UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarter ended
Commission
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(Exact name of small Business Issuer as specified in its charter)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.
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whether the issuer (1) 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
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by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Emerging
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
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The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $24,775,191.
State the number of shares outstanding of the registrant’s $.001 par value common stock as of the close of business on the latest practicable date (August 5, 2022): .
TABLE OF CONTENTS
| Page | ||
| PART I—FINANCIAL INFORMATION | ||
| ITEM 1. | Consolidated Financial Statements (unaudited) | 4 |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 |
| ITEM 4. | Controls and Procedures | 22 |
| PART II—OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 23 |
| ITEM 1A. | Risk Factors | 23 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| ITEM 3. | Defaults Upon Senior Securities | 24 |
| ITEM 4. | Mine Safety Disclosures | 24 |
| ITEM 5. | Other Information | 24 |
| ITEM 6. | Exhibits | 24 |
| Signatures | 25 |
| 2 |
PART I – FINANCIAL INFORMATION
TABLE OF CONTENTS
| 3 |
Blue Biofuels, Inc.
Formerly known as Alliance Bioenergy Plus, Inc.
Financial Statements
Period Ended June 30, 2022
UNAUDITED FINANCIAL STATEMENTS
OF
BLUE BIOFUELS, INC.
Blue Biofuels, Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | $ | $ | ||||||
| Other assets | ||||||||
| Property and equipment, net of accumulated depreciation and amortization of $ | ||||||||
| Security deposits | ||||||||
| Right of Use Assets, net of accumulated amortization | ||||||||
| Patents | ||||||||
| TOTAL OTHER ASSETS | $ | $ | ||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - Related Party | $ | |||||||
| Deferred wages and director’s fees - Related party | $ | |||||||
| Lease Liability - Current | $ | |||||||
| Chapter 11 Settlement | ||||||||
| Interest Payable - Related Party | ||||||||
| TOTAL CURRENT LIABILITIES | $ | $ | ||||||
| Long term liabilities | ||||||||
| Notes Payable — Related Party | ||||||||
| Notes Payable — Other | ||||||||
| TOTAL LONG TERM LIABILITIES | $ | $ | ||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred stock; $ par value; shares authorized; shares issued and outstanding | ||||||||
| Common stock; $ par value; shares authorized; issued and outstanding at June 30, 2022, and shares issued and outstanding at December 31, 2021. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | $ | ( | ) | $ | ( | ) | ||
| TOTAL EQUITY (DEFICIT) | $ | ( | ) | $ | ( | ) | ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
| 4 |
Blue Biofuels, Inc
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 30-Jun | 30-Jun | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expense: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research Development | ||||||||||||||||
| Loss on disposal of assets | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations: | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense: | ||||||||||||||||
| Loan Forgiveness | ( | ) | ( | ) | ||||||||||||
| Interest expense - related party | ||||||||||||||||
| Interest expense - other | ||||||||||||||||
| Total other (income) expense | ( | ) | ( | ) | ||||||||||||
| Income (Loss) before provisions for income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Provisions for income taxes | ||||||||||||||||
| Net Income / (Loss): | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| 5 |
Blue Biofuels, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amt | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock for services | $ | - | $ | $ | ||||||||||||||||||||||||
| Employee stock options exercised | $ | - | $ | $ | ||||||||||||||||||||||||
| Vesting of options under the employee, director plan | - | $ | $ | |||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock for services | $ | - | $ | $ | ||||||||||||||||||||||||
| Employee stock options exercised | - | |||||||||||||||||||||||||||
| Vesting of options under the employee, director plan | - | |||||||||||||||||||||||||||
| Issuance of common stock and warrants for cash through PPM | - | |||||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock for services | $ | - | $ | $ | ||||||||||||||||||||||||
| Issuance of | - | |||||||||||||||||||||||||||
| Warrants exercised | - | |||||||||||||||||||||||||||
| Issuance of common stock and warrants for cash through PPM | - | |||||||||||||||||||||||||||
| Issuance of common stock in exchange for debt | - | |||||||||||||||||||||||||||
| Issuance of vested options under the employee, director plan | ||||||||||||||||||||||||||||
| Employee stock options exercised | - | |||||||||||||||||||||||||||
| Cashless exercise of stock options | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net Income (Loss) | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Issuance of common stock and warrants for cash through PPM | $ | $ | $ | |||||||||||||||||||||||||
| Issuance of vested options under the employee, director plan | $ | $ | ||||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| 6 |
Blue Biofuels, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | For the Six Months Ended | |||||||
| 30-Jun-22 | 30-Jun-21 | |||||||
| Cash flows from operating activities | ||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | ||
| Reconciliation of net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation for services | ||||||||
| Net Issuance of options and warrants for services | ||||||||
| Loss on Disposal of assets | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accrued interest - related party | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Forgiveness of PPP Loan | ( | ) | ||||||
| Right of use lease | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Patent Costs | ( | ) | ( | ) | ||||
| Net cash from (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from exercise of warrants and options | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalent at beginning of the period | ||||||||
| Cash and cash equivalent at end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Supplemental schedule of non-cash activities | ||||||||
| Cashless conversion of warrants/options | $ | $ | ||||||
| Conversion of convertible debenture to common stock | $ | $ | ||||||
| 7 |
Blue Biofuels, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION
Blue Biofuels, Inc (the “Company”) is a technology company focused on emerging technologies in renewable energy, biofuels, and lignin. In early 2018, the Company’s Chief Executive Officer (“CEO”) Ben Slager invented a new technology system we call Cellulose-to-Sugar or CTS, and the Company filed a patent application for this technology. The CTS patent was awarded in 2021 in the United States (US10994255) and also in El Salvador. The Company also filed an application for this patent in other major jurisdictions of the world including the European Patent Organization, Australia, Brazil, China, Japan, the African Regional Intellectual Property Organization, and the Russian Federation. The patent applications are currently pending in all of these international jurisdictions. The Company has filed six more patents in the United States, all of which are currently pending. These patents broaden the scope and protection of the CTS technology.
Mr. Slager has since further developed the system with the technical staff of the Company. The patented CTS process is a continuous mechanical/chemical dry process for converting cellulose material into sugar and lignin, as compared to the prior process which was a batch mechanical/chemical dry process previously used by our Company. The CTS creates molecular contact between two reactive solid components instead of a more conventional reaction where the reaction takes place between two liquid or gas components in a batch process. The reactants are (1) the cellulose, which is broken down into its components being sugars and lignin; (2) a catalyst, which is cost effective and abundantly available in the market from regular suppliers; it is recycled and reused in the process. The CTS mechanical/chemical process allows for exact process control to ensure that all the material passing through it does so on the optimum reaction parameters through which optimal efficiency is achieved.
CTS differs from other commercial processes that are used to convert cellulose into sugar. Other processes use expensive enzymes, or expensive and harmful chemicals like strong acids or bases. Some use high temperature or high pressure steam. CTS can convert cellulosic material – including grasses, wood, paper, farm waste, yard waste, forestry products, energy crops like hemp or king grass, and the cellulosic portion of municipal solid waste – into sugars and lignin, and the sugars subsequently into biofuels in a what is expected to be a cost effective and environmentally friendly way. The process times needed are significantly shorter than any other cellulosic process. CTS has a near zero carbon footprint in that the amount of added atmospheric carbon created by burning the biofuels produced by CTS is reabsorbed by the plant-based seed stock used in the CTS system. The CTS process recycles the water and catalyst.
At a commercial scale, our management expects to be able to produce ethanol more profitably than existing commercial corn or cellulosic ethanol producers due to the fact that the CTS process has much lower feedstock cost than corn, is uncomplicated and efficient as compared to other cellulosic ethanol processes, and is expected to have high value by-products and a highly valued D3 RIN that the Company expects to potentially receive for each gallon of ethanol. The Company believes a significant difference between CTS and corn ethanol is the wide range of feedstocks that CTS can process compared to corn. The CTS feedstocks are not food and have much lower costs than corn. In addition, while in corn ethanol only the corn is used, the CTS uses the whole plant or its waste products.
The new CTS technology made it worthwhile to financially restructure the Company through Chapter 11. The Company voluntarily filed for Chapter 11 on October 22, 2018, in the U.S. Bankruptcy Court in the Southern District of Florida. The Company exited Chapter 11 on September 18, 2019, while keeping all classes, including shareholders, unimpaired. The bankruptcy case was closed on October 25, 2019.
The Company has built several prototypes of the CTS system to solidify and further develop the process. The Company completed all the parameter optimizations possible in its lab and was able to generate a 99%+ conversion of the cellulosic material into soluble sugars suitable for further processing into cellulosic ethanol. The Company has recently contracted with K.R. Komarek to build larger scale systems, the first of which is anticipated to arrive before the end of the summer of 2022.
The goal of the first Komarek system is to process much larger volumes of feedstock to produce much higher volumes of sugars. Upon success, the Company anticipates ordering a larger system and building a semi-commercial scale pilot CTS plant around that. This will be an intermediate step to the final commercial-scale system. The Company believes that the semi-commercial scale plant will be sufficient to prove the commercial viability of the CTS technology. Due to its mechanical nature and modularity, management anticipates that one commercial-scale CTS plant would have multiple modular CTS systems. The Company expects to have the pilot plant running in 2023.
The CTS system converts plant-based feedstock into two product streams, cellulose and lignin, each of which can be converted into multiple products: (1) Cellulose is broken down into sugars. Sugar can be used to make biofuels, such as ethanol and sustainable aviation fuel, and may also be used to make specialty chemicals; and (2) Lignin can potentially be used in ion exchange resins, or to make specialty chemicals; It can also be burned as a renewable fuel.
| 8 |
Plan of Operation
The Company’s strategy is to diversify its product portfolio to include a number of product lines. These potentially include (1) biofuels – such as ethanol, or converting ethanol into higher biofuels like sustainable aviation fuel and the like; (2) selling sulfur-free lignin to ion exchange resin producers; (3) making specialty chemicals from lignin; and, (4) potentially making nanocellulose. We believe these, and other markets, could potentially provide for highly profitable products.
Our goal is to develop our CTS technology to a commercial scale and then seek to either enter into a joint venture or acquire existing corn ethanol plants to install the CTS technology. The Company is also looking into converting ethanol to sustainable aviation fuel. To minimize dilution to shareholders, the Company will seek project-based financing to build (or acquire and retrofit) or joint venture with existing ethanol producers to produce cellulosic ethanol and lignin and other specialty chemicals from its patented CTS system.
Management believes that retrofitting existing plants with the CTS technology may achieve more rapid commercialization than building new plants. After its first plant is profitable, the Company intends to grow with additional plants in the United States and explore international growth by either licensing the technology or forming joint ventures with foreign domestic partners to build plants.
The ethanol industry is competitive with over 200 ethanol plants in the United States alone. Currently, the vast majority use corn as the feedstock. Their profitability depends highly on the fluctuations between the price of corn and the price of ethanol. Since the Company does not plan to use corn, and plans on having long-term purchase agreements with cellulosic suppliers, we expect that our profitability will potentially be more consistent.
Any new biofuels plant that is built would require various government permits. In particular, renewable fuels are subject to rigorous testing and premarket approval requirements by the EPA’s Office of Transportation and Air Quality and regulatory authorities in other countries. In the U.S., various federal, and, in some cases, state statutes and regulations also govern or impact the manufacturing, safety, storage and use of renewable fuels. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of resources. The Company anticipates raising the necessary capital for this as a part of its project-based financing.
The
Energy Policy Act of 2005, which included the Renewable Fuel Standard Program enforced by the US Environmental Protection Agency (“EPA”),
mandates a certain amount of renewable fuel be blended into the transportation fuel used by all vehicles in the country.
The Company has also licensed the Vertimass Process to convert ethanol (from the CTS process) into sustainable aviation fuel. There is no up-front or annual fee until we are converting ethanol into SAF. The license agreement with Vertimass is the subject of a confidentiality agreement between the parties. Since we are not yet producing ethanol on a commercial scale, it is too preliminary to discuss details.
| 9 |
NOTE 2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern, which assumes the Company will realize its assets and discharge its liabilities
in the normal course of business. The Company has not generated any significant revenue since inception and has incurred losses since
inception. As of June 30, 2022, the Company has incurred accumulated losses of $
Management believes that the Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of stock or borrow additional funds. The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The COVID-19 pandemic has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, employees and supply chain. Given the critical nature of the products that we provide, our office and lab have remained open during the pandemic. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. We may experience additional operating costs due to increased challenges with our workforce (including as a result of illness, absenteeism or government orders), access to supplies, capital, and fundamental support services (such as shipping and transportation). Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the Company’s majority-owned subsidiaries over which the Company exercises control.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of intercompany accounts and transactions. Investments in business entities in which the Company lacks control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. All material intercompany transactions and balances were eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates presented and reported amounts of revenues and expenses during the reporting periods presented. Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of impairment assessment of identifiable intangible assets and valuation allowance for deferred tax assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.
| 10 |
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.
The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.
Stock-based Compensation Valuation Methodology
Stock-based compensation resulting from the issuance of common stock is calculated by reference to the valuation of the stock on the date of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option-pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing closing market price. Expected volatility was based on the historical volatility of the Company’s closing day market price per share. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Daily Yield Curve Rate.
| 4/19/22 | 6/21/22 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected life | years | years | ||||||
| Expected dividends | % | % | ||||||
| Expected volatility | % | % | ||||||
| BIOF common stock fair value | $ | $ | ||||||
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful
lives of the assets, generally
Patent Capitalization
If
a product is currently under research and development and is not currently approved for market, costs incurred in connection with patent
applications should generally be expensed in the income statement because there is uncertainty as to the future economic benefit of the
asset. Conversely, if a product is approved for market (as is the case of the end product ethanol of the CTS process), or if future economic
benefit is probable, or if an alternative future use is available to the Company, then such patent costs can be capitalized and amortized
over the expected life of the patent(s). Since the Company’s primary end product is sugar converting to ethanol, which are in wide
use, the Company has determined that it is reasonable to capitalize the patent costs associated with its CTS process, which were $
Research and Development
The
Company expenses all research and development costs as incurred. For the six months ended June 30, 2022, and June 30, 2021, the amounts
charged to research and development expenses were $
Revenue Recognition
Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under Accounting Standards Update (“ASU”) 2014-09:
| 1. | Identify contract(s) with a customer; | |
| 2. | Identify the performance obligations in the contract; | |
| 3. | Determine the transaction price; | |
| 4. | Allocate the transaction price to the performance obligations in the contract; and, | |
| 5. | Recognize revenues when (or as) we satisfy the performance obligation. |
| 11 |
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide it with a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to its own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses the classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, the Company compares the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
Basic profit (loss) per share amounts have been calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share has been calculated using the weighted-average number of common shares plus the potentially dilutive effect of securities such as outstanding options and warrants. The computation of potential common shares has been performed using the treasury stock method. The warrants and options are antidilutive for all periods presented. When net loss is reported, diluted and basic net loss per share amounts are the same as the impact of potential common shares is antidilutive.
| 12 |
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, payables to related parties, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.
NOTE 4 – PATENTS
The
Company has been granted one patent on its technology, has filed for six others that are pending, and has also applied for international
patents. The Company has capitalized the legal and filing fees in the amount of $
NOTE 5 – DEBT
Notes Payable – Chapter 11 Settlement
On July 18, 2018, the Company’s former Controller Dennis Lenaburg sued the Company for $2,694,577 dollars plus stock warrants in the Circuit Court of the 15th Judicial Circuit in Palm Beach County, Florida. That lawsuit was moved to the Bankruptcy Court when the Company entered Chapter 11 on October 22, 2018. The Company filed a Complaint against Lenaburg on November 16, 2018, in the bankruptcy court in the Southern District of Florida. The bankruptcy judge ordered mediation, and a settlement was reached that paid Lenaburg $13,650 upon Plan Confirmation and a $50,000 claim payable out of post-confirmation net profits over 3 years, plus 1.5 million common stock warrants with a strike price of $0.30/share and a ten-year expiration period. The $50,000 is due on September 18, 2022.
Notes Payable – Related Parties
In July 2016, the Company issued six (6) short-term notes payable to related parties in conjunction with the Company’s acquisition of the remaining 49% of AMG Energy Group. These notes had a value of $2,002,126 and accrued interest at a rate of six percent (6%) per annum. As of December 31, 2018, and December 31, 2017, the total interest accrued on the notes was $278,794.68 and $176,460 respectively. All of the notes were due on August 4, 2017 and then were in default. However, the notes were held by related parties with the understanding that the notes were not to be paid until the Company begins generating profit. The Company renegotiated some of these notes during its Chapter 11 proceedings, whereas others failed to submit a claim and were discharged upon the Court’s Confirmation Order approving the Company’s Chapter 11 Plan on September 18, 2019. The renegotiated amounts, as per the Plan Confirmation are all to be paid from 50% of the future net profits and discharged to the extent unpaid five years after the Plan effective date of September 18, 2019. These amount are 1) Mark Koch $240,990 plus 6% interest on any portion not repaid within 12 months of the Company’s first reported quarterly net profit; 2) Animated Family Films $579,942 out of the Company’s net profits plus 6% interest; 3) Steven Dunkle, CTWC, Wellington Asset Holdings $1.5 million plus 6% interest once there is positive quarterly EBITDA from the first plant of Company, or, at its option, may convert that into an equity investment in the first plant of the Company, measured by a percentage of the total cost to build, subject to a minimum equity interest of 1.25% in said plant.
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On February 28, 2018, the Company entered into a short-term loan with Steven Sadaka, with a principal balance of $100,000 due and payable on May 1, 2018. The note does not accrue interest, however the Company provided 2,000,000 inducement shares to secure the note. These inducement shares were valued at $84,000 and are being amortized over the life of the note. The note’s maturity date was extended to 7/1/2018. If the note is not repaid at maturity, then an additional 5,000,000 shares of common stock will be due. The note was renegotiated during the Company’s Chapter 11 proceedings, and as per the Plan Confirmation, it is agreed that $100,000 is to be paid out of future gross revenues to satisfy this note in full, with no additional shares to be issued.
On May 15, 2018, the Company entered into a short-term loan with Christopher Jemapete, with a principal balance of $50,000 due and payable on May 16, 2019. The note carried an interest rate of 5% plus the company issued 1,250,000 inducement shares to secure the note as well as 1,000,000 warrants with a $0.10 strike price and with a 5-year expiration. These inducement shares were valued at $36,250 and are being amortized over the life of the note; the warrants had a value of $24,449. On August 25, 2018, this note was restructured to remove the warrants. As of June 30, 2018 accrued interest on this note is $315. The note was renegotiated during the Company’s Chapter 11 proceedings, and as per the Plan Confirmation, it is agreed that $50,315.07 is to be paid out of future gross revenues.
On May 15, 2018, the Company entered into a short-term loan with Pamela Jemapete, with a principal balance of $50,000 due and payable on May 16, 2019. The note carried an interest rate of 5% plus the company issued 1,250,000 inducement shares to secure the note as well as 1,000,000 warrants with a $0.10 strike price and with a 5-year expiration. These inducement shares were valued at $36,250 and are being amortized over the life of the note; the warrants had a value of $24,449. On August 25, 2018, this note was restructured to remove the warrants. As of June 30, 2018 accrued interest on this note is $315. The note was renegotiated during the Company’s Chapter 11 proceedings, and as per the Plan Confirmation, it is agreed that $50,315.07 is to be paid out of future gross revenues.
Notes Payable – Other
In July 2016, the Company issued a short-term note payable to a third party in conjunction with the Company’s acquisition of the remaining 49% of AMG Energy Group. The note had a principal balance of $96,570 and accrued interest at a rate of six percent (6%) per annum. As of December 31, 2018, and December 31, 2017, the total interest accrued on the note was $14,382.2 and $8,588 respectively. The note was due on August 4, 2017 and was then in default. The Company renegotiated this note during its Chapter 11 proceedings, and as per the Plan Confirmation, now the $96,570 is to be paid with no interest out of the same 50% of the future net profits of the Company as the notes mentioned above, if any, or discharged to the extent unpaid five years after September 18, 2019.
In November 2017, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $143,000 due and payable on May 30, 2018. The note carries an 8% one-time interest charge, a $43,000 original issue discount and a 35% conversion discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder. In addition, the Company provided 500,000 inducement shares to secure the note, and may have to provide additional shares on the note’s 6-month anniversary if the Company’s share price declines. These inducement shares were valued at $39,500 and were amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days. Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due. In May 2018, the company made two principal payments totaling $40,000. The note went into default on June 1, 2018 and incurred a 40% penalty of the outstanding balance immediately prior to the default event. On August 30, 2018, Hoppel sued the Company in Superior Court of the State of California County of San Diego Central District. That case was staid on October 22, 2018 when the Company filed for Chapter 11 protection in the US Bankruptcy Court in the Southern District of Florida. Negotiations took place and a settlement was reached on this note and a subsequent note, and confirmed as part of the Plan Confirmation Order, that Hoppel would be paid a total of $100,000 out of 5% of the future gross revenue of the Company.
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In February 2018, the Company entered into a convertible debenture with Lucas Hoppel, with a principal balance of $165,000 due and payable on September 21, 2018. The note carries an 8% one-time interest charge, a $15,000 original issue discount and a 40% conversion discount to the lowest trade price in the prior twenty-five trading days, after 180 days, in whole or in part at the option of the holder. In addition, the Company provided 500,000 inducement shares to secure the note. These inducement shares were valued at $14,500, and were amortized over the life of the note. The note can be repaid, without prepayment penalties, within the first 90 days. Thereafter, the note will incur a 120% prepayment penalty of the then outstanding principal and interest due. The Note went into default on June 1, 2018, through a cross default provision with another Note to Hoppel, and incurred a 40% penalty of the outstanding balance immediately prior to the default event. On August 30, 2018, Hoppel sued the Company in Superior Court of the State of California County of San Diego Central District. That case was staid on October 22, 2018 when the Company filed for Chapter 11 protection in the US Bankruptcy Court in the Southern District of Florida. Negotiations took place and a settlement was reached on this note and a prior note, and confirmed as part of the Plan Confirmation Order, that Hoppel would be paid a total of $100,000 out of 5% of the future gross revenue of the Company to settle both notes.
On March 27, 2019, the Company entered into an agreement with another creditor, such that its debt will be reduced from $32,000 to $20,000 payable out of future gross revenues, upon the bankruptcy court’s acceptance of the Company’s plan of reorganization. The Plan was confirmed by the Court on September 18, 2019.
A summary of all debts indicated in the Notes above is as follows:
| Notes Payable | June 30, 2022 | December 31, 2021 | ||||||
| Short Term Chapter 11 Settlement | $ | $ | ||||||
| Long Term Notes Payable from future revenue — Related Party | $ | $ | ||||||
| Long Term Notes Payable from future revenue — Other | $ | $ | ||||||
| Long Term Note Payable from future profits — Related Party | $ | $ | ||||||
| Long Term Note Payable from future profits — Other | $ | $ | ||||||
| TOTAL NOTES | $ | $ | ||||||
Of the $2,788,132 due as of June 30, 2022, $2,738,132 is due out of future revenue or future profits. $2,417,502 of the $2,788,132 will be discharged if not paid by September 18, 2024, which is 5 years after the Company exited Chapter 11. The remaining debt that would not be discharged is $370,630, consisting of $200,630 due to related parties, $120,000 due to other, and a $50,000 Chapter 11 settlement.
NOTE 6 – STOCKHOLDERS’ EQUITY
The
total number of shares of capital stock, which the Company has authority to issue, is
For
the six months ended June 30, 2022, the Company issued an aggregate of shares of its common stock for services valued at $
For
the six months ended June 30, 2022, the Company issued an aggregate of shares of its common stock for cash valued at $
For
the six months ended June 30, 2022, employee stock options were exercised for proceeds of $
For the six months ended June 30, 2022, warrants expired.
For the six months ended June 30, 2022, options expired.
For the six months ended June 30, 2022, stock options vested.
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NOTE 7 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject, from time to time, to litigation, claims and suits arising in the ordinary course of business.
On June 21, 2018, Power Up Lending Group Ltd., sued both the Company and four of its managers, ex-managers, and directors of the Company in the United States District Court for the Eastern District of New York. The case was dropped against the Company and the claim discharged by the bankruptcy court upon Plan Confirmation on September 18, 2019. Power Up has continued a tort case against the individuals. The DO insurance has agreed to cover the CEO Ben Slager, CFO Anthony Santelli, as well as ex-Controller Dennis Lenaburg, in this case. Management believed the Complaint was frivolous. On June 28, 2022, Power Up Lending Group withdrew the case, and there was no financial cost to the Company or its Management team.
Leases
The
Company consolidated its premises into one location on November 1, 2019, and currently leases office and laboratory space in Palm Beach
Gardens, FL, that is classified as operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s
consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at the commencement date for leases exceeding 12 months.
ASC 842 was effective for us beginning January 1, 2019. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
Rent
expense for the six months ending June 30, 2022, and 2021, were $
The Company recognized the following related to leases in its Consolidated Balance Sheet:
| PERIOD ENDED | June 30, 2022 | December 31, 2021 | ||||||
| Right of Use Lease Liabilities | ||||||||
| Current portion | ||||||||
| Long-term portion | ||||||||
| TOTAL | ||||||||
As of June 30, 2022, the total future minimum lease payments in respect of leased premises are as follows:
| YEAR ENDED | MINIMUM DUE | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| TOTAL | $ | |||
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NOTE 8 – RELATED PARTY TRANSACTIONS
Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
| 1) | Short-term notes payable, convertible notes, and contingent liabilities issued to related parties are described in NOTE 5. | |
| 2) | A board resolution was passed on February 13, 2020, that pledged the patents and pending patents to secure the back pay claims of Ben Slager, CEO, Anthony Santelli, CFO, and Charles Sills, Director. This was done to ensure the continued involvement of management to build the Company while they continued to receive less than full salaries. |
The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were issued. Based on this evaluation, the Company has identified the following subsequent events:
From June 30, 2022, to the date of this filing, the Company issued shares for services.
From June 30, 2022, to the date of this filing, warrants expired.
From June 30, 2022, to the date of this filing, previously issued options vested.
From
June 30, 2022, to the date of this filing, the Company issued shares in a private placement for proceeds of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the Company’s audited financial statements and the notes thereto.
Forward-Looking Statements
This quarterly report contains forward-looking statements and information relating to the Company that are based on the beliefs of its management as well as assumptions made by, and information currently available to, its management. When used in this report, the words “believe,” “anticipate,” “expect,” “estimate,” “intend”, “plan” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that the Company desires to effect; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The accompanying information contained in this registration statement, including, without limitation, the information set forth under the heading “Management’s Discussion and Analysis and Plan of Operation — Risk Factors” identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statement.
Business Overview
Blue Biofuels, Inc (the “Company”) is a technology company focused on emerging technologies in renewable energy, biofuels, and lignin.
Blue Biofuels, Inc (the “Company”) is a technology company focused on emerging technologies in renewable energy, biofuels, and lignin. In early 2018, the Company’s Chief Executive Officer (“CEO”) Ben Slager invented a new technology system we call Cellulose-to-Sugar or CTS, and the Company filed a patent application for this technology. The CTS patent was awarded in 2021 in the United States (US10994255) and also in El Salvador. The Company also filed an application for this patent in other major jurisdictions of the world including the European Patent Organization, Australia, Brazil, China, Japan, the African Regional Intellectual Property Organization, and the Russian Federation. The patent applications are currently pending in all of these international jurisdictions. The Company has filed six more patents in the United States, all of which are currently pending. These patents pertain to the CTS process, the “fingerprint” of our sugars coming from the process, and the lignin and nanocellulose coming from the process.
Mr. Slager has since further developed the system with laboratory personnel. The patented CTS process is a continuous mechanical/chemical dry process for converting cellulose material into sugar and lignin, as compared to the prior process which was a batch mechanical/chemical dry process previously used by our Company. The CTS creates molecular contact between two reactive solid components instead of a more conventional reaction where the reaction takes place between two liquid or gas components in a batch process. The reactants are (1) the cellulose, which is broken down into its components being sugars and lignin; (2) a catalyst, which is cheap and abundantly available in the market from regular suppliers, and separated from reactor components and reused. The CTS mechanical/chemical process allows for exact process control to ensure that all the material passing through it does so on the optimum reaction parameters through which optimal efficiency is achieved.
CTS differs from other commercial processes that are used to convert cellulose into sugar. Other processes use expensive enzymes, or expensive and harmful chemicals like strong acids or bases. Some use high temperature or high pressure steam. CTS can convert any cellulosic material – including grasses, wood, paper, farm waste, yard waste, forestry products, energy crops like hemp or king grass, and the cellulosic portion of municipal solid waste – into sugars and lignin, and the sugars subsequently into biofuels without the use of expensive enzymes or harmful liquid acids or bases. CTS has a near zero carbon footprint in that the amount of added atmospheric carbon created by burning the biofuels produced by CTS is reabsorbed by the plant-based seed stock used in the CTS system, and recycles the water and catalyst.
At a commercial scale, our management expects to be able to produce ethanol more profitably per gallon than existing commercial corn or cellulosic ethanol producers due to the fact that the CTS process is uncomplicated and efficient, and is expected to have high value by-products and a highly valued D3 RIN that the Company expects to potentially receive for each gallon of ethanol. We believe a significant difference between CTS and corn ethanol is the wide range of feedstocks that CTS can process compared to corn. The CTS feedstocks are not food and have much lower costs than corn. In addition, while in corn ethanol only the corn is used, the CTS uses the whole plant or its waste products.
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The Company has built several prototypes of the CTS system to solidify and further develop the process. The Company completed all the parameter optimizations possible in its lab and was able to generate a 99%+ conversion of the cellulosic material into soluble sugars suitable for further processing into cellulosic ethanol. The Company has recently contracted with K.R. Komarek to build larger scale systems, the first of which is anticipated to arrive before the end of the summer of 2022.
The goal of the first Komarek system is to provide larger volume production of sugars. Upon success, the Company anticipates ordering a larger system and building a semi-commercial scale pilot CTS plant around that. This will be an intermediate step to the final commercial-scale system. The Company believes that the semi-commercial scale plant will be sufficient to prove the commercial viability of the CTS technology. Due to its mechanical nature and modularity, management anticipates that one commercial-scale CTS plant would have multiple modular CTS systems. The Company expects to have the pilot plant running in 2023.
The CTS system converts plant-based feedstock into two product streams, cellulose and lignin, each of which can be converted into multiple products: (1) Cellulose is broken down into sugars. Sugar can be used to make biofuels, such as ethanol and sustainable aviation fuel, and may also be used to make specialty chemicals; and (2) Lignin can potentially be used in ion exchange resins, or to make specialty chemicals; It can also be burned as a renewable fuel.
Plan of Operation
The Company’s strategy is to diversify its product portfolio to include a number of product lines. These potentially include (1) biofuels – such as ethanol, or converting ethanol into higher biofuels like sustainable aviation fuel and the like; (2) selling sulfur-free lignin to ion exchange resin producers; (3) making specialty chemicals from lignin; and, (4) making nanocellulose. We believe these, and other markets, could potentially provide for highly profitable products.
Our goal is to develop our CTS technology to a commercial scale and then seek to either enter into a joint venture or acquire existing corn ethanol plants to install the CTS technology. The Company is also looking into converting ethanol to sustainable aviation fuel. To minimize dilution to shareholders, the Company will seek project-based financing to build (or acquire and retrofit) or joint venture with existing ethanol producers to produce cellulosic ethanol and lignin and other specialty chemicals from its patented CTS system.
Management believes that retrofitting existing plants with the CTS technology may achieve more rapid commercialization than building new plants. After its first plant is profitable, the Company intends to grow with additional plants in the United States and explore international growth by either licensing the technology or forming joint ventures with foreign domestic partners to build plants.
The ethanol industry is highly competitive with over 200 ethanol plants in the United States alone. Currently, the vast majority use corn as the feedstock. Their profitability depends highly on the fluctuations between the price of corn and the price of ethanol. Since the Company does not plan to use corn, and plans on having long-term purchase agreements with cellulosic suppliers, we expect that our profitability will potentially be more consistent.
Any new biofuels plant that is built would require various government permits. In particular, renewable fuels are subject to rigorous testing and premarket approval requirements by the EPA’s Office of Transportation and Air Quality and regulatory authorities in other countries. In the U.S., various federal, and, in some cases, state statutes and regulations also govern or impact the manufacturing, safety, storage and use of renewable fuels. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of resources. The Company anticipates raising the necessary capital for this as a part of its project-based financing. The Company would also need various government permits before commercializing products for the plastics industry.
The Energy Policy Act of 2005, which included the Renewable Fuel Standard Program enforced by the US Environmental Protection Agency (“EPA”), mandates a certain amount of renewable fuel be blended into the transportation fuel used by all vehicles in the country. This Program provides monetary incentives to companies that produce renewable transportation fuel, and establishes Renewable Identification Numbers (“RINs”) or credits for each gallon of renewable transportation fuel produced in the United States, and breaks down those fuels into different D-codes depending on the source of the renewable fuel. D3 is the code for renewable ethanol that comes from cellulosic materials. The EPA’s newly proposed revised mandate for cellulosic ethanol is for 620 million gallons for 2021, and 770 million gallons for 2022 (the D3 mandate). This mandate has increased every year and is statutorily mandated to increase in the future and become a larger portion of the full renewable fuels mandate, if and when cellulosic biofuels can be produced profitably in larger quantities than they are now. The RFS mandate for 2022 calls for 20.77 billion gallons of total renewable fuel, 15 billion from conventional biofuels (corn ethanol) and 5.77 billion from advanced biofuels, including cellulosic biofuels. The “blend wall” (or upper limit to the amount of ethanol that can be blended into U.S. gasoline and automobile performance and comply with the Clean Air Act) of limiting ethanol content in gasoline to 10%, limits the total amount of ethanol consumed in the United States. Recent proposals may make 15% blending available year around. The value of the D3 RIN fluctuates, but as of this filing, it is approximately $2.72 per gallon of ethanol. To profit from these incentives, the Company plans to apply for these D3 RIN credits as it brings its first plant into commercial operation.
The Company has also licensed the Vertimass Process to convert ethanol (from the CTS process) into sustainable aviation fuel. There is no up-front or annual fee until we are converting ethanol into SAF. The license agreement with Vertimass is the subject of a confidentiality agreement between the parties. Since we are not yet producing ethanol on a commercial scale, it is too preliminary to discuss details.
The Company believes that its management and consultants have significant experience in the development of technologies from concept to commercialization. As of this date, the Company has generated $194,319 in revenue, however it has not generated any revenues from its core business.
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Capital Formation
From January 1, 2022, through the date of filing, the Company issued an aggregate of 560,381 shares of its common stock for services valued at $92,550.
On April 29, 2022, the Company commenced a new offering of shares of its common stock valued at $0.15 per share. Through the date of filing, the Company has sold an aggregate of 5,499,999 shares of its common stock for capital of $825,000.
From January 1, 2022, through the date of filing, the Company issued unvested options to its managers and employees to purchase 2,000,000 shares of its common stock for a period between five and ten years at the exercise price of 17 cents per share. Using a Black-Scholes asset-pricing model, these agreements were valued at $319,327. None of those have vested, but 11,385,000 other options have vested, with a valuation of $1,420,404.
From January 1, 2022, through the date of filing, 2,604,466 options expired and 837,500 warrants expired.
From January 1, 2022, through the date of filing, 350,000 previously issued options were exercised for proceeds of $15,900.
Going Concern
The Company has incurred losses since inception, has a working capital deficiency, and may be unable to raise further capital. At June 30, 2022, the Company had a working capital surplus of $228,491 and had incurred accumulated losses of $51,587,750 since its inception. The Company expects to incur significant additional losses in connection with its continued start-up activities. As a result, there is substantial doubt about the Company’s ability to continue as a going concern based upon recurring operating losses and its need to obtain additional financing to sustain operations. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities when they become due and to generate sufficient revenues from its operations to pay its operating expenses.
Results of Operations
Comparison of the three and six month period ended June 30, 2022 (unaudited) to June 30, 2021
For the three and six months ended June 30, 2022, the Company recognized $0 in revenue as opposed to $0 in 2021.
For the three months ended June 30, 2022, the Company’s general and administrative expenses decreased by $51,864 to $241,507 from $293,371 in 2021. This decrease is primarily the result of a $69,791 decrease in professional fees to 30,830 in 2022 from $100,621 in 2021, primarily related to accounting and legal work bringing the company current again in its financial reporting in 2021.
For the six months ended June 30, 2022, the Company’s general and administrative expenses increased by $444,923 to $1,044,571 from $599,648 in 2021. This increase is primarily the result of a $495,532 increase in equity-based compensation from $11,443 in 2021.
Interest expense decreased in the quarter ended June 30, 2022 by $1,403 to $7,304 from $8,708 in 2021. Interest expense decreased in the six months ended June 30, 2022 by $2,412 to $15,045 from $17,457 in 2021.
For the six months ended June 30, 2022 the Company recorded non-cash impairments of assets of $40,099, as compared to $33,484 in 2021. This was the result of disposing and/or selling of laboratory assets no longer in use in each year.
Research and development (RD) costs for the quarter ended June 30, 2022 were $436,480, an increase of $186,694 from $249,786 in 2021. The increase in RD expenses is primarily the result of an increase in payroll of $54,461 from the hiring of additional personnel, and $99,106 in equity-based compensation from $0 in 2021 due to the vesting of options in 2022.
Research and development (RD) costs for the six months ended June 30, 2022 were $1,666,632, an increase of $1,151,772 from $514,860 in 2021. The increase in RD expenses is primarily the result of an increase in payroll of $158,748 from the hiring of additional personnel, and $919,851 in equity-based compensation from $0 in 2021 due to the vesting of options in 2022.
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Liquidity and Capital Resources
Liquidity
As of June 30, 2022, the Company had $628,906 in cash, and total stockholders’ equity on June 30, 2022, was negative $1,968,660. As of December 31, 2021, the Company had $1,164,664 in cash, and total stockholders’ equity at December 31, 2021, was negative $1,396,046. Total debt, including advances, accounts payable and other notes payable at June 30, 2022, together with interest payable thereon and contingent liabilities, was $3,250,494 an increase of $16,202 from December 31, 2021, where it stood at $3,234,293. This increase is attributable to the increases in deferred wages due to management. $1,820,630 of the remaining debt has been renegotiated to be payable out of future revenue and $917,502 out of future profits and otherwise does not come due.
During the six months ended June 30, 2022, the Company’s net cash used in operating activities decreased by $354,787 to $1,205,985 from $1,560,772 in the six months ending June 30, 2021. This decrease can primarily be attributed to an increase in accounts payable of $45,753 in 2022, versus a reduction in accounts payable of $508,768 in 2021 attributed to paying off back-pay due.
During the six months ended June 30, 2022, the Company’s investing activities used $20,673 in cash. This can be primarily attributed to capitalizing $18,273 in patent costs and $2,400 used to purchase machinery and equipment. During the six months ended June 30, 2021, the Company’s investing activities used $129,177. This is primarily due to the purchase of equipment of $114,673 and $14,504 in patent costs.
During the six months ended June 30, 2022, the Company generated an aggregate of $690,900 through its financing activities, which is a decrease of $2,575,567 from $3,266,467 during the six months ended June 30, 2021. This decrease from the prior year can primarily be attributed to the lack of an equity raise in the first quarter of 2022 and only the start of one in its second quarter raising $675,000, as compared to $1,950,750 raised from the sale of common stock through the Company’s private offerings in 2021, and $1,315,717 in proceeds from the exercise of warrants and options.
Capital Resources
At this time, the Company has limited liquidity and capital resources. To continue funding its operations, the Company will need to generate revenue or obtain additional financing for current and future operations. The Company anticipates needing around $7.5 to $10 million to scale up its CTS system to be commercially ready. The Company anticipates reaching this stage around 12 months. There is no guarantee that we will achieve all of the additional funding that is needed.
As of the date of this filing, the Company has raised $765,900 in 2022, through the sale of stock and the exercise of options, in addition to $14,574,702 previously raised, in addition to capital raised through debt or convertible notes. However, there is no guarantee that the company will be able to raise any additional capital on terms acceptable to the Company.
The inability to obtain this funding either in the near term and/or longer term will materially affect the ability of the Company to implement its business plan of operations and jeopardize the viability of the Company. In that case, the Company may need to reevaluate and revise its operations.
Equity
As of June 30, 2022, shareholders’ equity was negative $1,968,660.
There were 279,380,263 shares of common stock issued and outstanding as of June 30, 2022.
There were no preferred shares outstanding.
The Company has paid no dividends.
Critical Accounting Policies
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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Seasonality
The Company’s operating results are not affected by seasonality.
Inflation
The Company’s business and operating results are not affected in any material way by inflation.
Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2021. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that our disclosure controls and procedures were sufficient.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2021, that occurred during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject, from time to time, to litigation, claims and suits arising in the ordinary course of business. As of the date of filing, there are no material claims or suits whose outcomes could have a material effect on the Company’s financial statements.
On June 21, 2018, Power Up Lending Group Ltd., sued both the Company and four of its managers, ex-managers, and directors of the Company in the United States District Court for the Eastern District of New York. The case was dropped against the Company and the claim discharged by the bankruptcy court upon Plan Confirmation on September 18, 2019. Power Up has continued a tort case against the individuals. The DO insurance has agreed to cover the legal defense costs for CEO Ben Slager, CFO Anthony Santelli, as well as ex-Controller Dennis Lenaburg, in this case. Management believed the Complaint was frivolous. On June 28, 2022, Power Up Lending Group withdrew the lawsuit against management. The case is now closed. There has been no financial cost to the Company or its Management team.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
Below is a list of securities sold by the Company from January 1, 2022, through the date of filing which were not registered under the Securities Act.
| Entity | Date of Investment |
Title of Security |
Amount of Securities Sold |
Consideration | ||||||
| Tom Camerlengo | 01/11/22 | Common Stock | 150,000 | Exercise of Options | ||||||
| North Equities | 03/05/22 | Common Stock | 322,581 | Professional Services | ||||||
| Bill Fitzpatrick | 03/10/22 | Common Stock | 100,000 | Professional Services | ||||||
| NWBB, Inc | 03/10/22 | Common Stock | 25,200 | Professional Services | ||||||
| NWBB, Inc | 04/22/22 | Common Stock | 28,600 | Professional Services | ||||||
| Ben Slager | 04/29/22 | Common Stock | 500,000 | Purchase @ $0.15 per share | ||||||
| AES Capital Resource Fund | 05/02/22 | Common Stock | 500,000 | Purchase @ $0.15 per share | ||||||
| Chris and Angela Kneppers | 05/02/22 | Common Stock | 2,333,333 | Purchase @ $0.15 per share | ||||||
| Raymond Leon | 05/04/22 | Common Stock | 500,000 | Purchase @ $0.15 per share | ||||||
| Melvin H. Eaton II | 05/23/22 | Common Stock | 333,333 | Purchase @ $0.15 per share | ||||||
| Mark Monahan | 05/23/22 | Common Stock | 333,333 | Purchase @ $0.15 per share | ||||||
| Johan Foster | 05/26/22 | Common Stock | 25,000 | Professional Services | ||||||
| Caroline Libra | 05/26/22 | Common Stock | 25,000 | Professional Services | ||||||
| Thomas Camerlengo | 05/31/22 | Common Stock | 200,000 | Exercise of Options | ||||||
| Steve Paul | 07/07/22 | Common Stock | 166,667 | Purchase @ $0.15 per share | ||||||
| Randall Brodsky | 07/11/22 | Common Stock | 333,333 | Purchase @ $0.15 per share | ||||||
| NWBB, Inc. | 07/12/22 | Common Stock | 34,000 | Professional Services | ||||||
| Mudai Nakagawa | 07/22/22 | Common Stock | 500,000 | Purchase @ $0.15 per share |
The securities issued in the above-mentioned transactions were issued in connection with private placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(a)(2) of that Act and Rules 504 and 506 of Regulation D.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference in this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Blue Biofuels, Inc. | ||
| (Registrant) | ||
| By | /s/ Benjamin Slager | |
| Benjamin Slager | ||
| Chief Executive Officer, (Principal Executive Officer) | ||
| Date August 8, 2022 | ||
| By | /s/ Anthony Santelli | |
| Anthony Santelli | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Date August 8, 2022 | ||
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