BLUE BIOFUELS, INC. 10-K

ITEM 1. BUSINESS Background Business Overview Blue Biofuels, Inc., was incorporated in Nevada on March 28, 2012, as Alliance Media Group Holdings, Inc. Since December 2013, Blue Biofuels, Inc. (the “Company”) has been a technology company focused on emerging technologies in the renewable energy, biofuels, and bioplastics technologies sectors. In early 2018, the Company’s chief executive officer (“CEO”) Ben Slager invented a new technology system referred to as Cellulose-to-Sugar or CTS 2.0, and the Company filed a process patent application for this technology. Mr. Slager has since further developed the system with laboratory personnel. The patent on the CTS 2.0 (U.S. Patent No. 10,994,255) was awarded in 2021. The same patent was filed in all major jurisdictions of the world including the European Patent Organization, Australia, Brazil, China, Japan, the African Regional Intellectual Property Organization, and the Russian Federation. In addition to this patent, the Company has filed provisional patent applications for six additional patents that are currently pending. Mr. Slager has further developed the system with laboratory personnel. The CTS 2.0 process is a continuous mechanical/chemical dry process for converting cellulose material into sugar and lignin, as compared to the CTS 1.0 which is a batch process that the Company previously licensed. The CTS 2.0 process creates molecular contact between two reactive solid components instead of competing systems 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; and (2) a catalyst, abundantly available in the market from regular suppliers, and separated from reactor components and reused. The CTS 2.0 mechanical/chemical process allows for exact process control to ensure that all the material passing through it does so on the reaction parameters through which optimal efficiency is achieved. The 100% owned CTS 2.0 system can convert virtually any cellulosic material – like 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 subsequently into biofuels and bioplastics without the use of expensive enzymes or harmful liquid acids or bases. CTS 2.0 is environmentally friendly in that it recycles the water and catalyst, and has a near zero carbon footprint in that the amount of added atmospheric carbon created by burning the biofuels produced by CTS 2.0 is reabsorbed by the plant-based feedstock used in the CTS 2.0 system in the next harvest. 3 CTS 2.0 is different 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, and some processes use steam at high temperature or high pressure. The CTS 2.0 system converts plant-based feedstock into two product streams, soluble sugars and lignin, each of which can be converted into multiple products: (1) sugars can be further processed into cellulosic ethanol and other biofuels like jet fuel, and potentially into bio chemicals; and (2) Lignin can be used in ion exchange resins, specialty chemicals, or to create bioplastics. Lignin can also be burned as a renewable fuel. CTS has different co-products than other processes. Our primary co-product is sulfur-free lignin. Other cellulosic ethanol processes do not yield sulfur-free high purity lignin because their processes destroy or contaminate the lignin. Most ethanol producers use corn, not cellulose, and the co-products of corn ethanol production are distillers grains animal feed and corn oil. Our lignin potentially can be converted into biodegradable bioplastics, or be used in ion exchange resins or specialty chemicals. Revenue streams from lignin can potentially be higher than from ethanol. We are also looking into whether the CTS process can produce nanocellulose profitably, which is used in pharmaceutical products and potentially could sell for over $1 per gram. At a commercial scale, our management expects to be able to produce ethanol at a lower cost per gallon than existing commercial corn or cellulosic ethanol producers due to the fact that the CTS 2.0 process is uncomplicated and efficient, and is expected to have high value by-products. We believe a significant difference between CTS 2.0 and corn ethanol is the wide range of feedstocks that CTS 2.0 can process compared to corn. The CTS 2.0 feedstocks are not food and have much lower costs than corn. In addition, while in corn ethanol only the corn is used, the CTS 2.0 uses the whole plant or its waste products. The promise of the CTS technology led the Company’s management and board to restructure the Company through chapter 11. Prior management had taken on various short-term high interest usurious “toxic” notes that converted into common stock at a fixed discount to the market price in 2017 and early 2018, and various other debts that the Company could not pay at that time. The Company’s new board and management determined that a chapter 11 bankruptcy filing was its only plausible alternative to save the company as a going concern for the benefit of creditors and stockholders. The Company voluntarily filed for Chapter 11 on October 22, 2018, in the U.S. Bankruptcy Court in the Southern District of Florida. Management fought, eliminated, and restructured millions in debts and disputed debts, and exited Chapter 11 on September 18, 2019, while keeping all classes, including the shareholders, unimpaired. The Company’s debts were either voided, renegotiated down and paid off, or renegotiated to be paid out of future revenues ($1,820,630) or renegotiated to be paid out of future profits ($917,502). These are reflected on the Company’s financial statements. A complete copy of the Plan of Reorganization was filed as Exhibit 2(a) of the Company’s 2020 financial statements. Having paid all debts that needed to be paid, the bankruptcy case was closed on October 25, 2019. Throughout this bankruptcy period and thereafter, the Company has proceeded with engineering and development of its technology towards commercialization. The Company has built several prototypes of the CTS 2.0 system to further develop the process. The Company completed its upgraded 4 th generation CTS 2.0 prototype system in 2021, which was designed to be a representative scale with nearly all systems and parameters anticipated in a full-scale industrial system. The Company decided to complete all the parameter optimizations possible with its 4 th generation system before scaling up to a 5 th generation system because the parameter optimizations lead to design improvements that have been done more cost effectively at that scale. The Company has recently finalized its 4 th generation testing with great success as it was able to generate a 99%+ conversion of the cellulosic material into soluble sugars suitable for further processing into cellulosic ethanol. The Company is now moving into its 5 th generation system. The Company expects to have its 5 th generation CTS 2.0 prototype, along with auxiliary equipment, completed within 6 to 12 months. The goal of the 5 th generation system is to prove larger volume production, and to be an intermediate step to the final 6 th generation which is intended to be the commercial volume system. The Company expects that the 5 th generation system will be of sufficient size and handle sufficient capacity of feedstock to produce approximately one ton per day of the combination of sugar and lignin, which the Company believes will be sufficient to prove the commercial viability of the CTS 2.0 technology. Due to its mechanical nature and modularity, we anticipate that one plant would have multiple modular CTS systems. The Company expects to have a CTS 2.0 modular system ready for commercial production in 12-18 months. 4 However, commencing commercial production will require project financing. The project financing will either be for bolting on our CTS 2.0 system into an existing ethanol facility of a future potential joint venture partner, or for acquiring an ethanol facility and converting that to cellulosic ethanol production using our CTS 2.0 system, or for setting up a production facility for converting ethanol into jet fuel using the Vertimass Process that the Company has licensed. We believe retrofitting existing ethanol plants with the CTS 2.0 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 ourselves. 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 (RFS) 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 motor vehicles in the country. This Program provides monetary incentives to companies that produce renewable transportation fuel (including jet fuel), 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 based 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 510 million gallons of cellulosic biofuels be blended into the fuel supply in 2020, 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. The value of the D3 RIN fluctuates, but as of this filing, it is approximately $3.40 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 a strategy that includes using its low-cost high-purity lignin co-product to produce biodegradable bioplastics. The plastics industry is highly competitive. The Company would need various government permits before commercializing products in this space, and it is too preliminary to discuss more details. The Company has also licensed the Vertimass Process to convert ethanol (from the CTS 2.0 process) into bio-jet fuel. There is no up-front or annual fee until we are converting ethanol into bio-jet fuel. 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. 5 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 not generated any material revenues from its business. Description of the Company’s Securities The Company is currently authorized to issue 1,000,000,000 Shares of Common Stock par value $0.001 and 10,000,000 shares of Preferred Stock par value $0.001. Each share of Company Common Stock is entitled to one (1) vote per share. Employees The company currently employs seven full-time employees, five part-time employee and six consultants. The Company is in the process of hiring additional employees to more rapidly commercialize its technology. ITEM 1A. RISK FACTORS Not required as the Company is a “smaller reporting company.” ITEM 1B. UNRESOLVED STAFF COMMENTS None.