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 (R&D) costs for the quarter ended June 30, 2022 were
$436,480, an increase of $186,694 from $249,786 in 2021. The increase in R&D
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 (R&D) 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 R&D
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.
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BLUE BIOFUELS, INC. 
