviewed this annual report on Form 10-KSB of BlueFire Ethanol
Fuels, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; and
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
small business issuer's internal control over financial reporting.
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability
to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: March 30, 2007
/s/ Christopher Scott
---------------------
Christopher Scott
CHIEF FINANCIAL OFFICER
|
Exhibit 32.1
CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of BlueFire Ethanol Fuels, Inc. (the
"Company") on Form 10-KSB for the period ended December 31, 2006, as filed with
the Securities and Exchange Commission and to which this Certification is an
exhibit (the "Report"), the undersigned officer of BlueFire Ethanol Fuels, Inc.
does hereby certify, pursuant to Rule 15d-14(b) of the Securities and Exchange
Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: March 30, 2007
/s/ Arnold Klann
----------------
Arnold Klann
CHIEF EXECUTIVE OFFICER
|
Exhibit 32.2
CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of BlueFire Ethanol Fuels, Inc. (the
"Company") on Form 10-KSB for the period ended December 31, 2006, as filed with
the Securities and Exchange Commission and to which this Certification is an
exhibit (the "Report"), the undersigned officer of BlueFire Ethanol Fuels, Inc.
does hereby certify, pursuant to Rule 15d-14(b) of the Securities and Exchange
Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: March 30, 2007
/s/ Christopher Scott
---------------------
Christopher Scott
CHIEF FINANCIAL OFFICER
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